Marathon Oil Corporation - SEC Filing



<PAGE>
 
                                   FORM 10-K                                1997

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
(Mark One)
   [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended December 31, 1997
                                      OR
   [_]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
        For the transition period from ______to______

                         Commission file number 1-5153

                                USX CORPORATION
             (Exact name of registrant as specified in its charter)
          Delaware                                         25-0996816
  (State of Incorporation)                             (I.R.S. Employer
                                                      Identification No.)
                 600 GRANT STREET, PITTSBURGH, PA  15219-4776
                   (Address of principal executive offices)
                            TEL. NO. (412) 433-1121
         Securities registered pursuant to Section 12(b) of the Act:*
================================================================================
                              Title of Each Class
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>                                                <C> 
USX-Marathon Group                                  6-3/4% Exchangeable Notes Due 2000
   Common Stock, par value $1.00                    8-3/4% CUMULATIVE MONTHLY INCOME PREFERRED SHARES,
USX-U. S. Steel Group                                   SERIES A (LIQUIDATION PREFERENCE $25 PER SHARE)**
   COMMON STOCK, PAR  VALUE $1.00                   6.75% CONVERTIBLE QUARTERLY INCOME PREFERRED
USX-DELHI GROUP                                         SECURITIES (INITIAL LIQUIDATION AMOUNT $50 PER
   COMMON STOCK#, PAR VALUE $1.00                       SECURITY)***
6.50% CUMULATIVE CONVERTIBLE PREFERRED              7% GUARANTEED NOTES DUE 2002 OF MARATHON OIL
   (LIQUIDATION PREFERENCE $50.00 PER SHARE)            COMPANY****
</TABLE>

- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for at least the past 90 days.  Yes X   NO 
                                                 --     --

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [_]

Aggregate market value of Common Stock held by non-affiliates as of January 31,
1998: $12.6 billion.  The amount shown is based on the closing prices of the
registrant's Common Stocks on the New York Stock Exchange composite tape on that
date.  Shares of Common Stock held by executive officers and directors of the
registrant are not included in the computation.  However, the registrant has
made no determination that such individuals are "affiliates" within the meaning
of Rule 405 under the Securities Act of 1933.

There were 288,791,943 shares of USX-Marathon Group Common Stock and 86,578,618
shares of USX-U. S. Steel Group Common Stock outstanding as of January 31,
1998.#

Documents Incorporated By Reference:
  Proxy Statement dated March 9, 1998 is incorporated in Part III.
  Proxy Statement dated March 10, 1997 is incorporated in Part IV.
- --------------------
   #  On January 26, 1998, USX redeemed all of the outstanding shares of USX-
      Delhi Group Common Stock.
   *  These securities are listed on the New York Stock Exchange.  In addition,
      the Common Stocks are traded on The Chicago Stock Exchange and the Pacific
      Stock Exchange.
   ** Issued by USX Capital LLC.
  *** Issued by USX Capital Trust I
 **** Obligations of Marathon Oil Company, USX Capital LLC and USX Capital
      Trust I, all wholly owned subsidiaries of the registrant, have been
      guaranteed by the registrant.  

<PAGE>
 
                                     INDEX

<TABLE>
<CAPTION>
<S>                     <C>                                                                 <C>

PART I
             NOTE ON PRESENTATION.....................................................       2


  Item 1.    BUSINESS
                USX CORPORATION.......................................................       4
                MARATHON GROUP........................................................       6
                U. S. STEEL GROUP.....................................................      28

  Item 2.    PROPERTIES...............................................................      38

  Item 3.    LEGAL PROCEEDINGS
                MARATHON GROUP........................................................      38
                U. S. STEEL GROUP.....................................................      41

  Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................      46


PART II

  Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                STOCKHOLDER MATTERS...................................................      47

  Item 6.    SELECTED FINANCIAL DATA
                USX CONSOLIDATED......................................................      49
                MARATHON GROUP........................................................      51
                U. S. STEEL GROUP.....................................................      52

  Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS
                USX CONSOLIDATED......................................................    U-39
                MARATHON GROUP........................................................    M-25
                U. S. STEEL GROUP.....................................................    S-25

  Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                USX CONSOLIDATED......................................................    U-55
                MARATHON GROUP........................................................    M-35
                U. S. STEEL GROUP.....................................................    S-36

  Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                USX CONSOLIDATED......................................................     U-1
                MARATHON GROUP........................................................     M-1
                U. S. STEEL GROUP.....................................................     S-1

  Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE.....................................      53


PART III

  Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................      54

  Item 11.   MANAGEMENT REMUNERATION..................................................      55

  Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT..........................................................      55

  Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................      55


PART IV

  Item 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
              ON FORM 8-K.............................................................      56

SIGNATURES............................................................................      59

GLOSSARY OF CERTAIN DEFINED TERMS.....................................................      60

SUPPLEMENTARY DATA

  SUMMARIZED FINANCIAL INFORMATION OF MARATHON OIL COMPANY............................      62
  DISCLOSURES ABOUT FORWARD-LOOKING STATEMENTS........................................      63
</TABLE>


                                       1

<PAGE>
 
NOTE ON PRESENTATION

  USX Corporation ("USX" or the "Corporation") is a diversified company which is
principally engaged in the energy business through its Marathon Group and in the
steel business through its U. S. Steel Group. USX has two classes of common
stock, USX-Marathon Group Common Stock ("Marathon Stock") and USX-U. S. Steel
Group Common Stock ("Steel Stock"). Each class of Common Stock is intended to
provide stockholders of that class with a separate security reflecting the
performance of the related group.

  Effective October 31, 1997, USX sold Delhi Gas Pipeline Corporation and other
subsidiaries of USX that comprised all of the USX-Delhi Group ("Delhi
Companies"). On January 26, 1998, USX used the $195 million net proceeds from
the sale to redeem all of the 9.45 million outstanding shares of USX-Delhi Group
Common Stock.

  USX continues to include consolidated financial information in its periodic
reports required by the Securities Exchange Act of 1934, in its annual
shareholder reports and in other financial communications. The consolidated
financial statements are supplemented with separate financial statements of the
Marathon Group and the U. S. Steel Group, together with the related Management's
Discussion and Analyses, descriptions of business and other financial and
business information to the extent such information is required to be presented
in the report being filed. The financial information of the Marathon Group and
U. S. Steel Group and certain financial information relating to the Delhi
Companies, taken together, includes all accounts which comprise the
corresponding consolidated financial information of USX.

  For consolidated financial reporting purposes, USX's reportable industry
segments correspond with its two groups. The attribution of assets, liabilities
(including contingent liabilities) and stockholders' equity between the Marathon
Group and the U. S. Steel Group for the purpose of preparing their respective
financial statements does not affect legal title to such assets and
responsibility for such liabilities. Holders of Marathon Stock and Steel Stock
are holders of common stock of USX and continue to be subject to all of the
risks associated with an investment in USX and all of its businesses and
liabilities. Financial impacts arising from either of the Groups that affect the
overall cost of USX's capital could affect the results of operations and
financial condition of both groups. In addition, net losses of any Group, as
well as dividends and distributions on any class of USX common stock or series
of preferred stock and repurchases of any class of USX common stock or series of
preferred stock at prices in excess of par or stated value, will reduce the
funds of USX legally available for payment of dividends on both classes of USX
common stock. Accordingly, the USX consolidated financial information should be
read in connection with the Marathon Group and the U. S. Steel Group financial
information.

  For information regarding accounting matters and policies affecting the
Marathon Group and the U. S. Steel Group financial statements, see "Financial
Statements and Supplementary Data - Notes to Financial Statements - 1. Basis of
Presentation and - 4. Corporate Activities" for each respective group. For
information regarding dividend limitations and dividend policies affecting
holders of Marathon Stock and Steel Stock, see "Market for Registrant's Common
Equity and Related Stockholder Matters."

  For a Glossary of Certain Defined Terms used in this document, see page 60.

                                       2

<PAGE>
 
FORWARD-LOOKING STATEMENTS

  Certain sections of USX's Form 10-K, particularly Item 1. Business, Item 3.
Legal Proceedings, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 7A. Quantitative and Qualitative
Disclosures About Market Risk, include forward-looking statements concerning
trends or events potentially affecting USX. These statements typically contain
words such as "anticipates", "believes", "estimates", "expects" or similar words
indicating that future outcomes are uncertain. In accordance with "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, these
statements are accompanied by cautionary language identifying important factors,
though not necessarily all such factors, that could cause future outcomes to
differ materially from those set forth in forward-looking statements. For
additional factors affecting the businesses of USX, see Supplementary Data -
Disclosures About Forward-Looking Statements.

                                       3

<PAGE>
 

                                     PART I
                                        

ITEM 1. BUSINESS

USX CORPORATION

  USX Corporation was incorporated in 1901 and is a Delaware corporation.
Executive offices are located at 600 Grant Street, Pittsburgh, PA 15219-4776.
The terms "USX" and "Corporation" when used herein refer to USX Corporation or
USX Corporation and its subsidiaries, as required by the context.

INDUSTRY SEGMENTS

  For consolidated reporting purposes, USX's industry segments previously
consisted of the Marathon Group, the U. S. Steel Group and the Delhi Group.
Effective October 31, 1997, USX sold Delhi Gas Pipeline Corporation and other
subsidiaries of USX that comprised all of the Delhi Group. See "Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements -
3. Discontinued Operations" on page U-10. USX's industry segments correspond
with the Marathon Group and the U. S. Steel Group, as follows:

     .    The Marathon Group is comprised of Marathon Oil Company ("Marathon")
          and certain other subsidiaries of USX which are engaged in worldwide
          exploration, production, transportation and marketing of crude oil and
          natural gas; domestic refining, marketing and transportation of
          petroleum products; and power generation. Marathon Group revenues as a
          percentage of total USX consolidated revenues were 69% in 1997, 71% in
          1996 and 68% in 1995.

     .    The U. S. Steel Group includes U. S. Steel, the largest steel producer
          in the United States , which is primarily engaged in the production
          and sale of steel mill products, coke, and taconite pellets. The U. S.
          Steel Group also includes the management of mineral resources,
          domestic coal mining, and engineering and consulting services
          (together with U. S. Steel, the "Steel and Related Businesses"). Steel
          & Related - Equity Affiliates is comprised of joint ventures and
          partially-owned companies, such as USS/Kobe, USS-POSCO Industries,
          PRO-TEC Coating Company, and Transtar, Inc. Other businesses that are
          part of the U. S. Steel Group include real estate development and
          management, and leasing and financing activities. U. S. Steel Group
          revenues as a percentage of total USX consolidated revenues were 31%
          in 1997, 29% in 1996 and 32% in 1995.



                                       4

<PAGE>

 
     A three-year summary of financial highlights for the groups is provided
     below.

<TABLE>
<CAPTION>
 
                                                    Income from       Assets        Capital
                                Revenues(a)(b)   Operations(b)(c)   at Year-End   Expenditures
                                --------------   ----------------   -----------   ------------
<S>                             <C>              <C>                <C>           <C>            
     (Millions)
     Marathon Group
      1997...................      $15,754             $  932           $10,565         $1,038
      1996...................       16,394              1,296            10,151            751
      1995...................       13,913                147            10,109            642
 
     U. S. Steel Group
      1997...................        6,941                773             6,694            261
      1996...................        6,670                483             6,580            337
      1995...................        6,557                582             6,521            324
 
     Adjustments for
     Discontinued
     Operations and
     Eliminations (d)
      1997...................         (107)                --                25             74
      1996...................          (87)                --               249             80
      1995...................          (57)                (3)              113             50
 
     Total USX Corporation
      1997...................      $22,588             $1,705           $17,284         $1,373
      1996...................       22,977              1,779            16,980          1,168
      1995...................       20,413                726            16,743          1,016
</TABLE>

- -------------------
(a) Consists of sales, dividend and affiliate income, net gains on disposal of
    assets, gain on affiliate stock offering and other income. Excludes revenues
    of the Delhi Group, which have been reclassified as discontinued operations.

(b) Amounts for 1996 and 1995 were reclassified in 1997 to include dividend and
    affiliate income, gain on affiliate stock offering and other income, and to
    conform to other 1997 classifications.

(c) Consists of operating income, dividend and affiliate income, net gains on
    disposal of investments, gain on affiliate stock offering and other income.
    Excludes income from operations of the Delhi Group, which has been
    reclassified as discontinued operations for all periods presented. Includes
    favorable (unfavorable) adjustments to the inventory market valuation
    reserve for the Marathon Group of $(284) million, $209 million and $70
    million in 1997, 1996 and 1995, respectively. Also includes charges for
    impairment of long-lived assets totaling $659 million for the Marathon Group
    and $16 million for the U. S. Steel Group in 1995.

(d) Effective October 31, 1997, USX sold Delhi Gas Pipeline Corporation and
    other subsidiaries of USX that comprised all of the USX-Delhi Group.

       For additional financial information about industry segments, see
"Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - 9. Operations and Segment Information - Continuing Operations" on
page U-12.

       The total number of active USX Headquarters employees not assigned to a
specific group at year-end 1997 was 242.

       A narrative description of the primary businesses of the Marathon Group
and the U. S. Steel Group is provided below.

                                       5

<PAGE>
 
MARATHON  GROUP

     The Marathon Group is comprised of Marathon and certain other subsidiaries
of USX which are engaged in worldwide exploration, production, transportation
and marketing of crude oil and natural gas; domestic refining, marketing and
transportation of petroleum products; and power generation. Marathon Group
revenues as a percentage of total USX consolidated revenues were 69% in 1997,
71% in 1996 and 68% in 1995.

     The following table summarizes Marathon Group revenues for each of the last
three years:

<TABLE>
<CAPTION>
 
     REVENUES (a)
     (MILLIONS)                               1997      1996      1995
                                             -------   -------   -------
    <S>                                     <C>       <C>       <C>
     Refined products.....................   $ 7,012   $ 7,132   $ 6,127
     Merchandise..........................     1,045     1,000       941
     Liquid hydrocarbons..................       941     1,111       881
     Natural gas..........................     1,331     1,194       950
     Transportation and other (b).........       253       277       239
                                             -------   -------   -------
     Subtotal.............................    10,582    10,714     9,138
     Matching buy/sell transactions (c)...     2,436     2,912     2,067
     Excise taxes (c).....................     2,736     2,768     2,708
                                             -------   -------   -------
       Total revenues.....................   $15,754   $16,394   $13,913
                                             =======   =======   =======
</TABLE>

- -------------------
(a)  Amounts in 1996 and 1995 were reclassified in 1997 to include dividend and
     affiliate income and other income, and to conform to other 1997
     classifications.
(b)  Includes dividend and affiliate income, net gains on disposal of assets and
     other income.
(c)  Included in both sales and operating costs, resulting in no effect on
     income.

     For additional financial information about USX's industry segments, see
"Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - 9. Operations and Segment Information" on page U-12.


                               RECENT DEVELOPMENT

     Effective January 1, 1998, Marathon and Ashland Inc. ("Ashland") formed a
new domestic refining, marketing and transportation ("RM&T") company, Marathon
Ashland Petroleum LLC ("MAP"). Marathon has a 62% ownership interest in MAP, and
Ashland holds the remaining 38% interest.

     MAP has seven refineries with a combined capacity of 935,000 barrels per
day, 84 light products and asphalt terminals, about 5,400 retail marketing
outlets in 20 states and significant pipeline holdings. Ashland's refinery-
produced petrochemicals are included in MAP; however, Marathon's exploration and
production operations and Ashland's chemical and Valvoline businesses are
excluded. Marathon's investments in certain pipelines are also excluded.

     For additional discussion of Marathon's RM&T operations, see "Refining,
Marketing and Transportation" herein.

                                       6

<PAGE>
 
OIL AND NATURAL GAS EXPLORATION AND DEVELOPMENT

     Marathon is currently conducting exploration and development activities in
12  countries, including the United States. Principal exploration activities are
in the United States, the United Kingdom, Egypt, Gabon, Ireland, Tunisia, Canada
and the Netherlands. Principal development activities are in the United States,
the United Kingdom, Egypt, Gabon and Russia.

     During 1997, exploration activities resulted in discoveries in the United
States (both onshore and in the Gulf of Mexico), offshore Gabon and in the
United Kingdom sector of the North Sea ("U.K. North Sea").

     The following table sets forth, by geographic area, the number of net
productive and dry development and exploratory wells completed in each of the
last three years (references to "net" wells or production indicate Marathon's
ownership interest or share as the context requires):

<TABLE>
<CAPTION>
 
NET PRODUCTIVE AND DRY WELLS COMPLETED (a)
                                          1997             1996           1995
                                          ----             ----           ----
<S>                                    <C>                <C>             <C>   
United States                        
 Development (b) - Oil                      44               43             42
                 - Gas                      76               73             72
                 - Dry                       3                9              3
                                          ----              ---            --- 
                 Total                     123              125            117
                                     
 Exploratory     - Oil                       4                1              2
                 - Gas                      13               18              9    
                 - Dry                      10               13             12
                                          ----              ---            --- 
                 Total                      27               32             23
                                          ----              ---            ---  
                 Total United States       150              157            140 
                                     
International                        
 Development (b) - Oil                       5                2              3
                 - Gas                       1                1              3
                 - Dry                       -                -              1
                                          ----              ---            ---  
                 Total                       6                3              7
                                     
 Exploratory     - Oil                       4                3              2
                 - Gas                       -                -              -
                 - Dry                       5                6              9
                                          ----              ---            ---                     
                 Total                       9                9             11
                                     
                 Total International        15               12             18
                                          ----              ---            ---  
                 Total Worldwide           165              169            158
</TABLE>

- ------------------
(a)  Includes the number of wells completed during the year regardless of when
     drilling was initiated. Completion refers to the installation of permanent
     equipment for the production of oil or gas or, in the case of a dry well,
     the reporting of abandonment to the appropriate agency.

(b)  Indicates wells drilled in the proved area of an oil or gas reservoir.

                                       7

<PAGE>

 
United States

     In the United States during 1997, Marathon completed 39 gross wildcat and
delineation ("exploratory") wells (27 net wells). Marathon drilled to total
depth 40 gross (28 net) exploratory wells of which 27 gross (19 net) wells
encountered hydrocarbons. Of these 27 wells, 8 gross (4 net) wells were
temporarily suspended, and will be reported in the Net Productive and Dry Wells
Completed table when completed. Principal domestic exploration and development
activities were in the U.S. Gulf of Mexico and the states of Texas, Oklahoma and
Wyoming.

     Exploration expenditures during the three-year period ended December 31,
1997, totaled $404 million in the United States, of which $170 million was
incurred in 1997. Development expenditures during the three-year period ended
December 31, 1997, totaled $968 million in the United States, of which $477
million was incurred in 1997.

     The following is a summary of recent, significant exploration and
development activity in the United States including discussion, as deemed
appropriate, of completed wells, drilling wells and wells under evaluation.

     Gulf of Mexico - Marathon continues to consider the Gulf of Mexico ("Gulf")
as a core area for domestic growth in oil and gas production and has committed
significant resources towards exploitation of available opportunities.

     In November 1997, oil and gas production commenced from the first well of
the Troika subsea development project in the Green Canyon 244 field, located in
the central Gulf. Five subsea wells, when tied back to a co-venturer's
"Bullwinkle" platform, are expected to produce at a gross rate of 90,000 barrels
per day ("bpd") of liquid hydrocarbons and 125 million cubic feet per day
("mmcfd") of gas. For 1998, production is expected to average 80,000 gross bpd
and 110 gross mmcfd. The Troika project, consisting of four blocks (Green Canyon
Blocks 200, 201, 244 and 245), has recoverable reserves estimated at over 200
million gross barrels of oil equivalent ("BOE"). Marathon holds a 33.3% working
interest in this four-block development.

     In mid-1997, Marathon announced a deepwater discovery on Green Canyon Block
112 ("Stellaria") in the central Gulf. The Green Canyon 112 No. 1 well was
drilled to 20,422 feet, encountering 70 feet of net oil pay in two reservoirs. A
sidetrack hole encountered 67 feet of net oil pay in one of the previously
penetrated reservoirs. In October, Marathon confirmed successful delineation of
this discovery with an appraisal well on adjacent Green Canyon Block 113. The
Green Canyon 113 No. 1 well encountered 120 feet of net oil pay. A second
delineation well is currently underway on Green Canyon Block 112. The new field
is located about nine miles from the Bullwinkle platform and about six miles
north of the Troika subsea development project. Development options are under
evaluation with initial production targeted for 1999. Marathon has 65% and 20%
working interests in Green Canyon Blocks 112 and 113, respectively.

     Progress continues on development of the 1995 discovery on Viosca Knoll
Block 786 ("Petronius") in the deepwater Gulf. The Petronius project is
estimated to have recoverable reserves of 95 million gross BOE. Initial
production is expected in the first quarter of 1999 from a compliant tower in
1,750 feet of water. Marathon holds a 50% working interest in this project,
which includes drilling, production and processing facilities and connections to
pipeline infrastructure.

     Progress also continues on development of the 1996 discoveries on Ewing
Bank Blocks 963 ("Arnold") and 917 ("Oyster"). Both discoveries will be
completed subsea and tied back to the Marathon-operated Ewing Bank 873 platform.
Recoverable reserves are estimated at 25 million gross BOE for Arnold and 10
million gross BOE for Oyster. First production is expected from Arnold and
Oyster in the second quarter of 1998. Marathon owns a working interest of 62.5%
in Arnold and 66.67% in Oyster.

     Texas - In east Texas, Marathon is actively involved in a development
drilling program of gas reserves in the Austin Chalk area. Marathon has 50,000
net acres under lease in this play. A thirteen well development program, in
which Marathon will have an average 96% working interest, is planned for 1998.

     Also in east Texas, in the Cotton Valley Pinnacle Reef trend, three
successful wells were completed in 1997, two of which are operated by
Marathon. One additional well has been drilled and completion activities are 
underway, with first production expected in late March 1998. Marathon has a
total leasehold position in this play of 90,000 net acres.

                                       8

<PAGE>
 
     Oklahoma - In May 1997, Marathon announced the completion of the Jenna
Nicole well #1-28, located in the Carter-Knox field. The well tested at a rate
of 10 mmcfd in the Arbuckle formation. Full production from this well has been
delayed, pending start-up of the Knox Arbuckle gas treating facility, which is
expected to be completed by the end of the first quarter of 1998. Marathon owns
a 100% working interest in this well and treating facility. A second well
targeting the Arbuckle formation commenced drilling in the third quarter of 1997
and is scheduled for completion in April 1998. Marathon has a 100% working
interest in the Arbuckle formation of this well, as well as a 37.5% interest in
shallower reservoirs, which have been producing for a number of years. A third
well is scheduled to commence drilling in the second quarter of 1998.

     Wyoming - In August 1997, Marathon announced that the Vermillion Creek Deep
No. 1 exploratory well in Wyoming commenced gas sales at a rate in excess of 12
gross mmcfd. Marathon has an 89% working interest in this discovery well,
subject to reversionary interests at payout, which would reduce Marathon's
interest to 54%. Pursuant to terms of an exploration agreement, Marathon has an
opportunity to earn up to a 50% working interest in 74,000 acres in the
Vermillion Basin of Wyoming and Colorado through additional seismic acquisition
and drilling. Nine additional wells are scheduled for 1998.

International

     Outside the United States during 1997, Marathon completed 15 gross
exploratory wells (9 net wells). Marathon drilled to total depth 18 gross (11
net) exploratory wells in five countries. Of these 18 wells, 10 gross (7 net)
wells encountered hydrocarbons.

     Marathon's expenditures for international oil and natural gas exploration
activities, including Marathon's 50% equity interest in CLAM Petroleum B.V.
("CLAM"), during the three-year period ended December 31, 1997, totaled $255
million, of which $99 million was incurred in 1997. Marathon's international
development expenditures, including CLAM and Marathon's 37.5% equity interest in
Sakhalin Energy Investment Company, Ltd. ("Sakhalin Energy"), during the three-
year period ended December 31, 1997, totaled $384 million, of which $246 million
was incurred in 1997.

     The following is a summary of recent, significant exploration and
development activity outside the United States, including discussion, as deemed
appropriate, of completed wells, drilling wells and wells under evaluation.

     United Kingdom - Marathon is continuing its development of the Brae area in
the U.K. North Sea where it is the operator and owns a 41.6% revenue interest in
the South, Central and North Brae fields, a 38.5% revenue interest in the East
Brae field and a 28.1% revenue interest in the West Brae/Sedgwick joint
development project. Marathon has interests in 37 blocks in the U.K. North Sea
and other offshore areas. In March 1997, Marathon and its partners were awarded
three offshore tranches in the Atlantic margin covering over 600,000 gross acres
in the U.K.'s 17th license round. Marathon now has interest in approximately 1.5
million gross acres of leasehold interests in the U.K. continental shelf.

                                       9

<PAGE>
 
     With respect to the West Brae/Sedgwick joint development, the first well
began producing at a rate of 9,500 gross bpd of oil in October 1997. As of
February 1, 1998, three subsea wells have been tied back to the Marathon-
operated Brae A platform. Two additional wells are planned for 1998. Average
production of 24,000 gross bpd is expected for 1998 from this joint development
project. Gross reserves for the joint project are estimated at 44 million
barrels of oil.

     In June 1997, Marathon announced an oil discovery in the U.K. North Sea on
Block 16/6b. The well was drilled to a depth of 7,150 feet and encountered 107
feet of net oil pay. Marathon is the operator and holds a 62.5% working interest
in the well, which is referred to as the Dalmore Discovery and is located 12
miles west of the Brae A platform. A delineation well was drilled in October
1997, approximately one-half mile southwest of the discovery, but was
unsuccessful. Development options for the Dalmore discovery well are currently
under evaluation.

     Egypt - In 1997, three development wells and three delineation wells were
drilled in the Ras El Ush field, located onshore near the southern Gulf of Suez.
A 3-D seismic survey was acquired for the area, and an exploratory well is
planned in 1998. Marathon holds a 100% working interest in this field. In
addition, three development wells were drilled on the Ashrafi Concession,
located offshore in the southern Gulf of Suez. Marathon holds a 50% working
interest in this concession.

     Gabon - Development continues on the 1995 Tchatamba Marine discovery, in
the Kowe Permit, situated in 150 feet of water, 18 miles offshore Gabon. Field
development will consist of two wells producing to a mobile offshore production
unit. Processed oil will then be shipped to an adjacent floating storage and
offloading vessel. Oil production started in January 1998 and is expected to
average 15,000 gross bpd for the year. Marathon is the operator. Its working
interest was proportionately reduced from 75% to 56.25% in early 1998 after the
Gabonese government exercised its right to obtain a 25% interest in the field.

     Also in the Kowe Permit, in October 1997, Marathon announced an oil
discovery in 150 feet of water. The Tchatamba South No. 1 wildcat well flowed
from two separate intervals at a combined rate of 7,680 bpd. This discovery is
located 10 miles south of Marathon's Tchatamba Marine field. A delineation well,
the Tchatamba South No. 2, was drilled in November 1997 and confirmed a
commercial hydrocarbon accumulation. The Tchatamba South field is expected to be
developed with three wells and use the Tchatamba Marine infrastructure. Pre-
development work has begun, with first production anticipated in mid-1999.
Marathon is the operator of this concession with a 75% working interest. Under
the terms of the concession, the Gabonese government has the right to obtain a
maximum 25% working interest in the field, which would proportionately decrease
Marathon's interest.

     In December 1997, Marathon drilled another exploration well, the Missoumba
No. 1, also in the Kowe Permit. The well is located in 150 feet of water,
approximately 22 miles offshore and six miles southeast of the Tchatamba South
No. 1 discovery. The well, although unsuccessful, has been temporarily
abandoned, awaiting evaluation of sidetrack options.

     An additional Kowe Permit exploratory well, the East Orovinyare No. 1, 
commenced drilling in December 1997 and reached a total depth of 4,117 feet in 
January 1998. Hydrocarbons were found in the targeted zone, and evaluation is 
currently underway.

     Also in Gabon, Marathon is currently acquiring and evaluating seismic data 
nad has schedules an exploratory well for 1998 on the 636,000-acre Akoumba Marin
interest in this deepwater permit.

                                       10

<PAGE>
 
     Ireland - During 1997, Marathon drilled an exploratory well in the
Porcupine Basin off the west coast of Ireland. This well completed a seven-well
drilling program required by a 1991 exploration agreement between Marathon and
the Irish Government. The 35/30-1 well was drilled to a total depth of 17,110
feet in 2,300 feet of water. Although hydrocarbons were encountered, the well
was plugged and abandoned. Further evaluations, including a 3-D seismic
acquisition program, are scheduled for 1998. Marathon is the operator with a
one-third working interest in the license.

     Marathon continues to evaluate development options for the Southwest
Kinsale reservoir, including its use as a gas storage facility. This reservoir
is located on the west side of the Kinsale Head field in the Celtic Sea.
Marathon holds a 100% working interest in this area.

     Tunisia - Marathon's 60% working interest in the 470,000-acre South Jenein
Permit in southern Tunisia was formally ratified by the government in 1996.
During 1998, Marathon plans to drill an exploratory well on this permit.

     Canada - Marathon drilled one exploratory well under a farm-in agreement in
Alberta during 1997. The Callum Creek #1-24 well was drilled to a depth of 9,843
feet and encountered hydrocarbons. The results are currently under evaluation.
In exchange for bearing 100% of the well costs, Marathon earned a 50% working
interest in the well and approximately 29,000 gross acres of leasehold.

     Netherlands - In 1997, Marathon, through its 50% equity interest in CLAM,
drilled one gross exploratory well and four gross development wells in the
Netherlands North Sea. Eight development wells and four exploratory wells are
planned for 1998.

     Russia - Marathon holds a 37.5% interest in Sakhalin Energy Investment
Company Ltd. ("Sakhalin Energy"), an incorporated joint venture company
responsible for the overall management of the Sakhalin II project. This project
includes development of the Piltun-Astokhskoye ("P-A") oil field and the
Lunskoye gas-condensate field, located 10-12 miles offshore Sakhalin Island in
the Russian Far East Region. On July 25, 1997, authorized representatives of the
Russian Government approved the Development Plan for the P-A Field License Area,
providing for an initial development of the Astokh Feature. On December 31,
1997, Sakhalin Energy notified the Russian authorities that necessary conditions
were in place to commit to the Development Plan. The Development Plan also
provides for additional appraisal work with the objective of submitting a full-
field Development Plan for the P-A Field in June 1999. Marathon's equity share
of reserves from primary production in the Astokh Feature is 82 million barrels
of oil. It will be developed using an arctic-class drilling vessel called the
Molikpaq, which is being converted to a drilling and production platform. First
production from the Astokh Feature is scheduled for mid-1999, with sales
forecasted to average 45,000 gross bpd of oil annually as early as 2000. This
rate is based on six months of offshore loading operations during the ice-free
weather window at an estimated production rate of 90,000 gross bpd. The Russian
State Reserve Committee has approved estimated combined reserves for the P-A and
Lunskoye fields of one billion gross barrels of liquid hydrocarbons and 14
trillion gross cubic feet of natural gas.

     The above discussions include forward-looking statements concerning various
projects, expected production and sales levels, reserves and dates of initial
production, which are based on a number of assumptions, including (among others)
prices, supply and demand, regulatory constraints, reserve estimates, production
decline rates for mature fields, reserve replacement rates, drilling rig
availability and geological and operating considerations. In addition,
development of new production properties in countries outside the United States
may require protracted negotiations with host governments and is frequently
subject to political considerations, such as tax regulations, which could
adversely affect the economics of projects. With respect to the Sakhalin II
project in Russia, Sakhalin Energy continues to seek to have certain Russian
laws and normative acts at the Russian Federation and local levels brought into
compliance with the existing Production Sharing Agreement Law. To the extent
these assumptions prove inaccurate, actual results could be materially different
than present expectations.

                                       11

<PAGE>
 
Reserves

     At December 31, 1997, the Marathon Group's net proved liquid hydrocarbon
and natural gas reserves, including equity affiliate interests, totaled
approximately 1.4 billion barrels on a BOE basis, of which 68% were located in
the United States. (Natural gas reserves are converted to barrels of oil
equivalent using a conversion factor of six thousand cubic feet ("mcf") of
natural gas to one barrel of oil.) On a BOE basis, Marathon replaced 147% of its
1997 worldwide oil and gas production. Including dispositions, Marathon replaced
145% of worldwide production. Additions during 1997 were primarily attributable
to reserves in the Astokh Feature of the Sakhalin II project and from Gulf of
Mexico properties (including Green Canyon 112).

     The table below sets forth estimated quantities of net proved oil and gas
reserves at the end of each of the last three years.

ESTIMATED QUANTITIES OF NET PROVED OIL AND GAS RESERVES AT DECEMBER 31

<TABLE>
<CAPTION>
 
                                        DEVELOPED              DEVELOPED & UNDEVELOPED
                                 -----------------------       -----------------------
                                 1997     1996     1995         1997     1996     1995
                                 ----     ----     ----         ----     ----     ----
<S>                             <C>      <C>      <C>       <C>         <C>      <C>
(MILLIONS OF BARRELS)
Liquid Hydrocarbons
  United States..............     486      443      470          609      589     558
  Europe.....................     161      163      182          161      177     183
  Other International........      12       11       21           26       26      23
                                -----    -----    -----        -----    -----   -----
     Total Consolidated......     659      617      673          796      792     764
  Equity affiliates (a)......       -        -        -           82        -       -
                                -----    -----    -----        -----    -----   -----
WORLDWIDE....................     659      617      673          878      792     764
                                =====    =====    =====        =====    =====   =====
Developed reserves as % of                                             
  total net reserves.........    75.1%    77.9%    88.1%               
                                                                       
(BILLIONS OF CUBIC FEET)                                               
Natural Gas                                                            
  United States..............   1,702    1,720    1,517        2,220    2,239   2,210
  Europe.....................   1,024    1,133    1,300        1,048    1,178   1,344
  Other International........      19       16       35           23       21      35
                                -----    -----    -----        -----    -----   -----
     Total Consolidated......   2,745    2,869    2,852        3,291    3,438   3,589
  Equity affiliate (b).......      78      100      105          111      132     131
                                -----    -----    -----        -----    -----   -----
WORLDWIDE....................   2,823    2,969    2,957        3,402    3,570   3,720
                                =====    =====    =====        =====    =====   =====
Developed reserves as % of                                             
  total net reserves.........    83.0%    83.2%    79.5%               
                                                                       
(MILLIONS OF BARRELS)                                                  
Total BOEs                                                             
  United States..............     770      729      722          979      962     926
  Europe.....................     332      352      399          336      373     407
  Other International........      15       14       27           30       30      29
                                -----    -----    -----        -----    -----   -----
     Total Consolidated......   1,117    1,095    1,148        1,345    1,365   1,362
  Equity affiliate (a).......      13       17       18          100       22      22
                                -----    -----    -----        -----    -----   -----
WORLDWIDE....................   1,130    1,112    1,166        1,445    1,387   1,384
                                =====    =====    =====        =====    =====   =====
Developed reserves as % of
  total net reserves.........    78.2%    80.2%    84.2%
</TABLE>

(a)  Represents Marathon's equity interests in CLAM and Sakhalin Energy.
(b)  Represents Marathon's equity interests in CLAM.

                                       12

<PAGE>
 
     The above estimates, which are forward-looking statements, are based upon a
number of assumptions, including (among others) presently known physical data
concerning size and character of the reservoirs, economic recoverability,
production experience and other operating considerations. To the extent these
assumptions prove inaccurate, actual recoveries could be materially different
than current estimates.

     For additional details of estimated quantities of net proved oil and gas
reserves at the end of each of the last three years, see "Consolidated Financial
Statements and Supplementary Data - Supplementary Information on Oil and Gas
Producing Activities - Estimated Quantities of Proved Oil and Gas Reserves" on
page U-32. Reports have been filed with the U.S. Department of Energy ("DOE")
for the years 1996 and 1995 disclosing the year-end estimated oil and gas
reserves. A similar report will be filed for 1997. The year-end estimates
reported to the DOE are the same as the estimates reported in the USX
Consolidated Supplementary Data.

Oil and Gas Acreage

     The following table sets forth, by geographic area, the developed and
undeveloped oil and gas acreage held as of December 31, 1997:
 
Gross and Net Acreage

<TABLE> 
<CAPTION> 
                                               Developed &
                               Developed       Undeveloped       Undeveloped
                             -------------   ---------------   ---------------
                             Gross    Net    Gross     Net     Gross     Net
                             -----   -----   ------   ------   ------   ------
<S>                          <C>     <C>     <C>      <C>      <C>      <C>
  (Thousands of Acres)
  United States...........   2,397     995    2,800    1,451    5,197    2,446
  Europe..................     316     255    2,186      990    2,502    1,245
  Other International.....     116      40   35,363   12,488   35,479   12,528
                             -----   -----   ------   ------   ------   ------
   Total Consolidated.....   2,829   1,290   40,349   14,929   43,178   16,219
  Equity affiliates (a)...     350      35      438      112      788      147
                             -----   -----   ------   ------   ------   ------
  WORLDWIDE...............   3,179   1,325   40,787   15,041   43,966   16,366
                             =====   =====   ======   ======   ======   ======
</TABLE>

- -------------------
 (a) Represents Marathon's equity interests in CLAM and Sakhalin Energy.
  
                                       13

<PAGE>
 
Oil and Natural Gas Production

     The following tables set forth daily average net production of liquid
hydrocarbons and natural gas for each of the last three years:

<TABLE>
<CAPTION>
 
 Net Liquid Hydrocarbons Production (a)
     (Thousands of Barrels per Day)             1997        1996       1995
                                               -----       -----      -----
<S>                                            <C>         <C>        <C>
United States (b)........................        115         122        132
Europe (c)...............................         41          51         56
Other International (c)..................          8           8         17
                                               -----       -----      -----
WORLDWIDE................................        164         181        205
                                               =====       =====      =====
                                                               
Net Natural Gas Production (d)                                 
(Millions of Cubic Feet per Day)                               
United States (b)........................        722         676        634
Europe (e)...............................        412         486        448
Other International (e)..................         11          13         15
                                               -----       -----      -----
  Total Consolidated.....................      1,145       1,175      1,097
Equity affiliate (f).....................         42          45         44
                                               -----       -----      -----
WORLDWIDE................................      1,187       1,220      1,141
                                               =====       =====      =====
</TABLE>

- ----------------
(a)  Includes crude oil, condensate and natural gas liquids.
(b)  Amounts reflect production from leasehold and plant ownership, after
     royalties and interest of others.
(c)  Amounts reflect equity tanker liftings, truck deliveries and direct
     deliveries of liquid hydrocarbons before royalties. The amounts correspond
     with the basis for fiscal settlements with governments. Crude oil
     purchases, if any, from host governments are not included.
(d)  Amounts reflect sales of equity production, only. It excludes volumes
     purchased from third parties for resale of 32 mmcfd in 1997 and 1996 and 35
     mmcfd in 1995.
(e)  Amounts reflect production before royalties.
(f)  Represents Marathon's equity interest in CLAM.

     At year-end 1997, Marathon was producing crude oil and/or natural gas in
six countries, including the United States. Marathon's worldwide liquid
hydrocarbon production decreased by nine percent from 1996, mainly reflecting
lower production from the Brae fields in the U.K. North Sea and the disposal of
oil producing properties in Alaska. Marathon's 1998 worldwide liquid hydrocarbon
production is expected to increase by 25% from 1997 to approximately 205,000
bpd, with most of the increase occurring in the second half of the year. This
primarily reflects projected new production from fields in the Gulf of Mexico
(such as Green Canyon 244 and Ewing Bank Blocks 963 and 917), the Tchatamba
Marine field in Gabon and the West Brae field in the U.K. North Sea, partially
offset by natural production declines of mature fields.

     Marathon's 1997 worldwide sales of equity natural gas production, including
Marathon's share of CLAM's production, decreased about three percent from 1996,
reflecting natural declines in international fields (primarily in Norway and
Ireland), mostly offset by new production from domestic fields (mainly in east
Texas, Oklahoma and Wyoming). In addition to sales of 465 net mmcfd of
international equity natural gas production, Marathon sold 32 net mmcfd of
natural gas acquired for injection and resale during 1997. In 1998, Marathon's
worldwide natural gas volumes are expected to be consistent with 1997 volumes,
at around 1.2 billion cubic feet per day, as natural declines in mature
international fields, primarily in Ireland and Norway, are anticipated to be
offset by increases in domestic production (mainly in the Austin Chalk area in
Texas, Green Canyon 244 and the Vermillion Basin in Wyoming).

                                       14

<PAGE>
 
     The above projections of 1998 liquid hydrocarbon and natural gas production
are forward-looking statements. They are based on known discoveries and do not
include any additions from acquisitions or future exploratory drilling. They are
also based on certain assumptions, including (among others) reserve estimates,
successful completion of projects in progress, production decline rates for
mature fields, and other geological, operating and economical considerations. If
these assumptions prove to be incorrect, actual results could be materially
different than present expectations.

United States

     Approximately 70% of Marathon's 1997 worldwide liquid hydrocarbon
production and equity liftings and 61% of worldwide natural gas production
(including CLAM volumes) were from domestic operations. The principal domestic
producing areas are located in Texas, the U.S. Gulf of Mexico, Wyoming, New
Mexico and Oklahoma. Marathon's ongoing domestic growth strategy is to apply its
technical expertise in fields with undeveloped potential, to dispose of
interests in non-core properties with limited upside potential and high
production costs, and to acquire significant working interests in properties
with high development potential.

     Marathon continues to apply enhanced recovery and reservoir management
programs and cost containment efforts to maximize liquid hydrocarbon recovery
and profitability in mature fields such as the Yates field in Texas and the
Oregon Basin field in Wyoming. Enhanced recovery efforts for the Yates field
include an ongoing evaluation of thermal recovery techniques.

     Texas - Onshore production for 1997 averaged 37,500 net bpd of liquid
hydrocarbons and 161 net mmcfd of natural gas, representing 33% and 22% of
Marathon's total U.S. liquid hydrocarbon and natural gas production,
respectively. Liquids production volumes were virtually unchanged from 1996,
while gas volumes increased by 15% as a result of successful development
programs in east Texas.

     Within Texas, Marathon owns a 49.6% working interest in, and is the
operator of, the Yates Field Unit, one of the largest fields in the United
States on the basis of reserves. Marathon's 25,400 net bpd of 1997 liquid
hydrocarbon production from the Yates field and gas plant accounted for 22% of
Marathon's total U.S. liquids production. The field's average annual production
increased slightly in 1997 from 1996, following the trend started in 1993.

     Gulf of Mexico - During 1997, Marathon's Gulf production averaged 28,500
net bpd of liquid hydrocarbons and 77 net mmcfd of natural gas, representing 25%
and 11% of Marathon's total U.S. liquid hydrocarbon and natural gas production,
respectively. Liquid hydrocarbon production decreased by 600 net bpd from the
prior year, and natural gas production decreased by 11 net mmcfd, mainly
reflecting decreased production from the Ewing Bank 873 field and declines from
certain mature fields. At year-end 1997, Marathon held working interests in 13
fields and 32 platforms, 21 of which Marathon operates.

     Ewing Bank 873 is an important part of Marathon's deepwater infrastructure,
where it is the operator and holds a 66.7% working interest. Successful infill
drilling during the third quarter of 1997 raised liquid hydrocarbon production
at the Ewing Bank 873 field from 27,000 gross bpd to 46,000 gross bpd. For full
year 1997, production averaged 19,000 net bpd and 12 net mmcfd, compared with
20,600 net bpd and 14 net mmcfd in 1996. Two subsea developments, Oyster and
Arnold, will be tied back to the Ewing Bank 873 platform in 1998. A project is
currently underway to increase the platform's processing capacity to 80,000 bpd
of liquids and 65 mmcfd of gas.

     Wyoming - Liquid hydrocarbon production for 1997 averaged 24,700 net bpd,
representing 21% of Marathon's total U.S. liquid hydrocarbon production, up from
23,600 net bpd in 1996. The increase in 1997 from 1996 was primarily due to a
full year of production from the Steamboat Butte and Pilot Butte fields, which
were acquired in late 1996, partly offset by natural production declines. Gas
production averaged 54 net mmcfd in 1997, compared to 45 net mmcfd in 1996, with
the increase due mainly to developments in southwest Wyoming, primarily in the
Vermillion Basin.

                                       15

<PAGE>

 
     New Mexico - Production in New Mexico, primarily from the Indian Basin
field, averaged 12,400 net bpd and 109 net mmcfd in 1997, compared with 11,500
net bpd and 103 net mmcfd in 1996. The increase in production was mainly due to
continued development drilling in the Indian Basin field.

     Oklahoma - Gas production for 1997 averaged 109 net mmcfd, representing 15%
of Marathon's total U.S. gas production, up from 99 net mmcfd in 1996. The
increase in 1997 from 1996 was due primarily to development work in the Carter-
Knox field.

     Alaska - Marathon's production from Alaska averaged 300 net bpd of liquids
and 149 net mmcfd of natural gas in 1997, compared with 7,900 net bpd of liquid
hydrocarbons and 143 net mmcfd in 1996. Marathon disposed of its Alaskan oil
producing properties in the Cook Inlet area and Prudhoe Bay Unit in December
1996 while retaining its ownership interest in the natural gas reserves and
infrastructure associated with the Cook Inlet properties. As a result,
Marathon's primary focus in Alaska is on the expansion of its natural gas
business through exploration, exploitation, development and marketing.

International

     Interests in liquid hydrocarbon and/or natural gas production are held in
the U.K. North Sea, Irish Celtic Sea, the Norwegian North Sea and Egypt. In
addition, Marathon has an interest through an equity affiliate (CLAM) in the
Netherlands North Sea.

     U.K. North Sea - The following table sets forth Marathon's average net
liquid hydrocarbon liftings in the Brae area, for each of the last three years:
 
Brae-Area Average Net Liquid Hydrocarbon Liftings

<TABLE>
<CAPTION>

     (Net Barrels per Day)                            
                                      1997       1996       1995
                                    ------     ------     ------
    <S>                            <C>        <C>        <C>
     East Brae.................     22,000     29,800     32,700
     North Brae................      8,900     10,000     11,400
     South Brae................      3,600      4,700      5,000
     Central Brae..............      3,300      4,200      4,800
     West Brae.................      1,400          -          -
                                    ------     ------     ------
     TOTAL.....................     39,200     48,700     53,900
                                    ======     ======     ======
</TABLE>


     East Brae is a gas condensate field, which uses gas cycling, and is the
largest field in the Brae area. The decrease in East Brae production in 1997
primarily reflects the expected gradual depletion of the reservoir. Gas for
pressure maintenance at East Brae is provided by injecting gas streams from the
Brae B platform.

     North Brae is a gas condensate field, produced via the Brae B platform
using the gas cycling technique. Although partial cycling continues, the
majority of North Brae gas is being transferred to the East Brae reservoir for
pressure maintenance. North Brae liftings shown in the table above include
production from the Beinn field, which underlies the North Brae field.

     The Brae A facilities act as the host platform for the underlying South
Brae field and adjacent Central Brae field. In addition, the platform serves as
a vital link in generating third-party processing and pipeline tariff revenue.
For example, production from the Birch field, which is owned by a separate
consortium, has been processed on this facility since September 1995. In
addition, in October 1997, production from the nearby West Brae/Sedgwick joint
development project began using this facility for processing and transportation.

                                       16

<PAGE>

 
     The strategic location of the Brae A, Brae B and East Brae platforms and
pipeline infrastructure has generated significant third-party business since
1986. Arrangements were finalized in 1997 for the processing and transportation
of reservoir fluids from the outside-operated Kingfisher field. Production,
which commenced in the fourth quarter of 1997, is tied back to Brae B
facilities. This agreement brings to 14 the number of third-party fields
contracted to the Brae system. In addition to generating processing and pipeline
tariff revenue, third-party business also has a favorable impact on Brae area
operations by optimizing infrastructure usage and extending the economic life of
the facilities.

     Participation in the Scottish Area Gas Evacuation ("SAGE") system provides
pipeline transportation and onshore processing for Brae-area gas. The Brae group
owns 50% of SAGE, which has a total wet gas capacity of approximately 1.0 bcf
per day. The other 50% is owned by the Beryl group, which operates the system. A
30-inch pipeline connects the Brae, Beryl and Scott fields to the SAGE gas
processing terminal at St. Fergus in northeast Scotland. A new pipeline will
connect the Britannia field, owned and operated by third parties, to the St.
Fergus terminal, where processing of third-party production is expected to begin
in late 1998.

     Marathon's total United Kingdom gas sales from all sources averaged 162 net
mmcfd in 1997, compared with 172 net mmcfd in 1996. Sales of Brae-area gas
through the SAGE pipeline system averaged 159 net mmcfd for the year 1997 and
161 net mmcfd for the year 1996. Of these totals, 127 mmcfd and 129 mmcfd was
Brae-area equity gas in 1997 and 1996, respectively, and 32 mmcfd was gas
acquired for injection and subsequent resale in each of these years.

     Ireland - Marathon holds a 100% working interest in the Kinsale Head and
Ballycotton fields in the Irish Celtic Sea. Natural gas sales from these
maturing fields were 228 net mmcfd in 1997, compared with 259 net mmcfd in 1996.
Volumes are expected to continue declining in future years as a result of
natural production declines.

     Norway - In the Norwegian North Sea, Marathon holds a 23.8% working
interest in the Heimdal field, which had 1997 sales of 54 net mmcfd of natural
gas and 1,700 net bpd of condensate, compared with 1996 sales of 87 net mmcfd of
natural gas and 2,600 bpd of condensate. In mid-1994, Marathon issued a notice
of termination on the gas sales agreements for this field based upon low gas
prices and high pipeline tariffs associated with the operations. The effective
date of the termination was June 11, 1996. In June 1996, an agreement was
reached with one of the buyers, which provided for an improved economic position
for 30% of the gas sales. The remaining 70% share of sales, sold under a
separate agreement, remains unresolved, although gas sales have continued under
protest.

     Egypt - Marathon holds interests in four fields in Egypt under production
sharing agreements. Liquid hydrocarbon and natural gas production from these
fields totaled 8,300 net bpd and 11 net mmcfd in 1997, compared with 7,800 net
bpd and 13 net mmcfd in 1996. The increase in liquid hydrocarbon volumes was
mainly attributable to the addition of four wells in the Ras El Ush field,
partially offset by natural production declines in the Ashrafi field.

     Netherlands - Marathon's 50% equity interest in CLAM, the eighth largest
producer and reserves holder in the Netherlands North Sea, provides a 5.9%
entitlement in the production of 20 gas fields, which provided sales of 42 net
mmcfd of natural gas in 1997, compared with 45 net mmcfd in 1996.

                                       17

<PAGE>
 
     The following tables set forth productive wells and service wells for each
of the last three years and drilling wells as of December 31, 1997:

Gross and Net Wells


<TABLE> 
<CAPTION> 
 
1997                             Productive Wells (a)
- ----                      -------------------------------
                                Oil              Gas        Service Wells (b)   Drilling Wells (c)
                          ---------------   -------------   ----------------    -----------------
                           Gross    Net     Gross    Net    Gross     Net        Gross       Net
                          ------   ------   -----   -----   -----   --------    --------   ------
<S>                       <C>      <C>     <C>     <C>     <C>       <C>           <C>     <C> 
United States..........    9,661    3,755   3,282   1,451   4,100     1,138         69       54
Europe.................       30       12      58      30      21         8          4        1
Other International           19       13       7       2       -         -          2        1
                          ------   ------   -----   -----   -----     -----        ---      ---
 Total Consolidated....    9,710    3,780   3,347   1,483   4,121     1,146         75       56
Equity affiliate (d)           -        -      78       5       -         -          1        -
                          ------   ------   -----   -----   -----     -----        ---      ---
WORLDWIDE                  9,710    3,780   3,425   1,488   4,121     1,146         76       56
                          ======   ======   =====   =====   =====     =====        ===      ===
</TABLE>
 


<TABLE> 
<CAPTION> 
1996                             Productive Wells (a)
- ----                      -------------------------------
                                Oil               Gas       Service Wells (b)
                          ---------------   -------------   ----------------
                          Gross      Net    Gross    Net    Gross      Net
                          ------   ------   -----   -----   -----    -------
<S>                      <C>       <C>     <C>     <C>     <C>      <C> 
United States..........   10,939    3,860   3,248   1,401   4,891     1,181
Europe.................       28       12      55      30      19         8
Other International           11        7      10       2       -         -
                          ------   ------   -----   -----   -----      -----
 Total Consolidated....   10,978    3,879   3,313   1,433   4,910      1,189
Equity affiliate (d)           -        -      76       5       -         -
                          ------   ------   -----   -----   -----     -----
WORLDWIDE                 10,978    3,879   3,389   1,438   4,910     1,189
                          ======   ======   =====   =====   =====     =====
</TABLE>
 


<TABLE> 
<CAPTION> 
1995                             Productive Wells (a)
- ----                      -------------------------------
                                Oil               Gas       Service Wells (b)
                          ---------------   -------------   ----------------
                          Gross      Net    Gross    Net    Gross      Net
                          ------   ------   -----   -----   -----    -------
<S>                      <C>       <C>     <C>     <C>     <C>       <C> 
United States..........   11,944    4,242   3,860   1,637   5,481     1,439
Europe.................       28       12      74      30      22         9
Other International           45       18       9       2       -         -
                          ------   ------   -----   -----   -----     -----
 Total Consolidated....   12,017    4,272   3,943   1,669   5,503     1,448
Equity affiliate (d)           -        -      74       5       -         -
                          ------   ------   -----   -----   -----     -----
WORLDWIDE                 12,017    4,272   4,017   1,674   5,503     1,448
                          ======   ======   =====   =====   =====     =====
</TABLE>

- -------------------
(a)  Include active wells and wells temporarily shut-in. Of the gross productive
     wells, gross wells with multiple completions operated by Marathon totaled
     335, 329 and 333 in 1997, 1996 and 1995, respectively. Information on wells
     with multiple completions operated by other companies is not available to
     Marathon.
(b)  Consist of injection, water supply and disposal wells.
(c)  Consist of exploratory and development wells.
(d)  Represents CLAM.

                                       18

<PAGE>
 
     The following tables set forth average production costs and sales prices
per unit of production for each of the last three years:


<TABLE>
<CAPTION>
 
Average Production Costs (a)                             1997            1996            1995      
                                                       --------         ------          ------    
<S>                                                     <C>            <C>            <C>         
(Dollars per BOE)                                                                                 
United States...................................         $ 3.93         $ 3.97          $ 3.52    
International  - Europe.........................           4.27           4.38            4.76    
               - Other International............           3.40           3.29            3.31    
Total Consolidated..............................         $ 4.01         $ 4.09          $ 3.92    
               - Equity affiliate (b)...........         $ 5.86         $ 5.22          $ 5.56    
WORLDWIDE.......................................         $ 4.05         $ 4.11          $ 3.95     
</TABLE>
 


<TABLE> 
<CAPTION>  
                                                   1997        1996      1995         1997     1996     1995    
                                                  ------      ------    ------       ------   ------   ------   
Average Sales Prices (c)                            Crude Oil and Condensate            Natural Gas Liquids     
                                                  ----------------------------       ------------------------   
<S>                                              <C>        <C>        <C>         <C>       <C>      <C> 
(Dollars per Barrel)                                                                                            
United States...............................       $17.32    $19.12     $15.02      $13.28    $13.59   $10.34   
International  - Europe.....................        19.37     20.77      17.10       17.85     17.33    13.94   
               - Other International........        16.62     19.74      16.23       18.12     17.65    14.62   
WORLDWIDE...................................       $17.79    $19.63     $15.68      $14.52    $14.71   $11.35    
</TABLE>
 


<TABLE> 
<CAPTION> 
                                                         Natural Gas       
                                                        ------------       
<S>                                            <C>         <C>       <C>   
(Dollars per Thousand Cubic Feet)                                          
United States...............................    $ 2.20      $ 2.09   $ 1.63
International  - Europe.....................      2.00        1.96     1.78
               - Other International........      2.10        2.34     2.11
Total Consolidated..........................    $ 2.13      $ 2.04   $ 1.70
               - Equity affiliate (b).......    $ 2.73      $ 2.74   $ 2.60
WORLDWIDE...................................    $ 2.15      $ 2.06   $ 1.74 
</TABLE>

- -------------------
(a)  Production costs are as defined by the Securities and Exchange Commission
     and include property taxes, severance taxes and other costs, but exclude
     depreciation, depletion and amortization of capitalized acquisition,
     exploration and development costs. Production costs exclude certain
     administrative costs and costs associated with reorganization efforts.
     Natural gas volumes were converted to barrels of oil equivalent using a
     conversion factor of six mcf of natural gas to one barrel of oil.
(b)  Represents CLAM.
(c)  Prices exclude gains/losses from hedging activities.

                                       19

<PAGE>
 
Refining, Marketing and Transportation

     Marathon's refining, marketing and transportation ("RM&T") operations have
been geographically concentrated in the Midwest and southeastern United States.
This regional focus has allowed Marathon to achieve operating efficiencies
between its integrated refining and distribution systems and its marketing
operations. As noted on page 6, effective January 1, 1998, major elements of
Marathon's and Ashland's RM&T operations were contributed to Marathon Ashland
Petroleum LLC ("MAP"), in which Marathon owns a 62% ownership interest, and
Ashland holds the remaining 38% interest. MAP's operations are conducted mainly
in the Midwest, Southeast, the Ohio River Valley and the upper Great Plains.

     Since MAP is a consolidated subsidiary of Marathon, operating statistics
and financial data applicable to the Marathon Group's RM&T activities will
include 100% of MAP's operations, commencing January 1, 1998.

     The following discussion of RM&T operations includes historical data for
the three-year period ended December 31, 1997, as well as references to 1998
activity, which will be conducted by MAP. Discussions of 1998 activity for MAP
are forward-looking statements which are based on a number of assumptions,
including (among others) the success with which the integration of Marathon's
and Ashland's operations, management systems and business processes is
accomplished and the business conditions prevailing in the markets to be served
by the combined operations. If these assumptions prove to be incorrect, actual
results could differ materially from present expectations.

Refining

     Marathon has been a leading domestic petroleum refiner with 575,000 bpd of
combined in-use crude oil refining capacity as of December 31, 1997. During
1997, Marathon's refining system operated at 92% of its in-use capacity. With
the addition of Ashland's three refineries on January 1, 1998, MAP's combined
in-use crude oil refining capacity is 935,000 bpd.

     The following table sets forth the location and throughput capacity of each
of MAP's refineries on January 1, 1998:

<TABLE>
<CAPTION>
 
                  In-Use Refining Capacity
                  (Barrels per Day)
                 <S>                                      <C>
                  Garyville, La..........                  255,000
                  Catlettsburg, Ky.......                  220,000
                  Robinson, Ill..........                  180,000
                  Canton, Ohio...........                   70,000
                  St. Paul Park, Minn....                   70,000
                  Texas City, Texas......                   70,000
                  Detroit, Mich..........                   70,000
                                                           -------
                  TOTAL..................                  935,000
                                                           =======
</TABLE>

- -----------------
     Marathon's original four refineries are integrated via pipelines and barges
to maximize operating efficiency. The transportation links that connect the
refineries allow the movement of intermediate products to optimize operations
and the production of higher margin products. For example, naphtha is moved from
Texas City to Robinson where excess reforming capacity is available. Gas oil is
moved from Robinson to Detroit, which allows the Detroit refinery to upgrade a
portion of the diesel fuel to gasoline, using excess fluid catalytic cracking
unit capacity. As Ashland's former RM&T operations are integrated with
Marathon's, additional operating efficiencies are expected to be realized by
MAP; however, such integration is still in the early stages of evaluation and
implementation.

                                       20

<PAGE>
 
     Marathon's 50,000 bpd Indianapolis refinery, which was not contributed to
MAP, has remained temporarily idled since October 1993. The status of the
refinery is periodically reviewed, considering economic as well as regulatory
matters. As of February 28, 1998, the refinery remained temporarily idled.

     The following table sets forth Marathon's consolidated refined product
yields by product group for each of the last three years:

<TABLE>
<CAPTION>
 
Refined Product Yields
(Thousands of Barrels per Day)      1997       1996      1995
                                    ----       ----      ----
<S>                                 <C>        <C>       <C>
Gasoline.........................    353        345       339
Distillates......................    154        155       146
Propane..........................     13         13        12
Feedstocks & Special Products....     36         35        38
Heavy Fuel Oil...................     35         30        31
Asphalt..........................     39         36        36
                                    ----       ----      ----
TOTAL............................    630        614       602
                                    ====       ====      ====
</TABLE>


     With the commencement of MAP operations, consolidated volumes should
increase significantly for 1998; however, the relative product group yields are
not expected to change materially.

     To comply with provisions of the 1990 Amendments to the Clean Air Act (the
act, as amended by the 1990 Amendments, the "CAA"), Marathon sells reformulated
gasoline ("RFG") at its retail outlets in those areas requiring it. Only a small
part of Marathon's marketing territory, primarily Chicago, Louisville, and
Milwaukee, actually require RFG. During 1997, Marathon's RFG sales averaged
41,000 bpd, or 12% of its gasoline yield. During 1997, Marathon had the
capability of producing about 33% of its gasoline output as RFG. A major cost of
reformulation is the mandated use of oxygenates in gasoline. Marathon has
oxygenate units at its Detroit and Robinson refineries.

     Only a small part of Ashland's marketing territory, Louisville and northern
Kentucky, actually required RFG in 1997, and Ashland was able to meet the RFG
demand of its customers in these locations. As a result, the demand for RFG
within MAP's marketing territory in 1998 is not expected to change
significantly.

     Maintenance activities requiring temporary shutdown of certain refinery
operating units ("turnarounds") are periodically performed at each of the
operating refineries. Marathon completed major turnarounds at the Texas City and
Robinson refineries during 1997, and MAP completed one at the Garyville refinery
in early 1998. Major turnarounds are planned for the Canton refinery in the
fourth quarter of 1998, the Catlettsburg refinery in the first quarter of 1999
and the Detroit refinery in the fourth quarter of 1999.

     In September 1997, Marathon and a third party executed definitive
agreements to develop 800 million pounds per year of polymer grade propylene and
polypropylene facilities at the Garyville, Louisiana refinery. MAP will build
and operate facilities to produce polymer grade propylene from the current
refinery feedstock stream. The third party will construct the polypropylene
facilities and market its output. Both plants are scheduled to be operating by
late third quarter 1999.

Marketing

     In 1997, Marathon's refined product sales volumes (excluding matching
buy/sell transactions) totaled 11.1 billion gallons (724,000 bpd). Excluding
sales related to matching buy/sell transactions, the wholesale distribution of
petroleum products to private brand marketers and to large commercial and
industrial consumers, primarily located in the Midwest and Southeast, accounted
for about 58% of Marathon's refined product sales volumes in 1997. Approximately
41% of Marathon's gasoline volumes and 67% of its distillate volumes were sold
on a wholesale basis to independent unbranded customers in 1997.

     The following table sets forth the volume of Marathon's consolidated
refined product sales by product group for each of the last three years:
 
REFINED PRODUCT SALES

                                       21

<PAGE>
 
(Thousands of Barrels per Day)

<TABLE> 
<CAPTION> 
                                                 1997     1996     1995
                                                 ----     ----     ----
<S>                                              <C>      <C>      <C>
Gasoline......................................    452      468      445
Distillates...................................    198      192      180
Propane.......................................     12       12       12
Feedstocks & Special Products.................     40       37       44
Heavy Fuel Oil................................     34       31       31
Asphalt.......................................     39       35       35
                                                 ----     ----     ----
TOTAL.........................................    775      775      747
                                                 ====     ====     ====
Matching Buy/Sell Volumes included in above...     51       71       47
</TABLE>


     As of December 31, 1997, Marathon supplied petroleum products to 2,465
Marathon branded retail outlets located primarily in Michigan, Ohio, Indiana,
Illinois and Kentucky. Substantially all Marathon branded petroleum products are
sold to independent dealers and jobbers. At December 31, 1997, Marathon supplied
230 stations in states outside its traditional branded marketing territory
including Virginia, Wisconsin, Tennessee, West Virginia, North Carolina and
Pennsylvania. For 1998, with the addition of Ashland branded retail outlets, MAP
has approximately 3,060 Marathon and Ashland branded outlets in 12 states.

     In 1997, retail sales of gasoline and diesel fuel were also made through
limited service and self-service stations and truck stops operated in 14 states
by a wholly owned subsidiary, Emro Marketing Company ("Emro"). As of December
31, 1997, this subsidiary had 1,544 retail outlets which sold petroleum products
and convenience-store merchandise, primarily under the brand names "Speedway,"
"Starvin' Marvin," "United" and "Bonded". Emro's revenues from the sale of
convenience-store merchandise totaled $1,037 million in 1997, compared with $991
million in 1996. Profits generated from these sales tend to moderate the margin
volatility experienced in the retail sale of refined products. The selection of
merchandise varies among outlets -- 1,265 of Emro's 1,544 outlets at December
31, 1997, had convenience stores which sold a variety of food and merchandise,
and the remaining outlets sold selected convenience-store items such as
cigarettes, candy and beverages. For 1998, with the addition of Ashland's
SuperAmerica and Rich Oil retail gasoline and merchandise outlets, MAP, through
its wholly owned subsidiary, Speedway SuperAmerica LLC, has approximately 2,320
retail marketing outlets in 19 states.

     While a significant part of Marathon's and Ashland's marketing territories
overlapped, new states added to Marathon's existing territory include Minnesota,
South Dakota and North Dakota. Future decisions on brand identification or
consolidation may be undertaken by MAP; however, such changes have not yet been
identified or implemented.

Supply and Transportation

     In 1997, Marathon obtained around 52% of its crude oil feedstocks from
North and South America and the balance from the Middle East, West Africa and
the North Sea. Marathon was a net purchaser of 436,000 bpd of crude oil in 1997
from both domestic and international sources, including approximately 200,000
bpd obtained from the Middle East. Marathon generally sells its international
equity production into local markets, but, for 1997, it had the ability to
satisfy about 65% of its crude oil requirements from a combination of its
international and domestic equity crude production and current supply
arrangements in the Western Hemisphere.

     Marathon operates a system of pipelines and terminals to provide crude oil
to its refineries and refined products to its marketing areas. Fifty-one light
product and asphalt terminals are strategically located throughout the Midwest
and Southeast. In addition, Marathon operates a fleet of trucks to deliver
petroleum products to retail marketing outlets. For 1998, with the addition of
Ashland's terminals, MAP has 84 light product and asphalt terminals.

     In 1997, Marathon owned and operated, as a common carrier, approximately
830 miles of crude oil gathering lines; 1,430 miles of crude oil trunk lines;
and 1,500 miles of products trunk lines. In addition, Marathon owned a 32.1%
interest in LOOP LLC ("LOOP"), which is the owner and operator of the only U.S.
deepwater oil port, located 18 miles off the coast of Louisiana; a 37.1%
interest in LOCAP INC. ("LOCAP"), which is the owner and operator of a crude oil
pipeline connecting LOOP and the Capline system; and an 11.1% interest in the
Capline system, a large diameter crude oil pipeline extending from St. James,
La. to Patoka, Ill. All such pipeline interests are now part of MAP.

                                       22

<PAGE>

 
     With the addition of Ashland's pipeline interests, MAP has significant
ownership or interest in domestic pipeline systems across its refining and
marketing areas. Ashland's pipeline holdings that were contributed to MAP
included over 800 miles of owned and operated common carrier crude oil and
products trunk lines, as well as interests in LOOP, LOCAP, the Capline system,
the Rancho system, which is a crude oil pipeline in Texas, and Minnesota Pipe
Line Company, which owns a crude oil pipeline in Minnesota.

     Ashland also contributed its Scurlock Permian subsidiary to MAP. In
addition to providing crude oil for MAP's refineries, Scurlock Permian is
actively engaged in purchasing, selling and trading crude oil, principally at
Midland, Texas, Cushing, Okla. and St. James, La., three of the major
distribution points for United States crude oil, and at major trading and
distribution hubs in western Canada.

     Ashland's marine transportation assets, which were contributed to MAP,
include six towboats and around 160 barges that transport crude oil and refined
products on the Ohio, Mississippi and Illinois rivers, their tributaries, and
the Intracoastal Waterway, as well as two chartered, single-hulled, 80,000-ton-
deadweight tankers, which are primarily used for third-party delivery of foreign
crude oil to the United States. These tankers are not essential for MAP to
satisfy its own crude oil requirements.

OTHER ENERGY RELATED BUSINESSES

Interests in Pipeline Systems

     Marathon owns and operates, as a common carrier, approximately 175 miles of
crude oil gathering lines and 85 miles of crude oil trunk lines that were not
contributed to MAP. In addition, Marathon owns interests in various pipeline
systems that were not contributed to MAP, including a 28% interest of Poseidon
Oil Pipeline Company, L.L.C., which owns and operates a 400,000-bpd crude oil
pipeline system connected to the Marathon-operated Ewing Bank 873 platform in
the Gulf of Mexico; a 24.33% interest of Nautilus Pipeline Company, L.L.C.,
which owns and operates a 600-mmcfd natural gas pipeline system, also located in
the Gulf of Mexico; a 17.4% interest of Explorer Pipeline Company, which
operates a light products pipeline system extending from the Gulf Coast to the
Midwest; and a 2.5% interest of Colonial Pipeline Company, which operates a
light products pipeline system extending from the Gulf Coast to the East Coast.
In January 1997, Marathon sold its 30% stock ownership in Cook Inlet Pipe Line
Company, which owns a crude oil pipeline system in Alaska.

     In August 1997, Marathon and its partners announced the formation of
Odyssey Pipeline L.L.C. ("Odyssey"), a network of crude oil pipelines which will
transport production from existing and future development projects in the
eastern Gulf of Mexico. An existing 40-mile pipeline segment is to be combined
with 80 miles of new pipelines. The system is to have a capacity of 300,000 bpd.
In 1997, construction of 40 miles of new pipeline was completed with the other
40 miles of pipeline currently under construction. The entire system is expected
to be operational by mid-1998, serving Main Pass Blocks 69, 72 and 289 and
Viosca Knoll Blocks 780 and 786. Marathon has a 29% interest in Odyssey.

Domestic Natural Gas Marketing and Transportation

     Marathon has a 30% ownership in a Kenai, Alaska, natural gas liquefication
plant and two 87,500 cubic meter tankers used to transport liquefied natural gas
("LNG") to customers in Japan. Feedstock for the plant is supplied from a
portion of Marathon's equity natural gas production in the Cook Inlet. LNG is
sold under a long-term contract with two of Japan's largest utility companies
which calls for the sale of more than 900 gross bcf over the term of the
contract. Marathon has a 30% participation in this contract which is effective
through March 31, 2004, and provides an option for a five-year extension. During
1997, LNG deliveries totaled 62.2 gross bcf (18.6 net bcf), down from 67.6 gross
bcf (20.2 net bcf) in 1996.

     In addition to the sale of domestic equity production of natural gas,
Marathon purchases gas from third-party producers and marketers for resale. This
activity helps to maximize the value of Marathon's equity gas production, while
meeting customers' needs for secure and source-flexible supplies.

     Marathon also owns a 42.5% interest in Inventory Management and
Distribution Company, L.L.C. ("IMD"), which has been primarily involved in
providing asset management and economic optimization services to 

                                       23

<PAGE>
 
natural gas distribution utilities and pipeline companies. During the first half
of 1998, Marathon and its partners intend to dissolve IMD and wind up its
business.

Natural Gas Gathering and Transportation

     The Marathon Group includes four USX subsidiaries that are engaged solely
in the natural gas business. Carnegie Interstate Pipeline Company ("CIPCO") is
an interstate pipeline company engaged in the transportation of natural gas via
interstate commerce. Carnegie Production Company produces and sells natural gas,
while Carnegie Natural Gas Sales, Inc. is an unregulated marketer of natural
gas. Finally, Carnegie Natural Gas Company ("Carnegie") functions as a local
distribution company serving residential, commercial and industrial customers in
West Virginia and western Pennsylvania. As of December 31, 1997, Carnegie owned
and operated close to 1,800 miles of natural gas gathering lines.

     Carnegie is regulated as a public utility by state commissions within its
service areas, while CIPCO is regulated by the Federal Energy Regulatory
Commission as an interstate pipeline. Total natural gas throughput was 32 bcf in
1997 and 34 bcf in 1996 and 1995.

Power Generation

     Marathon, through its wholly owned subsidiary, Marathon Power Company, Ltd.
("Marathon Power"), pursues development, construction, ownership and operation
of independent electric power projects in the global electrical power market.
Marathon Power is actively pursuing a variety of projects in Latin America,
Europe, Africa and the Asia/Pacific Region. In March 1997, Marathon Power
acquired a 50% interest in an Ecuadorian power generation company, which owns
and operates two generating plants in Ecuador capable of delivering 130
megawatts of power. In April 1997, Marathon and its Indonesian partner,
Paramarthacitra Mulia pt, were awarded the development rights to the Suoh-
Sekincau geothermal prospect in the Lampung province of South Sumatra,
Indonesia.

COMPETITION AND MARKET CONDITIONS

     The oil and gas industry is characterized by a large number of companies,
none of which is dominant within the industry, but a number of which have
greater resources than Marathon. Marathon must compete with these companies for
the rights to explore for oil and gas. Acquiring the more attractive exploration
opportunities frequently requires competitive bids involving substantial front-
end bonus payments or commitments to work programs. Based on industry sources,
Marathon believes it ranks 12th among U.S. based petroleum corporations on the
basis of worldwide liquid hydrocarbon and natural gas production.

     Marathon must also compete with a large number of other companies to
acquire crude oil for refinery processing and in the distribution and marketing
of a full array of petroleum products. Based on industry sources, Marathon
believes it ranked eighth among U.S. petroleum corporations in 1997 on the basis
of crude oil refining capacity and ninth on the basis of refined product sales
volumes. With the commencement of MAP's operations, Marathon believes it ranks
sixth among U.S. petroleum corporations on the basis of both crude oil refining
capacity and refined product sales volumes. Additionally, Marathon competes in
three distinct markets -- wholesale, branded and retail distribution -- for the
sale of refined products, and believes it competes with about 60 companies in
the wholesale distribution of petroleum products to private brand marketers and
large commercial and industrial consumers; nine refiner/marketers in the supply
of branded petroleum products to dealers and jobbers; and over 1,200 petroleum
product retailers in the retail sale of petroleum products. Marathon also
competes in the convenience store industry through MAP's retail outlets.

     The Marathon Group's operating results are affected by price changes in
crude oil, natural gas and petroleum products as well as changes in competitive
conditions in the markets it serves. Generally, operating results from
production operations benefit from higher crude oil and natural gas prices while
refining and marketing margins may be adversely affected by crude oil price
increases. Market conditions in the oil industry are cyclical and subject to
global economic and political events.

Employees

                                       24

<PAGE>
 
     The Marathon Group had 20,310 active employees as of December 31, 1997. Of
that total, 12,893 were employees of Emro Marketing Company, primarily
representing employees at retail marketing outlets.

     Certain hourly employees at the Catlettsburg and Canton refineries are
represented by the Oil, Chemical and Atomic Workers International Union under
labor agreements which expire on January 31, 1999, while certain hourly
employees at the Texas City refinery are represented by the same union under a
labor agreement which expires on March 31, 1999. Certain hourly employees at the
St. Paul Park and Detroit refineries are represented by the International
Brotherhood of Teamsters under labor agreements which expire on May 31, 1999 and
January 31, 2000, respectively.

PROPERTY, PLANT AND EQUIPMENT ADDITIONS

     For property, plant and equipment additions, including capital leases, see
"Management's Discussion and Analysis of Financial Condition, Cash Flows and
Liquidity - Capital Expenditures" for the Marathon Group on page M-28.

ENVIRONMENTAL MATTERS

     The Marathon Group maintains a comprehensive environmental policy overseen
by the Public Policy Committee of the USX Board of Directors. The Health,
Environment and Safety organization has the responsibility to ensure that the
Marathon Group's operating organizations maintain environmental compliance
systems that are in accordance with applicable laws and regulations. The Health,
Environment and Safety Management Committee, which is comprised of officers of
the group, is charged with reviewing its overall performance with various
environmental compliance programs. Also, the Marathon Group has formed an
Emergency Management Team, composed of senior management, which will oversee the
response to any major emergency environmental incident throughout the group.

     The businesses of the Marathon Group are subject to numerous federal, state
and local laws and regulations relating to the protection of the environment.
These environmental laws and regulations include the CAA with respect to air
emissions, the Clean Water Act ("CWA") with respect to water discharges, the
Resource Conservation and Recovery Act ("RCRA") with respect to solid and
hazardous waste treatment, storage and disposal, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with respect to releases and
remediation of hazardous substances, and the Oil Pollution Act of 1990 ("OPA-
90") with respect to oil pollution and response. In addition, many states where
the Marathon Group operates have similar laws dealing with the same matters.
These laws and their associated regulations are constantly evolving and becoming
increasingly stringent. The ultimate impact of complying with existing laws and
regulations is not always clearly known or determinable due in part to the fact
that certain implementing regulations for laws such as RCRA and the CAA have not
yet been finalized or in certain instances are undergoing revision. These
environmental laws and regulations, particularly the 1990 Amendments to the CAA
and new water quality standards, could result in increased capital, operating
and compliance costs.

     For a discussion of environmental capital expenditures and costs of
compliance for air, water, solid waste and remediation, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -

Management's Discussion and Analysis of Environmental Matters, Litigation and
Contingencies" on page M-29 and "Legal Proceedings" for the Marathon Group on
page 38.

     The Marathon Group has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. To the extent these expenditures, as with
all costs, are not ultimately reflected in the prices of the Marathon Group's
products and services, operating results will be adversely affected. The
Marathon Group believes that substantially all of its competitors are subject to
similar environmental laws and regulations. However, the specific impact on each
competitor may vary depending on a number of factors, including the age and
location of its operating facilities, marketing areas, production processes and
whether or not it is engaged in the petrochemical business or the marine
transportation of crude oil.

                                       25

<PAGE>
 
Air

     The CAA imposes stringent limits on air emissions, establishes a federally
mandated operating permit program and allows for civil and criminal enforcement
sanctions. The principal impact of the CAA on the Marathon Group is on its RM&T
operations. The CAA also establishes attainment deadlines and control
requirements based on the severity of air pollution in a geographical area. It
is estimated that, from 1998 to 2002, the Marathon Group, which includes all
seven MAP refineries, may spend from $70 million to $80 million in order to
comply with the CAA, particularly the proposed Maximum Achievable Control
Technology ("MACT") Phase II standards. These standards require new control
equipment on Fluid Catalytic Cracking Units and other units. In addition, the
standards for RFG become even more stringent in the year 2000, when Phase II RFG
will be required.

     In July 1997, the Environmental Protection Agency ("EPA") promulgated the
revisions to the National Ambient Air Quality Standards for ozone and
particulate matter. The impact of these revised standards could be significant
to Marathon, but the potential financial effects cannot be reasonably estimated
until the states develop and implement their State Implementation Plans covering
their standards.

Water

     The Marathon Group maintains numerous discharge permits as required under
the National Pollutant Discharge Elimination System program of the CWA, and has
implemented systems to oversee its compliance efforts. In addition, the Marathon
Group is regulated under OPA-90 which amended the CWA. Among other requirements,
OPA-90 requires the owner or operator of a tank vessel or a facility to maintain
an emergency plan to respond to discharges of oil or hazardous substances. Also,
in case of such spills, OPA-90 requires responsible companies to pay removal
costs and damages caused by them, provides for substantial civil penalties, and
imposes criminal sanctions for violations of this law.

     Additionally, OPA-90 requires that new tank vessels entering or operating
in domestic waters be double-hulled, and that existing tank vessels that are not
double-hulled be retrofitted or removed from domestic service, according to a
phase-out schedule. MAP charters two single-hulled, 80,000-ton-deadweight
tankers, which are primarily used for third-party delivery of foreign crude oil
to the United States. The initial term of these charters expire in 2001 and
2002, subject to certain renewal options. The Coast Guard National Pollution
Funds Center has granted permission to Marathon and Ashland to self-insure the
financial responsibility amount for liability purposes for MAP's tankers, as
provided in OPA-90. In addition, most of the barges, which are used in MAP's
river transportation operations, meet the double-hulled requirements of OPA-90.
Single-hulled barges owned and operated by MAP are in the process of being
phased out. Displaced single-hulled barges will be divested or recycled into
dock floats within MAP's system.

     The Marathon Group operates facilities at which spills of oil and hazardous
substances could occur. Several coastal states in which Marathon operates have
passed state laws similar to OPA-90, but with expanded liability provisions,
including provisions for cargo owners as well as ship owners. Marathon has
implemented emergency oil response plans for all of its components and
facilities covered by OPA-90.

Solid Waste

     The Marathon Group continues to seek methods to minimize the generation of
hazardous wastes in its operations. RCRA establishes standards for the
management of solid and hazardous wastes. Besides affecting current waste
disposal practices, RCRA also addresses the environmental effects of certain
past waste disposal operations, the recycling of wastes and the regulation of
underground storage tanks ("USTs") containing regulated substances. Since the
EPA has not yet promulgated implementing regulations for all provisions of RCRA
and has not yet made clear the practical application of all the implementing
regulations it has promulgated, the ultimate cost of compliance cannot be
accurately estimated. In addition, new laws are being enacted and regulations
are being adopted by various regulatory agencies on a continuing basis, and the
costs of compliance with these new rules can only be broadly appraised until
their implementation becomes more accurately defined.

Remediation

                                       26

<PAGE>
 
     The Marathon Group operates certain retail outlets where, during the normal
course of operations, releases of petroleum products from USTs have occurred.
Federal and state laws require that contamination caused by such releases at
these sites be assessed and remediated to meet applicable standards. The
enforcement of the UST regulations under RCRA has been delegated to the states
which administer their own UST programs. The Marathon Group's obligation to
remediate such contamination varies, depending upon the extent of the releases
and the stringency of the laws and regulations of the states in which it
operates. A portion of these remediation costs may be recoverable from state UST
reimbursement funds once the applicable deductibles have been satisfied.
Accruals for remediation expenses and associated reimbursements are established
for sites where contamination has been determined to exist and the amount of
associated costs is reasonably determinable.

     As a general rule, Marathon and Ashland retained responsibility for certain
costs of remediation arising out of the prior ownership and operation of those
businesses transferred to MAP. Such continuing responsibility, in certain
situations, may be subject to threshold or sunset agreements which gradually
diminish this responsibility over time.

     USX is also involved in a number of remedial actions under RCRA, CERCLA and
similar state statutes related to the Marathon Group. It is possible that
additional matters relating to the Marathon Group may come to USX's attention
which may require remediation.

                                       27

<PAGE>
 
U.  S.  STEEL GROUP

     The U. S. Steel Group includes U. S. Steel, the largest steel producer in 
the United States, which is primarily engaged in the production and sale of
steel mill products, coke, and taconite pellets. The U. S. Steel Group also
includes the management of mineral resources, domestic coal mining and
engineering and consulting services. Steel & Related - Equity Affiliates is
comprised of joint ventures and partially owned companies such as USS/Kobe
("USS/Kobe"), USS-POSCO Industries ("USS-POSCO"), PRO-TEC Coating Company
("PRO-TEC"), and Transtar, Inc. ("Transtar"). Other businesses that are part of
the U. S. Steel Group include real estate development and management, and
leasing and financing activities. U. S. Steel Group revenues as a percentage of
total USX consolidated revenues were approximately 31% in 1997, 29% in 1996 and
32% in 1995.

     The following table sets forth the total revenues of the U. S. Steel Group
for each of the last three years. Such information does not include revenues by
joint ventures and other affiliates of USX accounted for by the equity method.

<TABLE>
<CAPTION>
 
Revenues
(Millions)                                                 1997     1996     1995
                                                          ------   ------   ------
<S>                                                       <C>      <C>      <C>
     Steel and Related Businesses
       Sheet and Semi-finished Steel Products..........   $3,820   $3,677   $3,623
       Tubular, Plate, and Tin Mill Products...........    1,754    1,635    1,677
       Raw Materials (Coal, Coke and Iron Ore).........      671      757      731
       All Other.......................................      548      411      369
                                                          ------   ------   ------
       Subtotal Steel and Related Businesses...........    6,793    6,480    6,400
     Steel and Related Businesses -Equity Affiliates...       53       55       80
                                                          ------   ------   ------
       Steel and Related Businesses....................    6,846    6,535    6,480
     Administrative and Other Businesses...............       95       82       77
     Gain on Affiliate Stock Offering (a)..............        -       53        -
                                                          ------   ------   ------
     TOTAL REVENUES (b)................................   $6,941   $6,670   $6,557
                                                          ======   ======   ======
</TABLE>

- --------------------
(a) For further details, see Note 6 to the U. S. Steel Group Financial
Statements.

(b) Consists of sales, affiliate income, net gains on disposal of assets, gain
on affiliate stock offering and other income. Amounts for 1996 and 1995 were
reclassified in 1997 to include affiliate income, gain on affiliate stock
offering and other income.

     For additional financial information about USX's industry segments, see
"Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - 9. Operations and Segment Information" on page U-12.

     The total number of active U. S. Steel Group employees at year-end 1997 was
20,184. Most hourly and certain salaried employees are represented by the United
Steelworkers of America ("USWA").

     U. S. Steel entered into a five and one-half year contract with the USWA,
effective February 1, 1994, covering approximately 15,000 employees. The
contract provided for reopener negotiations of specific payroll items. These
negotiations were resolved by following the settlements reached by other major
integrated producers (including the timing of a lump sum bonus payment in July,
1999), with revised contract terms becoming effective as of February 1, 1997.
This agreement expires on August 1, 1999.

     U. S. Steel Mining Company, LLC ("U. S. Steel Mining") entered into a five
year contract with the United Mine Workers of America ("UMWA"), effective
January 1, 1998, covering approximately 1,000 employees. The agreement reached
follows that of other major mining companies.

                                       28

<PAGE>
 
STEEL INDUSTRY BACKGROUND AND COMPETITION

     The domestic steel industry is cyclical and highly competitive and is
affected by excess world capacity which has restricted price increases during
periods of economic growth and led to price decreases during economic
contraction. In addition, the domestic steel industry, including U. S. Steel,
faces competition from producers of materials such as aluminum, cement,
composites, glass, plastics and wood in many markets.

     U. S. Steel is the largest steel producer in the United States and competes
with many domestic and foreign steel producers. Domestic competitors include
integrated producers which, like U. S. Steel, use iron ore and coke as primary
raw materials for steel production, and mini-mills which primarily use steel
scrap and, increasingly, iron bearing feedstocks as raw materials. Mini-mills
generally produce a narrower range of steel products than integrated producers,
but typically enjoy certain competitive advantages such as lower capital
expenditures for construction of facilities and non-unionized work forces with
lower employment costs and more flexible work rules. An increasing number of
mini-mills utilize thin slab casting technology to produce flat-rolled products,
and several additional flat-rolled mini-mill plants commenced operation in 1997.
Through the use of thin slab casting, mini-mill competitors are increasingly
able to compete directly with integrated producers of flat-rolled products.
Depending on market conditions, the additional production generated by flat-
rolled mini-mills could have an adverse effect on U. S. Steel's selling prices
and shipment levels.

     Steel imports to the United States accounted for an estimated 24%, 23% and
21% of the domestic steel market in the first eleven months of 1997, and for the
years 1996 and 1995, respectively. Steel imports of hot rolled, cold rolled and
galvanized sheets as a percentage of total finished imports, increased 4% in the
first eleven months of 1997, compared to the same period in 1996. The domestic
steel industry has, in the past, been adversely affected by unfairly traded
imports, and higher levels of imported steel may have an adverse effect on
product prices, shipment levels and results of operations. Foreign competitors
typically have lower labor costs, and are often owned, controlled or subsidized
by their governments, allowing their production and pricing decisions to be
influenced by political and economic policy considerations as well as prevailing
market conditions. In addition, uncertainties related to the Asian economies
could potentially impact domestic markets if Asian countries increase their
level of steel exports to the United States. Increases in levels of imported
steel could adversely affect future market prices and demand levels for domestic
steel.

     Plate products accounted for 8% and 9% of U. S. Steel Group shipments in
1997 and 1996, respectively. On November 5, 1996, two other domestic steel plate
producers filed antidumping cases with the U. S. Department of Commerce
("Commerce") and the International Trade Commission ("ITC") asserting that
People's Republic of China, the Russian Federation, Ukraine, and South Africa
engaged in unfair trade practices with respect to the export of carbon cut-to-
length plate to the United States. U. S. Steel Group has supported these cases.
The Commerce issued final affirmative determination of dumping for each country
in October 1997, finding substantial dumping margins on cut-to-length steel
plate imports from these countries. In December 1997, the ITC voted unanimously
that the United States industry producing cut-to-length carbon steel plate was
injured due to imports of dumped cut-to-length plate from the four countries.
The United States has negotiated suspension agreements that limit imports of
cut-to-length carbon steel plate from the four countries to a total of
approximately 440,000 tons per year for the next five years, a reduction of
about two-thirds from 1996 import levels, and provide for an average 10-15%
increase in import prices to remove the injurious impact of the imports. Any
violation or abrogation of the suspension agreements will result in imposition
of the dumping duties found by Commerce.

     USX intends to file additional antidumping and countervailing duty
petitions if unfairly traded imports adversely impact, or threaten to adversely
impact, the results of the U. S. Steel Group.

     The U. S. Steel Group's businesses are subject to numerous federal, state
and local laws and regulations relating to the storage, handling, emission and
discharge of environmentally sensitive materials. U. S. Steel believes that its
major domestic integrated steel competitors are confronted by substantially
similar conditions and thus does not believe that its relative position with
regard to such other competitors is materially affected by the impact of
environmental laws and regulations. However, the costs and operating
restrictions necessary for compliance with environmental laws and regulations
may have an adverse effect on U. S. Steel's competitive position with regard to
domestic mini-mills and some foreign steel producers and producers of materials
which compete with steel, which 

                                       29

<PAGE>
 
may not be required to undertake equivalent costs in their operations. For
further information, see "Environmental Matters on page on 36, Legal Proceedings
on page 41, and Management's Discussion and Analysis of Environmental Matters,
Litigation and Contingencies on page S-31."

BUSINESS STRATEGY

     U. S. Steel produces raw steel at Gary Works in Indiana, Mon Valley Works
in Pennsylvania and Fairfield Works in Alabama.

     Beginning in the early 1980's, U. S. Steel responded to competition
resulting from excess steel industry capability by eliminating less efficient
facilities, modernizing those that remain and entering into joint ventures, all
with the objective of focusing production on higher value-added products, where
superior quality and special characteristics are of critical importance. These
products include bake hardenable steels and coated sheets for the automobile and
appliance industries, laminated sheets for the manufacture of motors and
electrical equipment, improved tin mill products for the container industry and
oil country tubular goods. In 1997, U. S. Steel began construction of a new heat
treating facility for plate at Gary Works. This, along with a cooling bed roller
system which will come on line in 1998, will enhance U. S. Steel's ability to
serve value-added plate markets. Additional modernization projects in 1998
include the conversion of the Fairfield Works bloom caster and pipemill to round
semifinished steel for tubular production, a reline of the Gary Works No. 6
blast furnace, and an upgrade to the galvanizing line at Fairless.

     In addition to the modernization of its production facilities, USX has
entered into a number of joint ventures with domestic and foreign partners to
take advantage of market or manufacturing opportunities in the sheet, tin mill,
tubular, bar and plate consuming industries. In November, 1997, U. S. Steel
Group and VSZ a.s., announced plans for a 50-50 joint venture in Kosice,
Slovakia, for the production and marketing of tin mill products to serve an
emerging Central European market. In February 1998, the joint venture, doing
business as VSZ U. S. Steel, s. r.o., took over ownership and commenced
operation of an existing tin mill facility (VSZ's Ocel plant in Kosice) with an
annual production capacity of 140,000 metric tons. The joint venture plans to
add 200,000 annual metric tons of new tin mill production capacity in the next
two years. This joint venture will serve the food packaging industry in Central
Europe. In addition, this venture will be able to serve current domestic
customers whose affiliates are building plants there.

     In 1997, U. S. Steel Group, through its United States Steel Export Company
de Mexico subsidiary, along with S. A., Feralloy Mexico, S.R.L. de C.V.(a
wholly-owned subsidiary of Feralloy Corporation), and Intacero de Mexico, S.A.
de C.V., formed a joint venture for a slitting and warehousing facility in San
Luis Potosi, Mexico. The joint venture will conduct business as Acero Prime and
will service primarily the appliance industry. Construction will begin in 1998
with operations commencing in early 1999.

     In June, 1997, USX entered into a strategic partnership with two limited
partners to acquire an interest in three coke batteries at its Clairton Works,
known as the Clairton 1314B Partnership, L. P. (the "Clairton Partnership"),
with an annual coke production capability of 1.5 million tons. U. S. Steel, the
general partner, owns a 9.78% interest in the Clairton Partnership. For
additional information, see "Steel and Related - Equity Affiliates" discussion
below.

     In addition to the modernization of its production facilities and joint
ventures entered into, U. S. Steel continues to pursue lower manufacturing cost
objectives through continuing cost improvement programs. These initiatives
include, but are not limited to, reduced production cycle time, improved yields,
continued customer orientation and improved process control. In 1997, U. S.
Steel continued the development of a new order fulfillment system for all its
steel plants. This, along with a synchronous manufacturing approach to
operations, should enable U. S. steel to reduce order fulfillment cycle times,
with a concurrent further reduction of in-process inventories.

STEEL AND RELATED BUSINESSES

     U. S. Steel operates plants which produce steel products in a variety of
forms and grades. Raw steel production was 12.3 million tons in 1997, compared
with 11.4 million tons in 1996 and 12.2 million tons in 1995. Raw steel produced
was nearly 100% continuous cast in 1997, 1996 and 1995. Raw steel production
averaged 97% 

                                       30

<PAGE>
 
of capability in 1997, compared with 89% of capability in 1996 and
97% of capability in 1995. U.S. Steel's stated annual raw steel production
capability is 12.8 millions tons for 1997 (7.7 million at Gary Works, 2.8
million at Mon Valley Works and 2.3 million at Fairfield Works).

     Steel shipments were 11.6 million tons in 1997, and 11.4 million tons in
1996 and 1995. U. S. Steel Group shipments comprised approximately 11% of the
domestic steel market in 1997. Exports accounted for approximately 4% of U. S.
Steel Group shipments in 1997, compared with 4% in 1996 and 13% in 1995.

                                       31

<PAGE>
 
     The following tables set forth significant U. S. Steel shipment data by
major markets and products for each of the last three years. Such data do not
include shipments by joint ventures and other affiliates of USX accounted for by
the equity method.

<TABLE>
<CAPTION>
 
 
Steel Shipments By Market and Product
                                                Sheet           Tubular,
                                            & Semi-finished    Plate & Tin
          Major  Market - 1997              Steel Products    Mill Products   Total
                                            ---------------   -------------   ------
<S>                                         <C>               <C>             <C>
(Thousands of Net Tons)
Steel Service Centers....................             2,020             726    2,746
Further Conversion:
 Trade Customers.........................               859             519    1,378
 Joint Ventures..........................             1,568               0    1,568
Transportation (Including Automotive)....             1,503             255    1,758
Containers...............................               216             640      856
Construction and Construction Products...               889             105      994
Oil, Gas and Petrochemicals..............                 0             810      810
Export...................................               236             217      453
All Other................................               879             201    1,080
                                                      -----           -----   ------
 TOTAL...................................             8,170           3,473   11,643
                                                      =====           =====   ======
 
Major  Market - 1996
- -----------------------------------------
(Thousands of Net Tons)
Steel Service Centers....................             2,155             676    2,831
Further Conversion:
 Trade Customers.........................               848             379    1,227
 Joint Ventures..........................             1,542               0    1,542
Transportation (Including Automotive)....             1,391             330    1,721
Containers...............................               238             636      874
Construction and Construction Products...               733             132      865
Oil, Gas and Petrochemicals..............                 0             746      746
Export...................................               303             190      493
All Other................................               886             187    1,073
                                                      -----           -----   ------
 TOTAL...................................             8,096           3,276   11,372
                                                      =====           =====   ======
 
Major Market -1995
- -----------------------------------------
(Thousands of Net Tons)
Steel Service Centers....................             1,814             750    2,564
Further Conversion:
 Trade Customers.........................               675             409    1,084
 Joint Ventures..........................             1,332               0    1,332
Transportation (Including Automotive)....             1,346             290    1,636
Containers...............................               206             651      857
Construction and Construction Products...               565             106      671
Oil, Gas and Petrochemicals..............                 1             747      748
Export...................................             1,218             297    1,515
All Other................................               832             139      971
                                                      -----           -----   ------
 TOTAL...................................             7,989           3,389   11,378
                                                      =====           =====   ======
</TABLE>


                                       32

<PAGE>
 
The following table lists products and services by facility or business unit:

Principal Products and Services
             Gary..........................     Sheets; Tin Mill; Plates; Coke
             Fairfield.....................     Sheets; Tubular
             Mon Valley....................     Sheets
             Fairless (a)..................     Sheets; Tin Mill
             Clairton......................     Coke
             Minntac.......................     Taconite Pellets
             U. S. Steel Mining............     Coal
             Resource Management...........     Administration of Mineral,
                                                Coal and Timber Properties
             USX Engineers and Consultants.     Engineering and
                                                Consulting Services
- ------------------ 
(a) Operations at the Fairless sheet and tin finishing facilities are sourced
    primarily with hot-strip mill coils from other U. S. Steel plants.

     USX and its wholly owned entity, U. S. Steel Mining, have domestic coal
properties with demonstrated bituminous coal reserves of approximately 799
million net tons at year-end 1997 compared with approximately 860 million net
tons at year-end 1996. The decrease in 1997 was due to a lease termination. The
reserves are of metallurgical and steam quality in approximately equal
proportions. They are located in Alabama, Pennsylvania, West Virginia, Illinois
and Indiana. Approximately 96% of the reserves are owned, and the rest are
leased. The leased properties are covered by a lease which expires in 2005. U.
S. Steel Mining coal production was 7.5 million tons in 1997, compared with 7.3
million tons in 1996 and 7.5 million tons in 1995. Coal shipments were 7.8
million tons in 1997, compared with 7.1 million tons in 1996 and 7.5 million
tons in 1995.

     USX controls domestic iron ore properties having demonstrated iron ore
reserves in grades subject to beneficiation processes in commercial use by U. S.
Steel of approximately 738 million tons at year-end 1997, substantially all of
which are iron ore concentrate equivalents available from low-grade iron-bearing
materials. All demonstrated reserves are located in Minnesota. Approximately 35%
of these reserves are owned and the remaining 65% are leased. Most of the leased
reserves are covered by a lease expiring in 2058 and the remaining leases have
expiration dates ranging from 2021 to 2026. U. S. Steel's iron ore operations at
Mt. Iron, MN ("Minntac") produced 16.3 million net tons of taconite pellets in
1997, 15.1 million net tons in 1996 and 15.3 million net tons in 1995. Taconite
pellet shipments were 16.5 million tons in 1997, compared with 15.0 million tons
in 1996 and 15.2 million tons in 1995.

     USX's Resource Management administers the remaining mineral lands and
timber lands of U. S. Steel and is responsible for the lease or sale of these
lands and their associated resources, which encompass approximately 300,000
acres of surface rights and 1,500,000 acres of mineral rights in 16 states.

     USX Engineers and Consultants, Inc. sells technical services worldwide to
the steel, mining, chemical and related industries. Together with its subsidiary
companies, it provides engineering and consulting services for facility
expansions and modernizations, operating improvement projects, integrated
computer systems, coal and lubrication testing and environmental projects.

     For significant operating data for Steel and Related Businesses for each of
the last five years, see "USX Consolidation Financial Statements and
Supplementary Data - Five-Year Operating Summary - U. S. Steel Group" on page U-
37.

STEEL AND RELATED - EQUITY AFFILIATES

  USX participates directly and through subsidiaries in a number of joint
ventures included in the U. S. Steel Group. All of the joint ventures are
accounted for under the equity method. Certain of the joint ventures and other
investments are described below, all of which are at least 50% owned except
Transtar and the Clairton Partnership. For financial information regarding joint
ventures and other investments, see "Financial Statements and Supplementary Data
- - Notes to Financial Statements - 16. Investments and Long-term Receivables" for
the U. S. Steel Group on page S-14.

  USX and Pohang Iron & Steel Co., Ltd. ("POSCO") of South Korea participate in
a joint venture, USS-POSCO, which owns and operates the former U. S. Steel
Pittsburg, CA Plant. The joint venture markets high quality 

                                       33

<PAGE>
 
sheet and tin products, principally in the western United States market area.
USS-POSCO produces cold-rolled sheets, galvanized sheets, tin plate and tin-free
steel. USS-POSCO's annual shipment capacity is 1.4 million tons with hot bands
principally provided by U. S. Steel and POSCO. Total shipments were
approximately 1.7 million tons in 1997.

  USX and Kobe Steel Ltd. ("Kobe") of Japan participate in a joint
venture, USS/Kobe, which owns and operates the former U. S. Steel Lorain, Ohio
Works. The joint venture produces raw steel for the manufacture of bar and
tubular products. Bar products are sold by USS/Kobe while U. S. Steel has sales
and marketing responsibilities for tubular products. Total shipments in 1997
were approximately 1.6 million tons. USS/Kobe entered into a five and one-half
year labor contract with the USWA effective February 1, 1994, covering
approximately 2,300 employees. USS/Kobe's annual raw steel capability is 2.6
million tons with iron ore and coke provided primarily by U. S. Steel. Raw steel
production was approximately 1.9 million tons in 1997.

  USX and Kobe participate in a joint venture, PRO-TEC, which owns and operates
a hot-dip galvanizing line in Leipsic, Ohio. The facility commenced operations
in early 1993. Capacity is 600,000 tons per year with substrate coils provided
by U. S. Steel. PRO-TEC produced 671,000 prime tons of galvanized steel in 1997.
In the first quarter 1997, USX and Kobe began construction of a second hot-dip
galvanized sheet line at PRO-TEC with a yearly capacity of 400,000 tons. Startup
of operations is projected for third quarter 1998. Uncoated coils would be
provided by U. S. Steel and Kobe.

     USX and Worthington Industries Inc. participate in a joint venture known as
Worthington Specialty Processing which operates a steel processing facility in
Jackson, Mich. The plant is operated by Worthington Industries, Inc. and is
dedicated to serving U. S. Steel customers. The facility contains state-of-the-
art technology capable of processing master steel coils into both slit coils and
sheared first operation blanks including rectangles, trapezoids, parallelograms
and chevrons. It is designed to meet specifications for the automotive,
appliance, furniture and metal door industries. The joint venture processes
material sourced by U. S. Steel, with a processing capacity of 600,000 tons
annually. In 1997, Worthington Specialty Processing processed 387,000 tons.

     USX and Rouge Steel Company participate in Double Eagle Steel Coating
Company ("DESCO"), a joint venture which operates an electrogalvanizing facility
located in Dearborn, Mich. This facility enables U. S. Steel to further supply
the automotive demand for steel with corrosion resistant properties. The
facility can coat both sides of sheet steel with zinc or alloy coatings and has
the capability to coat one side with zinc and the other side with alloy.
Capacity is 870,000 tons of electrogalvanized steel annually, with availability
of the facility shared equally by the partners. In 1997, DESCO produced
approximately 853,000 tons of electrogalvanized steel.

     In 1997, U. S. Steel Group and Olympic Steel, Inc. formed a 50/50 joint
venture to process laser welded sheet steel blanks. The joint venture, which
will conduct business as Olympic Laser Processing L.L.C., is in the process of
constructing a facility in Van Buren, Michigan, with production expected to
begin in 1998. Laser welded blanks are used in the automotive industry for an
increasing number of body fabrication applications. U. S. Steel will be the
venture's primary customer and will be responsible for marketing the laser
welded blanks.

     USX owns a 46% interest in Transtar, which in 1988 purchased the former
domestic transportation businesses of USX including railroads, a dock company,
USS Great Lakes Fleet, Inc. and Warrior & Gulf Navigation Company. Blackstone
Transportation Partners, L.P. and Blackstone Capital Partners L.P., both
affiliated with The Blackstone Group, together own 53% of Transtar, and the
senior management of Transtar owns the remaining 1%.

     In November, 1997, U. S. Steel Group and VSZ a.s., announced plans for a
50-50 joint venture in Kosice, Slovakia, for the production and marketing of tin
mill products to serve an emerging Central European market. In February 1998,
the joint venture, doing business as VSZ U. S. Steel, s. r.o., took over
ownership and commenced operation of an existing tin mill facility (VSZ's Ocel
plant in Kosice) with an annual production capacity of 140,000 metric tons. The
joint venture plans to add 200,000 annual metric tons of new tin mill production
capacity in the next two years.

     In June, 1997, USX entered into the Clairton Partnership, a strategic
partnership with two limited partners to acquire an interest in three coke
batteries at its Clairton Works. The partnership has an annual coke production
capability of 1.5 million tons. U. S. Steel, the general partner, owns a 9.78%
interest in the Clairton Partnership.

                                       34

<PAGE>
 
     In 1997, U. S. Steel Group, through its subsidiary, United States Steel
Export Company de Mexico subsidiary, along with Feralloy Mexico, S.R.L. de C.V.,
and Intacero de Mexico, S.A. de C.V., formed a joint venture for a slitting and
warehousing facility in San Luis Potosi, Mexico. The joint venture will conduct
business as Acero Prime and will service primarily the appliance industry.
Construction will begin in 1998 with operations commencing in early 1999.

OTHER BUSINESSES

     In addition to Steel and Related Businesses, the U. S. Steel Group includes
various Other Businesses, the most significant of which are described in this
section. The Other Businesses that are included in the U. S. Steel Group
accounted for only 1% of the U.S. Steel Group's revenues in 1997, 1996 and 1995.

     USX owns a 27% interest in RMI Titanium Company ("RMI"), a leading producer
of titanium metal products. RMI is accounted for under the equity method (for
additional information, see Note 6 to the U. S. Steel Group Financial
Statements). RMI is a publicly traded company listed on the New York Stock
Exchange. In December 1996, USX issued $117 million of 6 3/4% Exchangeable Notes
Due February 1, 2000 ("Indexed Debt"), convertible into USX's remaining interest
in RMI common stock. For additional information on Indexed Debt, see Note 16,
footnote (e), to the USX Consolidated Financial Statements on page U-18.

     USX Realty Development develops real estate for sale or lease and manages
retail and office space, business and industrial parks and residential and
recreational properties.

     USX Credit manages a portfolio of approximately $34 million of real estate
and equipment loans which are generally secured by the real property or
equipment financed. USX Credit is not actively making new loan commitments.
 
PROPERTY, PLANT AND EQUIPMENT ADDITIONS

     For property, plant and equipment additions, including capital leases, see
"Management's Discussion and Analysis of Financial Condition, Cash flows and
Liquidity - Capital Expenditures for the U. S. Steel Group on page S-29.

                                       35

<PAGE>
 
ENVIRONMENTAL MATTERS

     The U. S. Steel Group maintains a comprehensive environmental policy
overseen by the Public Policy Committee of the USX Board of Directors. The
Environmental Affairs organization has the responsibility to ensure that the U.
S. Steel Group's operating organizations maintain environmental compliance
systems that are in accordance with applicable laws and regulations. The
Executive Environmental Committee, which is comprised of officers of the U. S.
Steel Group, is charged with reviewing its overall performance with various
environmental compliance programs. Also, the U. S. Steel Group, largely through
the American Iron and Steel Institute, continues its involvement in the
negotiation of various air, water, and waste regulations with federal, state and
local governments to assure the implementation of cost effective pollution
reduction strategies.

     The businesses of the U. S. Steel Group are subject to numerous federal,
state and local laws and regulations relating to the protection of the
environment. These environmental laws and regulations include the Clean Air Act
(the act, as amended by the 1990 amendments, the "CAA"), with respect to air
emissions, the Clean Water Act ("CWA") with respect to water discharges, the
Resource Conservation and Recovery Act ("RCRA") with respect to solid and
hazardous waste treatment, storage and disposal, and the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") with respect
to releases and remediation of hazardous substances.  In addition, all states
where the U. S. Steel Group operates have similar laws dealing with the same
matters.  These laws are constantly evolving and becoming increasingly
stringent. The ultimate impact of complying with existing laws and regulations
is not always clearly known or determinable due in part to the fact that certain
implementing regulations for laws such as RCRA and the CAA have not yet been
promulgated or in certain instances are undergoing revision. These environmental
laws and regulations, particularly the CAA, could result in substantially
increased capital, operating and compliance costs.

     For a discussion of environmental capital expenditures and the cost of
compliance for air, water, solid waste and remediation, see "Management's
Discussion and Analysis of Environmental Matters, Litigation and Contingencies"
on page S-31 and "Legal Proceedings" for the U. S. Steel Group on page 41.

     The U. S. Steel Group has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. In recent years, these expenditures have
been mainly for process changes in order to meet CAA obligations, although
ongoing compliance costs have also been significant. To the extent these
expenditures, as with all costs, are not ultimately reflected in the prices of
the U. S. Steel Group's products and services, operating results will be
adversely affected. U. S. Steel believes that its major domestic integrated
steel competitors are confronted by substantially similar conditions and thus
does not believe that its relative position with regard to such other
competitors is materially affected by the impact of environmental laws and
regulations. However, the costs and operating restrictions necessary for
compliance with environmental laws and regulations may have an adverse effect on
U. S. Steel's competitive position with regard to domestic mini-mills and some
foreign steel producers and producers of materials which compete with steel,
which may not be required to undertake equivalent costs in their operations. In
addition, the specific impact on each competitor may vary depending on a number
of factors, including the age and location of its operating facilities and its
production methods. For further information, see "Legal Proceedings on page 41,
and Management's Discussion and Analysis of Environmental Matters, Litigation
and Contingencies on page S-31."

Air

     The CAA imposed more stringent limits on air emissions, established a
federally mandated operating permit program and allowed for enhanced civil and
criminal enforcement sanctions. The principal impact of the CAA on the U. S.
Steel Group is on the coke-making and primary steel-making operations of U. S.
Steel, as described in this section. The coal mining operations and sales of U.
S. Steel Mining may also be affected.

     The CAA requires the regulation of hazardous air pollutants and development
and promulgation of Maximum Achievable Control Technology (MACT) Standards. The
amendment to the Chrome Electroplating MACT to include the chrome processes at
Gary and Fairless is expected in 1998.  The Pickling MACT is scheduled to be
finalized in April 1998.  The EPA is required to promulgate MACT standards for
integrated iron and steel plants and taconite iron ore processing by November
15, 2000. The impact of these new standards could be 

                                       36

<PAGE>
 
significant to U. S. Steel, but the cost is not capable of being reasonably
estimated until the rules are proposed or finalized.

     The CAA specifically addressed the regulation and control of coke ovens
batteries. The National Emission Standard for Hazardous Air Pollutants for coke
oven batteries was finalized in October 1993 setting forth the MACT standard
and, as an alternative, a Lowest Achievable Emission Rate (LAER) standard.
Effective January 1998, U. S. Steel elected to comply with the LAER standards.
U. S. Steel believes it will be able to meet the current LAER standards. The
LAER standards will be further revised in 2010 and additional health risk-based
standards are expected to be adopted in 2020.

     The CAA also mandates the nationwide reduction of emissions of acid rain
precursors (sulfur dioxide and nitrogen oxides) from fossil fuel-fired
electrical utility plants. Specified emission reductions are to be achieved by
2000. Phase I began on January 1, 1995, and applies to 110 utility plants
specifically listed in the law. Phase II, which begins on January 1, 2000, will
apply to other utility plants which may be regulated under the law. U. S. Steel,
like all other electricity consumers, will be impacted by increased electrical
energy costs that are expected as electric utilities seek rate increases to
comply with the acid rain requirements.

     In September 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards for ozone and particulate matter which are significantly more
stringent than prior standards. The impact of these revised standards could be
significant to U. S. Steel, but the cost is not capable of being reasonably
estimated until the final revised standards are issued and, more importantly,
the states implement their State Implementation Plans covering their standards.

     In 1997, all of the coal production of U. S. Steel Mining was metallurgical
coal, which is primarily used in coke production. While USX believes that the
new environmental requirements for coke ovens will not have an immediate effect
on U. S. Steel Mining, the requirements may encourage development of steelmaking
processes that reduce the usage of coke.

Water

     The U. S. Steel Group maintains the necessary discharge permits as required
under the National Pollutant Discharge Elimination System program of the CWA,
and it is in compliance with such permits.  U. S. Steel has reached preliminary
agreement with the EPA for a sediment remediation plan for the section of the
Grand Calumet River that runs through Gary Works. As proposed, this project
would require five to six years to complete after approval and would be followed
by an environmental recovery validation. The estimated program cost, which has
been accrued, is approximately $30 million.

Solid Waste

     The U. S. Steel Group continues to seek methods to minimize the generation
of hazardous wastes in its operations.  RCRA establishes standards for the
management of solid and hazardous wastes. Besides affecting current waste
disposal practices, RCRA also addresses the environmental effects of certain
past waste disposal operations, the recycling of wastes and the regulation of
storage tanks. Corrective action under RCRA related to past waste disposal
activities is discussed below under "Remediation."

Remediation

     A significant portion of the U. S. Steel Group's currently identified
environmental remediation projects relate to the remediation of former and
present operating locations. These projects include the remediation of the Grand
Calumet River (discussed above), and the closure and remediation of permitted
hazardous and non-hazardous waste landfills.

     The U. S. Steel Group is also involved in a number of remedial actions
under CERCLA, RCRA and other federal and state statutes, and it is possible that
additional matters may come to its attention which may require remediation. For
a discussion of remedial actions related to the U. S. Steel Group, see "Legal
Proceedings -U. S. Steel Group Environmental Proceedings."

                                       37

<PAGE>
 

I
TEM 2. PROPERTIES

     The location and general character of the principal oil and gas properties,
plants, mines, pipeline systems and other important physical properties of USX
are described in the Item 1. Business section of this document. Except for oil
and gas producing properties, which generally are leased, or as otherwise
stated, such properties are held in fee. The plants and facilities have been
constructed or acquired over a period of years and vary in age and operating
efficiency. At the date of acquisition of important properties, titles were
examined and opinions of counsel obtained, but no title examination has been
made specifically for the purpose of this document. The properties classified as
owned in fee generally have been held for many years without any material
unfavorably adjudicated claim.

     Several steel production facilities and interests in two liquefied natural
gas tankers are leased. See "Financial Statements and Supplementary Data - Notes
to Consolidated Financial Statements - 18. Leases" on page U-19.

     The basis for estimating oil and gas reserves is set forth in "Consolidated
Financial Statements and Supplementary Data - Supplementary Information on Oil
and Gas Producing Activities - Estimated Quantities of Proved Oil and Gas
Reserves" on pages U-32 and U-33.

     USX believes that its surface and mineral rights covering reserves are
adequate to assure the basic legal right to extract the minerals, but may not
yet have obtained all governmental permits necessary to do so.

     Unless otherwise indicated, all reserves shown are as of December 31, 1997.


ITEM 3. LEGAL PROCEEDINGS

     USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments related to the Marathon Group and
the U. S. Steel Group involving a variety of matters, including laws and
regulations relating to the environment. Certain of these matters are included
below in this discussion. The ultimate resolution of these contingencies could,
individually or in the aggregate, be material to the consolidated financial
statements and/or to the financial statements of the applicable group. However,
management believes that USX will remain a viable and competitive enterprise
even though it is possible that these contingencies could be resolved
unfavorably.

MARATHON GROUP

Environmental Proceedings

     The following is a summary of proceedings attributable to the Marathon
Group that were pending or contemplated as of December 31, 1997, under federal
and state environmental laws. Except as described herein, it is not possible to
predict accurately the ultimate outcome of these matters; however, management's
belief set forth in the first paragraph under Item 3. "Legal Proceedings" above
takes such matters into account.

     Claims under the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") and related state acts have been raised with respect to
the cleanup of various waste disposal and other sites. CERCLA is intended to
expedite the cleanup of hazardous substances without regard to fault.
Potentially responsible parties ("PRPs") for each site include present and
former owners and operators of, transporters to and generators of the substances
at the site. Liability is strict and can be joint and several. Because of
various factors including the ambiguity of the regulations, the difficulty of
identifying the responsible parties for any particular site, the complexity of
determining the relative liability among them, the uncertainty as to the most
desirable remediation techniques and the amount of damages and cleanup costs and
the time period during which such costs may be incurred, USX is unable to
reasonably estimate its ultimate cost of compliance with CERCLA.

     Projections, provided in the following paragraphs, of spending for and/or
timing of completion of specific projects are forward-looking statements. These
forward-looking statements are based on certain assumptions including, but not
limited to, the factors provided in the preceding paragraph. To the extent that
these assumptions prove to be inaccurate, future spending for, or timing of
completion of environmental projects may differ materially from those stated in
forward-looking statements.

                                       38

<PAGE>
 
     At December 31, 1997, USX had been identified as a PRP at a total of 20
CERCLA sites related to the Marathon Group. Based on currently available
information, which is in many cases preliminary and incomplete, USX believes
that its liability for cleanup and remediation costs in connection with each of
these sites will be under $1 million per site, and most will be under $100,000.

     In addition, there are 11 sites related to the Marathon Group where USX has
received information requests or other indications that USX may be a PRP under
CERCLA but where sufficient information is not presently available to confirm
the existence of liability.

     There are also 71 additional sites, excluding retail marketing outlets,
related to the Marathon Group where remediation is being sought under other
environmental statutes, both federal and state, or where private parties are
seeking remediation through discussions or litigation. Based on currently
available information, which is in many cases preliminary and incomplete, the
Marathon Group believes that its liability for cleanup and remediation costs in
connection with 14 of these sites will be under $100,000 per site, another 28
sites have potential costs between $100,000 and $1 million per site, 14 sites
may involve remediation costs between $1 million and $5 million per site. In
addition, cleanup and remediation at one site, described in the following
paragraph is expected to cost more than $5 million. There are 14 sites with
insufficient information to estimate any remediation costs.

     There is one site that involves a remediation program in cooperation with
the Michigan Department of Environmental Quality at a closed and dismantled
refinery site located near Muskegon, Mich. During the next 10 to 20 years, the
Marathon Group anticipates spending between $8 million and $12 million at this
site. Expenditures for 1998 are expected to be approximately $100,000.


     In January 1997, a Notice of Violation ("NOV") was served by the Illinois
Environmental Protection Agency ("EPA") on the Marathon Group, including
Marathon Oil Company (Robinson Refinery and Brand Marketing), Marathon Pipe Line
Company and Emro Marketing Company, consolidating various alleged violations of
federal and state environmental laws and regulations relating to air, water and
soil contamination. Based on the ongoing negotiations with Illinois EPA, a
penalty in excess of $100,000 may be assessed against each of these companies.
Negotiations continue with the State Attorney General's office and the Illinois
EPA to resolve these alleged violations.

     In October 1996, U.S. EPA Region 5 issued a Finding of Violation against
the Robinson Refinery alleging that it does not qualify for an exemption under
the National Emission Standards for Benzene Waste Operations pursuant to the
Clean Air Act (the act, as amended by the 1990 Amendments, the "CAA"), because
the Refinery's Total Annual Benzene releases exceed the limitation of 10
megagrams per year, and as a result, the Refinery is in violation of the
emission control, record keeping, and reports requirements. The Marathon Group
contends that it does qualify for the exemption.

     In March 1996, the U.S. Department of Justice ("DOJ") filed a civil
complaint in the U.S. District Court, Southern District, Illinois against the
Robinson, Ill. refinery for violations of the CAA and Resource Conservation and
Recovery Act ("RCRA"). The CAA violations are alleged to arise from the past
noncompliance with the State of Illinois opacity, particulate and carbon
monoxide air emission standards. The RCRA violation, which deals with a land
treatment unit, arises from alleged past noncompliance with regulations that
require the pretreatment of hazardous waste prior to disposal in a land
treatment unit. In December 1997, a settlement was reached with the U. S. EPA
and DOJ for a penalty of less than $100,000, and the Marathon Group has agreed
to perform a Supplemental Environmental Project ("SEP"). In addition, as a
result of a "stack test" taken in August 1996, U. S. EPA issued in October 1996,
a NOV against the Refinery alleging an additional violation of the State's air
emission standard dealing with particulate matter. Negotiations to settle this
NOV continue.

     The Illinois State Attorney General's ("AG") Office is challenging the
integrity of the sewer system at the Marathon Group's Robinson refinery based,
in part, on a release to the sewer that occurred in April 1993, and has
recommended a civil penalty of $228,000. In December 1997, the AG filed its
complaint before the Illinois Pollution Control Board in the case of (People v.
Marathon Oil Company), and a settlement has been reached whereby the Marathon
Group will pay a penalty less than $100,000 and will continue to maintain its
Sewer Inspection, Repair and Maintenance Program which it implemented in 1996.

                                       39

<PAGE>
 
     In connection with the formation of MAP all three of the refineries owned
by Ashland Inc. ("Ashland") were conveyed effective January 1, 1998, to MAP or
its subsidiaries. Ashland reported in its 1997 Form 10-K and updated in its Form
10-Q for the quarterly period ended December 31, 1997, that during 1997, U.S.
EPA completed comprehensive inspections of these three refineries, prior to
formation of MAP. These inspections evaluated Ashland's compliance with federal
environmental laws and regulations at those facilities.  Under the terms of its
agreements with MAP, Ashland has retained responsibility for matters arising out
of these inspections, including commencement of work as soon as practical on 
certain enumerated projects.


Posted Price Litigation

     The Marathon Group, alone or with other energy companies, has been named in
a number of lawsuits in State and Federal courts alleging various causes of
action related to crude oil royalty payments based on posted prices, including
underpayment of royalty interests, underpayment of severance taxes, antitrust
violations, and violation of the Texas common purchaser statute. Plaintiffs in
these actions include governmental entities and private entities or individuals,
and some seek class action status. All of these cases are in various stages of
preliminary activities. No class certification has been determined as to
Marathon in any case to date.

     During November 1997, Marathon and over twenty other defendants entered
into a proposed class settlement agreement covering antitrust and contract
claims from January 1, 1986, through September 30, 1997, excluding federal and
Indian royalty claims, common purchaser claims and severance tax claims. The
settlement agreement is pending approval by a U.S. District Court in Texas
(Southern District) and is subject to a fairness hearing. If the Court approves
the settlement, Marathon's payment, which is not expected to be material, should
be made in the second half of 1998.

     Marathon has learned recently that it has been named by private plaintiffs
as a defendant, along with other energy companies, in a lawsuit under the False
Claims Act in the U. S. District Court of Texas (Eastern District). On February
19, 1998, the U.S. DOJ announced that it had intervened against four of the
other energy-company defendants named such action. (U.S. ex rel., J. Benjamin
Johnson et al. v. Exxon Company USA et al.).

     The Marathon Group intends to vigorously defend such remaining cases.

                                       40

<PAGE>
 
U. S. STEEL GROUP

B&LE Litigation

     In 1994, judgments against the Bessemer & Lake Erie Railroad ("B&LE") in
the amount of approximately $498 million, plus interest, in the Lower Lake Erie
Iron Ore Antitrust Litigation were upheld and have been paid. A trial in a
related lawsuit (Pacific Great Lakes Corporation v. B&LE) filed under the Ohio
Valentine Act in the Cuyahoga County (Ohio) Court of Common Pleas in September
1995, was concluded in February 1996, with a jury verdict finding no injury to
the plaintiff. The plaintiff has appealed the verdict to the Cuyahoga County
Court of Appeals.

     The B&LE was a wholly owned subsidiary of USX throughout the period the
conduct occurred. It is now a subsidiary of Transtar, in which USX has a 46%
equity interest. USX is obligated to reimburse Transtar for judgments against
the B&LE in these matters.

Aloha Stadium Litigation

     A jury trial was held in June 1993, in a case filed in the Circuit Court of
the First Circuit of Hawaii by the State of Hawaii alleging, among other things,
that the weathering steel, including USS COR-TEN Steel, which was incorporated
into the Aloha Stadium was unsuitable for the purpose used. The State sought
damages of approximately $97 million for past and future repair costs and also
sought treble damages and punitive damages for deceptive trade practices and
fraud, respectively. In October 1993, the jury returned a verdict finding no
liability on the part of U. S. Steel. The State appealed the decision to the
Supreme Court of Hawaii, which, on June 24, 1996, reversed the order of the
trial court granting U. S. Steel's motion to dismiss the plaintiff's negligent
misrepresentation claim and also held the trial court's jury instructions on the
State's unfair, and deceptive trade practices claim to be erroneous. The Supreme
Court has vacated the jury verdict and remanded the case to the trial court for
further proceedings. Trial has been set for June 1998. Discovery is underway. On
February 3, 1998, USX and the State of Hawaii reached a tentative settlement of 
the litigation. The settlement is subject to execution of a definitive 
settlement agreement on which work is progressing. The settlement is not 
expected to adversely affect operating results.


Inland Steel Patent Litigation

     In July 1991, Inland Steel Company ("Inland") filed an action against USX
and another domestic steel producer in the U. S. District Court for the Northern
District of Illinois, Eastern Division, alleging defendants had infringed two of
Inland's steel-related patents. Inland seeks monetary damages of up to
approximately $50 million and an injunction against future infringement. USX in
its answer and counterclaim alleges the patents are invalid and not infringed
and seeks a declaratory judgment to such effect. In May 1993, a jury found USX
to have infringed the patents. The District Court has yet to rule on the
validity of the patents. In July 1993, the U. S. Patent Office rejected the
claims of the two Inland patents upon a reexamination at the request of USX and
the other steel producer. A further request was submitted by USX to the Patent
Office in October 1993, presenting additional questions as to patentability
which was granted and consolidated for consideration with the original request.
In 1994, the Patent Office issued a decision rejecting all claims of the Inland
patents. Inland has appealed this decision to the Patent Office Board of
Appeals. An oral hearing was held in March 1997. No decision has been reached.

Asbestos Litigation

     USX has been and is a defendant in a large number of cases in which
plaintiffs allege injury resulting from exposure to asbestos. Many of these
cases involve multiple plaintiffs and most have multiple defendants. These
claims fall into three major groups: (1) claims made under the Jones Act and
general maritime law by employees of the Great Lakes or Intercoastal Fleets,
former operations of USX; (2) claims made by persons who did work at U. S. Steel
Group facilities; and (3) claims made by industrial workers allegedly exposed to
an electrical cable product formerly manufactured by USX. To date all actions
resolved have been either dismissed or settled for immaterial amounts. It is not
possible to predict with certainty the outcome of these matters; however, based
upon present knowledge, USX believes that the remaining actions will be
similarly resolved. This statement of belief is a forward-looking statement.
Predictions as to the outcome of pending litigation are subject to substantial
uncertainties with respect to (among other things) factual and judicial
determinations, and actual results could differ materially from those expressed
in the forward-looking statements.

                                       41

<PAGE>
 
Environmental Proceedings

     The following is a summary of the proceedings attributable to the U. S.
Steel Group that were pending or contemplated as of December 31, 1997, under
federal and state environmental laws. Except as described herein, it is not
possible to accurately predict the ultimate outcome of these matters; however,
management's belief set forth in the first paragraph under "Item 3. Legal
Proceedings" above takes such matters into account.

     Claims under CERCLA and related state acts have been raised with respect to
the cleanup of various waste disposal and other sites. CERCLA is intended to
expedite the cleanup of hazardous substances without regard to fault. PRPs for
each site include present and former owners and operators of, transporters to
and generators of the substances at the site. Liability is strict and can be
joint and several. Because of various factors including the ambiguity of the
regulations, the difficulty of identifying the responsible parties for any
particular site, the complexity of determining the relative liability among
them, the uncertainty as to the most desirable remediation techniques and the
amount of damages and cleanup costs and the time period during which such costs
may be incurred, USX is unable to reasonably estimate its ultimate cost of
compliance with CERCLA.

Projections, provided in the following paragraphs, of spending for and/or timing
of completion of specific projects are forward-looking statements. These
forward-looking statements are based on certain assumptions including, but not
limited to, the factors provided in the preceding paragraph. To the extent that
these assumptions prove to be inaccurate, future spending for, or timing of
completion of environmental projects may differ materially from those stated in
forward-looking statements.

     At December 31, 1997, USX had been identified as a PRP at a total of 25
CERCLA sites related to the U. S. Steel Group. Based on currently available
information, which is in many cases preliminary and incomplete, USX believes
that its liability for cleanup and remediation costs in connection with eleven
of these sites will be between $100,000 and $1 million per site and seven will
be under $100,000.

     At the remaining seven sites, USX has no reason to believe that its share
in the remaining cleanup costs at any single site will exceed $5 million,
although it is not possible to accurately predict the amount of USX's share in
any final allocation of such costs. Following is a summary of the status of
these sites:

    1.  At USX's former Duluth, Minn. Works, USX expects to spend a total of $11
        million through 1998, of which more than $10 million had been spent at
        December 31, 1997. The Duluth Works was listed by the Minnesota
        Pollution Control Agency ("MPCA") under the Minnesota Environmental
        Response and Liability Act ("MERLA") on its Permanent List of
        Priorities. The EPA has consolidated and included the Duluth Works site
        with the St. Louis River and Interlake sites on the EPA's National
        Priorities List. The Duluth Works cleanup has proceeded since 1989. USX
        is conducting an engineering study of the estuary sediments and the
        construction of a breakwater in the estuary. Depending upon the method
        and extent of remediation at this site, future costs, which are
        presently unknown and indeterminable, may exceed existing estimates.

    2.  The Buckeye Reclamation Landfill, near St. Clairsville, Ohio, has been
        used at various times as a disposal site for coal mine refuse and
        municipal and industrial waste. USX is one of 15 PRPs that have
        indicated a willingness to enter into an agreed order with the EPA to
        perform a remediation of the site. Until there is a final determination
        of each PRP's proportionate share at the site, USX has agreed to accept
        a share of 9.26% under an interim allocation agreement among all 15
        PRPs. Since 1992, USX has spent $250,000 at the site, primarily on
        remedial design work estimated to total $2.5 million. Implementation of
        the remedial design plan, resulting in a long-term cleanup of the site,
        is estimated to cost approximately $28.5 million. One of the PRPs filed
        suit against the EPA, the Ohio EPA, and 13 PRPs including USX. The EPA,
        in turn, has filed suit against the PRPs to recover $1.5 million in
        oversight costs. In May 1996, USX entered into a settlement agreement to
        resolve the litigation. USX agreed to pay 4.8% of the estimated costs
        which would result in USX paying an additional amount of approximately
        $1.1 million over a two- to three-year period.

    3.  The D'Imperio/Ewan sites in New Jersey are waste disposal sites where a
        former USX subsidiary allegedly disposed of used paint and solvent
        wastes. USX has entered into a settlement agreement with the major PRPs
        at the sites which fixes USX's share of liability at approximately $1.2
        million, $400,000 of which USX has already paid. The balance, which is
        expected to be paid over the next several years, has been accrued.

    4.  The Berks Associates/Douglassville Site ("Berks Site") is situated on a
        50-acre parcel located on the Schuylkill River in Berks County, Pa. Used
        oil and solvent reprocessing operations were conducted on the Berks Site
        between 1941 and 1986. The EPA undertook the dismantling of the Berks
        Site's former processing area and instituted a cost recovery suit in
        July 1991 against 30 former Berks Site customers, as PRPs to recover $8
        million it expended in the process area dismantling. The 30 PRPs
        targeted by the EPA joined over 400 additional PRPs in the EPA's cost
        recovery litigation. On June 30, 1993, the EPA issued a unilateral
        administrative order to the original 30 PRPs ordering remediation which
        the EPA estimates will cost over $70 million. In June 1996, the PRPs
        proposed an alternative remedy

                                       42

<PAGE>
 
        estimated to cost approximately $20 million. USX expects its share of
        these costs to be approximately 7%. In September 1997, USX signed a
        consent decree to conduct a feasibility study at the site to identify an
        alternative, lower-cost remedy.

        In February 1996, USX and other Berks Site PRPs were sued by the
        Pennsylvania Department of Environmental Resources ("PaDER") for $6
        million in past costs.

    5.  In 1987 the California Department of Health Services ("DHS") issued a
        remedial action order for the GBF/Pittsburg landfill near Pittsburg,
        Calif. Records indicate that from 1972 through 1974, Pittsburg Works
        arranged for the disposal of approximately 2.6 million gallons of waste
        oil, sludge, caustic mud and acid which were eventually taken to this
        landfill for disposal. The DHS recently requested that an interim
        remediation of one of the plumes of site contamination be carried out as
        soon as possible. The Generators' Cooperative Group has agreed to fund
        the interim remediation which is expected to cost approximately
        $400,000, of which U. S. Steel paid $43,175. U. S. Steel's allocated
        share among all PRPs at this site is 10%. Total remediation costs are
        estimated to be between $18 million and $32 million. In June, 1997, the
        DHS issued a Remedial Action Plan ("RAP"). Work on the RAP has been
        deferred while a Group application for an alternative remedy is being
        reviewed. The GBF Respondents Group has initiated an action against
        parties implicated at the site who have failed to become involved in
        cleanup related activities.

    6.  In 1988, USX and three other PRPs agreed to the issuance of an
        administrative order by the EPA to undertake emergency removal work at
        the Municipal & Industrial Disposal Co. ("MIDC") site in Elizabeth, Pa.
        The cost of such removal, which has been completed, was approximately
        $4.2 million, of which USX paid $3.4 million. The EPA has indicated that
        further remediation of this site may be required in the future, but it
        has not conducted any assessment or investigation to support what
        remediation would be required. In October 1991, the PaDER placed the
        site on the Pennsylvania State Superfund list and began a Remedial
        Investigation and Feasibility Study ("RI/FS") which was issued. It is
        not possible to estimate accurately the cost of any remediation or USX's
        share in any final allocation formula; however, based on presently
        available information, USX may have been responsible for as much as 70%
        of the waste material deposited at the site. On October 10, 1995, the
        U.S. DOJ filed a complaint in the U.S. District Court for Western
        Pennsylvania against USX and other MIDC defendants to recover alleged
        costs incurred at the site. In June 1996, USX agreed to pay $245,000 to
        settle the government's claims for costs against USX, American Recovery,
        and Carnegie Natural Gas. USX has filed a cost recovery action against
        several parties who did not contribute to the cost of the removal
        activity at the site.

    7.  USX participated with 35 other PRPs in performing removal work at the
        Ekotek/Petrochem site in Salt Lake City, Utah under the terms of a 1991
        administrative order negotiated with the EPA. The removal work was
        completed in 1992 at a cost of over $9 million. In July 1992, the PRP
        Remediation Committee negotiated an administrative order on consent to
        perform a RI/FS of the site. The RI/FS was completed in 1995. A
        remediation plan estimated to cost $16.6 million was proposed by the EPA
        in 1995. In 1997, the EPA issued a revised Record of Decision with a
        remedial action estimated to cost $12.2 million. USX has contributed
        $630,000 through 1997 towards completing the removal work and performing
        the RI/FS. USX's proportionate share of costs presently being used by
        the PRP Remediation Committee is approximately 5% of the participating
        PRPs. The PRP Remediation Committee commenced cost recovery litigation
        against approximately 1,100 non-participating PRPs. Almost all of these
        defendants have settled their liability or joined the PRP Remediation
        Committee. In February 1997, the EPA issued an administrative order to
        USX and other PRPs to undertake the proposed remedial action and to
        reimburse approximately $5 million to de minimus PRPs who had earlier
        settled with the EPA on the basis of a substantially greater remedial
        cost estimate. On December 15, 1997, USX, along with forty other
        parties, signed a consent decree to clean up the site.


                                       43

<PAGE>
 
     In addition, there are 16 sites related to the U. S. Steel Group where USX
has received information requests or other indications that USX may be a PRP
under CERCLA but where sufficient information is not presently available to
confirm the existence of liability.

     There are also 39 additional sites related to the U. S. Steel Group where
remediation is being sought under other environmental statutes, both federal and
state, or where private parties are seeking remediation through discussions or
litigation. Based on currently available information, which is in many cases
preliminary and incomplete, the U. S. Steel Group believes that its liability
for cleanup and remediation costs in connection with six of these sites will be
under $100,000 per site, another five sites have potential costs between
$100,000 and $1 million per site, and eleven sites may involve remediation costs
between $1 million and $5 million.  Another of the 39 sites, the Grand Calumet
River remediation at Gary Works, is expected to have remediation costs in excess
of $5 million. Potential costs associated with remediation at the remaining
16 sites are not presently determinable.

The following is a discussion of remediation activities at the U. S. Steel
Group's major facilities:

     Gary Works

     In 1990 a consent decree was signed by USX which, among other things,
required USX to study and implement a program to remediate the sediment in a
portion of the Grand Calumet River. USX has developed a sediment remediation
plan for the section of the Grand Calumet River that runs through Gary Works. As
proposed, this project would require five to six years to complete after
approval and would be followed by an environmental recovery validation. The
estimated program cost, which has been accrued, is approximately $30 million.
USX is negotiating a consent decree with the EPA which will provide for the
expanded sediment remediation program and will resolve alleged violations of the
prior consent decree and National Pollutant Discharge Elimination System permit
since 1990. USX has reached an agreement in principle with the EPA to pay civil
penalties of $2.9 million for alleged violations of the Clean Water Act at Gary
Works. In addition, USX has reached an agreement in principle with the public
trustees to settle natural resource damage claims for the portion of the Grand
Calumet River that runs through Gary Works. This settlement obligates USX to
purchase and restore several parcels of property.

     In October 1996, USX was notified by the Indiana Department of
Environmental Management ("IDEM") acting as lead trustee, that IDEM and the U.
S. Department of the Interior had concluded a preliminary investigation of
potential injuries to natural resources related to releases of hazardous
substances from various municipal and industrial sources along the east branch
of the Grand Calumet River and Indiana Harbor Canal. The Public Trustees
completed a preassessment screen pursuant to federal regulations and have
determined to perform a NRD Assessment. USX was identified as a PRP along with
15 other companies owning property along the river and harbor canal. USX and
eight other PRPs have formed a joint defense group. The Trustees have notified
the public of their plan for assessment and have published copies of the plan. A
review of the plan has been conducted by the PRP joint defense group. Written
comments were submitted by the group. The group met with the Trustees on
November 7, 1997, and on December 9, 1997, for discussions of the Plan of
Assessment. At those meetings the group presented its proposal for a
restoration-based approach to the damage assessment process.

     In April 1995, the U. S. Steel Group began negotiations with the EPA on a
RCRA Corrective Action Order for Gary Works relating to the Solid Waste
Management Units throughout Gary Works. The parties have reached an agreement in
principle on the language for the Corrective Action Order which will require USX
to perform a RCRA Facility Investigation ("RFI") and a Corrective Measure Study
("CMS") at Gary Works.

     The IDEM issued NOVs to USX's Gary Works in 1994 alleging various
violations of air pollution requirements. In early 1996, USX paid a $6 million
penalty and agreed to install additional pollution control equipment and
programs costing approximately $100 million over a period of several years. In
January 1998, U. S. Steel received a draft Order from IDEM addressing resolution
of other past NOVs for alleged air violations and stipulated additional proposed
penalties of $875,000. U. S. Steel is reviewing the Order and will negotiate the
Order and an appropriate penalty.

                                       44

<PAGE>
 
     Clairton

     In 1987, USX and the PaDER entered into a consent Order to resolve an
incident in January 1985 involving the alleged unauthorized discharge of benzene
and other organic pollutants from Clairton Works in Clairton, Pa. That consent
Order required USX to pay a penalty of $50,000 and a monthly payment of $2,500
for five years. In 1990, USX and the PaDER reached agreement to amend the
consent Order. Under the amended Order, USX agreed to remediate the Peters Creek
Lagoon (a former coke plant waste disposal site); to pay a penalty of $300,000;
and to pay a monthly penalty of up to $1,500 each month until the former
disposal site is closed. USX has proposed a remedial program estimated to cost
$2.8 million.

     Fairless Works

     In January 1992, USX commenced negotiations with the EPA regarding the
terms of an administrative Order on consent, pursuant to the RCRA, under which
USX would perform a RFI and a CMS at Fairless Works. A Phase I RFI report was
submitted during the third quarter of 1997. A Phase II/III RFI will be submitted
following EPA approval. The RFI/CMS will determine whether there is a need for,
and the scope of, any remedial activities at Fairless Works.

     Fairfield Works

     In December 1995, USX reached an agreement in principle with the EPA and
the DOJ with respect to alleged RCRA violations at Fairfield Works. A consent
decree was signed by USX and the United States and filed with the court on
December 11, 1997, under which USX will pay a civil penalty of $1 million,
implement two SEPs costing a total of $1.75 million and implement a RCRA
corrective action at the facility.

                                       45

<PAGE>
 
     Mon Valley Works/Edgar Thomson Plant

     In September 1997, USX received a draft consent decree addressing issues
raised in a NOV issued by the EPA in January 1997. The NOV alleged air quality
violations at U. S. Steel's Edgar Thomson Plant, which is part of Mon Valley
Works. The draft consent decree addressed these issues, including various
operational requirements, which EPA believes are necessary to bring the plant
into compliance. USX has begun implementing some of the compliance requirements
identified by EPA. USX is meeting with EPA and other involved agencies to
negotiate a consent decree and an appropriate penalty. USX and the EPA have
tentatively agreed to a civil penalty of $1 million and the EPA is currently
evaluating certain SEPs proposed by the company as a means of mitigating the
final negotiated civil penalty.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                       46

<PAGE>
 

                                    PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS

   The principal market on which Marathon Stock and Steel Stock are traded is
the New York Stock Exchange. Information concerning the high and low sales
prices for the common stocks as reported in the consolidated transaction
reporting system and the frequency and amount of dividends paid during the last
two years is set forth in "Consolidated Financial Statements and Supplementary
Data - Selected Quarterly Financial Data (Unaudited)" on page U-29.

   As of January 31, 1998, there were 83,445 registered holders of Marathon
Stock and 65,373 registered holders of Steel Stock. On January 26, 1998, USX
redeemed all of the outstanding shares of Delhi Stock.

   The Board of Directors intends to declare and pay dividends on Marathon Stock
and Steel Stock based on the financial condition and results of operations of
the Marathon Group and the U. S. Steel Group respectively, although it has no
obligation under Delaware law to do so. In determining its dividend policy with
respect to Marathon Stock and Steel Stock, the Board will rely on the separate
financial statements of the Marathon Group and the U. S. Steel Group,
respectively. The method of calculating earnings per share for Marathon Stock
and Steel Stock reflects the Board's intent that separately reported earnings
and the surplus of the Marathon Group and the U. S. Steel Group, as determined
consistent with the USX Restated Certificate of Incorporation, are available for
payment of dividends to the respective classes of stock, although legally
available funds and liquidation preferences of these classes of stock do not
necessarily correspond with these amounts. Dividends on all classes of preferred
stock and USX common stock are limited to legally available funds of USX, which
are determined on the basis of the entire Corporation. Distributions on Marathon
Stock and Steel Stock would be precluded by a failure to pay dividends on any
series of preferred stock of USX. In addition, net losses of any group, as well
as dividends or distributions on any class of USX common stock or series of
preferred stock and repurchases of any class of USX common stock or preferred
stock at prices in excess of par or stated value, will reduce the funds of USX
legally available for payment of dividends on the two classes of USX common
stock as well as any preferred stock.

   Dividends on Steel Stock are further limited to the Available Steel Dividend
Amount. Net losses of the Marathon Group and distributions on Marathon Stock,
and on any preferred stock attributed to the Marathon Group will not reduce the
funds available for declaration and payment of dividends on Steel Stock unless
the legally available funds of USX are less than the Available Steel Dividend
Amount.

   See "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements - 22. Dividends" on page U-22.

   The Board has adopted certain policies with respect to the Marathon Group and
the U. S. Steel Group, including, without limitation, the intention to: (i)
limit capital expenditures of the U. S. Steel Group over the long term to an
amount equal to the internally generated cash flow of the U. S. Steel Group,
including funds generated by sales of assets of the U. S. Steel Group, (ii) sell
assets and provide services between the Marathon Group and the U. S. Steel Group
only on an arm's-length basis and (iii) treat funds generated by sales of
Marathon Stock or Steel Stock and securities convertible into such stock as
assets of the Marathon Group or the U. S. Steel Group, as the case may be, and
apply such funds to acquire assets or reduce liabilities of the Marathon Group
or the U. S. Steel Group, respectively. These policies may be modified or
rescinded by action of the Board, or the Board may adopt additional policies,
without the approval of holders of the two classes of USX common stock, although
the Board has no present intention to do so.

                                       47

<PAGE>
 
Fiduciary Duties of the Board; Resolution of Conflicts

   Under Delaware law, the Board must act with due care and in the best interest
of all the stockholders, including the holders of the shares of each class of
USX common stock. The interests of the holders of any class of USX common stock
may, under some circumstances, diverge or appear to diverge. Examples include
the optional exchange of Steel Stock for Marathon Stock at the 10% premium, the
determination of the record date of any such exchange or for the redemption of
any Steel Stock; the establishing of the date for public announcement of the
liquidation of USX and the commitment of capital among the Marathon Group and
the U. S. Steel Group.

   Because the Board owes an equal duty to all common stockholders regardless of
class, the Board is the appropriate body to deal with these matters. In order to
assist the Board in this regard, USX has formulated policies to serve as
guidelines for the resolution of matters involving a conflict or a potential
conflict, including policies dealing with the payment of dividends, limiting
capital investment in the U. S. Steel Group over the long term to its internally
generated cash flow and allocation of corporate expenses and other matters. The
Board has been advised concerning the applicable law relating to the discharge
of its fiduciary duties to the common stockholders in the context of the
separate classes of USX common stock and has delegated to the Audit Committee of
the Board the responsibility to review matters which relate to this subject and
report to the Board. While the classes of USX common stock may give rise to an
increased potential for conflicts of interest, established rules of Delaware law
would apply to the resolution of any such conflicts. In general, under Delaware
law, a good faith determination by a disinterested and adequately informed Board
with respect to any such matter would be a defense to any claim of liability
made on behalf of the holders of any class of USX common stock. USX is aware of
no precedent concerning the manner in which such rules of Delaware law would be
applied in the context of its capital structure.

                                       48

<PAGE>
 

Item 6.  SELECTED FINANCIAL DATA
         USX - Consolidated


<TABLE>
<CAPTION>
                                                                     DOLLARS IN MILLIONS (EXCEPT PER SHARE DATA)
                                                                  --------------------------------------------------
                                                                   1997       1996       1995       1994       1993
                                                                  -------    -------    -------    -------   -------
<S>                                                               <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
  Revenues(a) (c)..............................................   $22,588    $22,977    $20,413    $19,055    $17,798
  Income from Operations(b) (c)................................     1,705      1,779        726      1,174        285
  Includes:
    Inventory market valuation charges (credits)...............       284       (209)       (70)      (160)       241
    Restructuring charges (credits)............................         -          -          -          -         42
    Impairment of long-lived assets............................         -          -        675          -          -
  Income (loss) from continuing operations.....................       908        946        217        532       (179)
  Income (loss) from discontinued operations...................        80          6          4        (31)        12
  Extraordinary loss and cumulative effect
   of changes in accounting principles.........................         -         (9)        (7)         -        (92)
  Net income (loss)............................................   $   988    $   943    $   214    $   501    $  (259)
  Noncash credit from exchange of preferred stock (d)..........        10          -          -          -          -
  Dividends on preferred stock.................................       (13)       (22)       (28)       (31)       (27)
                                                                  -------    -------    -------    -------    -------
  Net income (loss) applicable to common stocks................   $   985    $   921    $   186    $   470    $  (286)
</TABLE>

- ----------------
(a)  Consists of sales, dividend and affiliate income, net gains on disposal of
     assets, gain on affiliate stock offering and other income.  Amounts prior
     to 1997 have been reclassified to conform to 1997 classifications.
(b)  Consists of operating income, dividend and affiliate income, net gains on
     disposal of investments, gain on affiliate stock offering and other income.
     Amounts prior to 1997 have been reclassified to conform to 1997
     classifications.
(c)  Excludes amounts for the Delhi Companies, which have been reclassified as
     discontinued operations.  Amounts prior to 1997 have been reclassified to
     conform to 1997 classifications.  See Note 3 to the Consolidated Financial
     Statements.
(d)  See Note 26 to the Consolidated Financial Statements.


<TABLE>
<CAPTION>

COMMON SHARE DATA
MARATHON STOCK:
<S>                                                              <C>        <C>        <C>       <C>         <C> 
  Income (loss) before extraordinary
     loss and cumulative effect of
     changes in accounting principles
     applicable to Marathon Stock..............................   $  456     $  671     $ (87)     $  315     $  (12)
  Per share-basic (in dollars).................................     1.59       2.33      (.31)       1.10       (.04)
     -Diluted (in dollars).....................................     1.58       2.31      (.31)       1.10       (.04)

  Net income (loss) applicable to
     Marathon Stock............................................      456        664       (92)        315        (35)
  Per share-basic (in dollars).................................     1.59       2.31      (.33)       1.10       (.12)
     -Diluted (in dollars).....................................     1.58       2.29      (.33)       1.10       (.12)

  Dividends paid (in dollars)..................................      .76        .70       .68         .68        .68
  Common Stockholders' Equity
  Per Share (in dollars).......................................    12.53      11.62      9.99       11.01      10.58
</TABLE>


                                       49

<PAGE>
 
SELECTED FINANCIAL DATA (contd.)
USX - Consolidated (contd.)

<TABLE>
<CAPTION>
                                                           Dollars in millions (except per share data)
                                                           ------------------------------------------
                                                 1997          1996          1995         1994           1993
                                               -------       -------       -------       -------        -------
<S>                                           <C>           <C>           <C>           <C>            <C>
Steel Stock:
   Income (loss) before extraordinary
      loss and cumulative effect of
      changes in accounting principles
      applicable to Steel Stock..............  $   449       $   253       $   279       $   176        $  (190)
   Per share-basic (in dollars)..............     5.24          3.00          3.53          2.35          (2.96)
      -Diluted (in dollars)..................     4.88          2.97          3.43          2.33          (2.96)

   Net income (loss) applicable to
      Steel Stock............................      449           251           277           176           (259)
   Per share-basic (in dollars)..............     5.24          2.98          3.51          2.35          (4.04)
      -Diluted (in dollars)..................     4.88          2.95          3.41          2.33          (4.04)

   Dividends paid (in dollars)...............     1.00          1.00          1.00          1.00           1.00
      Common Stockholders' Equity
      per share (in dollars).................    20.56         18.37         16.10         12.01           8.32

Balance Sheet Data-December 31:
   Capital expenditures-for year.............  $ 1,373       $ 1,168       $ 1,016       $ 1,033        $ 1,151
   Total assets..............................   17,284        16,980        16,743        17,517         17,414
   Capitalization:
      Notes payable..........................  $   121       $    81       $    40       $     1        $     1
      Total long-term debt...................    3,403         4,212         4,937         5,599          5,970
      Minority interests(a)..................      432           250           250           250              5
      Redeemable Delhi Stock(b)..............      195             -             -             -              -
      Preferred stock........................        3             7             7           112            112
      Common stockholders' equity............    5,397         5,015         4,321         4,190          3,752
                                               -------       -------       -------       -------        -------
          Total capitalization...............  $ 9,551       $ 9,565       $ 9,555       $10,152        $ 9,840
                                               =======       =======       =======       =======        =======

   Ratio of earnings to fixed charges(e).....     4.11          3.90          1.62          2.18           (c)

   Ratio of earnings to combined fixed
      charges and preferred stock
      dividends(e)...........................     3.92          3.62          1.49          2.01           (d)
</TABLE>

- --------------------
(a)  Consists of preferred stock of subsidiary, minority interests in common
     stock of subsidiaries, and trust preferred securities.
(b)  On January 26, 1998, USX redeemed all of the outstanding shares of Delhi
     Stock.  For additional information regarding Delhi Stock, see Income Per
     Common Share on page U-3, and Note 3 to the Consolidated Financial
     Statements.
(c)  Earnings did not cover fixed charges by $312 million.
(d)  Earnings did not cover combined fixed charges and preferred stock dividends
     by $356 million.
(e)  Amounts represent combined fixed charges and earnings from continuing
     operations, and have been reclassified to conform to 1997 classifications.

                                       50

<PAGE>
 
SELECTED FINANCIAL DATA (contd.)
USX - Marathon Group


<TABLE>
<CAPTION>
                                                              Dollars in millions (except per share data)
                                                         ----------------------------------------------------
                                                            1997        1996       1995       1994      1993
                                                          -------     -------    -------    -------    -------
<S>                                                    <C>         <C>         <C>        <C>        <C>
Statement of Operations Data:
   Revenues(a).......................................     $15,754      $16,394    $13,913    $12,949    $12,021
   Income from Operations(b).........................         932        1,296        147        776        228
   Includes:
       Inventory market valuation
         charges (credits)...........................         284         (209)       (70)      (160)       241
       Impairment of long-lived assets...............           -            -        659          -          -
   Income (loss) before extraordinary
     loss and cumulative effect of
     changes in accounting principles................         456          671        (83)       321         (6)
   Net income (loss).................................     $   456      $   664    $   (88)   $   321    $   (29)
   Dividends on preferred stock......................           -            -         (4)        (6)        (6)
                                                          -------      -------    -------    -------    -------
   Net income (loss) applicable to
       Marathon Stock................................     $   456      $   664    $   (92)   $   315    $   (35)

- -----------------------------------------------------------------------------------------------------------------------------------
Per Common Share Data

   Income (loss) before extraordinary
      loss and cumulative effect of
      changes in accounting principles
      - basic........................................     $  1.59      $  2.33    $  (.31)   $  1.10    $  (.04)
      - diluted......................................        1.58         2.31       (.31)      1.10       (.04)
   Net income (loss)-basic...........................        1.59         2.31       (.33)      1.10       (.12)
      - diluted......................................        1.58         2.29       (.33)      1.10       (.12)
   Dividends paid....................................         .76          .70        .68        .68        .68
   Common stockholders' equity.......................       12.53        11.62       9.99      11.01      10.58
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data-December 31:
   Capital expenditures-for year.....................     $ 1,038      $   751    $   642    $   753    $   910
   Total assets......................................      10,565       10,151     10,109     10,951     10,822


   Capitalization:
      Notes payable..................................     $   108      $    59    $    31    $     1    $     1
      Total long-term debt...........................       2,893        2,906      3,720      4,038      4,297
      Preferred stock of subsidiary..................         184          182        182        182          -
      Preferred stock................................           -            -          -         78         78
      Common stockholders' equity....................       3,618        3,340      2,872      3,163      3,032
                                                          -------      -------    -------    -------    -------
        Total capitalization.........................     $ 6,803      $ 6,487    $ 6,805    $ 7,462    $ 7,408
                                                          =======      =======    =======    =======    =======
</TABLE>

- ----------------------------
(a)  Consists of sales, dividend and affiliate income, net gains on disposal of
     assets, gain on affiliate stock offering and other income.  Amounts prior
     to 1997 have been reclassified to conform to 1997 classifications.
(b)  Consists of operating income, dividend and affiliate income, net gains on
     disposal of investments, gain on affiliate stock offering and other income.
     Amounts prior to 1997 have been reclassified to conform to 1997
     classifications.

                                       51

<PAGE>
 
SELECTED FINANCIAL DATA (contd.)
USX - U. S. Steel  Group


<TABLE>
<CAPTION>

                                                                     DOLLARS IN MILLIONS (EXCEPT PER SHARE DATA)
                                                                     ------------------------------------------
                                                                 1997       1996       1995       1994       1993
                                                                ------     ------     ------     ------     ------
<S>                                                           <C>        <C>        <C>       <C>       <C>
STATEMENT OF OPERATIONS  DATA:
     Revenues(a)..............................                 $ 6,941     $ 6,670    $ 6,557    $ 6,141   $ 5,822
     Income from Operations(b)................                     773         483        582        388        61
 Includes:
  Restructuring charges.......................                       -           -          -          -        42
  Impairment of long-lived assets.............                       -           -         16          -         -
 Income (loss) before extraordinary
  loss and cumulative effect of
  changes in accounting principles............                     452         275        303        201      (169)
 Net income (loss)............................                  $  452     $   273    $   301     $  201   $  (238)
 Noncash credit from exchange
 of preferred stock...........................                      10           -          -          -         -
 Dividends on preferred stock.................                     (13)        (22)       (24)       (25)      (21)
                                                                ------      ------     ------     ------    ------
  Net income (loss) applicable to
  Steel Stock.................................                  $  449     $   251    $   277     $  176   $  (259)


- -------------------------------------------------------------------------------------------------------------------


PER COMMON SHARE DATA

 Income (loss) before extraordinary
  loss and cumulative effect of
  changes in accounting principles
  -basic......................................                  $ 5.24      $ 3.00     $ 3.53     $ 2.35    $(2.96)
  -diluted....................................                    4.88        2.97       3.43       2.33     (2.96)
 Net income (loss)-basic......................                    5.24        2.98       3.51       2.35     (4.04)
  -diluted....................................                    4.88        2.95       3.41       2.33     (4.04)
 Dividends paid...............................                    1.00        1.00       1.00       1.00      1.00
 Common stockholders' equity..................                   20.56       18.37      16.10      12.01      8.32


- -------------------------------------------------------------------------------------------------------------------


BALANCE SHEET DATA-DECEMBER 31:
 Capital expenditures-for year................                  $  261      $  337     $  324     $  248    $  198
 Total assets.................................                   6,694       6,580      6,521      6,480     6,629

 Capitalization:
  Notes payable...............................                  $   13      $   18     $    8     $    -   $     -
  Total long-term debt........................                     510       1,087      1,016      1,453     1,562
  Minority interest including
   preferred stock of subsidiary..............                      66          64         64         64         5
  Trust Preferred Securities..................                     182           -          -          -         -
  Preferred stock.............................                       3           7          7         32        32
  Common stockholders' equity.................                   1,779       1,559      1,337        913       585
                                                                ------      ------     ------     ------    ------
    Total capitalization                                        $2,553      $2,735     $2,432     $2,462    $2,184
                                                                ======      ======     ======     ======    ======
</TABLE>

- --------------------
(a)  Consists of sales, dividend and affiliate income, net gains on disposal of
     assets, gain on affiliate stock offering and other income.  Amounts prior
     to 1997 have been reclassified to conform to 1997 classifications.
(b)  Consists of operating income, dividend and affiliate income, net gains on
     disposal of investments, gain on affiliate stock offering and other income.
     Amounts prior to 1997 have been reclassified to conform to 1997
     classifications.

                                       52

<PAGE>
 
SELECTED FINANCIAL DATA (contd.)


Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

         Indexes to Financial Statements, Supplementary Data, Management's
Discussion and Analysis, and Quantitative and Qualitative Disclosures About
Market Risk of USX Consolidated, the Marathon Group and the U. S. Steel Group
are presented immediately preceding pages U-1, M-1 and S-1, respectively.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Indexes to Financial Statements, Supplementary Data, Management's
Discussion and Analysis, and Quantitative and Qualitative Disclosures About
Market Risk for USX Consolidated, the Marathon Group and the U. S. Steel Group
are presented immediately preceding pages U-1, M-1 and S-1, respectively.


Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

         Not applicable.

                                       53

<PAGE>
 
- --------------------------------
                            USX
- --------------------------------


            Index to Consolidated Financial Statements, Supplementary
            Data, Management's Discussion and Analysis and Quantitative and 
            Qualitative Disclosures About Market Risk
 
 
                                                                           Page
                                                                               
                                                                           ----
            Management's Report..........................................  U-1 
                                                                               
            Audited Consolidated Financial Statements:                         
                                                                               
              Report of Independent Accountants..........................  U-1 
                                                                               
              Consolidated Statement of Operations.......................  U-2 
                                                                               
              Consolidated Balance Sheet.................................  U-4 
                                                                               
              Consolidated Statement of Cash Flows.......................  U-5 
                                                                               
              Consolidated Statement of Stockholders' Equity.............  U-6 
                                                                               
              Notes to Consolidated Financial Statements.................  U-8 
                                                                               
            Selected Quarterly Financial Data............................  U-29
                                                                               
            Principal Unconsolidated Affiliates..........................  U-30
                                                                               
            Supplementary Information....................................  U-30
                                                                               
            Five-Year Operating Summary -- Marathon Group................  U-35
                                                                               
            Five-Year Operating Summary -- U. S. Steel Group.............  U-37
                                                                               
            Five-Year Financial Summary..................................  U-38
                                                                               
            Management's Discussion and Analysis.........................  U-39
                                                                               
            Quantitative and Qualitative Disclosures About Market Risk...  U-55



<PAGE>
 
             Management's Report

             The accompanying consolidated financial statements of USX
             Corporation and Subsidiary Companies (USX) are the responsibility
             of and have been prepared by USX in conformity with generally
             accepted accounting principles. They necessarily include some
             amounts that are based on best judgments and estimates. The
             consolidated financial information displayed in other sections of
             this report is consistent with these consolidated financial
             statements.

                USX seeks to assure the objectivity and integrity of its
             financial records by careful selection of its managers, by
             organizational arrangements that provide an appropriate division of
             responsibility and by communications programs aimed at assuring
             that its policies and methods are understood throughout the
             organization.

                USX has a comprehensive formalized system of internal accounting
             controls designed to provide reasonable assurance that assets are
             safeguarded and that financial records are reliable. Appropriate
             management monitors the system for compliance, and the internal
             auditors independently measure its effectiveness and recommend
             possible improvements thereto. In addition, as part of their audit
             of the consolidated financial statements, USX's independent
             accountants, who are elected by the stockholders, review and test
             the internal accounting controls selectively to establish a basis
             of reliance thereon in determining the nature, extent and timing of
             audit tests to be applied.

                The Board of Directors pursues its oversight role in the
             area of financial reporting and internal accounting control through
             its Audit Committee. This Committee, composed solely of
             nonmanagement directors, regularly meets (jointly and separately)
             with the independent accountants, management and internal auditors
             to monitor the proper discharge by each of its responsibilities
             relative to internal accounting controls and the consolidated
             financial statements.


<TABLE>
<CAPTION>
             <S>                             <C>                          <C> 
             Thomas J. Usher                 Robert M. Hernandez          Kenneth L. Matheny
             Chairman, Board of Directors    Vice Chairman                Vice President
             & Chief Executive Officer       & Chief Financial Officer    & Comptroller
</TABLE>



             Report of Independent Accountants

             To the Stockholders of USX Corporation:

             In our opinion, the accompanying consolidated financial statements
             appearing on pages U-2 through U-28 present fairly, in all material
             respects, the financial position of USX Corporation and its
             subsidiaries at December 31, 1997 and 1996, and the results of
             their operations and their cash flows for each of the three years
             in the period ended December 31, 1997 in conformity with generally
             accepted accounting principles. These financial statements are the
             responsibility of USX's management; our responsibility is to
             express an opinion on these financial statements based on our
             audits. We conducted our audits of these statements in accordance
             with generally accepted auditing standards which require that we
             plan and perform the audit to obtain reasonable assurance about
             whether the financial statements are free of material misstatement.
             An audit includes examining, on a test basis, evidence supporting
             the amounts and disclosures in the financial statements, assessing
             the accounting principles used and significant estimates made by
             management, and evaluating the overall financial statement
             presentation. We believe that our audits provide a reasonable basis
             for the opinion expressed above.

                As discussed in Note 5, page U-11, in 1995 USX adopted a new
             accounting standard for the impairment of long-lived assets.

             Price Waterhouse LLP
             600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
             February 10, 1998


                                                                             U-1

<PAGE>
 
                Consolidated Statement of Operations


<TABLE>
<CAPTION>
                (Dollars in millions)                                                     1997      1996      1995
                -----------------------------------------------------------------------------------------------------
                <S>                                                                       <C>       <C>       <C>
                REVENUES:                                  
                 Sales (Note 4)                                                           $22,375   $22,743   $20,273
                 Dividend and affiliate income                                                105        99       100
                 Gain on disposal of assets                                                    94        71        29
                 Gain on affiliate stock offering (Note 8)                                      -        53         -
                 Other income                                                                  14        11        11
                                                                                          -------   -------   -------
                       Total revenues                                                      22,588    22,977    20,413
                                                                                          -------   -------   ------- 
                COSTS AND EXPENSES:                                     
                 Cost of sales (excludes items shown below)                                16,047    16,930    14,522      
                 Selling, general and administrative expenses                                 218       144       163 
                 Depreciation, depletion and amortization                                     967       985     1,135 
                 Taxes other than income taxes                                              3,178     3,202     3,113 
                 Exploration expenses                                                         189       146       149 
                 Inventory market valuation charges (credits) (Note 19)                       284      (209)      (70)
                 Impairment of long-lived assets (Note 5)                                       -         -       675 
                                                                                           ------   -------   ------- 
                       Total costs and expenses                                            20,883    21,198    19,687 
                                                                                           ------   -------   -------  
                INCOME FROM OPERATIONS                                                      1,705     1,779       726  
                Net interest and other financial costs (Note 6)                               347       421       466  
                                                                                           ------   -------   -------
                INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                       1,358     1,358       260  
                Provision for estimated income taxes (Note 12)                                450       412        43  
                                                                                           ------   -------   -------
                INCOME FROM CONTINUING OPERATIONS                                             908       946       217
                                                                                           ------   -------   -------  
                DISCONTINUED OPERATIONS (Note 3):                 
                 Income (loss) from operations (net of income tax)                             (1)        6         4  
                 Gain on disposal (net of income tax)                                          81         -         - 
                                                                                           ------   -------   -------   
                INCOME FROM DISCONTINUED OPERATIONS                                            80         6         4 
                                                                                           ------   -------   -------   
                Extraordinary loss (Note 7)                                                     -         9         7 
                                                                                           ------   -------   -------  
                NET INCOME                                                                    988       943       214    
                Noncash credit from exchange of preferred stock (Note 26)                      10         -         -    
                Dividends on preferred stock                                                  (13)      (22)      (28)   
                                                                                          -------   -------   -------    
                NET INCOME APPLICABLE TO COMMON STOCKS                                    $   985   $   921   $   186     
                -----------------------------------------------------------------------------------------------------        
</TABLE>


                The accompanying notes are an integral part of these
                consolidated financial statements.


U-2

<PAGE>
 
                Income Per Common Share


<TABLE> 
<CAPTION> 
                (Dollars in millions, except per share data)     1997   1996    1995
                ---------------------------------------------------------------------- 
                <S>                                              <C>    <C>     <C> 
                CONTINUING OPERATIONS
                APPLICABLE TO MARATHON STOCK:
                  Income (loss) before extraordinary loss        $ 456  $ 671   $ (87)
                  Extraordinary loss                                 -     (7)     (5)
                                                                 -----  -----   ------
                  Net income (loss)                              $ 456  $ 664   $ (92)
                  PER SHARE DATA
                   BASIC:
                    Income (loss) before extraordinary loss      $1.59  $2.33   $(.31)
                    Extraordinary loss                               -   (.02)   (.02)
                                                                 -----  -----   ------
                    Net income (loss)                            $1.59  $2.31   $(.33)
                  DILUTED:
                    Income (loss) before extraordinary loss      $1.58  $2.31   $(.31)
                    Extraordinary loss                               -   (.02)   (.02)
                                                                 -----  -----   ------
                    Net income (loss)                            $1.58  $2.29   $(.33)
                ----------------------------------------------------------------------
                APPLICABLE TO STEEL STOCK:
                 Income before extraordinary loss                $ 449  $ 253   $ 279
                 Extraordinary loss                                  -     (2)     (2)
                                                                 -----  -----   ------
                 Net income                                      $ 449  $ 251   $ 277
                 PER SHARE DATA
                  BASIC:
                   Income before extraordinary loss              $5.24  $3.00   $3.53
                   Extraordinary loss                                -   (.02)   (.02)
                                                                 -----  -----   ------
                   Net income                                    $5.24  $2.98   $3.51
                  DILUTED:
                   Income before extraordinary loss              $4.88  $2.97   $3.43
                   Extraordinary loss                                -   (.02)   (.02)
                                                                 -----  -----   ------
                   Net income                                    $4.88  $2.95   $3.41
                ----------------------------------------------------------------------
                DISCONTINUED OPERATIONS
                APPLICABLE TO OUTSTANDING DELHI STOCK:
                 Income before extraordinary loss                $79.7  $ 6.4   $ 1.4
                 Extraordinary loss                                  -    (.5)    (.3)
                                                                 -----  -----   ------
                 Net income                                      $79.7  $ 5.9   $ 1.1
                 PER SHARE DATA
                  BASIC:
                   Income before extraordinary loss              $8.43  $ .67   $ .15
                   Extraordinary loss                                -   (.06)   (.03)
                                                                 -----  -----   ------
                   Net income                                    $8.43  $ .61   $ .12
                  DILUTED:
                   Income before extraordinary loss              $8.41  $ .67   $ .15
                   Extraordinary loss                                -   (.06)   (.03)
                                                                 -----  -----   ------
                   Net income                                    $8.41  $ .61   $ .12
                ----------------------------------------------------------------------
</TABLE>


                See Note 24, for a description and computation of income per
                common share.
                The accompanying notes are an integral part of these
                consolidated financial statements.


                                                                             U-3

<PAGE>
 
             Consolidated Balance Sheet


<TABLE> 
<CAPTION> 
             (Dollars in millions)                                                   December 31       1997    1996
             --------------------------------------------------------------------------------------------------------
             <S>                                                                     <C>            <C>       <C> 
             ASSETS
             Current assets:
               Cash and cash equivalents                                                            $    54   $    55
               Receivables, less allowance for doubtful accounts of
                $15 and $26 (Note 13)                                                                 1,417     1,270
               Inventories (Note 19)                                                                  1,685     1,939
               Deferred income tax benefits (Note 12)                                                   229        57
               Other current assets                                                                      87        81
                                                                                                    -------   -------
                  Total current assets                                                                3,472     3,402

             Investments and long-term receivables, less reserves
               of $15 and $17 (Note 14)                                                               1,028       854
             Property, plant and equipment - net (Note 17)                                           10,062    10,404
             Prepaid pensions (Note 10)                                                               2,247     2,014
             Other noncurrent assets                                                                    280       306
             Cash restricted for redemption of Delhi Stock (Note 3)                                     195         -
                                                                                                    -------   -------
                  Total assets                                                                      $17,284   $16,980
             --------------------------------------------------------------------------------------------------------
             LIABILITIES
             Current liabilities:
               Notes payable                                                                        $   121   $    81

               Accounts payable                                                                       2,011     2,204
               Payroll and benefits payable                                                             521       475
               Accrued taxes                                                                            304       304
               Accrued interest                                                                          95       102
               Long-term debt due within one year (Note 16)                                             471       353
                                                                                                    -------   -------
                  Total current liabilities                                                           3,523     3,519
             Long-term debt (Note 16)                                                                 2,932     3,859
             Long-term deferred income taxes (Note 12)                                                1,353     1,097
             Employee benefits (Note 11)                                                              2,713     2,797
             Deferred credits and other liabilities                                                     736       436
 
             Preferred stock of subsidiary (Note 25)                                                    250       250
             USX obligated mandatorily redeemable convertible preferred
              securities of a subsidiary trust holding solely junior subordinated
              convertible debentures of USX (Note 26)                                                   182         -
             Redeemable Delhi Stock (Note 3)                                                            195         -
 
             STOCKHOLDERS' EQUITY (Details on pages U-6 and U-7)
             Preferred stock (Note 27)-
               6.50% Cumulative Convertible issued - 2,962,037 shares and
                6,900,000 shares ($148 and $345 liquidation preference, respectively)                     3         7
             Common stocks:
               Marathon Stock issued - 288,786,343 shares and 287,525,213 shares
                (par value $1 per share, authorized 550,000,000 shares)                                 289       288
               Steel Stock issued - 86,577,799 shares and 84,885,473 shares
                (par value $1 per share, authorized 200,000,000 shares)                                  86        85
               Delhi Stock issued - 9,448,269 shares
                (par value $1 per share, authorized 50,000,000 shares) (Note 3)                           -         9
             Additional paid-in capital                                                               3,924     4,150
             Retained earnings                                                                        1,138       517
             Other equity adjustments                                                                   (40)      (34)
                                                                                                    -------   -------
                  Total stockholders' equity                                                          5,400     5,022
                                                                                                    -------   -------
                  Total liabilities and stockholders' equity                                        $17,284   $16,980
             --------------------------------------------------------------------------------------------------------
</TABLE>


             The accompanying notes are an integral part of these consolidated
             financial statements.


U-4

<PAGE>
 
Consolidated Statement of Cash Flows



<TABLE>
<CAPTION>
(Dollars in millions)                                                  1997      1996      1995
- -------------------------------------------------------------------------------------------------
<S>                                                                   <C>       <C>       <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    
                                                                    
OPERATING ACTIVITIES:                                               
                                                                    
Net income                                                            $   988   $   943   $   214
Adjustments to reconcile to net cash provided                       
 from operating activities:                                         
  Extraordinary loss                                                        -         9         7
  Depreciation, depletion and amortization                                987     1,012     1,160
  Exploratory dry well costs                                               78        54        64
  Inventory market valuation charges (credits)                            284      (209)      (70)
  Pensions                                                               (225)     (187)     (338)
  Postretirement benefits other than pensions                            (117)       36        12
  Deferred income taxes                                                   228       257       (68)
  Gain on disposal of the Delhi Companies                                (287)        -         -
  Gain on disposal of assets                                              (94)      (71)      (30)
  Gain on affiliate stock offering                                          -       (53)        -
  Payment of amortized discount on zero coupon debentures                 (17)        -      (129)
  Impairment of long-lived assets                                           -         -       675
  Changes in: Current receivables - sold                                 (390)        -       (10)
                                  - operating turnover                     16      (170)      (74)
          Inventories                                                     (39)       27        40
          Current accounts payable and accrued expenses                    91        83       195
  All other - net                                                         (45)      (82)      (16)
                                                                      -------   -------   -------
   Net cash provided from operating activities                          1,458     1,649     1,632
                                                                      -------   -------   -------
INVESTING ACTIVITIES:                                               
                                                                    
Capital expenditures                                                   (1,373)   (1,168)   (1,016)
Proceeds from sale of the Delhi Companies                                 752         -         -
Disposal of assets                                                        481       443       157
Withdrawal (deposit) - property exchange trusts                            98       (98)        -
Investments in equity affiliates - net                                   (249)       (2)        3
Cash restricted for redemption of Delhi Stock                            (195)        -         -
All other - net                                                            (3)       26         1
                                                                      -------   -------   -------
   Net cash used in investing activities                                 (489)     (799)     (855)
                                                                      -------   -------   -------
FINANCING ACTIVITIES:                                               
Commercial paper and revolving credit arrangements  net                    41      (153)     (117)
Other debt - borrowings                                                    11       191        52
           - repayments                                                  (786)     (711)     (446)
Preferred stock redeemed                                                    -         -      (105)
Common stock - issued                                                      82        53       218
             - repurchased                                                  -         -        (1)
Dividends paid                                                           (316)     (307)     (295)
                                                                      -------   -------   -------
   Net cash used in financing activities                                 (968)     (927)     (694)
                                                                      -------   -------   -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                    (2)        1         -
                                                                      -------   -------   -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       (1)      (76)       83
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                             55       131        48
                                                                      -------   -------   -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                              $    54   $    55   $   131
- -------------------------------------------------------------------------------------------------
</TABLE>


See Note 20, for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial 
statements.


                                                                             U-5

<PAGE>
 
             Consolidated Statement of Stockholders' Equity

             After the redemption of the USX Delhi Common Stock (Delhi Stock) on
             January 26, 1998 (Note 3), USX has two classes of common stock: USX
             Marathon Group Common Stock (Marathon Stock) and USX U. S. Steel
             Group Common Stock (Steel Stock), which are intended to reflect the
             performance of the Marathon Group and the U. S. Steel Group,
             respectively. (See Note 9, for a description of the two Groups.)

                On all matters where the holders of Marathon Stock and
             Steel Stock vote together as a single class, Marathon Stock has one
             vote per share and Steel Stock has a fluctuating vote per share
             based on the relative market value of a share of Steel Stock to the
             market value of a share of Marathon Stock. In the event of a
             disposition of all or substantially all the properties and assets
             of the U. S. Steel Group, USX must either distribute the net
             proceeds to the holders of the Steel Stock as a special dividend or
             in redemption of the stock, or exchange the Steel Stock for the
             Marathon Stock. In the event of liquidation of USX, the holders of
             the Marathon Stock and Steel Stock will share in the funds
             remaining for common stockholders based on the relative market
             capitalization of the respective Marathon Stock and Steel Stock to
             the aggregate market capitalization of both classes of common
             stock.


<TABLE>
<CAPTION>
                                                                    Shares in thousands                 Dollars in millions
                                                            -----------------------------------   --------------------------------
                                                               1997         1996        1995         1997        1996       1995
             --------------------------------------------------------------------------------------------------------------------- 
             <S>                                            <C>          <C>         <C>          <C>         <C>        <C> 
             PREFERRED STOCKS (Note 27):
              Adjustable Rate Cumulative:
               Outstanding at beginning of year                      -            -       2,100   $       -   $       -  $     105
               Redeemed                                              -            -      (2,100)          -           -       (105)
                                                            ----------   ----------  ----------   ---------   ---------- ---------  

               Outstanding at end of year                            -            -           -   $       -   $        - $       -
             ---------------------------------------------------------------------------------------------------------------------
              6.50% Cumulative Convertible:
               Outstanding at beginning of year                  6,900        6,900       6,900   $       7   $       7  $       7
               Shares exchanged for trust                                         
                preferred securities                            (3,938)           -           -          (4)          -          -
                                                            ----------   ----------  ----------   ---------   ---------- ---------  

               Outstanding at end of year                        2,962        6,900       6,900   $       3   $       7  $       7
             ---------------------------------------------------------------------------------------------------------------------
             COMMON STOCKS:
              Marathon Stock:
               Outstanding at beginning of year                287,525      287,398     287,186       $ 288       $ 287      $ 287
               Issued for employee stock plans                   1,261          127         212           1           1          -
                                                            ----------   ----------  ----------   ---------   ---------  --------- 
               Outstanding at end of year                      288,786      287,525     287,398       $ 289       $ 288      $ 287
             --------------------------------------------------------------------------------------------------------------------- 
              Steel Stock:
               Outstanding at beginning of year                 84,885       83,042      75,970   $      85   $      83  $      76
               Issued in public offering                             -            -       5,000           -           -          5
               Issued for:                      
                Employee stock plans                             1,416        1,649       1,681           1           2          2
                Dividend Reinvestment Plan                         277          194         391           -           -          -
                                                            ----------   ----------  ----------   ---------   ---------  --------- 
               Outstanding at end of year                       86,578       84,885      83,042   $      86   $      85  $      83
             --------------------------------------------------------------------------------------------------------------------- 
              Delhi Stock:
               Outstanding at beginning of year                  9,448        9,447       9,438   $       9   $       9  $       9
               Issued (canceled) for employee stock plans           (3)           1           9           -           -          -
               Reclassified to redeemable Delhi Stock           (9,445)           -           -          (9)          -          -
                                                            ----------   ----------  ----------   ---------   ---------  --------- 
               Outstanding at end of year                            -        9,448       9,447   $       -   $       9  $       9
             --------------------------------------------------------------------------------------------------------------------- 
</TABLE>

                        (Table continued on next page)


U-6


<PAGE>
 

<TABLE>
<CAPTION>
                                                    Shares in thousands                  Dollars in millions
                                             ---------------------------------    ----------------------------------
                                                1997         1996        1995        1997        1996        1995
- --------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>        <C>          <C>         <C> 
 TREASURY COMMON STOCKS, AT COST:
  Marathon Stock:
   Balance at beginning of year                      -            -           -   $       -    $       -   $       - 
   Repurchased                                     (14)          (7)        (40)          -            -          (1)
   Reissued for employee stock plans                14            7          40           -            -           1 
                                             ---------    ---------   ---------   ---------    ---------   --------- 
   Balance at end of year                            -            -           -   $       -    $       -   $       - 
- --------------------------------------------------------------------------------------------------------------------   
  Steel Stock:
   Balance at beginning of year                      -            -           -   $       -    $       -   $       -
   Repurchased                                     (11)          (7)        (15)          -            -           -
   Reissued for employee stock plans                11            7          15           -            -           -
                                             ---------    ---------   ---------   ---------    ---------   ---------     
   Balance at end of year                            -            -           -   $       -    $       -   $       -
- --------------------------------------------------------------------------------------------------------------------     
  Delhi Stock:
   Balance at beginning of year                      -            -           -   $       -    $       -   $       -
   Repurchased                                      (1)          (1)         (2)          -            -           -
   Reissued for employee stock plans                 1            1           2           -            -           -
                                             ---------    ---------   ---------   ---------    ---------   --------- 
   Balance at end of year                            -            -           -   $       -    $       -   $       -
- --------------------------------------------------------------------------------------------------------------------  
 ADDITIONAL PAID-IN CAPITAL:
   Balance at beginning of year                                                   $   4,150    $   4,094   $   4,168 
   Marathon Stock issued                                                                 38            3           4 
   Steel Stock issued                                                                    52           53         227 
   6.50% preferred stock exchanged for                                                                               
    trust preferred securities                                                         (188)           -           - 
   Reclassified to redeemable Delhi Stock                                              (128)           -           - 
   Dividends on preferred stock                                                           -            -         (28)
   Dividends on Marathon Stock (per share $.68)                                           -            -        (195)
   Dividends on Steel Stock  (per share $1.00)                                            -            -         (80)
   Dividends on Delhi Stock (per share $.20)                                              -            -          (2) 
                                                                                  ---------    ---------   ---------   
   Balance at end of year                                                         $   3,924    $   4,150   $   4,094  
- --------------------------------------------------------------------------------------------------------------------
 RETAINED EARNINGS (DEFICIT):
   Balance at beginning of year                                                   $     517    $    (116)  $    (330)
   Net income                                                                           988          943         214
   Dividends on preferred stock                                                         (13)         (22)          -
   Dividends on Marathon Stock (per share: $.76 in 1997                                                 
    and $.70 in 1996)                                                                  (219)        (201)          -
   Dividends on Steel Stock  (per share $1.00)                                          (86)         (85)          -
   Dividends on Delhi Stock (per share: $.15 in 1997 and                                                
    $.20 in 1996)                                                                        (1)          (2)          -
   Reclassified to redeemable Delhi Stock                                               (58)           -           -
   Noncash credit from exchange of preferred stock                                       10            -           -
                                                                                  ---------    ---------   ---------   
   Balance at end of year                                                         $   1,138    $     517   $    (116)
- ---------------------------------------------------------------------------------------------------------------------    
 OTHER EQUITY ADJUSTMENTS:
   Foreign currency translation                                                   $      (8)   $      (8)  $      (8)
   Deferred compensation (Note 21)                                                       (3)          (4)         (5)
   Minimum pension liability (Note 10)                                                  (32)         (22)        (23)
   Unrealized holding gains on investments                                                3            -           -
                                                                                  ---------    ---------   ---------   
   Total other equity adjustments                                                 $     (40)   $     (34)  $     (36)
- --------------------------------------------------------------------------------------------------------------------     
 TOTAL STOCKHOLDERS' EQUITY                                                       $   5,400    $   5,022   $   4,328
- --------------------------------------------------------------------------------------------------------------------
</TABLE>


The accompanying notes are an integral part of these consolidated financial 
statements.

                                                                             U-7

<PAGE>
 
             Notes to Consolidated Financial Statements

1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

             PRINCIPLES APPLIED IN CONSOLIDATION - The consolidated financial
             statements include the accounts of USX Corporation and its
             majority-owned subsidiaries (USX).

                 Investments in unincorporated oil and gas joint ventures,
             undivided interest pipelines and jointly-owned gas processing
             plants are consolidated on a pro rata basis.

                 Investments in other entities over which USX has significant
             influence are accounted for using the equity method of accounting
             and are carried at USX's share of net assets plus advances. The
             proportionate share of income from these equity method investments
             is included in revenues.

                 Investments in other companies whose stock is publicly traded
             are carried at market value. The difference between the cost of
             these investments and market value is recorded as a direct
             adjustment to stockholders' equity (net of tax). Investments in
             companies whose stock has no readily determinable fair value are
             carried at cost. Dividends from these investments are recognized in
             revenues.

                 Gains or losses from a change in ownership interest of a
             consolidated subsidiary or an unconsolidated affiliate are
             recognized in revenues in the period of change.

             USE OF ESTIMATES - Generally accepted accounting principles require
             management to make estimates and assumptions that affect the
             reported amounts of assets and liabilities, the disclosure of
             contingent assets and liabilities at year-end and the reported
             amounts of revenues and expenses during the year.

             CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash
             on hand and on deposit and highly liquid debt instruments with
             maturities generally of three months or less.

             INVENTORIES - Inventories are carried at lower of cost or market.
             Cost of inventories is determined primarily under the last-in,
             first-out (LIFO) method.

             DERIVATIVE INSTRUMENTS - USX engages in commodity and currency risk
             management activities within the normal course of its businesses as
             an end-user of derivative instruments (Note 28). Management is
             authorized to manage exposure to price fluctuations related to the
             purchase, production or sale of crude oil, natural gas, refined
             products, nonferrous metals and electricity through the use of a
             variety of derivative financial and nonfinancial instruments.
             Derivative financial instruments require settlement in cash and
             include such instruments as over-the-counter (OTC) commodity swap
             agreements and OTC commodity options. Derivative nonfinancial
             instruments require or permit settlement by delivery of commodities
             and include exchange-traded commodity futures contracts and
             options. At times, derivative positions are closed, prior to
             maturity, simultaneous with the underlying physical transaction and
             the effects are recognized in income accordingly. USX's practice
             does not permit derivative positions to remain open if the
             underlying physical market risk has been removed. Derivative
             instruments relating to fixed price sales of equity production are
             marked-to-market in the current period and the related income
             effects are included within income from operations. All other
             changes in the market value of derivative instruments are deferred,
             including both closed and open positions, and are subsequently
             recognized in income, as sales or cost of sales, in the same period
             as the underlying transaction. Premiums on all commodity-based
             option contracts are initially recorded based on the amount paid or
             received; the options' market value is subsequently recorded as a
             receivable or payable, as appropriate. The margin receivable
             accounts required for open commodity contracts reflect changes in
             the market prices of the underlying commodity and are settled on a
             daily basis.

                 Forward currency contracts are used to manage currency risks
             related to anticipated revenues and operating costs, firm
             commitments for capital expenditures and existing assets or
             liabilities denominated in a foreign currency. Gains or losses
             related to firm commitments are deferred and included with the
             underlying transaction; all other gains or losses are recognized in
             income in the current period as sales, cost of sales, interest
             income or expense, or other income, as appropriate. Net contract
             values are included in receivables or payables, as appropriate.

                 Recorded deferred gains or losses are reflected within other
             noncurrent assets or deferred credits and other liabilities. Cash
             flows from the use of derivative instruments are reported in the
             same category as the hedged item in the statement of cash flows.

             EXPLORATION AND DEVELOPMENT - USX follows the successful efforts
             method of accounting for oil and gas exploration and development.


U-8

<PAGE>
 
             GAS BALANCING - USX follows the sales method of accounting for gas
             production imbalances.

             LONG-LIVED ASSETS - Except for oil and gas producing properties,
             depreciation is generally computed on the straight-line method
             based upon estimated lives of assets. USX's method of computing
             depreciation for steel producing assets modifies straight-line
             depreciation based on the level of production. The modification
             factors range from a minimum of 85% at a production level below 81%
             of capability, to a maximum of 105% for a 100% production level. No
             modification is made at the 95% production level, considered the
             normal long-range level.

                 Depreciation and depletion of oil and gas producing properties
             are computed using predetermined rates based upon estimated proved
             oil and gas reserves applied on a units-of-production method.

                 Depletion of mineral properties, other than oil and gas, is
             based on rates which are expected to amortize cost over the
             estimated tonnage of minerals to be removed.

                 When an entire property, plant, major facility or facilities
             depreciated on an individual basis are sold or otherwise disposed
             of, any gain or loss is reflected in income. Proceeds from disposal
             of other facilities depreciated on a group basis are credited to
             the depreciation reserve with no immediate effect on income.

                 USX evaluates impairment of its oil and gas assets primarily on
             a field-by-field basis. Other assets are evaluated on an individual
             asset basis or by logical groupings of assets. Assets deemed to be
             impaired are written down to their fair value, including any
             related goodwill, using discounted future cash flows and, if
             available, comparable market values.

             ENVIRONMENTAL LIABILITIES - USX provides for remediation costs and
             penalties when the responsibility to remediate is probable and the
             amount of associated costs is reasonably determinable. Generally,
             the timing of remediation accruals coincides with completion of a
             feasibility study or the commitment to a formal plan of action.
             Remediation liabilities are accrued based on estimates of known
             environmental exposure and could be discounted in certain
             instances. If recoveries of remediation costs from third parties
             are probable, a receivable is recorded. Estimated abandonment and
             dismantlement costs of offshore production platforms are accrued
             based on production of estimated proved oil and gas reserves.

             POSTEMPLOYMENT BENEFITS - USX recognizes an obligation to provide
             postemployment benefits, primarily for disability-related claims
             covering indemnity and medical payments. The obligation for these
             claims and the related periodic costs are measured using actuarial
             techniques and assumptions, including an appropriate discount rate,
             analogous to the required methodology for measuring pension and
             other postretirement benefit obligations. Actuarial gains and
             losses are deferred and amortized over future periods.

             INSURANCE - USX is insured for catastrophic casualty and certain
             property and business interruption exposures, as well as those
             risks required to be insured by law or contract. Costs resulting
             from noninsured losses are charged against income upon occurrence.

             RECLASSIFICATIONS - Certain reclassifications of prior years' data
             have been made to conform to 1997 classifications and to reflect
             the discontinued operations presentation from the 1997 sale of the
             Delhi Companies. See Note 3.

________________________________________________________________________________
2. NEW ACCOUNTING STANDARDS

             The following accounting standards were adopted by USX:

                 Environmental remediation liabilities - Effective January 1,
                 1997, USX adopted American Institute of Certified Public
                 Accountants Statement of Position No. 96-1, "Environmental
                 Remediation Liabilities" (SOP 96-1), which provides additional
                 interpretation of existing accounting standards related to
                 recognition, measurement and disclosure of environmental
                 remediation liabilities. As a result of adopting SOP 96-1, USX
                 identified additional environmental remediation liabilities of
                 $46 million, of which $28 million was discounted to a present
                 value of $13 million and $18 million was not discounted.
                 Assumptions used in the calculation of the present value amount
                 included an inflation factor of 2% and an interest rate of 7%
                 over a range of 22 to 30 years. Estimated receivables for
                 recoverable costs related to adoption of SOP 96-1 were $4
                 million. The net unfavorable effect of adoption on income from
                 operations at January 1, 1997, was $27 million.

                 Earnings per share - In 1997, USX adopted Statement of
                 Financial Accounting Standards No. 128, "Earnings per Share"
                 (SFAS No. 128). This Statement establishes standards for
                 computing and presenting earnings per share (EPS). SFAS No. 128
                 requires dual presentation of basic and diluted EPS. Basic EPS
                 excludes dilution and is computed by dividing net income
                 available to common stockholders by the weighted average number
                 of common shares outstanding for the period. Diluted EPS
                 reflects the potential dilution that could occur if stock
                 options or convertible securities were exercised or converted
                 into common stock. The Company's adoption of SFAS No. 128 did
                 not materially change current and prior years' EPS.

                                                                             U-9

<PAGE>
 
                Stock-based compensation - Effective January 1, 1996, USX
                adopted Statement of Financial Accounting Standards No. 123,
                "Accounting for Stock-Based Compensation" (SFAS No. 123), which
                establishes a fair value based method of accounting for employee
                stock-based compensation plans. The Standard permits companies
                to continue to apply the accounting provisions of Accounting
                Principles Board Opinion No. 25, "Accounting for Stock Issued to
                Employees" (APB No. 25), provided certain disclosures are made.
                USX has complied with SFAS No. 123 by following the accounting
                provisions of APB No. 25 and including the required disclosures
                at Note 21.

________________________________________________________________________________
3. DISCONTINUED OPERATIONS

                Effective October 31, 1997, USX sold its stock in Delhi Gas
                Pipeline Corporation and other subsidiaries of USX that comprise
                all of the Delhi Group (Delhi Companies). The transaction
                involved a gross purchase price of $762 million. Under the USX
                Restated Certificate of Incorporation (USX Certificate), USX was
                required to elect one of three options to return the value of
                the net proceeds received in the transaction to the holders of
                shares in USX-Delhi Group Common Stock (Delhi shareholders). Of
                the three options, USX elected to use the net proceeds of $195
                million, or $20.60 per share, to redeem all shares of Delhi
                Stock. The net proceeds were distributed to the Delhi
                shareholders on January 26, 1998.

                       The net proceeds were calculated in accordance with the
                USX Certificate by deducting from the gross purchase price,
                amounts of certain liabilities retained by the Delhi Companies
                as well as amounts necessary to provide for taxes incurred by
                USX in connection with the transaction, transaction fees and
                expenses, contingent liabilities of the Delhi Group and certain
                other liabilities and obligations not being assumed by the buyer
                (including the portion of USX's debt and preferred stock
                attributed to the Delhi Group). To the extent that the actual
                future cash outflows for the liabilities retained from the Delhi
                Companies vary from the amounts withheld from the proceeds, the
                difference will be attributed to the Marathon and U. S. Steel
                Groups.

                       The following is a calculation of the net proceeds
                available for distribution and redemption price:


<TABLE> 
<CAPTION> 
                (In millions, except per share amount)
                ---------------------------------------------------------------------------------------------
                <S>                                                                 <C>               <C>
                Gross purchase price                                                                  $  762
                Less adjustments per stock purchase and sale agreement/(a)/                               10
                                                                                                      ------
                Adjusted purchase price                                                                  752
                Less deductions for:
                  Income taxes payable by USX with respect to the transaction       $ 208
                  Liabilities (contingent and otherwise) of or attributed to the
                    Delhi Group/(b)/                                                  346
                  Transaction costs, net of income taxes                                4                 558
                                                                                    -----              ------
                Plus interest earned on funds held for redemption from closing
                       date until redemption date, net of income taxes                                      1
                                                                                                       ------
                Net proceeds available for distribution                                                $  195
                                                                                                       ======
                Net proceeds per share/(c)/                                                            $20.60
                -------------------------------------------------------------------------------------------------------------
</TABLE>


                /(a)/  Reflects liabilities retained by the Delhi Companies for
                       which adjustments were required under the stock purchase
                       and sale agreement.

                /(b)/  Includes debt and preferred stock attributed to the Delhi
                       Group at October 31, 1997.

                /(c)/  9,445,338 shares were reclassified to redeemable Delhi
                       Stock as of December 31, 1997.

                       The sale of the Delhi Companies resulted in a gain on
                disposal of $81 million, net of $206 million income taxes.

                       As of December 31, 1997, the balance sheet of the Delhi
                Group consisted of cash restricted for the redemption of Delhi
                Stock of $195 million and redeemable Delhi Stock in an equal and
                offsetting amount.

                       The financial results of the Delhi Group have been
                reclassified as discontinued operations for all periods
                presented in the Consolidated Statement of Operations and are
                summarized as follows:


<TABLE>
<CAPTION>
                                                                               Year Ended December 31
                                                                                         --------------
                (In millions)                                                 1997/(a)/    1996   1995
                ---------------------------------------------------------------------------------------
                <S>                                                           <C>         <C>     <C>
                Revenues                                                      $1,205      $1,062  $ 671
                Costs and expenses                                             1,190       1,031    647
                                                                              ------      ------  -----
                Income from operations                                            15          31     24
                Net interest and other financial costs                            23          21     16
                                                                              ------      ------  -----
                Income (loss) before income taxes                                 (8)         10      8
                Provision (credit) for estimated income taxes                     (7)          4      4
                                                                              ------      ------  -----
                Net income (loss)                                             $   (1)     $    6  $   4
                ---------------------------------------------------------------------------------------
</TABLE>


                /(a)/  Represents ten months of operations.


U-10

<PAGE>
 
________________________________________________________________________________
4. REVENUES


                The items below are included in revenues and costs and expenses,
                with no effect on income.


<TABLE> 
<CAPTION> 
                (In millions)                                               1997          1996          1995
                ----------------------------------------------------------------------------------------------
                <S>                                                         <C>           <C>           <C>
 
                Consumer excise taxes on petroleum products
                  and merchandise                                           $2,736        $2,768        $2,708
                Matching crude oil and refined product
                  buy/sell transactions settled in cash                      2,436         2,912         2,067
                ----------------------------------------------------------------------------------------------
</TABLE>


________________________________________________________________________________
5. IMPAIRMENT OF LONG-LIVED ASSETS

                In 1995, USX adopted Statement of Financial Accounting Standards
                No. 121, "Accounting for the Impairment of Long-Lived Assets and
                for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). SFAS
                No. 121 requires that long-lived assets, including related
                goodwill, be reviewed for impairment and written down to fair
                value whenever events or changes in circumstances indicate that
                the carrying value may not be recoverable.

                    Adoption of SFAS No. 121 resulted in an impairment charge
                included in 1995 costs and expenses of $675 million. The
                impaired assets primarily included certain domestic and
                international oil and gas properties, an idled refinery, surplus
                real estate and related goodwill.

                    USX assessed impairment of its oil and gas properties
                based primarily on a field-by-field approach. The predominant
                method used to determine fair value was a discounted cash flow
                approach and where available, comparable market values were
                used. The impairment provision reduced capitalized costs of oil
                and gas properties by $533 million.

                    In addition, the Indianapolis, Indiana refinery, which was
                temporarily idled in October 1993, was impaired by $126 million,
                including related goodwill. The impairment was based on a
                discounted cash flow approach and comparable market values.

                    Other long-lived assets written down included certain iron
                ore mineral rights and surplus real estate holdings. The
                impairment charge recognized for these assets was $16 million.

________________________________________________________________________________
6. OTHER ITEMS


<TABLE> 
<CAPTION> 
                (In millions)                                                     1997         1996         1995
                ------------------------------------------------------------------------------------------------------
                <S>                                                               <C>          <C>          <C>    
                NET INTEREST AND OTHER FINANCIAL COSTS
                 FROM CONTINUING OPERATIONS

                  INTEREST AND OTHER FINANCIAL INCOME:
                   Interest income                                                $  11        $   8        $  17
                   Other                                                             (6)          (1)           3
                                                                                  -----        -----        -----
                     Total                                                            5            7           20
                                                                                  -----        -----        -----
                  INTEREST AND OTHER FINANCIAL COSTS:
                   Interest incurred                                                289          345          395
                   Less interest capitalized                                         31           11           13
                                                                                  -----        -----        -----
                     Net interest                                                   258          334          382
                   Interest on tax issues                                            20           14            6  /(a)/
                   Financial costs on trust preferred securities                     10            -            -
                   Financial costs on preferred stock of subsidiary                  21           21           21
                   Amortization of discounts                                          6            9           27
                   Expenses on sales of accounts receivable                          40           40           46
                   Adjustment to settlement value of indexed debt                   (10)           6            -
                   Other                                                              7            4            4
                                                                                  -----        -----        -----
                     Total                                                          352          428          486
                                                                                  -----        -----        -----
                NET INTEREST AND OTHER FINANCIAL COSTS                            $ 347        $ 421        $ 466
                ----------------------------------------------------------------------------------------------------
</TABLE>

                /(a)/  Includes a $20 million benefit related to refundable
                       federal income taxes paid in prior years.

                ________________________________________________________________
                FOREIGN CURRENCY TRANSACTIONS

                   For 1997, 1996 and 1995, the aggregate foreign currency
                   transaction gains (losses) included in determining income
                   from continuing operations were $4 million, $(24) million and
                   $3 million, respectively.


                                                                            U-11

<PAGE>
 
________________________________________________________________________________
7. EXTRAORDINARY LOSS

                On December 30, 1996, USX irrevocably called for redemption on
                January 30, 1997, $120 million of 8-1/2% Sinking Fund
                Debentures, resulting in a 1996 extraordinary loss of $9
                million, net of a $5 million income tax benefit. In 1995, USX
                extinguished $553 million of debt prior to maturity, primarily
                consisting of Zero Coupon Convertible Senior Debentures, with a
                carrying value of $393 million, and $83 million of 8-1/2%
                Sinking Fund Debentures, which resulted in an extraordinary loss
                of $7 million, net of a $4 million income tax benefit.

________________________________________________________________________________
8. GAIN ON AFFILIATE STOCK OFFERING

                In 1996, an aggregate of 6.9 million shares of RMI Titanium
                Company (RMI) common stock was sold in a public offering at a
                price of $18.50 per share and total net proceeds of $121
                million. Included in the offering were 2.3 million shares sold
                by USX for net proceeds of $40 million. USX recognized a total
                pretax gain of $53 million, of which $34 million was
                attributable to the shares sold by USX and $19 million was
                attributable to the increase in value of USX's investment as a
                result of the shares sold by RMI. The income tax effect related
                to the total gain was $19 million. As a result of this
                transaction, USX's ownership in RMI decreased from approximately
                50% to 27%. USX continues to account for its investment in RMI
                under the equity method of accounting.

________________________________________________________________________________
9. OPERATIONS AND SEGMENT INFORMATION CONTINUING OPERATIONS

                After the redemption of the Delhi Stock on January 26, 1998, USX
                has two classes of common stock: Marathon Stock and Steel Stock,
                which are intended to reflect the performance of the Marathon
                Group and the U. S. Steel Group, respectively. The operations
                and segments of USX conform to USX's group structure. A
                description of each group and its products and services is as
                follows:

                      MARATHON GROUP - The Marathon Group is involved in
                      worldwide exploration, production, transportation and
                      marketing of crude oil and natural gas; domestic refining,
                      marketing and transportation of petroleum products; and
                      power generation. Marathon Group revenues as a percentage
                      of total consolidated USX revenues were 69% in 1997, 71%
                      in 1996 and 68% in 1995. See five-year operating data on
                      page U-35.

                      U. S. STEEL GROUP - The U. S. Steel Group, which consists
                      primarily of steel operations, includes the largest
                      domestic integrated steel producer and is primarily
                      engaged in the production and sale of steel mill products,
                      coke and taconite pellets. The U. S. Steel Group also
                      includes the management of mineral resources, domestic
                      coal mining, and engineering and consulting services.
                      Other businesses that are part of the U. S. Steel Group
                      include real estate development and management and leasing
                      and financing activities. U. S. Steel Group revenues as a
                      percentage of total consolidated USX revenues were 31% in
                      1997, 29% in 1996 and 32% in 1995. See five-year operating
                      data on page U-37.


INDUSTRY SEGMENT:


<TABLE> 
<CAPTION> 
                                                                                                    Depreciation,
                                            Revenues                                                 Depletion
                                            Between             Total      Operating                    and           Capital
(In millions)          Year     Revenues    Groups/(a)/       Revenues     Income/(b)/    Assets    Amortization   Expenditures
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>      <C>         <C>               <C>          <C>            <C>       <C>            <C>   
Marathon Group:          1997    $15,649     $ 105             $15,754       $    866     $10,565        $  664         $1,038
                         1996     16,307        87              16,394          1,234      10,151           693            751
                         1995     13,856        57              13,913            113      10,109           817            642
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group:       1997      6,939         2               6,941            704       6,694           303            261
                         1996      6,670         -               6,670            360       6,580           292            337
                         1995      6,557         -               6,557            500       6,521           318            324
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments for          1997          -      (107)               (107)             -          25             -             74
 Discontinued            1996          -       (87)                (87)             -         249             -             80
 Operations and          1995          -       (57)                (57)             -         113             -             50
 Eliminations
- ------------------------------------------------------------------------------------------------------------------------------------
Total USX Corporation:   1997    $22,588     $   -             $22,588       $  1,570     $17,284        $  967         $1,373
                         1996     22,977         -              22,977          1,594      16,980           985          1,168
                         1995     20,413         -              20,413            613      16,743         1,135          1,016
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Intergroup sales and transfers were conducted on an arm's-length basis.
/(b)/ Operating income includes inventory market valuation charges (credits) for
      the Marathon Group of $284 million, $(209) million and $(70) million in
      1997, 1996 and 1995, respectively (Note 19); and in 1995, impairment of
      long-lived asset charges of $659 million for the Marathon Group and $16
      million for the U. S. Steel Group (Note 5). Operating income does not
      include dividend and affiliate income, gains from changes in ownership,
      gains and losses on disposal of investments and other income, which are
      included in income from operations in the Consolidated Statement of
      Operations.


U-12

<PAGE>
 
EXPORT SALES:
    The information below summarizes export sales by geographic area for the 
U.S. Steel Group. Export sales from domestic operations for the Marathon Group
were not material.


<TABLE>
<CAPTION>
(In millions)                                                     1997   1996   1995
- -------------------------------------------------------------------------------------------
<S>                                                               <C>    <C>    <C>
Far East                                                          $  14  $  58  $ 338
Europe                                                              122    103    142
Other                                                               302    232    224
                                                                  -----  -----  -----
   Total export sales                                             $ 438  $ 393  $ 704
- -------------------------------------------------------------------------------------------
</TABLE>


GEOGRAPHIC AREA:

  The information below summarizes the operations in different geographic areas.
Transfers between geographic areas are at prices which approximate market.


<TABLE>
<CAPTION>
                                                                 Revenues
                                                   -------------------------------
                                                     Within      Between              Operating
                                                   Geographic   Geographic              Income
(In millions)                               Year     Areas       Areas      Total      (Loss)    Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>    <C>          <C>         <C>        <C>       <C>
Marathon Group:
   United States                            1997   $  15,034    $    -      $ 15,034   $  607    $ 6,683
                                            1996      15,509         -        15,509      866      6,604
                                            1995      13,162         -        13,162      129      6,791
   Europe                                   1997         698         -           698      268      2,144
                                            1996         859         -           859      368      2,230
                                            1995         726         -           726      109      2,372
   Other International                      1997          22        39            61       (9)     1,738
                                            1996          26        43            69        -      1,317
                                            1995          25        85           110     (125)       946
   Eliminations                             1997           -       (39)          (39)       -          -
                                            1996           -       (43)          (43)       -          -
                                            1995           -       (85)          (85)       -          -
   Total Marathon Group                     1997   $  15,754    $    -      $ 15,754   $  866    $10,565
                                            1996      16,394         -        16,394    1,234     10,151
                                            1995      13,913         -        13,913      113     10,109
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group:
   United States                            1997   $   6,926    $    -      $ 6,926    $  705    $ 6,667
                                            1996       6,642         -        6,642       363      6,552
                                            1995       6,538         4        6,542       501      6,492
   International                            1997          15         -           15        (1)        27
                                            1996          28         -           28        (3)        28
                                            1995          19         -           19        (1)        29
   Eliminations                             1997           -         -            -         -          -
                                            1996           -         -            -         -          -
                                            1995           -        (4)          (4)        -          -
   Total U. S. Steel Group                  1997   $   6,941    $    -      $ 6,941    $  704    $ 6,694
                                            1996       6,670         -        6,670       360      6,580
                                            1995       6,557         -        6,557       500      6,521
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments for                             1997   $    (107)   $    -      $  (107)   $    -    $    25
  Discontinued Operations                   1996         (87)        -          (87)        -        249
  and Eliminations                          1995         (57)        -          (57)        -        113
- ------------------------------------------------------------------------------------------------------------------------------------
Total USX Corporation                       1997   $  22,588    $    -      $22,588    $1,570   $ 17,284
                                            1996      22,977         -       22,977     1,594     16,980
                                            1995      20,413         -       20,413       613     16,743
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                            U-13

<PAGE>
 
________________________________________________________________________________
10. PENSIONS

                USX has noncontributory defined benefit plans covering
                substantially all employees. Benefits under these plans are
                based upon years of service and final average pensionable
                earnings, or a minimum benefit based upon years of service,
                whichever is greater. In addition, pension benefits under the
                contributory benefit provisions cover certain participating
                salaried employees and are based upon a percent of total career
                pensionable earnings. The funding policy for defined benefit
                plans provides that payments to the pension trusts shall be
                equal to the minimum funding requirements of ERISA plus such
                additional amounts as may be approved.

                   USX also participates in multiemployer plans, most of which
                are defined benefit plans associated with coal operations.

                PENSION COST (CREDIT) - The defined benefit cost from continuing
                operations for major plans for 1997, 1996 and 1995 was
                determined assuming an expected long-term rate of return on plan
                assets of 9.5%, 10% and 10%, respectively, and was as follows:


<TABLE>
<CAPTION>
                (In millions)                                                  1997          1996          1995
                ----------------------------------------------------------------------------------------------------
                <S>                                                            <C>           <C>           <C>       
                USX major plans:
                Cost of benefits earned during the period                       $    96      $   104       $    83
                Interest cost on projected benefit obligation
                  (7.5% for 1997; 7% for 1996; and 8% for 1995)                     562          568           604
                Return on assets - actual return                                 (1,972)      (1,275)       (2,039)
                                 - deferred gain                                  1,144          422         1,200
                Net amortization of unrecognized losses                               3            7             -
                                                                                 ------      -------       -------
                   Total major plans                                               (167)        (174)         (152)
                Multiemployer and other USX plans                                     6            6             6
                                                                                 ------      -------       -------
                   Total periodic pension credit                                   (161)        (168)         (146)
                Curtailment, settlement and termination costs                         4            6             2
                                                                                 ------      -------       -------
                   Total pension credit                                         $  (157)     $  (162)      $  (144)
                ----------------------------------------------------------------------------------------------------
</TABLE>


                FUNDS' STATUS - The assumed discount rate used to measure the
                benefit obligations of major plans was 7% at December 31, 1997,
                and 7.5% at December 31, 1996. The assumed rate of future
                increases in compensation levels was 4% at both year-ends. The
                following table sets forth the plans' funded status and the
                amounts reported in USX's consolidated balance sheet:


<TABLE>
<CAPTION>
                (In millions)                                                  December 31          1997      1996
                -------------------------------------------------------------------------------------------------------------------
                <S>                                                                                 <C>       <C>
                Reconciliation of funds' status to reported amounts:
                Projected benefit obligation (PBO)/(a)/                                             $(8,085)  $(7,924)
                Plan assets at fair market value/(b)/                                                10,925     9,883
                                                                                                    -------   -------
                       Assets in excess of PBO/(c)/                                                   2,840     1,959
                Unrecognized net gain from transition                                                  (249)     (300)
                Unrecognized prior service cost                                                         628       640
                Unrecognized net gain                                                                  (993)     (311)
                Additional minimum liability/(d)/                                                       (79)      (77)
                                                                                                    -------   -------
                       Net pension asset included in balance sheet                                  $ 2,147   $ 1,911
                -------------------------------------------------------------------------------------------------------------------
                /(a)/  PBO includes:
                          Accumulated benefit obligation (ABO)                                      $(7,490)  $(7,394)
                          Vested benefit obligation                                                  (7,031)   (6,931)
                /(b)/  Types of assets held:
                          Stocks of other corporations                                                   56%       56%
                          U.S. Government securities                                                     17%       18%
                          Corporate debt instruments and other                                           27%       26%

                /(c)/  Includes several small plans that have ABOs in excess of plan assets:
                          PBO                                                                       $  (151)  $  (135)
                          Plan assets                                                                    24        18
                                                                                                    -------   -------
                            PBO in excess of plan assets                                            $  (127)  $  (117)
                /(d)/  Additional minimum liability recorded was offset by the following:
                          Intangible asset                                                          $    30   $    42
                          Stockholders' equity adjustment net of deferred income tax                     32        22
                ------------------------------------------------------------------------------------------------------------------
</TABLE>


U-14

<PAGE>
 
________________________________________________________________________________
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

                USX has defined benefit retiree health and life insurance plans
                covering most employees upon their retirement. Health benefits
                are provided, for the most part, through comprehensive hospital,
                surgical and major medical benefit provisions subject to various
                cost sharing features. Life insurance benefits are provided to
                nonunion and certain union represented retiree beneficiaries
                primarily based on employees' annual base salary at retirement.
                For other union retirees, benefits are provided for the most
                part based on fixed amounts negotiated in labor contracts with
                the appropriate unions. Except for certain life insurance
                benefits paid from reserves held by insurance carriers, most
                benefits have not been prefunded.

                POSTRETIREMENT BENEFIT COST - Postretirement benefit cost for
                defined benefit plans for 1997, 1996 and 1995 was determined
                assuming discount rates of 7.5%, 7% and 8%, respectively, and an
                expected return on plan assets of 9.5% in 1997 and 10% for 1996
                and 1995:



<TABLE>
<CAPTION>
                (In millions)                                                     1997        1996        1995
                ------------------------------------------------------------------------------------------------------
                <S>                                                               <C>         <C>         <C>
                Cost of benefits earned during the period                         $  21       $  26       $  26
                Interest on accumulated postretirement benefit obligation (APBO)    175         183         198
                Return on assets - actual return                                    (19)        (12)        (11)
                                 - deferred gain (loss)                               8           1          (1)
                Amortization of unrecognized (gains) losses                         (12)          2          (1)
                                                                                   -----      -----       -----
                   Total defined benefit plans                                      173         200         211
                Multiemployer plans/(a)/                                             15          15          15
                                                                                   -----      -----       -----
                   Total postretirement benefit cost                              $ 188       $ 215       $ 226
                ------------------------------------------------------------------------------------------------------
</TABLE>

                /(a)/  Payments are made to a multiemployer benefit plan created
                       by the Coal Industry Retiree Health Benefit Act of 1992
                       based on assigned beneficiaries receiving benefits. The
                       present value of this unrecognized obligation is broadly
                       estimated to be $108 million, including the effects of
                       future medical inflation, and this amount could increase
                       if additional beneficiaries are assigned.

                FUNDS' STATUS - The following table sets forth the plans' funded
                status and the amounts reported in USX's consolidated balance
                sheet:


<TABLE>
<CAPTION>
                (In millions)                                         December 31                 1997    1996
                --------------------------------------------------------------------------------------------------------------  
                <S>                                                   <C>                         <C>     <C>
                Reconciliation of funds' status to reported amounts:
                Fair value of plan assets                                                         $  258  $  111
                                                                                                  ------  ------
                APBO attributable to:
                  Retirees                                                                         1,772   1,784
                  Fully eligible plan participants                                                   271     233
                  Other active plan participants                                                     408     393
                                                                                                  ------  ------
                     Total APBO                                                                    2,451   2,410
                                                                                                  ------  ------
                     APBO in excess of plan assets                                                 2,193   2,299
                Unrecognized net gain                                                                254     260
                Unrecognized prior service cost                                                        7       6
                                                                                                  ------  ------
                     Accrued liability included in balance sheet                                  $2,454  $2,565
                ------------------------------------------------------------------------------------------------------------ 
</TABLE>


                     The assumed discount rate used to measure the APBO was 7%
                and 7.5% at December 31, 1997, and December 31, 1996,
                respectively. The assumed rate of future increases in
                compensation levels was 4% at both year-ends. The weighted
                average health care cost trend rate in 1998 is approximately 8%,
                declining to an ultimate rate in 2004 of approximately 5%. A one
                percentage point increase in the assumed health care cost trend
                rates for each future year would have increased the aggregate of
                the service and interest cost components of the 1997 net
                periodic postretirement benefit cost by $22 million and would
                have increased the APBO as of December 31, 1997, by $242
                million.

                                                                            U-15

<PAGE>
 
- --------------------------------------------------------------------------------
12. INCOME TAXES

     Provisions (credits) for estimated income taxes on income from continuing
     operations were:


<TABLE>
<CAPTION>
                                            1997                              1996                                 1995
                             -------------------------------     ------------------------------    ---------------------------------
          (In millions)         Current   Deferred      Total      Current  Deferred     Total    Current     Deferred        Total
          <S>                   <C>       <C>           <C>        <C>      <C>          <C>      <C>         <C>             <C>
          Federal                  $208      $ 163       $371         $142     $ 151     $ 293      $  80        $ (71)       $   9
          State and local             7         32         39           12        21        33         19          (31)         (12)
          Foreign                    12         28         40            4        82        86         15           31           46
                                   ----      -----       ----   ----------  --------  --------   --------   ----------   ----------
            Total                  $227      $ 223       $450         $158     $ 254     $ 412      $ 114        $ (71)       $  43
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
 
     A reconciliation of federal statutory tax rate (35%) to total provisions
     from continuing operations follows:


<TABLE> 
<CAPTION> 
          (In millions)                                                            1997            1996            1995
          --------------------------------------------------------------------------------------------------------------------------
          <S>                                                                      <C>             <C>             <C> 
          Statutory rate applied to income from continuing operations    
           before income taxes                                                     $ 475           $ 476            $  92
          Credits other than foreign tax credits                                     (24)            (48)              (1)
          State and local income taxes after federal income tax effects               25              22               (8)
          Effects of foreign operations, including foreign tax credits               (11)            (16)             (35) /(a)/
          Effects of partially-owned companies                                        (9)            (16)             (15)
          Dispositions of subsidiary investments                                       -              (8)              (6)
          Excess percentage depletion                                                (10)             (7)              (8)
          Nondeductible business and amortization expenses                             5               5               17
          Adjustment of prior years' income taxes                                      2               3                2
          Adjustment of valuation allowances                                          (5)              -                6
          Other                                                                        2               1               (1)
                                                                                --------        --------        ----------
             Total provisions on income from continuing operations                 $ 450           $ 412            $  43
          --------------------------------------------------------------------------------------------------------------------------
</TABLE>


          /(a)/  Includes incremental tax benefits of $39 million resulting from
                 USX's election to credit, rather than deduct, certain foreign
                 income taxes for federal income tax purposes.

                 Deferred tax assets and liabilities resulted from the
                 following:


<TABLE>
<CAPTION>
          (In millions)                                                           December  31      1997           1996           
          --------------------------------------------------------------------------------------------------------------------------
          <S>                                                                     <C>               <C>            <C>            
          Deferred tax assets:                                                                                                    
           Minimum tax credit carryforwards                                                          $  222         $  436         
           General business credit carryforwards                                                          -             24         
           State tax loss carryforwards (expiring in 1998 through 2012)                                 127            141         
           Foreign tax loss carryforwards (portion of which expire in 1998 through 2012)                483            519         
           Employee benefits                                                                          1,004          1,025         
           Receivables, payables and debt                                                                63             79         
           Expected federal benefit for:                                                                                           
            Crediting certain foreign deferred income taxes                                             249            216         
            Deducting state and other foreign deferred income taxes                                      47             41         
           Contingency and other accruals                                                               198            167         
           Other                                                                                         59            155         
           Valuation allowances                                                                        (363)          (396)        
                                                                                                     ------      ---------         
               Total deferred tax assets/(a)/                                                         2,089          2,407         
                                                                                                     ------      ---------         
          Deferred tax liabilities:                                                                                                
           Property, plant and equipment                                                              2,041          2,180         
           Prepaid pensions                                                                             786            721         
           Inventory                                                                                    212            319         
           Other                                                                                        167            228         
                                                                                                     ------      ---------         
               Total deferred tax liabilities                                                         3,206          3,448         
                                                                                                     ------      ---------         
                Net deferred tax liabilities                                                         $1,117         $1,041         
          --------------------------------------------------------------------------------------------------------------------------
</TABLE>


          /(a)/  USX expects to generate sufficient future taxable income to
                 realize the benefit of its deferred tax assets. In addition,
                 the ability to realize the benefit of foreign tax credits is
                 based upon certain assumptions concerning future operating
                 conditions (particularly as related to prevailing oil prices),
                 income generated from foreign sources and USX's tax profile in
                 the years that such credits may be claimed.

                 The consolidated tax returns of USX for the years 1990 through
                 1994 are under various stages of audit and administrative
                 review by the IRS. USX believes it has made adequate provision
                 for income taxes and interest which may become payable for
                 years not yet settled.

                 Pretax income from continuing operations included $250 million,
                 $339 million and $(50) million attributable to foreign sources
                 in 1997, 1996 and 1995, respectively.

                 Undistributed earnings of consolidated foreign subsidiaries at
                 December 31, 1997, amounted to $108 million. No provision for
                 deferred U.S. income taxes has been made because USX intends to
                 permanently reinvest such earnings in its foreign operations.
                 If such earnings were not permanently reinvested, a deferred
                 tax liability of $38 million would have been required.


U-16

<PAGE>
 
- --------------------------------------------------------------------------------
13. SALES OF RECEIVABLES

             USX has an agreement (the program) at December 31, 1997, to sell
             an undivided interest in certain accounts receivable. Payments are
             collected from the sold accounts receivable; the collections are
             reinvested in new accounts receivable for the buyers; and a yield,
             based on defined short-term market rates, is transferred to the
             buyers. At December 31, 1997, the amount sold under the program
             that had not been collected was $350 million, which will be
             forwarded to the buyers at the end of the agreement in 1998, or in
             the event of earlier contract termination. If USX does not have a
             sufficient quantity of eligible accounts receivable to reinvest in
             for the buyers, the size of the program will be reduced
             accordingly. The amounts sold under the current and previous
             programs averaged $705 million, $740 million and $744 million for
             years 1997, 1996 and 1995, respectively. (For most of 1997 and for
             the years 1996 and 1995, the Marathon and Delhi Groups had a
             separate accounts receivable program that was terminated in late
             1997.) The buyers have rights to a pool of receivables that must be
             maintained at a level of at least 115% of the program's size. USX
             does not generally require collateral for accounts receivable, but
             significantly reduces credit risk through credit extension and
             collection policies, which include analyzing the financial
             condition of potential customers, establishing credit limits,
             monitoring payments and aggressively pursuing delinquent accounts.
             In the event of a change in control of USX, USX may be required to
             forward to the buyers, payments collected on the sold accounts
             receivable.

- --------------------------------------------------------------------------------
14. INVESTMENTS AND LONG-TERM RECEIVABLES   


<TABLE> 
<CAPTION> 
             (In millions)                                                December 31             1997    1996                  
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                          <C>                     <C>     <C>                    
              Equity method investments                                                           $  838  $  549                 
              Other investments                                                                       88      94                 
              Deposit in property exchange trusts                                                      -      98                 
              Receivables due after one year                                                          71      67                 
              Forward currency contracts                                                               -      16                 
              Other                                                                                   31      30                 
                                                                                                  ------  ------                 
                Total                                                                             $1,028  $  854                 
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>
 
 
               Summarized financial information of affiliates accounted for by
              the equity method of accounting follows:


<TABLE> 
<CAPTION> 
             (In millions)                                               1997    1996    1995                                       
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                       <C>     <C>     <C> 
             Income data--year:                                                                                                     
              Revenues                                                 $3,705  $3,274  $3,531                                       
              Operating income                                            342     318     339                                       
              Net income                                                  191     193     187                                       
             -----------------------------------------------------------------------------------------------------------------------
             Balance sheet data  December 31:                                                                                       
              Current assets                                           $1,094  $  925                                               
              Noncurrent assets                                         3,476   2,728                                               
              Current liabilities                                         863     781                                               
              Noncurrent liabilities                                    1,521   1,582      
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>


               Effective June 1, 1997, USX entered into a strategic partnership
             with two limited partners to acquire an interest in three coke
             batteries at its U. S. Steel Group's Clairton (Pa.) Works and to
             operate and sell coke and byproducts from those facilities. USX is
             the general partner and is responsible for purchasing, operations
             and products marketing. Proceeds to USX as a result of the
             transaction were $361 million. The related unamortized deferred
             gains of $244 million at December 31, 1997 (included in deferred
             credits and other liabilities) are being recognized over the life
             of the partnership's assets. USX's partnership interest is
             accounted for under the equity method of accounting. The fair value
             attributed to USX for its general partnership interest exceeds the
             historical basis of contributed net assets by $38 million and is
             being amortized on a straight-line basis over the life of the
             partnership.

               Dividends and partnership distributions received from equity
             affiliates were $34 million in 1997, $49 million in 1996 and $85
             million in 1995.

               USX purchases from equity affiliates totaled $461 million, $509
             million and $458 million in 1997, 1996 and 1995, respectively. USX
             sales to equity affiliates totaled $812 million, $830 million and
             $769 million in 1997, 1996 and 1995, respectively.

- --------------------------------------------------------------------------------
15. SHORT-TERM CREDIT AGREEMENT

             USX has a short-term credit agreement totaling $125 million at
             December 31, 1997. Interest is based on the bank's prime rate or
             London Interbank Offered Rate (LIBOR), and carries a facility fee
             of .15%. Certain other banks provide short-term lines of credit
             totaling $200 million which require a .125% fee or maintenance of
             compensating balances of 3%. At December 31, 1997, there were no
             borrowings against these facilities. USX had other outstanding
             short-term borrowings of $121 million.


                                                                            U-17

<PAGE>
 
- --------------------------------------------------------------------------------
16. LONG-TERM DEBT


<TABLE> 
<CAPTION> 
                                                                       Interest                           December 31
             (In millions)                                              Rates-%        Maturity          1997    1996
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                     <C>               <C>              <C>      <C> 
             USX Corporation:
              Revolving credit/(a)/                                                       2001          $    -   $   -
              Notes payable                                          6/3//8-9/4//5     1998-2023         2,239   2,398
              Foreign currency obligations/(b)/                      5/3//4               1998              68      75
              Zero Coupon Convertible Senior Debentures/(c)/         7/7//8                                  -      41
              Convertible Subordinated Debentures/(c)/               5/3//4                                  -     180
              Convertible Subordinated Debentures/(c)/               7                                       -     227
              Obligations relating to Industrial Development and
               Environmental Improvement Bonds and Notes/(d)/        3/9//20-6/7//8    1998-2030           470     473
              Indexed debt/(e)/                                      6/3//4               2000             113     123
              All other obligations, including sale-leaseback
               financing and capital leases                                            1998-2012            98     104
             Consolidated subsidiaries:
              Guaranteed Notes                                       7                    2002             135     135
              Guaranteed Loan/(f)/                                   9/1//20           1998-2006           265     283
              Notes payable                                          8/1//2            1998-2001             3       9
              Sinking Fund Debentures/(c)/                           8/1//2                                  -     120
              All other obligations, including capital leases                          1998-2009            38      73
                                                                                                        ------  ------
                 Total/(g)(h)/                                                                          3,429   4,241
             Less unamortized discount                                                                      26      29
             Less amount due within one year                                                               471     353
                                                                                                        ------  ------
                 Long-term debt due after one year                                                      $2,932  $3,859
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>
 

             /(a)/ An amended agreement which terminates in August 2001,
                   provides for borrowing under a $2,350 million revolving
                   credit facility. Interest is based on defined short-term
                   market rates. During the term of this agreement, USX is
                   obligated to pay a variable facility fee on total
                   commitments, which was .15 % at December 31, 1997.

             /(b)/ Foreign currency exchange agreements were executed in
                   connection with the Swiss franc obligations, which
                   effectively fixed the principal repayment at $59 million at
                   December 31, 1997, and interest in U.S. dollars, thereby
                   eliminating currency exchange risks (Note 28).

             /(c)/ These debentures were redeemed during 1997.

             /(d)/ At December 31, 1997, USX had outstanding obligations
                   relating to Environmental Improvement Bonds in the amount of
                   $256 million, which were supported by letter of credit
                   arrangements that could become short-term obligations under
                   certain circumstances.

             /(e)/ The indexed debt represents 6 3/4% exchangeable notes due
                   February 1, 2000, in the principal amount of $117 million or
                   $21.375 per note, which was the market price per share of RMI
                   common stock on November 26, 1996. At maturity, the principal
                   amount of each note will be mandatorily exchanged by USX into
                   shares of RMI common stock (or, at USX's option, the cash
                   equivalent and/or such other consideration as permitted or
                   required by the terms of the notes) at a defined exchange
                   rate, which is based on the average market price of RMI
                   common stock valued in January 2000. The carrying value of
                   the notes is adjusted quarterly to settlement value and any
                   resulting adjustment is charged or credited to income and
                   included in net interest and other financial costs.

             /(f)/ The guaranteed loan was used to fund a portion of the costs
                   in connection with the development of the East Brae Field and
                   the SAGE pipeline in the North Sea. A portion of proceeds
                   from a long-term gas sales contract is dedicated to loan
                   service under certain circumstances. Prepayment of the loan
                   may be required under certain situations, including events
                   impairing the security interest.

             /(g)/ Required payments of long-term debt for the years 1999-2002
                   are $70 million, $173 million, $289 million and $293 million,
                   respectively.

             /(h)/ In the event of a change in control of USX, as defined in the
                   related agreements, debt obligations totaling $3,001 million
                   may be declared immediately due and payable. The principal
                   obligations subject to such a provision are Notes payable-
                   $2,239 million; and Guaranteed Loan $265 million. In such
                   event, USX may also be required to either repurchase the
                   leased Fairfield slab caster for $110 million or provide a
                   letter of credit to secure the remaining obligation.


U-18

<PAGE>
 
- --------------------------------------------------------------------------------
17. PROPERTY, PLANT AND EQUIPMENT


<TABLE> 
<CAPTION> 
             (In millions)                                          December 31        1997      1996
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                    <C>                <C>       <C>
             Marathon Group                                                            $17,233    $16,329
             U. S. Steel Group                                                           8,295      8,347
             Delhi Group                                                                     -      1,008
                                                                                       -------  ---------
                  Total                                                                 25,528     25,684
             Less accumulated depreciation, depletion and amortization                  15,466     15,280
                                                                                       -------  ---------
                  Net                                                                  $10,062    $10,404
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>


                Property, plant and equipment includes gross assets acquired
             under capital leases (including sale-leasebacks accounted for as
             financings) of $134 million at December 31, 1997, and $141 million
             at December 31, 1996; related amounts in accumulated depreciation,
             depletion and amortization were $94 million and $91 million,
             respectively.

- --------------------------------------------------------------------------------
18. LEASES

                Future minimum commitments for capital leases (including sale-
             leasebacks accounted for as financings) and for operating leases
             having remaining noncancelable lease terms in excess of one year
             are as follows:


<TABLE>
<CAPTION>
                                                                                  Capital   Operating
             (In millions)                                                         Leases     Leases
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                                  <C>        <C>       
             1998                                                                  $  13      $  226
             1999                                                                     13         190
             2000                                                                     13         252
             2001                                                                     13         170
             2002                                                                     13         101
             Later years                                                             142         239
             Sublease rentals                                                          -         (30)
                                                                                   -----       ----- 
               Total minimum lease payments                                          207      $1,148
                                                                                               =====
             Less imputed interest costs                                              85
                                                                                   -----
               Present value of net minimum lease payments
                included in long-term debt                                         $ 122
             -----------------------------------------------------------------------------------------------------------------------

<CAPTION> 
                Operating lease rental expense from continuing operations:

             (In millions)                                                1997      1996        1995
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                         <C>       <C>        <C>                      
              Minimum rental                                             $ 237     $ 227      $  218
              Contingent rental                                             16        15          19
              Sublease rentals                                              (8)       (8)         (8)
                                                                         -----     -----   ---------
               Net rental expense                                        $ 245     $ 234      $  229
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>


                USX leases a wide variety of facilities and equipment under
             operating leases, including land and building space, office
             equipment, production facilities and transportation equipment. Most
             long-term leases include renewal options and, in certain leases,
             purchase options. In the event of a change in control of USX, as
             defined in the agreements, or certain other circumstances,
             operating lease obligations totaling $129 million may be declared
             immediately due and payable.

                                                                            U-19

<PAGE>
- --------------------------------------------------------------------------------
19. INVENTORIES


<TABLE> 
<CAPTION> 
             (In millions)                              December 31   1997    1996
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                        <C>          <C>     <C>
             Raw materials                                           $  582  $  594
             Semi-finished products                                     331     309
             Finished products                                          922     908
             Supplies and sundry items                                  134     128
                                                                     ------  ------
                  Total (at cost)                                     1,969   1,939
             Less inventory market valuation reserve                    284       -
                                                                     ------  ------
                  Net inventory carrying value                       $1,685  $1,939
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>


                At December 31, 1997, and December 31, 1996, the LIFO method
             accounted for 92% and 93%, respectively, of total inventory value.
             Current acquisition costs were estimated to exceed the above
             inventory values at December 31 by approximately $300 million and
             $340 million in 1997 and 1996, respectively.

                The inventory market valuation reserve reflects the extent that
             the recorded LIFO cost basis of crude oil and refined products
             inventories exceeds net realizable value. The reserve is decreased
             to reflect increases in market prices and inventory turnover and
             increased to reflect decreases in market prices. Changes in the
             inventory market valuation reserve result in noncash charges or
             credits to costs and expenses.
 
- --------------------------------------------------------------------------------
20. SUPPLEMENTAL CASH FLOW INFORMATION


<TABLE> 
<CAPTION> 
             (In millions)                                                1997       1996       1995
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                       <C>        <C>         <C>        
             CASH USED IN OPERATING ACTIVITIES INCLUDED:
              Interest and other financial costs paid
               (net of amount capitalized)                             $   (382)  $   (488)   $  (605)
              Income taxes paid                                            (400)      (127)      (170)
             _______________________________________________________________________________________________________________________
             COMMERCIAL PAPER AND REVOLVING CREDIT ARRANGEMENTS  NET:
              Commercial paper - issued                                $      -   $  1,422    $ 2,434
                               - repayments                                   -     (1,555)    (2,651)
              Credit agreements - borrowings                             10,454     10,356      4,719
                                - repayments                            (10,449)   (10,340)    (4,659)
              Other credit arrangements - net                                36        (36)        40
                                                                       --------   --------   --------
                 Total                                                 $     41   $   (153)  $   (117)
             -----------------------------------------------------------------------------------------------------------------------
             NONCASH INVESTING AND FINANCING ACTIVITIES:
              Common stock issued for dividend reinvestment
               and employee stock plans                                $     10   $      6   $     21
              Acquisition of assets - debt issued                             -          2          -
              Disposal of assets - notes and common stock received            -         12          9
                                 - liabilities assumed by buyers            240         25          -
              Trust preferred securities exchanged for preferred stock      182          -          -
             -----------------------------------------------------------------------------------------------------------------------
 </TABLE>
 

- --------------------------------------------------------------------------------
21. STOCK-BASED COMPENSATION PLANS

                The 1990 Stock Plan, as amended, authorizes the Compensation
             Committee of the Board of Directors to grant restricted stock and
             stock options to key management employees. Such employees are
             generally granted awards of the class of common stock intended to
             reflect the performance of the group(s) to which their work
             relates. Up to .5 percent of the outstanding Marathon Stock and .8
             percent of the outstanding Steel Stock, as determined on December
             31 of the preceding year, are available for grants during each
             calendar year the 1990 Plan is in effect. In addition, awarded
             shares that do not result in shares being issued are available for
             subsequent grant in the same year, and any ungranted shares from
             prior years' annual allocations are available for subsequent grant
             during the years the 1990 Plan is in effect. As of December 31,
             1997, 7,452,556 Marathon Stock shares and 2,272,170 Steel Stock
             shares were available for grants in 1998. The Stock-Based
             Compensation Plans' activity below includes the Delhi Stock prior
             to its January 1998 redemption (Note 3).

                Restricted stock represents stock granted for such
             consideration, if any, as determined by the Compensation Committee,
             subject to provisions for forfeiture and restricting transfer.
             Those restrictions may be removed as conditions such as
             performance, continuous service and other criteria are met.
             Restricted stock is issued at the market price per share at the
             date of grant and vests over service periods that range from one to
             five years.

U-20

<PAGE>
 
                Deferred compensation is charged to stockholders' equity when
             the restricted stock is granted and subsequently adjusted for
             changes in the market value of the underlying stock. The deferred
             compensation is expensed over the balance of the vesting period and
             adjusted if conditions of the restricted stock grant are not met.

                The following table presents information on restricted stock
             grants:


<TABLE>
<CAPTION>
                                           Marathon Stock                     Steel Stock                  Delhi Stock     
                                    -----------------------------    --------------------------       -------------------------
                                      1997       1996      1995      1997        1996      1995       1997      1996      1995     
             -----------------------------------------------------------------------------------------------------------------------
             <S>                    <C>         <C>      <C>         <C>         <C>     <C>          <C>       <C>     <C>        
             Number of shares                                                                                                     
              granted                  20,430    11,495   232,828      11,942     5,605   146,054         -         -    10,000  
             Weighted-average                                                                                                      
              grant-date fair                                                                                                      
              value per share         $ 29.38   $ 22.38  $  19.50     $ 32.00    $31.94  $  33.81      $  -     $   -   $ 10.25   
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>


                Stock options represent the right to purchase shares of
             Marathon Stock, Steel Stock or Delhi Stock at the market value of
             the stock at date of grant. Certain options contain the right to
             receive cash and/or common stock equal to the excess of the fair
             market value of shares of common stock, as determined in accordance
             with the plan, over the option price of shares. Stock options
             expire 10 years from the date they are granted and vest over a one-
             year service period.

                The following is a summary of stock option activity:

<TABLE>
<CAPTION>
                                               Marathon Stock             Steel Stock               Delhi Stock
                                          ------------------------  ------------------------  -----------------------
                                            Shares     Price/(a)/      Shares     Price/(a)/   Shares      Price/(a)/
             -----------------------------------------------------------------------------------------------------------------------
             <S>                          <C>          <C>          <C>           <C>         <C>          <C>      
             Balance December 31, 1994     5,178,350        $24.44      720,300    $   37.27  192,800           $17.50
             Granted                         577,950         19.45      361,750        31.97   67,100            12.63
             Exercised                       (22,700)        17.66       (8,680)       21.87        -                - 
             Canceled                       (677,050)        26.44      (16,720)       31.03        -                -
                                          ----------                  ---------               -------                 
             Balance December 31, 1995     5,056,550         23.63    1,056,650        35.68  259,900            16.24
             Granted                         633,825         22.38      411,705        31.94   77,550            13.63
             Exercised                      (321,985)        17.50     (100,260)       31.98   (1,500)           12.69
             Canceled                       (137,820)        26.82      (22,500)       33.43   (9,000)           17.49
                                          ----------                  ---------               -------                 
             Balance December 31, 1996     5,230,570         23.78    1,345,595        34.85  326,950            15.60
             Granted                         756,260         29.38      457,590        32.00   94,250            13.31
             Exercised                    (2,215,665)        23.86     (158,265)       31.85   (6,300)           12.21
             Canceled                        (76,300)        26.91      (11,820)       34.36   (6,650)           15.73
                                          ----------                  ---------               -------                  
             Balance December 31, 1997     3,694,865         24.81    1,633,100        34.35  408,250 /(b)/      15.13
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/ Weighted-average exercise price.
             /(b)/ Redeemed on January 26, 1998.

                     The following table represents stock options at December
             31, 1997, excluding the Delhi Stock, which was redeemed on January
             26, 1998:


<TABLE>
<CAPTION>
                                                              Outstanding                         Exercisable
                                                -----------------------------------------   -----------------------
                                                                Weighted-                                             
                                                   Number        Average        Weighted-      Number     Weighted-                 
                                Range of         of Shares      Remaining       Average      of Shares      Average      
                                Exercise           Under       Contractual      Exercise       Under       Exercise      
                                 Prices           Option          Life           Price        Option         Price       
             -----------------------------------------------------------------------------------------------------------------------
             <S>               <C>               <C>           <C>              <C>          <C>          <C>                  
             Marathon Stock    $17.00-23.44      1,806,455       6.7 years          $20.66     1,806,455       $20.66      
                                25.38-26.88        344,250       2.4                 25.81       344,250        25.81      
                                29.08-29.88      1,544,160       5.6                 29.43       789,200        29.49      
                                                 ---------                                     ---------                   
                               Total             3,694,865                                     2,939,905                   
                                                 ---------                                     ---------                   
             Steel Stock       $22.24-25.44         40,615       3.4 years          $24.70        40,615       $24.70      
                                31.69-34.44      1,309,310       8.2                 32.52       855,220        32.79      
                                      44.19        283,175       5.4                 44.19       283,175        44.19      
                                                 ---------                                     ---------                   
                               Total             1,633,100                                     1,179,010                    
             -----------------------------------------------------------------------------------------------------------------------
</TABLE>

 
                 During 1996, USX adopted SFAS No. 123, Accounting for
             Stock-Based Compensation, as discussed in Note 2, and elected to
             continue to follow the accounting provisions of APB No. 25. Actual
             stock-based compensation expense was $30 million in 1997, $8
             million in 1996 and $3 million in 1995. Incremental compensation
             expense, as determined under SFAS No. 123, was not material ($.02
             or less per share for all years presented). Therefore, pro forma
             net income and earnings per share data have been omitted.

                 Effective January 1, 1997, USX created a deferred compensation
             plan for non-employee directors of its Board of Directors. The plan
             permits participants to defer some or all of their annual retainers
             in the form of common stock units or cash. Common stock units are
             book entry units equal in value to a share of Marathon Stock or
             Steel Stock. Deferred stock benefits are distributed in shares of
             common stock within five business days after a participant leaves
             the Board of Directors. During 1997, no shares of common stock were
             distributed.


                                                                            U-21

<PAGE>
 
________________________________________________________________________________
22. DIVIDENDS

                In accordance with the USX Certificate of Incorporation,
             dividends on the Marathon Stock and Steel Stock are limited to the
             legally available funds of USX. Net losses of any Group, as well as
             dividends and distributions on any class of USX Common Stock or
             series of preferred stock and repurchases of any class of USX
             Common Stock or series of preferred stock at prices in excess of
             par or stated value, will reduce the funds of USX legally available
             for payment of dividends on all classes of Common Stock. Subject to
             this limitation, the Board of Directors intends to declare and pay
             dividends on the Marathon Stock and Steel Stock based on the
             financial condition and results of operations of the related group,
             although it has no obligation under Delaware law to do so. In
             making its dividend decisions with respect to each of the Marathon
             Stock and Steel Stock, the Board of Directors considers, among
             other things, the long-term earnings and cash flow capabilities of
             the related group as well as the dividend policies of similar
             publicly traded companies.

                Dividends on the Steel Stock are further limited to the
             Available Steel Dividend Amount. At December 31, 1997, the
             Available Steel Dividend Amount was at least $3,028 million. The
             Available Steel Dividend Amount will be increased or decreased, as
             appropriate, to reflect U. S. Steel Group net income, dividends,
             repurchases or issuances with respect to the Steel Stock and
             preferred stock attributed to the U. S. Steel Group and certain
             other items.

________________________________________________________________________________
23. STOCKHOLDER RIGHTS PLAN

                USX's Board of Directors has adopted a Stockholder Rights Plan
             and declared a dividend distribution of one right for each
             outstanding share of Marathon Stock and Steel Stock referred to
             together as "Voting Stock." Each right becomes exercisable, at a
             price of $120, when any person or group has acquired, obtained the
             right to acquire or made a tender or exchange offer for 15% or more
             of the total voting power of the Voting Stock, except pursuant to a
             qualifying all-cash tender offer for all outstanding shares of
             Voting Stock, which is accepted with respect to shares of Voting
             Stock representing a majority of the voting power other than Voting
             Stock beneficially owned by the offeror. Each right entitles the
             holder, other than the acquiring person or group, to purchase one
             one-hundredth of a share of Series A Junior Preferred Stock or,
             upon the acquisition by any person of 15% or more of the total
             voting power of the Voting Stock, Marathon Stock or Steel Stock (as
             the case may be) or other property having a market value of twice
             the exercise price. After the rights become exercisable, if USX is
             acquired in a merger or other business combination where it is not
             the survivor, or if 50% or more of USX's assets, earnings power or
             cash flow are sold or transferred, each right entitles the holder
             to purchase common stock of the acquiring entity having a market
             value of twice the exercise price. The rights and exercise price
             are subject to adjustment, and the rights expire on October 9,
             1999, or may be redeemed by USX for one cent per right at any time
             prior to the point they become exercisable. Under certain
             circumstances, the Board of Directors has the option to exchange
             one share of the respective class of Voting Stock for each
             exercisable right.

________________________________________________________________________________
24. INCOME PER COMMON SHARE

                The method of calculating net income (loss) per share for the
             Marathon Stock, the Steel Stock and, prior to November 1, 1997, the
             Delhi Stock reflects the USX Board of Directors' intent that the
             separately reported earnings and surplus of the Marathon Group, the
             U. S. Steel Group and the Delhi Group, as determined consistent
             with the USX Certificate of Incorporation, are available for
             payment of dividends on the respective classes of stock, although
             legally available funds and liquidation preferences of these
             classes of stock do not necessarily correspond with these amounts.
             The financial statements of the Marathon Group, the U. S. Steel
             Group and the Delhi Group, taken together, include all accounts
             which comprise the corresponding consolidated financial statements
             of USX.

                The USX Board of Directors, prior to June 15, 1995, had
             designated 14,003,205 shares of Delhi Stock to represent 100% of
             the common stockholders' equity value of USX attributable to the
             Delhi Group. The Delhi Fraction was the percentage interest in the
             Delhi Group represented by the shares of Delhi Stock that were
             outstanding at any particular time and, based on 9,438,391
             outstanding shares at June 14, 1995, was approximately 67%. The
             Marathon Group financial statements reflected a percentage interest
             in the Delhi Group of approximately 33% (Retained Interest) through
             June 14, 1995. On June 15, 1995, USX eliminated the Marathon
             Group's Retained Interest in the Delhi Group (equivalent to
             4,564,814 shares of Delhi Stock). This was accomplished through a
             reallocation of assets and a corresponding adjustment to debt and
             equity attributed to the Marathon and Delhi Groups. The
             reallocation was made at a price of $12.75 per equivalent share of
             Delhi Stock, or an aggregate of $58 million, resulting in a
             corresponding reduction of the Marathon Group debt.

                Basic net income (loss) per share is calculated by adjusting net
             income (loss) for dividend requirements of preferred stock and the
             noncash credit on exchange of preferred stock and, in the case of
             Delhi Stock, for the income applicable to the Retained Interest
             prior to June 15, 1995; and is based on the weighted average number
             of common shares outstanding.

                Diluted net income (loss) per share assumes conversion of
             convertible securities for the applicable periods outstanding and
             assumes exercise of stock options, provided in each case, the
             effect is not antidilutive.

U-22

<PAGE>
 

<TABLE>
<CAPTION>
                                                         COMPUTATION OF INCOME PER SHARE
                                                                       1997                  1996                  1995
                                                                 -------------------   ------------------   ------------------
                                                                  Basic     Diluted     Basic    Diluted     Basic     Diluted 
- ------------------------------------------------------------------------------------------------------------------------------
     <S>                                                        <C>        <C>       <C>        <C>        <C>        <C>
     CONTINUING OPERATIONS                                                                                                    
     MARATHON GROUP                                                                                                           
     --------------
     Net income (loss) (millions):                                                                                            
      Income (loss) before extraordinary loss                   $    456   $    456  $    671   $    671   $    (83)  $    (83)
      Dividends on preferred stock                                  -          -         -          -            (4)        (4)
      Extraordinary loss                                            -          -           (7)        (7)        (5)        (5)
                                                                --------   --------  --------   --------   --------   -------- 
      Net income (loss) applicable to Marathon Stock                 456        456       664        664        (92)       (92)
      Effect of dilutive securities                                                                                           
       Convertible debentures                                       -             3      -            14       -          -    
                                                                --------   --------  --------   --------   --------   -------- 
         Net income (loss) assuming conversions                 $    456   $    459  $    664   $    678   $    (92)  $    (92)
                                                                ========   ========  ========   ========   ========   ========  
     Shares of common stock outstanding (thousands):                                                                          
      Average number of common shares outstanding                288,038    288,038   287,460    287,460    287,271    287,271
      Effect of dilutive securities:                                                                                          
       Convertible debentures                                       -         1,936      -         8,975       -          -   
       Stock options                                                -           546      -           133       -          -   
                                                                --------   --------  --------   --------   --------   --------  
         Average common shares and dilutive effect               288,038    290,520   287,460    296,568    287,271    287,271
                                                                ========   ========  ========   ========   ========   ======== 
     Per share:                                                                                                               
      Income (loss) before extraordinary loss                   $   1.59   $   1.58  $   2.33   $   2.31   $   (.31)  $   (.31)
      Extraordinary loss                                             -          -        (.02)      (.02)      (.02)      (.02)
                                                                --------   --------  --------   --------   --------   --------  
      Net income (loss)                                         $   1.59   $   1.58  $   2.31   $   2.29   $   (.33)  $   (.33)
     -------------------------------------------------------------------------------------------------------------------------
     U. S. STEEL GROUP                                                                                                        
     -----------------                                                                                                        
     Net income (millions):                                                                                                   
      Income before extraordinary loss                          $    452   $    452  $    275   $    275   $    303   $    303
      Dividends on preferred stock                                   (13)      -          (22)       (22)       (24)       (24)
      Noncash credit from exchange of preferred stock                 10       -        -           -         -          -    
      Extraordinary loss                                            -          -           (2)        (2)        (2)        (2)
                                                                --------   --------  --------   --------   --------   --------  
      Net income applicable to Steel Stock                           449        452       251        251        277        277
      Effect of dilutive securities:                                                                                          
       Trust preferred securities                                   -             6     -           -         -          -     
       Preferred stock                                              -          -        -           -         -             22
       Convertible debentures                                       -             2     -              3      -              6
                                                                --------   --------  --------   --------   --------   -------- 
         Net income assuming conversions                        $    449   $    460  $    251   $    254   $    277   $    305
                                                                ========   ========  ========   ========   ========   ======== 
     Shares of common stock outstanding (thousands):                                                                          
      Average number of common shares outstanding                 85,672     85,672    84,025     84,025     79,064     79,064
      Effect of dilutive securities:                                                                                          
       Trust preferred securities                                   -         2,660      -          -          -         -     
       Preferred stock                                              -         4,811      -          -          -         7,480
       Convertible debentures                                       -         1,025      -         1,925       -         2,814
       Stock options                                                -            35      -            12       -            21
                                                                --------   --------  --------   --------   --------   -------- 
         Average common shares and dilutive effect                85,672     94,203    84,025     85,962     79,064     89,379
                                                                ========   ========  ========   ========   ========   ======== 
     Per Share:                                                                                                               
      Income before extraordinary loss                          $   5.24   $   4.88  $   3.00   $   2.97   $   3.53   $   3.43
      Extraordinary loss                                            -          -         (.02)      (.02)      (.02)      (.02)
                                                                --------   --------  --------   --------   --------   --------  
      Net income                                                $   5.24   $   4.88  $   2.98   $   2.95   $   3.51   $   3.41
     -------------------------------------------------------------------------------------------------------------------------
     DISCONTINUED OPERATIONS                                                                                                  
     DELHI GROUP                                                                                                              
     -----------                                                                                                              
     Net income (millions):                                                                                                   
      Income before extraordinary loss                          $   79.7   $   79.7  $    6.4   $    6.4   $    4.0   $    4.0
      Dividends on preferred stock                                  -          -         -          -           (.2)       (.2)
      Net income applicable to Retained Interest                    -          -         -          -          (2.4)      (2.4)
      Extraordinary loss                                            -          -          (.5)       (.5)       (.3)       (.3)
                                                                --------   --------  --------   --------   --------   --------  
         Net income applicable to outstanding                                                                                 
         Delhi Stock                                            $   79.7   $   79.7  $    5.9   $    5.9   $    1.1   $    1.1
                                                                ========   ========  ========   ========   ========   ======== 
     Shares of common stock outstanding (thousands):                                                                          
      Average number of common shares outstanding                  9,449      9,449     9,448      9,448      9,442      9,442
      Stock options                                                 -            21      -             3       -          -   
                                                                --------   --------  --------   --------   --------   --------  
         Average common shares and dilutive effect                 9,449      9,470     9,448      9,451      9,442      9,442
                                                                ========   ========  ========   ========   ========   ======== 
     Per share applicable to outstanding Delhi Stock:                                                                         
      Income before extraordinary loss                          $   8.43   $   8.41  $    .67   $    .67   $    .15   $    .15
      Extraordinary loss                                            -          -         (.06)      (.06)      (.03)      (.03)
                                                                --------   --------  --------   --------   --------   --------  
      Net income                                                $   8.43   $   8.41  $    .61   $    .61   $    .12   $    .12 
     -------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                            U-23

<PAGE>
 
________________________________________________________________________________
25. PREFERRED STOCK OF SUBSIDIARY

             USX Capital LLC, a wholly owned subsidiary of USX, sold
             10,000,000 shares (carrying value of $250 million) of 8 3/4%
             Cumulative Monthly Income Preferred Shares (MIPS) (liquidation
             preference of $25 per share) in 1994. Proceeds of the issue were
             loaned to USX. USX has the right under the loan agreement to extend
             interest payment periods for up to 18 months, and as a consequence,
             monthly dividend payments on the MIPS can be deferred by USX
             Capital LLC during any such interest payment period. In the event
             that USX exercises this right, USX may not declare dividends on any
             share of its preferred or common stocks. The MIPS are redeemable at
             the option of USX Capital LLC and subject to the prior consent of
             USX, in whole or in part from time to time, for $25 per share on or
             after March 31, 1999, and will be redeemed from the proceeds of any
             repayment of the loan by USX. In addition, upon final maturity of
             the loan, USX Capital LLC is required to redeem the MIPS. The
             financial costs are included in net interest and other financial
             costs.

________________________________________________________________________________
26. USX OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A
SUBSIDIARY TRUST

             In 1997, USX exchanged approximately 3.9 million 6.75% Convertible
             Quarterly Income Preferred Securities (Trust Preferred Securities)
             of USX Capital Trust I, a Delaware statutory business trust
             (Trust), for an equivalent number of shares of its 6.50% Cumulative
             Convertible Preferred Stock (6.50% Preferred Stock) (Exchange). The
             Exchange resulted in the recording of Trust Preferred Securities at
             a fair value of $182 million and a noncash credit to Retained
             Earnings of $10 million.

                USX owns all of the common securities of the Trust, which was
             formed for the purpose of the Exchange. (The Trust Common
             Securities and the Trust Preferred Securities are together referred
             to as the Trust Securities.) The Trust Securities represent
             undivided beneficial ownership interests in the assets of the
             Trust, which consist solely of USX 6.75% Convertible Junior
             Subordinated Debentures maturing March 31, 2037 (Debentures),
             having an aggregate principal amount equal to the aggregate initial
             liquidation amount ($50.00 per security and $203 million in total)
             of the Trust Securities issued by the Trust. Interest and principal
             payments on the Debentures will be used to make quarterly
             distributions and to pay redemption and liquidation amounts on the
             Trust Preferred Securities. The quarterly distributions, which
             accumulate at the rate of 6.75% per annum on the Trust Preferred
             Securities and the accretion from fair value to the initial
             liquidation amount, are charged to income and included in net
             interest and other financial costs.

                Under the terms of the Debentures, USX has the right to defer
             payment of interest for up to 20 consecutive quarters and, as a
             consequence, monthly distributions on the Trust Preferred
             Securities will be deferred during such period. If USX exercises
             this right, then, subject to limited exceptions, it may not pay any
             dividend or make any distribution with respect to any shares of its
             capital stock.

                The Trust Preferred Securities are convertible at any time prior
             to the close of business on March 31, 2037 (unless such right is
             terminated earlier under certain circumstances) at the option of
             the holder, into shares of Steel Stock at a conversion price of
             $46.25 per share of Steel Stock (equivalent to a conversion ratio
             of 1.081 shares of Steel Stock for each Trust Preferred Security),
             subject to adjustment in certain circumstances.

                The Trust Preferred Securities may be redeemed at any time at
             the option of USX, initially at a premium of 103.90% of the initial
             liquidation amount through March 31, 1998, and thereafter,
             declining annually to the initial liquidation amount on April 1,
             2003, and thereafter. They are mandatorily redeemable at March 31,
             2037, or earlier under certain circumstances.

                Payments related to quarterly distributions and to the payment
             of redemption and liquidation amounts on the Trust Preferred
             Securities by the Trust are guaranteed by USX on a subordinated
             basis. In addition, USX unconditionally guarantees the Trust's
             Debentures. The obligations of USX under the Debentures, and the
             related indenture, trust agreement and guarantee constitute a full
             and unconditional guarantee by USX of the Trust's obligations under
             the Trust Preferred Securities.

________________________________________________________________________________
27. PREFERRED STOCK

             USX is authorized to issue 40,000,000 shares of preferred stock,
             without par value-

             6.50% CUMULATIVE CONVERTIBLE PREFERRED STOCK (6.50% PREFERRED
             STOCK)-As of December 31, 1997, 2,962,037 shares (stated value of
             $1.00 per share; liquidation preference of $50.00 per share) were
             outstanding. The 6.50% Preferred Stock is convertible at any time,
             at the option of the holder, into shares of Steel Stock at a
             conversion price of $46.125 per share of Steel Stock, subject to
             adjustment in certain circumstances. This stock is redeemable at
             USX's sole option, at a price of $51.95 per share beginning April
             1, 1997, and thereafter at prices declining annually on each April
             1 to an amount equal to $50.00 per share on and after April 1,
             2003. In 1997, USX exchanged approximately 3.9 million shares of
             its 6.50% Preferred Stock for an equivalent number of shares of its
             Trust Preferred Securities.

U-24

<PAGE>
 
________________________________________________________________________________
28. DERIVATIVE INSTRUMENTS

             USX uses commodity-based derivative instruments to manage exposure
             to price fluctuations related to the anticipated purchase or
             production and sale of crude oil, natural gas, refined products,
             nonferrous metals and electricity. The derivative instruments used,
             as a part of an overall risk management program, include exchange-
             traded futures contracts and options, and instruments which require
             settlement in cash such as OTC commodity swaps and OTC options.
             While risk management activities generally reduce market risk
             exposure due to unfavorable commodity price changes for raw
             material purchases and products sold, such activities can also
             encompass strategies which assume certain price risk in isolated
             transactions.

                USX uses forward currency contracts to eliminate the exposure to
             currency price fluctuations relating to Swiss franc debt
             obligations. The forward currency contracts effectively fix the
             principal and interest payments in U.S. dollars at the time of
             maturity.

                USX remains at risk for possible changes in the market value of
             the derivative instrument; however, such risk should be mitigated
             by price changes in the underlying hedged item. USX is also exposed
             to credit risk in the event of nonperformance by counterparties.
             The credit worthiness of counterparties is subject to continuing
             review, including the use of master netting agreements to the
             extent practical, and full performance is anticipated.

                The following table sets forth quantitative information by class
             of derivative instrument:


<TABLE>
<CAPTION>
                                                         FAIR                 CARRYING        RECORDED                        
                                                         VALUE                 AMOUNT         DEFERRED       AGGREGATE        
                                                        ASSETS                 ASSETS          GAIN OR        CONTRACT        
             (In millions)                         (LIABILITIES)/(A)/      (LIABILITIES)        (LOSS)       VALUES/(B)/       
             -----------------------------------------------------------------------------------------------------------
             <S>                                   <C>                     <C>                <C>            <C>   
             DECEMBER 31, 1997:
              Exchange-traded commodity futures      $     -                  $     -         $     -          $     30 
              Exchange-traded commodity options             1  /(c)/                 1               2              129 
              OTC commodity swaps/(d)/                     (3) /(e)/                (3)             (4)              50 
              OTC commodity options                        -                        -               -                 6 
                                                     ---------                ---------       ---------        ---------   
                Total commodities                    $     (2)                $     (2)       $     (2)        $    215 
                                                     ---------                ---------       ---------        ---------   
              Forward currency contract/(g)/:                                                                              
                   receivable                        $     11                 $     10        $     -                59 
                   payable                                 (1)                      (1)             (1)               5 
                                                     ---------                ---------       ---------        ---------    
                Total currencies                     $     10                 $      9        $     (1)        $     64  
             -----------------------------------------------------------------------------------------------------------  
             December 31, 1996: 
             Exchange-traded commodity futures       $    -                   $    -          $     (2)        $     49 
              Exchange-traded commodity options            (1) /(c)/                (1)             (2)             254 
              OTC commodity swaps                          (1) /(e)/                (2)             -                88 
              OTC commodity options                        (6) /(f)/                (6)             -                84 
                                                     ---------                ---------       ---------        ---------    
                Total commodities                    $     (8)                $     (9)       $     (4)        $    475 
                                                     ---------                ---------       ---------        ---------     
              Forward currency contract:                                                                                   
                 - receivable                        $     19                 $     16        $     -          $     59 
                 - payable                                 (1)                      (1)             (1)              10 
                                                     ---------                ---------       ---------        ---------     
                Total currencies                     $     18                 $     15        $     (1)        $     69  
             ----------------------------------------------------------------------------------------------------------- 
</TABLE>
 

             /(a)/The fair value amounts for OTC positions are based on various
                  indices or dealer quotes. The fair value amounts for currency
                  contracts are based on dealer quotes of forward prices
                  covering the remaining duration of the foreign exchange
                  contract. The exchange-traded futures contracts and certain
                  option contracts do not have a corresponding fair value since
                  changes in the market prices are settled on a daily basis.
             /(b)/Contract or notional amounts do not quantify risk exposure,
                  but are used in the calculation of cash settlements under the
                  contracts. The contract or notional amounts do not reflect the
                  extent to which positions may offset one another.
             /(c)/Includes fair values as of December 31, 1997 and 1996, for
                  assets of $3 million and $1 million and for liabilities of
                  $(2) million and $(2) million, respectively.
             /(d)/The OTC swap arrangements vary in duration with certain
                  contracts extending into mid 2000.
             /(e)/Includes fair values as of December 31, 1997 and 1996, for
                  assets of $1 million and $3 million and for liabilities of
                  $(4) million and $(4) million, respectively.
             /(f)/Includes fair values as of December 31, 1996, for assets of $1
                  million and for liabilities of $(7) million.
             /(g)/The forward currency contract matures in 1998.

                                                                            U-25

<PAGE>
 
________________________________________________________________________________
29. FAIR VALUE OF FINANCIAL INSTRUMENTS

             Fair value of the financial instruments disclosed herein is not
             necessarily representative of the amount that could be realized or
             settled, nor does the fair value amount consider the tax
             consequences of realization or settlement. The following table
             summarizes financial instruments, excluding derivative financial
             instruments disclosed in Note 28, by individual balance sheet
             account:


<TABLE>
<CAPTION>
                                                                               1997                 1996
                                                                       --------------------  -------------------
                                                                         FAIR     CARRYING     Fair     Carrying   
             (In millions)               December 31                    VALUE      AMOUNT     Value      Amount    
             ---------------------------------------------------------------------------------------------------
             <S>                                                       <C>        <C>         <C>       <C>      
             FINANCIAL ASSETS:                                                                                     
              Cash and cash equivalents                                 $   54      $   54    $   55      $   55   
              Receivables                                                1,417       1,417     1,270       1,270   
              Investments and long-term receivables                        177         120       252         211   
                                                                        ------      ------    ------    --------   
                Total financial assets                                  $1,648      $1,591    $1,577      $1,536   
             ---------------------------------------------------------------------------------------------------
             FINANCIAL LIABILITIES:                                                                                
              Notes payable                                             $  121      $  121    $   81      $   81   
              Accounts payable                                           2,011       2,011     2,204       2,204   
              Accrued interest                                              95          95       102         102   
              Long-term debt (including amounts due within one year)     3,646       3,281     4,332       4,083   
              Trust preferred securities and preferred                                                             
               stock of subsidiary                                         435         432       254         250   
                                                                        ------      ------    ------    --------   
                Total financial liabilities                             $6,308      $5,940    $6,973      $6,720    
             ---------------------------------------------------------------------------------------------------
</TABLE>


                Fair value of financial instruments classified as current assets
             or liabilities approximates carrying value due to the short-term
             maturity of the instruments. Fair value of investments and long-
             term receivables was based on discounted cash flows or other
             specific instrument analysis. Fair value of trust preferred
             securities and preferred stock of subsidiary was based on market
             prices. Fair value of long-term debt instruments was based on
             market prices where available or current borrowing rates available
             for financings with similar terms and maturities.

                USX's unrecognized financial instruments consist of receivables
             sold and financial guarantees. It is not practicable to estimate
             the fair value of these forms of financial instrument obligations
             because there are no quoted market prices for transactions which
             are similar in nature. For details relating to sales of receivables
             see Note 13, and for details relating to financial guarantees see
             Note 30.

________________________________________________________________________________
30. CONTINGENCIES AND COMMITMENTS

                USX is the subject of, or party to, a number of pending or
             threatened legal actions, contingencies and commitments involving a
             variety of matters, including laws and regulations relating to the
             environment. Certain of these matters are discussed below. The
             ultimate resolution of these contingencies could, individually or
             in the aggregate, be material to the consolidated financial
             statements. However, management believes that USX will remain a
             viable and competitive enterprise even though it is possible that
             these contingencies could be resolved unfavorably.

             ENVIRONMENTAL MATTERS

                USX is subject to federal, state, local and foreign laws and
             regulations relating to the environment. These laws generally
             provide for control of pollutants released into the environment and
             require responsible parties to undertake remediation of hazardous
             waste disposal sites. Penalties may be imposed for noncompliance.
             At December 31, 1997, and December 31, 1996, accrued liabilities
             for remediation totaled $158 million and $144 million,
             respectively. It is not presently possible to estimate the ultimate
             amount of all remediation costs that might be incurred or the
             penalties that may be imposed. Receivables for recoverable costs
             from certain states, under programs to assist companies in cleanup
             efforts related to underground storage tanks at retail marketing
             outlets, were $42 million at December 31, 1997, and $23 million at
             December 31, 1996.

                For a number of years, USX has made substantial capital
             expenditures to bring existing facilities into compliance with
             various laws relating to the environment. In 1997 and 1996, such
             capital expenditures totaled $134 million and $165 million,
             respectively. USX anticipates making additional such expenditures
             in the future; however, the exact amounts and timing of such
             expenditures are uncertain because of the continuing evolution of
             specific regulatory requirements.

                At December 31, 1997, and December 31, 1996, accrued liabilities
             for platform abandonment and dismantlement totaled $128 million and
             $118 million, respectively.


U-26

<PAGE>
 
             GUARANTEES -

                Guarantees of the liabilities of affiliated entities by USX and
             its consolidated subsidiaries totaled $73 million at December 31,
             1997, and $80 million at December 31, 1996. In the event that any
             defaults of guaranteed liabilities occur, USX has access to its
             interest in the assets of most of the affiliates to reduce
             potential losses resulting from these guarantees. As of December
             31, 1997, the largest guarantee for a single affiliate was $23
             million.

                At December 31, 1997, and December 31, 1996, USX's pro rata
             share of obligations of LOOP LLC and various pipeline affiliates
             secured by throughput and deficiency agreements totaled $165
             million and $176 million, respectively. Under the agreements, USX
             is required to advance funds if the affiliates are unable to
             service debt. Any such advances are prepayments of future
             transportation charges.

             COMMITMENTS -

                At December 31, 1997, and December 31, 1996, contract
             commitments for capital expenditures for property, plant and
             equipment totaled $424 million and $526 million, respectively.

                USX entered into a 15-year take-or-pay arrangement in 1993,
             which requires USX to accept pulverized coal each month or pay a
             minimum monthly charge of approximately $1.3 million. Charges for
             deliveries of pulverized coal totaled $24 million in 1997 and $23
             million in 1996. If USX elects to terminate the contract early, a
             maximum termination payment of $114 million, which declines over
             the duration of the agreement, may be required.

                USX is a party to a transportation agreement with a subsidiary
             of Transtar, Inc. (Transtar), for Great Lakes shipments of raw
             materials required by steel operations. The agreement is in effect
             until March 15, 2000, and requires USX to pay, at a minimum,
             Transtar's annual fixed costs related to the agreement, including
             lease/charter costs, depreciation of owned vessels, dry dock fees
             and other administrative costs. Total transportation costs under
             the agreement were $77 million in 1997 and $72 million in 1996,
             including fixed costs of $20 million in both years. The fixed costs
             are expected to continue at approximately the same level over the
             duration of the agreement.

________________________________________________________________________________
31. SUBSEQUENT EVENT - BUSINESS COMBINATIONS

                On December 12, 1997, USX and Ashland Inc. (Ashland) signed
             definitive agreements to combine the major elements of their
             refining, marketing and transportation (RM&T) operations. Pursuant
             to those agreements, on January 1, 1998, USX transferred certain
             RM&T net assets to a new consolidated subsidiary, which was named
             Marathon Ashland Petroleum LLC (MAP). Also on January 1, 1998, USX
             acquired certain RM&T net assets from Ashland in exchange for a 38%
             interest in MAP. The acquisition will be accounted for under the
             purchase method of accounting. The purchase price was determined to
             be $1.9 billion, based upon an external valuation of the fair
             value. The change in USX's ownership interest in MAP resulted in a
             change in interest gain which will be recognized in the first
             quarter 1998.

                In connection with the formation of MAP, USX and Ashland entered
             into a Limited Liability Company Agreement dated January 1, 1998
             (the LLC Agreement). The LLC Agreement provides for an initial term
             of MAP expiring on December 31, 2022 (25 years from its formation).
             The term will automatically be extended for ten-year periods,
             unless a termination notice is given by either party.

                Also in connection with the formation of MAP, the parties
             entered into a Put/Call, Registration Rights and Standstill
             Agreement (the Put/Call Agreement). The Put/Call Agreement provides
             that at any time after December 31, 2004, Ashland will have the
             right to sell to USX all of Ashland's ownership interest in MAP,
             for an amount in cash and/or the Marathon Oil Company or USX debt
             or equity securities equal to the product of 85% (90% if equity
             securities are used) of the fair market value of MAP at that time,
             multiplied by Ashland's percentage interest in MAP. Payment could
             be made at closing, or at USX's option, in three equal annual
             installments, the first of which would be payable at closing. At
             any time after December 31, 2004, USX will have the right to
             purchase all of Ashland's ownership interests in MAP, for an amount
             in cash equal to the product of 115% of the fair market value of
             MAP at that time, multiplied by Ashland's percentage interest in
             MAP.

                                                                            U-27

<PAGE>
 
                The following unaudited pro forma data for USX includes the
             results of operations for the Ashland RM&T net assets, giving
             effect to the acquisition as if it had been consummated at the
             beginning of the year 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.


<TABLE> 
<CAPTION> 
             (In millions, except per share amounts)                   1997/(a)/
             -------------------------------------------------------------------
             <S>                                                     <C>     
             Consolidated:
              Revenues                                               $29,288
              Net income                                                 987
             Net income per common share of Marathon Stock:
              Basic                                                     1.58
              Diluted                                                   1.57
             -------------------------------------------------------------------
</TABLE>


             /(a)/  The USX data is based on a calendar year. Ashland data is
                    based on a twelve-month period ended September 30, 1997.

             /(b)/  Excluding the pro forma inventory market valuation
                    adjustment, pro forma net income would have been $1,150
                    million. Reported net income, excluding the reported
                    inventory market valuation adjustment, would have been
                    $1,167 million.


U-28

<PAGE>
 
Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
 
                                                                            1997     
                                                  ------------------------------------------------------- 
(In millions, except per share data)               4TH QTR.      3RD QTR.          2ND QTR.    1ST QTR.  
- --------------------------------------------------------------------------------------------------------- 
<S>                                                <C>         <C>                <C>          <C>   
CONTINUING OPERATIONS                                                            
Revenues                                           $5,734      $ 5,657 (a)        $5,502 (a)   $5,695 (a)   
Income from operations                                346          557 (a)           436 (a)      366 (a)   
  Costs and expenses include:                                                    
   Inventory market valuation                                                    
     charges (credits)                                147          (41)               64          114        
Income before                                                                    
  extraordinary loss                                  190          308 (a)           215 (a)      195 (a)   
Net income:                                                                      
  Income from                                                                    
    continuing operations                          $  190       $  308             $ 215        $ 195        
  Income (loss) from                                                             
    discontinued operations                            81           (1)               (1)           1        
                                                   ------       ------             -----       ----------        
  NET INCOME                                       $  271       $  307             $ 214       $  196 
- ---------------------------------------------------------------------------------------------------------
MARATHON STOCK DATA:                                                             
- --------------------                                                             
Income before                                                                    
  extraordinary loss                                                             
  applicable to                                                                  
  Marathon Stock                                   $   38       $  192            $  118       $  108
   Per share: basic                                   .14          .66               .41          .37
              diluted                                 .13          .66               .41          .37
Dividends paid per share                              .19          .19               .19          .19
Price range of Marathon
 Stock(b):
     Low                                               29           28-15/16          25-5/8       23-3/4  
     High                                              38-7/8       38-3/16           31-1/8       28-1/2  
- ---------------------------------------------------------------------------------------------------------
STEEL STOCK DATA:
- ---------------------------
Income before
  extraordinary loss
  applicable to Steel Stock                        $  149       $  114            $  105        $  81     
    Per share: basic                                 1.74         1.32              1.23          .96     
               diluted                               1.64         1.25              1.06          .93     
Dividends paid per share                              .25          .25               .25          .25     
Price range of Steel                                                                                      
 Stock(b):                                                                                                
     Low                                               26-7/8       34-3/16           25-3/8       26-3/8 
     High                                              36-15/16     40-3/4            35-5/8       33-3/8 
- ---------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS                                                                                   
DELHI STOCK DATA:                                                                                         
- ---------------------------                                                                               
Income (loss) before                                                                                      
  extraordinary loss                                                                                      
  applicable to Delhi Stock                        $   81 (c)    $  (1)           $   (1)       $   1     
   Per share:                basic                   8.51 (c)     (.06)             (.16)         .15     
              diluted                                8.46 (c)     (.06)             (.16)         .15     
Dividends paid per share                                -          .05               .05          .05     
Price range of Delhi                                                                                      
 Stock(b):                                                                                                
     Low                                               14-7/8       12-1/8            12-1/4       13     
     High                                              20-5/8       15-1/2            14-3/8       17     
- ---------------------------------------------------------------------------------------------------------

<CAPTION> 
                                                                            1996
                                                   --------------------------------------------------------    
(In millions, except per share data)               4TH QTR.      3RD QTR.          2ND QTR.    1ST QTR.   
- -----------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>                <C>          <C>    
CONTINUING OPERATIONS
Revenues                                           $6,226 (a)  $5,809 (a)         $5,706 (a)   $5,236 (a) 
Income from operations                                527 (a)     448 (a)            308 (a)      496 (a)
  Costs and expenses include:
   Inventory market valuation
     charges (credits)                                (30)        (96)                72         (155)
Income before
  extraordinary loss                                  294 (a)     234 (a)            156 (a)      262 (a)
Net income:
  Income from
    continuing operations                           $ 285       $ 234              $ 156        $ 262
  Income (loss) from                                                                                                        
    discontinued operations                             6          (1)                (2)           3
                                                   ------     -------             ------        -----         
  NET INCOME                                        $ 291       $ 233              $ 154        $ 265
- ---------------------------------------------------------------------------------------------------------
MARATHON STOCK DATA:
- --------------------
Income before
  extraordinary loss
  applicable to
  Marathon Stock                                    $ 167       $ 164              $ 124        $ 216
   Per share: basic                                   .58         .57                .43          .75
              diluted                                 .57         .57                .43          .74
Dividends paid per share                              .19         .17                .17          .17
Price range of Marathon
 Stock(b):
     Low                                               21-1/8     20                 19-1/8        17-1/4
     High                                              25-1/2     22-1/8             22-7/8        20-1/2
- ---------------------------------------------------------------------------------------------------------
STEEL STOCK DATA:
- ---------------------------
Income before
  extraordinary loss
  applicable to Steel Stock                         $ 122       $  64              $  27        $  40
    Per share: basic                                 1.43         .76                .32          .49
               diluted                               1.36         .75                .32          .48
Dividends paid per share                              .25         .25                .25          .25       
Price range of Steel
 Stock(b):
     Low                                               26-1/2      24-1/8             27-3/4       30
     High                                              32          29-5/8             35-7/8       37-7/8
- ---------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
DELHI STOCK DATA:
- ---------------------------
Income (loss) before
  extraordinary loss
  applicable to Delhi Stock                         $   6       $  (1)             $  (1)       $   2
   Per share: basic                                   .68        (.14)              (.12)         .25
              diluted                                 .68        (.14)              (.12)         .25
Dividends paid per share                              .05         .05                .05          .05 
Price range of Delhi
 Stock(b):
     Low                                               12-1/8      11-1/2             11-3/8       10
     High                                              16-5/8      14-3/4             14-5/8       12-3/8
- ---------------------------------------------------------------------------------------------------------
</TABLE>


(a) Reclassified to conform to current classifications and exclude discontinued
    operations see Note 3, to the USX consolidated financial statements.
(b) Composite tape.
(c) Represents one month of operations and gain on disposal of the Delhi
    Companies.

                                                                            U-29

<PAGE>
 
Principal Unconsolidated Affiliates (Unaudited)



<TABLE> 
<CAPTION> 
                                                           December 31, 1997
        Company                              Country           Ownership            Activity
- ---------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>                 <C>  

CLAM Petroleum B.V.                          Netherlands           50%         Oil & Gas Production                                 

Double Eagle Steel Coating Company           United States         50%         Steel Processing                                     

Kenai LNG Corporation                        United States         30%         Natural Gas Liquification                            

LOCAP, Inc.                                  United States         37%         Pipeline & Storage Facilities                        

LOOP LLC                                     United States         32%         Offshore Oil Port                                    

Nautilus Pipeline Company, LLC               United States         24%         Natural Gas Transmission                             

PRO-TEC Coating Company                      United States         50%         Steel Processing                                     

RMI Titanium Company                         United States         27%         Titanium Metal Products                              

Sakhalin Energy Investment Company Ltd.      Russia                38%         Oil & Gas Development                                

Transtar, Inc.                               United States         46%         Transportation                                       

USS/Kobe Steel Company                       United States         50%         Steel Products                                       

USS-POSCO Industries                         United States         50%         Steel Processing                                     

Worthington Specialty Processing             United States         50%         Steel Processing 
- ---------------------------------------------------------------------------------------------------------------------   
</TABLE>
 

Supplementary Information on Mineral Reserves (Unaudited)
MINERAL RESERVES (OTHER THAN OIL AND GAS)


<TABLE> 
<CAPTION> 
                                          Reserves at December 31(a)                   Production
                                          ----------------------------        ---------------------------
(Million tons)                            1997       1996    1995               1997     1996     1995
- ---------------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>     <C>                <C>      <C>      <C>    
Iron(b)                                   754.8      716.3   730.9               16.8    15.1     15.5
Coal(c)                                   798.8      859.5   862.8                7.5     7.1      7.5
- ---------------------------------------------------------------------------------------------------------
</TABLE>
         

(a) Commercially recoverable reserves include demonstrated (measured and
    indicated) quantities which are expressed in recoverable net product tons.
(b) In 1997, iron ore reserves increased 55.3 million tons due to lease
    exchanges. In 1996, iron ore reserves increased .5 million tons due to
    changes in estimates of recoverable amounts.
(c) In 1997, coal reserves decreased 53.2 million tons due to a lease
    termination. In 1996, coal reserves increased 3.8 million tons after
    exploration and lease activity.


<TABLE>
<CAPTION>
 
Supplementary Information on Oil and Gas Producing Activities (Unaudited)

 CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION

                                               United                     Other                      Equity
(In millions)   December 31                    States        Europe    International  Consolidated  Affiliates   Total
- -------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>       <C>             <C>           <C>          <C>  
1997                                                                                                                 
   Capitalized costs:                                                                                                   
   Proved properties                           $8,117        $4,384         $163          $12,664         $405    $13,069        
   Unproved properties                            335            68           75              478            4        482       
                                                ------      -------          ----          ------      -------    -------       
     Total                                      8,452        4,452           238           13,142          409     13,551       
                                                ------      -------          ----          ------      -------    -------       
   Accumulated depreciation,                                                                                                    
   depletion and amortization:                                                                                                  
   Proved properties                            4,915        2,517            76            7,508          127      7,635       
   Unproved properties                             86          -               4               90          -           90       
                                               ------       ------        ------          -------      -------    -------       
     Total                                      5,001        2,517            80            7,598          127      7,725       
                                               ------       ------        ------          -------      -------    -------       
  Net capitalized costs                        $3,451       $1,935          $158          $ 5,544         $282    $ 5,826        
- ------------------------------------------------------------------------------------------------------------------------- 
1996
  Capitalized costs:
   Proved properties                           $7,667       $4,304          $126          $12,097         $183    $12,280
   Unproved properties                            292           63            68              423           57        480
                                               ------       ------        ------          -------       ------     -------
     Total                                      7,959        4,367           194           12,520          240     12,760
                                               ------       ------        ------          -------       ------     -------
  Accumulated depreciation,
   depletion and amortization:
   Proved properties                            4,715        2,363            60            7,138          120      7,258
   Unproved properties                             81            2             5               88          -           88
                                               ------       ------        ------          -------       ------    -------
     Total                                      4,796        2,365            65            7,226          120      7,346
                                               ------       ------        ------          -------       ------    -------
   Net capitalized costs                       $3,163       $2,002          $129          $ 5,294         $120    $ 5,414
 ------------------------------------------------------------------------------------------------------------------------
</TABLE>


U-30

<PAGE>
 
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED

RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES, EXCLUDING CORPORATE
OVERHEAD AND INTEREST COSTS(a)


<TABLE> 
<CAPTION> 
                                                 United                  Other                        Equity
(In millions)                                    States     Europe   International   Consolidated   Affiliates    Total
- -----------------------------------------------------------------------------------------------------------------------
<S>                                              <C>        <C>      <C>             <C>            <C>        <C>    
1997: Revenues:
       Sales(b)                                  $  581      $ 572         $  21        $ 1,174         $ 42    $ 1,216     
       Transfers                                    724          -            38            762            -        762     
                                                 ------      -----         -----        -------         ----    -------     
        Total revenues                            1,305        572            59          1,936           42      1,978     
      Expenses:                                                                                                          
       Production costs                            (337)      (162)          (12)          (511)         (15)      (526)    
       Exploration expenses                        (127)       (34)          (25)          (186)          (1)      (187)    
       Depreciation, depletion                                                                                           
        and amortization                           (300)      (130)          (16)          (446)          (8)      (454)    
       Other expenses                               (32)        (3)          (13)           (48)           -        (48)    
                                                 ------      -----         -----        -------         ----    -------     
        Total expenses                             (796)      (329)          (66)        (1,191)         (24)    (1,215)    
      Other production-related                                                                                           
        earnings(c)                                   -         28             1             29            1         30     
                                                 ------      -----         -----        -------         ----    -------     
      Results before income taxes                   509        271            (6)           774           19        793     
      Income taxes (credits)                        170         79             4            253            4        257     
                                                 ------      -----         -----        -------         ----    -------     
      Results of operations                      $  339      $ 192         $ (10)       $   521         $ 15    $   536    
- ----------------------------------------------------------------------------------------------------------------------- 
1996: Revenues:
      Sales(b)                                   $  451      $ 736         $  24        $ 1,211         $ 45    $ 1,256
      Transfers                                     858          -            43            901            -        901
                                                 ------      -----         -----        -------         ----    ------- 
        Total revenues                            1,309        736            67          2,112           45      2,157
      Expenses:
       Production costs(d)                         (340)      (202)          (12)          (554)         (14)      (568)
       Exploration expenses                         (97)       (24)          (24)          (145)          (3)      (148)
       Depreciation, depletion
        and amortization                           (302)      (160)          (14)          (476)         (12)      (488)
       Other expenses                               (31)        (5)          (15)           (51)           -        (51)
                                                 ------      -----         -----        -------         ----    -------
        Total expenses                             (770)      (391)          (65)        (1,226)         (29)    (1,255)
      Other production-related                            
        earnings(c)                                   1         28             -             29            1         30
                                                 ------      -----         -----        -------         ----    -------
      Results before income taxes                   540        373             2            915           17        932
      Income taxes (credits)                        192        115            (1)           306            7        313
                                                 ------      -----         -----        -------         ----    -------
      Results of operations                      $  348      $ 258         $   3        $   609         $ 10    $   619
- ----------------------------------------------------------------------------------------------------------------------- 
1995: Revenues:
       Sales(b)                                  $  395      $ 622         $  24        $ 1,041         $ 41    $ 1,082
       Transfers                                    706          -            84            790            -        790
                                                 ------      -----         -----        -------         ----    -------
        Total revenues                            1,101        622           108          1,831           41      1,872
      Expenses:                                           
       Production costs                            (305)      (219)          (23)          (547)         (15)      (562)
       Exploration expenses                         (68)       (37)          (39)          (144)          (2)      (146)
       Depreciation, depletion                            
        and amortization(e)                        (361)      (184)          (54)          (599)         (11)      (610)
       Other expenses                               (29)        (5)           (4)           (38)           -        (38)
                                                 ------      -----         -----        -------         ----    -------
        Total expenses                             (763)      (445)         (120)        (1,328)         (28)    (1,356)
      Other production-related
        earnings(c)                                   -         31             -             31            1         32
                                                 ------      -----         -----        -------         ----    -------
      Results before income taxes                   338        208           (12)           534           14        548
      Income taxes (credits)                        124         83            (5)           202            5        207
                                                 ------      -----         -----        -------         ----    -------
      Results of operations                      $  214      $ 125         $  (7)       $   332         $  9    $   341
- ----------------------------------------------------------------------------------------------------------------------- 
</TABLE>

(a)  Includes the results of hedging gains and losses.  
(b)  Includes net gains and (losses) on asset dispositions, as of December 31,
     1997, 1996 and 1995, of $7 million, $25 million and $(2) million,
     respectively.
(c)  Includes revenues, net of associated costs, from third-party activities
     that are an integral part of USX's production operations. Third-party
     activities may include the processing and/or transportation of third-party
     production, and the purchase and subsequent resale of gas utilized in
     reservoir management.
(d)  Includes domestic production tax charges of $11 million relating to prior
     periods.
(e)  Excludes charges of $465 million related to impairment of long-lived
     assets.

                                                                            U-31

<PAGE>
 
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED 
COSTS INCURRED FOR PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT INCLUDING
CAPITAL EXPENDITURES


<TABLE> 
<CAPTION> 
                                                 United                      Other                       Equity
(In millions)                                    States       Europe     International  Consolidated   Affiliates    Total
- --------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>        <C>            <C>            <C>           <C>
1997: Property acquisition:
       Proved                                    $   16       $   -      $        -     $       16     $     -       $  16
       Unproved                                      50           -               -             50           -          50
      Exploration                                   170           53              43           266           3         269
      Development                                   477           67              27           571         152         723
- -------------------------------------------------------------------------------------------------------------------------- 
1996: Property acquisition:
       Proved                                    $   36       $   -       $      -      $      36      $    -        $  36
       Unproved                                      44           -               2            46           19          65
      Exploration                                   134           26             34           194            1         195
      Development                                   268           31             15           314            3         317
- -------------------------------------------------------------------------------------------------------------------------- 
1995: Property acquisition:
       Proved                                    $   13       $   -       $       1     $      14      $    -         $ 14
       Unproved                                      24           -              -             24            5          29
      Exploration                                   100           42             52           194            1         195
      Development                                   223           44             37           304            8         312
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>


ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES

     The following estimates of net reserves have been determined by deducting
royalties of various kinds from USX's gross reserves. The reserve estimates are
believed to be reasonable and consistent with presently known physical data
concerning size and character of the reservoirs and are subject to change as
additional knowledge concerning the reservoirs becomes available. The estimates
include only such reserves as can reasonably be classified as proved; they do
not include reserves which may be found by extension of proved areas or reserves
recoverable by secondary or tertiary recovery methods unless these methods are
in operation and are showing successful results. Undeveloped reserves consist of
reserves to be recovered from future wells on undrilled acreage or from existing
wells where relatively major expenditures will be required to realize
production. Liquid hydrocarbon production amounts for international operations
principally reflect tanker liftings of equity production. USX did not have any
quantities of oil and gas reserves subject to long-term supply agreements with
foreign governments or authorities in which USX acts as producer.


<TABLE> 
<CAPTION> 
                                                 United                      Other                       Equity
(Millions of barrels)                            States       Europe     International  Consolidated   Affiliates    Total
- -------------------------------------------------------------------------------------------------------------------------- 
<S>                                              <C>          <C>        <C>            <C>            <C>           <C>
Liquid Hydrocarbons
 Proved developed and undeveloped reserves:

  Beginning of year  1995                           553          211              31            795         -          795
  Purchase of reserves in place                       2           -               -               2         -            2
  Revisions of previous estimates                    (5)          (8)             (5)           (18)        -          (18)
  Improved recovery                                   4           -               -               4         -            4
  Extensions, discoveries and               
   other additions                                   67           -                3             70         -           70
  Production                                        (48)         (20)             (6)           (74)        -          (74)
  Sales of reserves in place                        (15)          -               -             (15)        -          (15)
                                                  -----         ----             ---           ----      -----       -----
  End of year  1995                                 558          183              23            764         -          764
  Purchase of reserves in place                      26           -               -              26         -           26
  Revisions of previous estimates                     3           (1)              3              5         -            5
  Improved recovery                                  19           -               -              19         -           19
  Extensions, discoveries and
   other additions                                   54           13              15             82         -           82
  Production                                        (45)         (18)             (3)           (66)        -          (66)
  Sales of reserves in place                        (26)          -              (12)           (38)        -          (38)
                                                  -----         ----             ---           ----      -----       ----- 
  End of year  1996                                 589          177              26            792         -          792
  Purchase of reserves in place                       2           -               -               2         -            2
  Revisions of previous estimates                     9           (1)              3             11         -           11
  Improved recovery                                  22           -               -              22         -           22
  Extensions, discoveries and
  other additions                                    31           -               -              31          82        113
  Production                                       (42)          (15)             (3)           (60)         -         (60)
  Sales of reserves in place                        (2)           -               -              (2)         -          (2)
                                                  -----         -----            ---           ----      ------      -----
  End of year  1997                                609            161             26            796          82        878
- --------------------------------------------------------------------------------------------------------------------------  
Proved developed reserves:
  Beginning of year  1995                         493            202              22            717          -         717
  End of year  1995                               470            182              21            673          -         673
  End of year  1996                               443            163              11            617          -         617
  End of year  1997                               486            161              12            659          -         659
- --------------------------------------------------------------------------------------------------------------------------  
</TABLE>


U-32

<PAGE>
 
                Supplementary Information on Oil and Gas Producing Activities
                (Unaudited) CONTINUED

                ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES (CONTINUED)


<TABLE> 
<CAPTION> 
                                                               United                Other                        Equity
                (Billions of cubic feet)                       States   Europe   International   Consolidated   Affiliates   Total
                --------------------------------------------------------------------------------------------------------------------
                <S>                                            <C>      <C>      <C>             <C>            <C>          <C> 
                Natural Gas
                 Proved developed and undeveloped reserves:
                   Beginning of year - 1995                    2,127    1,484           43          3,654          153        3,807
                   Purchase of reserves in place                  24        -            -             24            -           24
                   Revisions of previous estimates               (17)     (12)          (3)           (32)          (7)         (39)
                   Improved recovery                               1        -            -              1            -            1
                   Extensions, discoveries and
                     other additions                             313       26            -            339            -          339
                   Production                                   (231)    (154)          (5)          (390)         (15)        (405)
                   Sales of reserves in place                     (7)       -            -             (7)           -           (7)
                                                               -----    -----         ----          -----         ----        -----
                   End of year - 1995                          2,210    1,344           35          3,589          131        3,720
                   Purchase of reserves in place                  10        -            -             10            -           10
                   Revisions of previous estimates               (27)      26          (14)           (15)           9           (6)
                   Improved recovery                              10        -            -             10            -           10
                   Extensions, discoveries and
                     other additions                             308        2            5            315            8          323
                   Production                                   (247)    (166)          (5)          (418)         (16)        (434)
                   Sales of reserves in place                    (25)     (28)           -            (53)           -          (53)
                                                               -----    -----         ----          -----         ----        -----
                   End of year - 1996                          2,239    1,178           21          3,438          132        3,570
                   Purchase of reserves in place                  31        -            -             31            -           31
                   Revisions of previous estimates               (39)       9            6            (24)          (6)         (30)
                   Improved recovery
                   Extensions, discoveries and
                     other additions                             262        -            -            262            -          262
                   Production                                   (264)    (139)          (4)          (407)         (15)        (422)
                   Sales of reserves in place                     (9)       -            -             (9)           -           (9)
                                                               -----    -----         ----          -----         ----        -----
                   End of year - 1997                          2,220    1,048           23          3,291          111        3,402
                --------------------------------------------------------------------------------------------------------------------
                Proved developed reserves:
                   Beginning of year - 1995                    1,442    1,436           41          2,919          104        3,023
                   End of year - 1995                          1,517    1,300           35          2,852          105        2,957
                   End of year - 1996                          1,720    1,133           16          2,869          100        2,969
                   End of year - 1997                          1,702    1,024           19          2,745           78        2,823
                --------------------------------------------------------------------------------------------------------------------
</TABLE>


                STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
                CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES

                   Estimated discounted future net cash flows and changes
                therein were determined in accordance with Statement of
                Financial Accounting Standards No. 69. Certain information
                concerning the assumptions used in computing the valuation of
                proved reserves and their inherent limitations are discussed
                below. USX believes such information is essential for a proper
                understanding and assessment of the data presented.

                   Future cash inflows are computed by applying year-end prices
                of oil and gas relating to USX's proved reserves to the year-end
                quantities of those reserves. Future price changes are
                considered only to the extent provided by contractual
                arrangements in existence at year-end.

                   The assumptions used to compute the proved reserve valuation
                do not necessarily reflect USX's expectations of actual revenues
                to be derived from those reserves nor their present worth.
                Assigning monetary values to the estimated quantities of
                reserves, described on the preceding page, does not reduce the
                subjective and ever-changing nature of such reserve estimates.

                   Additional subjectivity occurs when determining present
                values because the rate of producing the reserves must be
                estimated. In addition to uncertainties inherent in predicting
                the future, variations from the expected production rate also
                could result directly or indirectly from factors outside of
                USX's control, such as unintentional delays in development,
                environmental concerns, changes in prices or regulatory
                controls.

                   The reserve valuation assumes that all reserves will be
                disposed of by production. However, if reserves are sold in
                place or subjected to participation by foreign governments,
                additional economic considerations also could affect the amount
                of cash eventually realized.

                   Future development and production costs, including
                abandonment and dismantlement costs, are computed by estimating
                the expenditures to be incurred in developing and producing the
                proved oil and gas reserves at the end of the year, based on
                year-end costs and assuming continuation of existing economic
                conditions.

                   Future income tax expenses are computed by applying the
                appropriate year-end statutory tax rates, with consideration of
                future tax rates already legislated, to the future pretax net
                cash flows relating to USX's proved oil and gas reserves.
                Permanent differences in oil and gas related tax credits and
                allowances are recognized.

                   Discount was derived by using a discount rate of 10 percent a
                year to reflect the timing of the future net cash flows relating
                to proved oil and gas reserves.

                                                                            U-33

<PAGE>
 
                Supplementary Information on Oil and Gas Producing Activities
                (Unaudited) CONTINUED

                STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
                RELATING TO PROVED OIL AND GAS RESERVES (CONTINUED)


<TABLE> 
<CAPTION> 
                                                United                      Other                           Equity                
                (In millions)                   States       Europe     International    Consolidated     Affiliates      Total   
                -----------------------------------------------------------------------------------------------------------------
                <S>                             <C>          <C>        <C>              <C>              <C>             <C>   
                DECEMBER 31, 1997:
                Future cash inflows             $13,902      $ 6,189        $ 484              $20,575      $  1,714      $22,289   
                Future production costs          (4,739)      (2,310)        (172)              (7,221)         (643)      (7,864)  
                Future development costs           (702)        (162)         (18)                (882)         (200)      (1,082)  
                Future income tax expenses       (2,413)      (1,371)         (62)              (3,846)         (232)      (4,078)  
                                                -------      -------        -----              -------      --------      -------   
                Future net cash flows             6,048        2,346          232                8,626           639        9,265   
                10% annual discount for                                                                                             
                 estimated timing of cash flows  (2,696)      (1,011)         (52)              (3,759)         (367)      (4,126)  
                                                -------      -------        -----              -------      --------      -------   
                Standardized measure of                                                                                             
                discounted future net cash                                                                                          
                flows relating to proved oil                                                                                        
                and gas reserves                $ 3,352      $ 1,335        $ 180             $  4,867      $   272       $ 5,139   
                --------------------------------------------------------------------------------------------------------------------
                December 31, 1996:
                Future cash inflows             $19,640      $ 8,177        $ 631             $ 28,448      $    390      $28,838   
                Future production costs          (5,442)      (2,454)        (177)              (8,073)         (153)      (8,226)  
                Future development costs           (762)        (179)         (45)                (986)          (35)      (1,021)  
                Future income tax expenses       (4,151)      (2,256)        (115)              (6,522)          (78)      (6,600)  
                                                -------      -------        -----             --------      --------      -------   
                Future net cash flows             9,285        3,288          294               12,867           124       12,991   
                10% annual discount for                                                                                             
                 estimated timing of cash flows  (4,232)      (1,033)         (69)              (5,334)          (40)      (5,374)  
                                                -------      -------        -----              -------      --------      -------   
                Standardized measure of                                                                                             
                discounted future net cash                                                                                          
                flows relating to proved oil                                                                                        
                and gas reserves                $ 5,053      $ 2,255          225             $  7,533      $     84      $ 7,617   
                --------------------------------------------------------------------------------------------------------------------
                December 31, 1995:
                Future cash inflows             $12,944      $ 6,204        $ 460             $ 19,608      $    337      $19,945   
                Future production costs          (4,397)      (2,537)        (148)              (7,082)         (152)      (7,234)  
                Future development costs           (535)         (74)         (22)                (631)          (24)        (655)  
                Future income tax expenses       (2,253)        (901)         (86)              (3,240)          (57)      (3,297)  
                                                -------      -------        -----              -------      --------      -------   
                Future net cash flows             5,759        2,692          204                8,655           104        8,759   
                10% annual discount for                                                                                             
                 estimated timing of cash flows  (2,608)      (1,039)         (46)              (3,693)          (29)      (3,722)  
                                                -------      -------        -----              -------      --------      -------   
                Standardized measure of                                                                                             
                discounted future net cash                                                                                          
                flows relating to proved oil                                                                                        
                and gas reserves                $ 3,151      $ 1,653        $ 158             $  4,962       $    75      $ 5,037   
                --------------------------------------------------------------------------------------------------------------------
</TABLE>
 

                SUMMARY OF CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE
                NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES


<TABLE> 
<CAPTION> 
                                                 Consolidated                  Equity Affiliates                   Total          
                                         -----------------------------    ---------------------------   ----------------------------
          (In millions)                  1997       1996      1995         1997      1996    1995        1997      1996       1995 
          --------------------------------------------------------------------------------------------------------------------------
          <S>                            <C>       <C>       <C>            <C>      <C>     <C>      <C>        <C>        <C> 
          Sales and transfers of                                                                                                   
           oil and gas produced,                                                                                                   
           net of production costs       $(1,424)  $(1,558)  $(1,285)       $ (28)   $(31)   $(26)    $(1,452)   $(1,589)   $(1,311)
          Net changes in prices and                                                                                                
           production costs related                                                                                                
           to future production           (3,677)    3,651        97          (36)     37       5      (3,713)     3,688        102
          Extensions, discoveries and                                                                                             
            improved recovery, less                                                                                               
            related costs                    458     1,572       852          263       9       -         721      1,581        852
          Development costs incurred                                                                                              
            during the period                571       314       304          152       3       8         723        317        312
          Changes in estimated future                                                                                              
            development costs               (302)     (316)      (56)        (138)    (10)     (8)       (440)      (326)       (64)
          Revisions of previous                                                                                                    
            quantity estimates                43        15      (117)          (5)      9      (5)         38         24       (122)
          Net changes in purchases                                                                                                 
            and sales of minerals                                                                                                  
            in place                          14       (58)      (39)           -       -       -          14        (58)       (39)
          Accretion of discount            1,065       658       624           13      11      19       1,078        669        643
          Net change in income taxes       1,350    (1,342)      186          (29)    (11)     (2)      1,321     (1,353)       184
          Other                             (764)     (365)     (180)          (4)     (8)     (2)       (768)      (373)      (182)
          --------------------------------------------------------------------------------------------------------------------------
          Net change for the year         (2,666)    2,571       386          188       9     (11)     (2,478)     2,580        375
          Beginning of year                7,533     4,962     4,576           84      75      86       7,617      5,037      4,662
          --------------------------------------------------------------------------------------------------------------------------
          End of year                     $4,867    $7,533    $4,962         $272    $ 84    $ 75     $ 5,139     $7,617     $5,037
          --------------------------------------------------------------------------------------------------------------------------
</TABLE>
 

U-34

<PAGE>
 
                Five-Year Operating Summary - Marathon Group


<TABLE>
<CAPTION>
                                                                                     1997      1996      1995      1994      1993
                ------------------------------------------------------------------------------------------------------------------
                <S>                                                                  <C>       <C>       <C>       <C>       <C> 
                NET LIQUID HYDROCARBON PRODUCTION (thousands of barrels
                per day)
                 United States (by region)
                  Alaska                                                               -         8         9         9         9
                  Gulf Coast                                                          29        30        33        12        10
                  Southern                                                             8         9        11        12        12
                  Central                                                              5         4         8         9         9
                  Mid-Continent - Yates                                               25        25        24        23        22
                  Mid-Continent - Other                                               21        20        19        18        18
                  Rocky Mountain                                                      27        26        28        27        31
                                                                                  ------------------------------------------------
                       Total United States                                           115       122       132       110       111
                                                                                  ------------------------------------------------
                 International
                  Abu Dhabi                                                            -         -         -         1         2
                  Egypt                                                                8         8         5         7         6
                  Indonesia                                                            -         -        10         3         3
                  Norway                                                               2         3         2         2         2
                  Tunisia                                                              -         -         2         3         8
                  United Kingdom                                                      39        48        54        46        24
                                                                                  ------------------------------------------------
                       Total International                                            49        59        73        62        45
                                                                                  ------------------------------------------------
                        Total                                                        164       181       205       172       156
                  Natural gas liquids included in above                               17        17        17        15        14
                --------------------------------------------------------------------------------------------------------------------
                NET NATURAL GAS PRODUCTION (millions of cubic feet per day)
                 United States (by region)                                
                  Alaska                                                             151       145       133       123       116
                  Gulf Coast                                                          78        88        94        79        98
                  Southern                                                           189       161       142       134        94
                  Central                                                            119       109       105       110       107
                  Mid-Continent                                                      125       122       112        89        78
                  Rocky Mountain                                                      60        51        48        39        36
                                                                                  ------------------------------------------------
                    Total United States                                              722       676       634       574       529
                                                                                  ------------------------------------------------
                 International                                            
                  Egypt                                                               11        13        15        17        17
                  Ireland                                                            228       259       269       263       258
                  Norway                                                              54        87        81        81        75
                  United Kingdom - equity                                            130       140        98        39        23
                                 - other/(a)/                                         32        32        35        -         -
                                                                                  ------------------------------------------------
                    Total International                                              455       531       498       400       373
                                                                                  ------------------------------------------------
                     Consolidated                                                  1,177     1,207     1,132       974       902
                    Equity affiliate/(b)/                                             42        45        44        40        35
                                                                                  ------------------------------------------------
                     Total                                                         1,219     1,252     1,176     1,014       937
                ------------------------------------------------------------------------------------------------------------------ 
                AVERAGE SALES PRICES                                      
                 Liquid Hydrocarbons (dollars per barrel)/(c)/            
                  United States                                                   $16.88    $18.58    $14.59    $13.53    $14.54
                  International                                                    18.77     20.34     16.66     15.61     16.22
                 Natural Gas (dollars per thousand cubic feet)/(c)/               
                  United States                                                    $2.20     $2.09     $1.63     $1.94     $1.94
                  International                                                     2.00      1.97      1.80      1.58      1.52
                ------------------------------------------------------------------------------------------------------------------  
                NET PROVED RESERVES AT YEAR-END (developed and            
                 undeveloped)                                             
                 Liquid Hydrocarbons (millions of barrels)                
                  United States                                                      609       589       558       553       573
                  International                                                      187       203       206       242       269
                                                                                  ------------------------------------------------
                     Consolidated                                                    796       792       764       795       842
                  Equity affiliate/(d)/                                               82        -         -         -         -
                                                                                  ------------------------------------------------ 
                     Total                                                           878       792       764       795       842
                 Developed reserves as % of total net reserves                        75%       78%       88%       90%       88%
                ------------------------------------------------------------------------------------------------------------------  
                 Natural Gas (billions of cubic feet)                     
                  United States                                                    2,220     2,239     2,210     2,127     2,045
                  International                                                    1,071     1,199     1,379     1,527     1,703
                                                                                  ------------------------------------------------ 
                     Consolidated                                                  3,291     3,438     3,589     3,654     3,748
                  Equity affiliate/(b)/                                              111       132       131       153       153
                                                                                  ------------------------------------------------ 
                     Total                                                         3,402     3,570     3,720     3,807     3,901
                 Developed reserves as % of total net reserves                        83%       83%       80%       79%       80%
                ------------------------------------------------------------------------------------------------------------------
</TABLE>

                /(a)/  Represents gas acquired for injection and subsequent
                       resale.
                /(b)/  Represents Marathon's equity interest in CLAM Petroleum
                       B.V.
                /(c)/  Prices exclude gains/losses from hedging activities.
                /(d)/  Represents Marathon's equity interest in Sakhalin Energy
                       Investment Company Ltd.

                                                                            U-35

<PAGE>
 
                Five-Year Operating Summary  Marathon Group CONTINUED

<TABLE>
<CAPTION>
                                                                        1997      1996      1995      1994      1993
             ---------------------------------------------------------------------------------------------------------   
             <S>                                                        <C>       <C>       <C>       <C>       <C>    
             U.S. REFINERY OPERATIONS (thousands of
              barrels per day)
              In-use crude oil capacity at year-end                      575       570       570       570       570      
              Refinery runs - crude oil refined                          525       511       503       491       549      
                            - other charge and blend stocks               99        96        94       107       102      
              In-use crude oil capacity utilization rate                  92%       90%       88%       86%       90%     
             ---------------------------------------------------------------------------------------------------------     
             SOURCE OF CRUDE PROCESSED (thousands of                                                                      
              barrels per day)                                                                                            
              United States                                              202       229       254       218       299      
              Europe                                                      10        12         6        31         3      
              Middle East and Africa                                     241       193       183       171       173      
              Other International                                         72        79        58        70        75      
                                                                     -------------------------------------------------      
                 Total                                                   525       513       501       490       550      
             ---------------------------------------------------------------------------------------------------------     
             REFINED PRODUCT YIELDS (thousands of                                                                         
              barrels per day)                                                                                            
              Gasoline                                                   353       345       339       340       369      
              Distillates                                                154       155       146       146       157      
              Propane                                                     13        13        12        13        15      
              Feedstocks and special products                             36        35        38        33        33      
              Heavy fuel oil                                              35        30        31        38        39      
              Asphalt                                                     39        36        36        30        38      
                                                                     -------------------------------------------------      
                 Total                                                   630       614       602       600       651      
             ---------------------------------------------------------------------------------------------------------     
             REFINED PRODUCTS YIELDS (% breakdown)                                                                        
              Gasoline                                                    56%       56%       57%       57%       57%     
              Distillates                                                 24        25        24        24        24      
              Other products                                              20        19        19        19        19      
                                                                     -------------------------------------------------      
                 Total                                                   100%      100%      100%      100%      100%     
             ---------------------------------------------------------------------------------------------------------     
             U.S. REFINED PRODUCT SALES (thousands of                                                                     
              barrels per day)                                                                                            
              Gasoline                                                   452       468       445       443       420      
              Distillates                                                198       192       180       183       179      
              Propane                                                     12        12        12        16        18      
              Feedstocks and special products                             40        37        44        32        32      
              Heavy fuel oil                                              34        31        31        38        39      
              Asphalt                                                     39        35        35        31        38      
                                                                     -------------------------------------------------      
                 Total                                                   775       775       747       743       726      
              Matching buy/sell volumes included in above                 51        71        47        73        47      
             ---------------------------------------------------------------------------------------------------------     
             REFINED PRODUCTS SALES BY CLASS OF TRADE                                                                     
              (as a % of total sales)                                                                                     
              Wholesale - independent private-brand                                                                       
                          marketers and consumers                         61%       62%       61%       62%       63%     
              Retail    - Marathon brand outlets                          13        13        13        13        13      
                        - Emro Marketing Company outlets                  26        25        26        25        24      
                                                                     -------------------------------------------------      
                 Total                                                   100%      100%      100%      100%      100%     
             ---------------------------------------------------------------------------------------------------------     
             REFINED PRODUCTS (dollars per barrel)                                                                        
              Average sales price                                    $ 26.38   $ 27.43   $ 23.80   $ 22.75   $ 23.42      
              Average cost of crude oil throughput                     19.00     21.94     18.09     16.59     17.05      
             ---------------------------------------------------------------------------------------------------------     
             PETROLEUM INVENTORIES AT YEAR-END                                                                            
              (thousands of barrels)                                                                                      
              Crude oil and natural gas liquids                       18,660    19,325    21,598    21,892    21,689      
              Refined products                                        20,598    21,283    22,102    23,657    23,136      
             ---------------------------------------------------------------------------------------------------------     
             U.S. Refined Product Marketing Outlets at year-end
              Marathon operated terminals                                 51        51        51        51        51      
              Retail - Marathon brand                                  2,465     2,392     2,380     2,356     2,331      
                     - Emro Marketing Company                          1,544     1,592     1,627     1,659     1,571      
             ---------------------------------------------------------------------------------------------------------     
             PIPELINES (miles of common carrier                                                                           
              pipelines, including affiliates)                                                                            
              Crude Oil - gathering lines                              1,003     1,052     1,115     1,115     1,130      
                        - trunklines                                   2,552     2,552     2,553     2,559     2,581      
              Products  - trunklines                                   1,493     1,493     1,494     1,494     1,495      
                                                                     -------------------------------------------------      
                 Total                                                 5,048     5,097     5,162     5,168     5,206      
             ---------------------------------------------------------------------------------------------------------     
             PIPELINE BARRELS HANDLED (millions)                                                                          
              Crude Oil - gathering lines                               43.9      43.2      43.8      43.4      43.8      
                        - trunklines                                   369.6     378.7     371.3     353.0     382.4      
              Products  - trunklines                                   262.4     274.8     252.3     282.2     295.6      
                                                                     -------------------------------------------------      
                 Total                                                 675.9     696.7     667.4     678.6     721.8      
             ---------------------------------------------------------------------------------------------------------     
             CARNEGIE NATURAL GAS COMPANY STATISTICS                                                                      
              Miles of pipeline                                        1,794     1,787     1,800     1,799     1,810      
              Reserves dedicated to gathering                                                                             
               operations - owned                                                                                          
               (proved developed - billions of cubic feet)              39.8      42.8      44.3      43.8      46.7      
              Natural gas throughput (billions of cubic feet)           31.8      34.1      34.1      27.9      37.2      
             ---------------------------------------------------------------------------------------------------------   
</TABLE>


U-36

<PAGE>
 
             Five-Year Operating Summary - U. S. Steel Group


<TABLE>
<CAPTION>
             (Thousands of net tons, unless otherwise noted)    1997          1996       1995      1994       1993
             -----------------------------------------------------------------------------------------------------
             <S>                                              <C>           <C>        <C>       <C>        <C>                
             RAW STEEL PRODUCTION                                                                                   
              Gary, IN                                         7,428         6,840      7,163     6,768      6,624  
              Mon Valley, PA                                   2,561         2,746      2,740     2,669      2,507  
              Fairfield, AL                                    2,361         1,862      2,260     2,240      2,203  
                                                              ----------------------------------------------------  
                Total                                         12,350        11,448     12,163    11,677     11,334  
             -----------------------------------------------------------------------------------------------------
             RAW STEEL CAPABILITY                                                                                   
              Continuous cast                                 12,800        12,800     12,500    11,990     11,850  
              Total production as % of                                                                              
              total capability                                  96.5          89.4       97.3      97.4       95.6  
             -----------------------------------------------------------------------------------------------------  
             HOT METAL PRODUCTION                             10,591         9,716     10,521    10,328      9,972  
             -----------------------------------------------------------------------------------------------------  
             COKE PRODUCTION                                   5,757/(a)/    6,777      6,770     6,777      6,425   
             -----------------------------------------------------------------------------------------------------  
             IRON ORE PELLETS MINNTAC, MN                                                                          
              Shipments                                       16,319        14,962     15,218    16,174     15,911  
             -----------------------------------------------------------------------------------------------------  
             COAL PRODUCTION                                                                                        
              Metallurgical coal/(b)/                          7,528         7,283      7,509     7,424      8,142  
              Steam coal/(b)(c)/                                   -             -          -         -      2,444  
                                                           -------------------------------------------------------
              Total                                            7,528         7,283      7,509     7,424     10,586  
             -----------------------------------------------------------------------------------------------------  
             COAL SHIPMENTS/(b)(c)/                            7,811         7,117      7,502     7,698     10,980  
             -----------------------------------------------------------------------------------------------------  
             STEEL SHIPMENTS BY PRODUCT                                                                             
              Sheet and semi-finished steel                                                                         
              products                                         8,170         8,677      8,721     7,988      7,613  
              Tubular, plate and tin mill                                                                           
              products                                         3,473         2,695      2,657     2,580      2,356  
                                                           -------------------------------------------------------
              Total                                           11,643        11,372     11,378    10,568      9,969  
              Total as % of domestic steel                                                                          
              industry                                          10.9          11.3       11.7      11.1       11.3  
             ------------------------------------------------------------------------------------------------------  
             STEEL SHIPMENTS BY MARKET                                                                              
              Steel service centers                            2,746         2,831      2,564     2,780      2,831  
              Transportation                                   1,758         1,721      1,636     1,952      1,771  
              Further conversion:                                                                                   
               Joint ventures                                  1,568         1,542      1,332     1,308      1,074  
               Trade customers                                 1,378         1,227      1,084     1,058      1,150  
              Containers                                         856           874        857       962        835  
              Construction                                       994           865        671       722        667  
              Oil, gas and petrochemicals                        810           746        748       367        342  
              Export                                             453           493      1,515       355        327  
              All other                                        1,080         1,073        971     1,064        972  
                                                           -------------------------------------------------------
              Total                                           11,643        11,372     11,378    10,568      9,969   
              ----------------------------------------------------------------------------------------------------
</TABLE>


              /(a)/ The reduction in coke production in 1997 reflected U. S.
                    Steel's entry into a strategic partnership with two limited
                    partners to acquire an interest in three coke batteries at
                    its Clairton (Pa.) Works.

              /(b)/ The Maple Creek Coal Mine, which was idled in January 1994
                    and sold in June 1995, produced 1.0 million net tons of
                    metallurgical coal and 0.7 million net tons of steam coal in
                    1993.

              /(c)/ The Cumberland Coal Mine, which was sold in June 1993,
                    produced 1.6 million net tons in 1993 prior to the sale.

                                                                            U-37

<PAGE>
 
Five-Year Financial Summary


<TABLE> 
<CAPTION> 
(Dollars in millions, except as noted)                       1997      1996           1995          1994           1993     
- ---------------------------------------------------------------------------------------------------------------------------- 
<S>                                                        <C>       <C>           <C>          <C>           <C>  
STATEMENT OF OPERATIONS                                                                                                     
 Revenues                                                  $22,588   $22,977/(a)/  $20,413/(a)/ $ 19,055/(a)/ $ 17,798/(a)/ 
 Income from operations                                      1,705     1,779/(a)/      726/(a)/    1,174/(a)/      285/(a)/ 
  Costs and expenses include:                                                                                               
   Inventory market valuation charges (credits)                284      (209)          (70)         (160)          241      
   Restructuring charges                                         -         -             -             -            42      
   Impairment of long-lived assets                               -         -           675             -             -      
 Income (loss) from continuing operations                  $   908   $   946/(a)/  $   217/(a)/ $    532/(a)/ $   (179)/(a)/
 Income (loss) from discontinued operations                     80         6             4           (31)           12      
 Extraordinary loss and cumulative effect of                                                                                
  changes in accounting principles                               -        (9)           (7)            -           (92)     
                                                           -----------------------------------------------------------------
  NET INCOME (LOSS)                                        $   988   $   943       $   214      $    501      $   (259)     
- ---------------------------------------------------------------------------------------------------------------------------- 
 APPLICABLE TO MARATHON STOCK                                                                                               
  Income (loss) before extraordinary loss                                                                                   
   and cumulative effect of changes in                                                                                      
   accounting principles                                   $   456   $   671       $   (87)     $    315      $    (12)     
  Income (loss) before extraordinary loss and                                                                               
   cumulative effect of changes in accounting                                                                               
   principles per share - basic (in dollars)                  1.59      2.33          (.31)         1.10          (.04)     
                        - diluted (in dollars)                1.58      2.31          (.31)         1.10          (.04)     
  Net income (loss)                                            456       664           (92)          315           (35)     
  Net income (loss) per share - basic (in dollars)            1.59      2.31          (.33)         1.10          (.12)     
                              - diluted (in dollars)          1.58      2.29          (.33)         1.10          (.12)     
  Dividends paid per share (in dollars)                        .76       .70           .68           .68           .68       
- ----------------------------------------------------------------------------------------------------------------------------  
 APPLICABLE TO STEEL STOCK
  Income (loss) before extraordinary loss and 
   cumulative effect of change in accounting principle     $   449   $   253       $   279      $    176      $   (190)
  Income (loss) before extraordinary loss and
   cumulative effect of change in accounting
   principle per share - basic (in dollars)                   5.24      3.00          3.53          2.35         (2.96)
                       - diluted (in dollars)                 4.88      2.97          3.43          2.33         (2.96)
  Net income (loss)                                            449       251           277           176          (259)
  Net income (loss) per share - basic (in dollars)            5.24      2.98          3.51          2.35         (4.04)
                              - diluted (in dollars)          4.88      2.95          3.41          2.33         (4.04)
  Dividends paid per share (in dollars)                       1.00      1.00          1.00          1.00          1.00
- ----------------------------------------------------------------------------------------------------------------------------  
 BALANCE SHEET POSITION AT YEAR-END
  Cash and cash equivalents                                $    54   $    55       $   131      $     48      $    268
  Total assets                                              17,284    16,980        16,743        17,517        17,414
  Capitalization:
   Notes payable                                           $   121   $    81       $    40      $      1      $      1
   Total long-term debt                                      3,403     4,212         4,937         5,599         5,970
   Minority interests/(b)/                                     432       250           250           250             5
   Redeemable Delhi Stock                                      195         -             -             -             -
   Preferred stock                                               3         7             7           112           112
   Common stockholders' equity                               5,397     5,015         4,321         4,190         3,752
                                                           ----------------------------------------------------------------- 
     Total capitalization                                  $ 9,551   $ 9,565       $ 9,555      $ 10,152      $  9,840
- ---------------------------------------------------------------------------------------------------------------------------- 
  % of total debt to capitalization/(c)/                      41.4      47.5          54.7          57.6          60.7
- ---------------------------------------------------------------------------------------------------------------------------- 
 CASH FLOW DATA                                                    
  Net cash from operating activities                       $ 1,458   $ 1,649       $ 1,632      $    817      $    952
  Capital expenditures                                       1,373     1,168         1,016         1,033         1,151
  Disposal of assets                                           481       443           157           293           469 
  Dividends paid                                               316       307           295           301           288  
- ----------------------------------------------------------------------------------------------------------------------------  
 EMPLOYEE DATA
  Total employment costs/(d)(e)/                           $ 2,289   $ 2,179       $ 2,186      $  2,281      $  2,128   
  Average number of employees/(d)/                          41,620    41,553        42,133        42,596        43,789 
  Number of pensioners at year-end                          97,051    99,713       102,449       105,227       108,079 
- ---------------------------------------------------------------------------------------------------------------------------- 
</TABLE>


/(a)/  Reclassified to conform to 1997 classifications and exclude discontinued
       operations see Note 3, to the USX consolidated financial statements.

/(b)/  Includes preferred stock of subsidiary, minority interests in common
       stock of subsidiaries and trust preferred securities.

/(c)/  Total debt represents the sum of notes payable, total long-term debt and
       minority interests.

/(d)/  Excludes the Delhi Companies sold in 1997.

/(e)/  Excludes employee related costs attributable to restructuring charges or
       credits.

U-38

<PAGE>
 
 
            Management's Discussion and Analysis

                USX Corporation ("USX") is a diversified company engaged
             primarily in the energy business through its Marathon Group, and in
             the steel business through its U. S. Steel Group.

                Effective October 31, 1997, USX sold Delhi Gas Pipeline
             Corporation and other subsidiaries of USX that comprised all of the
             USX - Delhi Group ("Delhi Companies"). On January 26, 1998, USX
             used the $195 million net proceeds from the sale to redeem all of
             the 9.45 million outstanding shares of USX - Delhi Group Common
             Stock. Accordingly, Management's Discussion and Analysis of the
             Delhi Group is not provided. However, the following discussion
             includes information about the Delhi Companies where appropriate.
             For additional discussion about the Delhi Companies, see Note 3 to
             the Consolidated Financial Statements.

                Effective January 1, 1998, the USX - Marathon Group and Ashland
             Inc. formed a new refining, marketing and transportation company,
             Marathon Ashland Petroleum LLC ("MAP"). For further discussion, see
             Note 31 to the Consolidated Financial Statements. The following
             discussion excludes MAP, except where otherwise noted.

                Management's Discussion and Analysis of USX Consolidated
             Financial Statements provides certain information about the
             Marathon and U. S. Steel Groups, particularly in Management's
             Discussion and Analysis of Operations by Industry Segment. More
             expansive Group information is provided in Management's Discussion
             and Analysis of the Marathon Group and U. S. Steel Group, which are
             included in the USX 1997 Form 10-K. Management's Discussion and
             Analysis should be read in conjunction with the USX Consolidated
             Financial Statements and Notes to Consolidated Financial
             Statements.

                Certain sections of Management's Discussion and Analysis include
             forward-looking statements concerning trends or events potentially
             affecting USX. These statements typically contain words such as
             "anticipates", "believes", "estimates", "expects" or similar words
             indicating that future outcomes are uncertain. In accordance with
             "safe harbor" provisions of the Private Securities Litigation
             Reform Act of 1995, these statements are accompanied by cautionary
             language identifying important factors, though not necessarily all
             such factors, that could cause future outcomes to differ materially
             from those set forth in forward-looking statements. For additional
             risk factors affecting the businesses of USX, see Supplementary
             Data  Disclosures About Forward-Looking Statements in the USX 1997
             Form 10-K.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF INCOME

                REVENUES for each of the last three years are summarized in the
             following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                                   1997      1996      1995
             -------------------------------------------------------------------------------------------------
             <S>                                                                   <C>       <C>       <C>
              Revenues/(a)(b)/
              Marathon Group                                                       $15,754   $16,394   $13,913
              U. S. Steel Group                                                      6,941     6,670     6,557
 
              Eliminations                                                            (107)      (87)      (57)
                                                                                   -------   -------   -------
                 Total USX Corporation revenues                                     22,588    22,977    20,413
             Less:
              Matching crude oil and refined product buy/sell transactions/(c)/      2,436     2,912     2,067
              Consumer excise taxes on petroleum products and merchandise/(c)/       2,736     2,768     2,708
                                                                                   -------   -------   -------
                 Revenues adjusted to exclude above items                          $17,416   $17,297   $15,638
             -------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/ Consists of sales, dividend and affiliate income, net gains
                   on disposal of assets, gain on affiliate stock offering and
                   other income. Amounts for 1996 and 1995 were reclassified in
                   1997 to include dividend and affiliate income, gain on
                   affiliate stock offering and other income, and to conform to
                   other 1997 classifications.

             /(b)/ Effective October 31, 1997, USX sold the Delhi Companies.
                   Excludes revenues of the Delhi Companies, which have been
                   reclassified as discontinued operations for all periods
                   presented.

             /(c)/ Included in both revenues and operating costs for the
                   Marathon Group and USX Consolidated, resulting in no effect
                   on income.

                   Adjusted revenues increased by $119 million, or 1%, in 1997
             as compared with 1996, reflecting a 4% increase for the U. S. Steel
             Group, partially offset by a 1% decrease for the Marathon Group.
             Adjusted revenues increased by $1,659 million, or 11%, in 1996 as
             compared with 1995, reflecting increases of 17% for the Marathon
             Group, and 2% for the U. S. Steel Group.

                                                                            U-39

<PAGE>
 
             Management's Discussion and Analysis CONTINUED

                INCOME FROM OPERATIONS and certain items included in income from
             operations for each of the last three years are summarized in the
             following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                          1997     1996     1995
             ----------------------------------------------------------------------------------------
             <S>                                                           <C>      <C>      <C>
             Income from operations/(a)/
              Marathon Group                                               $  932   $1,296   $  147
              U. S. Steel Group                                               773      483      582
              Adjustments for discontinued operations                           -        -       (3)
                                                                           ------   ------   ------ 
                 Total USX Corporation income from operations               1,705    1,779      726
                                         
             Less: Certain favorable (unfavorable) items for
              Marathon Group
               IMV reserve adjustment/(b)/                                   (284)     209       70
               Net gains on certain asset sales/(c)/                            -       35        -
               Charges for withdrawal from MPA/(d)/                             -      (10)       -
               Certain state tax adjustments/(e)/                               -      (11)       -
               Impairment of long-lived assets/(f)/                             -        -     (659)
               Expected environmental remediation recoveries/(g)/               -        -       15
              U. S. Steel Group
               Effect of adoption of SOP 96-1/(h)/                            (20)       -        -
               Net gains on certain asset sales/(i)/                           15        -        -
               Certain other environmental accrual adjustments - net           11        -        -
               Gain on affiliate stock offering/(j)/                            -       53        -
               Certain Gary Works blast furnace repairs/(k)/                    -      (39)     (34)
               Employee reorganization charges/(l)/                             -      (13)       -
               Impairment of long-lived assets/(f)/                             -        -      (16)
               Adjustments for certain employee-related costs                   -        -       18
               Certain legal accruals                                           -        -      (44)
                                                                           ------   ------   ------   
                 Subtotal                                                    (278)     224     (650)
                                                                           ------   ------   ------
                 Income from operations adjusted to exclude above items    $1,983   $1,555   $1,376
             ----------------------------------------------------------------------------------------
</TABLE>


             /(a)/ Consists of operating income, dividend and affiliate income,
                   net gains on disposal of investments, gain on affiliate stock
                   offering and other income. Excludes income from operations
                   from the Delhi Group, which has been reclassified as
                   discontinued operations for all periods presented. Amounts
                   for 1996 and 1995 were reclassified in 1997 to include
                   dividend and affiliate income, gain on affiliate stock
                   offering and other income, and to conform to other 1997
                   classifications. See Note 9 to the Consolidated Financial
                   Statements for a discussion of operating income.

             /(b)/ The inventory market valuation ("IMV") reserve reflects the
                   extent to which the recorded LIFO cost basis of crude oil and
                   refined products inventories exceeds net realizable value.
                   For additional discussion of this noncash adjustment, see
                   Management's Discussion and Analysis of Operations by
                   Industry Segment for the Marathon Group, herein.

             /(c)/ Net gain on sales of the Marathon Group's interests in a
                   domestic pipeline company and certain production properties.

             /(d)/ Marine Preservation Association ("MPA") is a non-profit oil
                   spill response group.

             /(e)/ Accrual of domestic production taxes for prior years.

             /(f)/ Related to adoption of Statement of Financial Accounting
                   Standards No. 121 - "Accounting For the Impairment of Long-
                   Lived Assets and for Long-Lived Assets to be Disposed Of "
                   ("SFAS No. 121").

             /(g)/ Expected recoveries from state governments of expenditures
                   related to underground storage tanks at retail marketing 
                   outlets.

             /(h)/ Effective January 1, 1997, USX adopted American Institute of
                   Certified Public Accountants Statement of Position No. 96-1 -
                   "Environmental Remediation Liabilities", which provides
                   additional guidance on recognition, measurement and
                   disclosure of remediation liabilities.

             /(i)/ Net gain on the sale of the plate mill at the U. S. Steel
                   Group's former Texas Works.

             /(j)/ See Note 8 to the Consolidated Financial Statements.

             /(k)/ Amounts in 1996 and 1995 reflect repair of damages incurred
                   at Gary Works during a hearth break-out at the No. 13 blast
                   furnace on April 2, 1996, and in an explosion at the No. 8
                   blast furnace on April 5, 1995, respectively.

             /(l)/ Primarily related to employee costs associated with work
                   force reduction programs.

U-40

<PAGE>
 
             Management's discussion and Analysis CONTINUED
     
                Adjusted income from operations increased by $428 million in
             1997 as compared with 1996, reflecting increases of $285 million
             for the U. S. Steel group and $143 million for the Marathon Group.
             Adjusted income from operations increased by $179 million in 1996
             as compared with 1995, primarily reflecting an increase of $352
             million for the Marathon Group, partially offset by a decline of
             $176 million for the U. S. Steel Group. For further discussion, see
             Management's Discussion and Analysis of Operations by Industry
             Segment, herein.

                Net pension credits included in income from operations totaled
             $157 million in 1997, compared with $162 million in 1996, and $144
             million in 1995. The decrease in 1997 from 1996 primarily reflected
             a reduction in the expected long-term rate of return on plan
             assets, partially offset by an increase in market-related value of
             plan assets and an increase in the assumed discount rate. The
             increase in 1996 from 1995 primarily reflected a decrease in the
             assumed discount rate and an increase in the market-related value
             of plan assets. For further discussion, see Note 10 to the
             Consolidated Financial Statements.

                NET INTEREST AND OTHER FINANCIAL COSTS for each of the last
             three years are summarized in the following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                  1997    1996   1995        
             ----------------------------------------------------------------------------
             <S>                                                    <C>    <C>     <C>   
             Interest and other financial income/(a)/               $   5  $   7   $  20 
             Interest and other financial costs                       352    428     486 
                                                                    -----  -----   -----  
                 Net interest and other financial costs/(a)/          347    421     466 
                                                                                         
             Less:                                                                       
              Favorable (unfavorable) adjustments to                                     
                carrying value of Indexed Debt/(b)/                    10     (6)      -  
              Favorable effect of interest on refundable federal                         
               income taxes paid in prior years                         -      -      20 
                                                                    -----  -----   -----  
                 Net interest and other financial costs                                  
                  adjusted to exclude above items                   $ 357  $ 415   $ 486  
             ----------------------------------------------------------------------------
</TABLE>


             /(a)/ Amounts in 1996 and 1995 have been restated to conform to
                   1997 classifications.

             /(b)/ In December 1996, USX issued $117 million of 6 3/4%
                   Exchangeable Notes Due February 1, 2000 ("Indexed Debt")
                   indexed to the price of RMI Titanium Company ("RMI") common
                   stock. At maturity, USX must exchange these notes for shares
                   of RMI common stock, or redeem the notes for the equivalent
                   amount of cash. The carrying value of Indexed Debt is
                   adjusted quarterly to settlement value, based on changes in
                   the value of RMI common stock. Any resulting adjustment is
                   charged or credited to income and included in interest and
                   other financial costs. USX's 27% interest in RMI continues to
                   be accounted for under the equity method.

                Excluding effects of the items detailed in the above table,
             interest and other financial costs decreased by $58 million in 1997
             as compared with 1996, and by $71 million in 1996 as compared with
             1995, due primarily to lower average debt levels. The decrease in
             1997 also reflected increased capitalized interest on Marathon
             Group worldwide exploration and production projects. For additional
             information, see Note 6 to the Consolidated Financial Statements.

                The PROVISION FOR ESTIMATED INCOME TAXES was $450 million in
             1997, compared with $412 million in 1996 and $43 million in 1995.
             Provisions included credits other than foreign tax credits of $24
             million and $48 million in 1997 and 1996, respectively (primarily
             nonconventional fuel source credits). A significant portion of the
             reduction in these credits in 1997 as compared with 1996 resulted
             from USX's entry into a strategic partnership with two limited
             partners to acquire an interest in three coke batteries at its U.
             S. Steel Group's Clairton (Pa.) Works. See Note 14 to the
             Consolidated Financial Statements for additional discussion. The
             provision in 1995 included a $39 million incremental U.S. income
             tax benefit resulting from USX's election to credit, rather than
             deduct, foreign income taxes for U.S. federal income tax purposes.
             For reconciliation of the federal statutory rate to total
             provisions on income from continuing operations, see Note 12 to the
             Consolidated Financial Statements.

                                                                            U-41

<PAGE>
 
             Management's Discussion and Analysis CONTINUED

                EXTRAORDINARY LOSS in 1996 and 1995 reflected unfavorable
             aftertax effects of early extinguishment of debt. In December 1996,
             USX irrevocably called for redemption on January 30, 1997, 8-1/2%
             Sinking Fund Debentures Due 2006, with a carrying value of $120
             million, resulting in an extraordinary loss of $9 million, net of
             an income tax benefit of $5 million. In 1995, USX extinguished $553
             million of debt prior to maturity, primarily consisting of Zero
             Coupon Convertible Senior Debentures Due 2005, with a carrying
             value of $393 million ($264 million in original proceeds and $129
             million of amortized discount) and $83 million of 8-1/2% Sinking
             Fund Debentures, which resulted in an extraordinary loss of $7
             million, net of an income tax effect of $4 million.

                INCOME FROM DISCONTINUED OPERATIONS reflects aftertax income of
             the Delhi Companies sold during 1997. Income in 1997 included an
             $81 million gain on disposal of the Delhi Companies (net of income
             taxes). For additional discussion, see Note 3 to the Consolidated
             Financial Statements.

                NET INCOME was $988 million in 1997, $943 million in 1996 and
             $214 million in 1995. Excluding the effects of the $81 million gain
             on disposal related to discontinued operations in 1997, the $430
             million unfavorable effect of adoption of SFAS No. 121 in 1995, and
             adjustments to the inventory market valuation reserve in each of
             1997, 1996 and 1995, net income increased by $275 million in 1997
             as compared with 1996 and by $211 million in 1996 as compared with
             1995.

                NONCASH CREDIT FROM EXCHANGE OF PREFERRED STOCK was $10 million,
             or 12 cents per share of Steel Stock, in 1997. In May 1997, USX
             exchanged 3.9 million 6.75% Convertible Quarterly Income Preferred
             Securities ("Trust Preferred Securities") of USX Capital Trust I
             for an equivalent number of shares of its outstanding 6.50%
             Cumulative Convertible Preferred Stock ("6.50% Preferred Stock").
             The $10 million noncash credit reflects the difference between the
             carrying value of the 6.50% Preferred Stock and the fair value of
             the Trust Preferred Securities at the date of the exchange. See
             Note 26 to the Consolidated Financial Statements for additional
             discussion.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, CASH FLOWS AND
LIQUIDITY

                CURRENT ASSETS increased by $70 million from year-end 1996,
             primarily reflecting increased deferred income tax benefits and
             receivable balances, partially offset by a decline in inventory
             balances. The increase in deferred income tax benefits was
             primarily due to expectations of the increased utilization of
             federal tax credit carryforwards within the next year. The increase
             in receivables primarily reflected a net increase in trade
             receivables following USX's termination of the Marathon Group
             receivable sales program and sale of the Delhi Companies in late
             1997. The decrease in inventories primarily reflected lower year-
             end refined product prices resulting in a $284 million increase to
             the inventory market valuation reserve.

                NET PROPERTY, PLANT AND EQUIPMENT decreased by $342 million from
             year-end 1996, primarily reflecting depreciation, depletion and
             amortization ("DD&A") expense of $967 million and the sale in 1997
             of the Delhi Companies with net property plant and equipment of
             $608 million at the time of the sale, partially offset by property
             additions. For discussion of property additions, see Capital
             Expenditures, herein.

                DEFERRED CREDITS AND OTHER LIABILITIES increased by $300 million
             from year-end 1996 due primarily to unamortized deferred gains of
             $244 million related to USX's entry in 1997 into a strategic
             partnership with two limited partners to acquire an interest in
             three coke batteries at the U. S. Steel Group's Clairton (Pa.)
             Works.

                TOTAL LONG-TERM DEBT AND NOTES PAYABLE decreased by $769 million
             from year-end 1996, mainly reflecting cash flows provided from
             operating activities and asset sales during 1997, in excess of cash
             used for capital expenditures, dividend payments and investments in
             equity affiliates. At December 31, 1997, USX had available its
             long-term revolving credit agreement of $2,350 million, short-term
             lines of credit of $200 million and a short-term credit agreement
             of $125 million, against which it had no outstanding borrowings.
             USX had outstanding borrowings of $121 million against uncommitted
             lines of credit. USX's short-term lines of credit require a 1/8%
             fee or maintenance of compensating balances of 3%.

U-42

<PAGE>
 
             Management's Discussion and Analysis CONTINUED
    
                STOCKHOLDERS' EQUITY increased by $378 million from year-end
             1996 mainly reflecting 1997 net income, partially offset by
             dividends paid and a decrease in additional paid-in capital. The
             decrease in additional paid-in capital resulted primarily from the
             exchange of 6.50% Preferred Stock for Trust Preferred Securities,
             and reclassification of equity in the Delhi Group to redeemable
             Delhi Stock, following the sale of the Delhi Companies in late
             1997. For further discussion of Trust Preferred Securities, see
             Financial Obligations, herein, the Consolidated Statement of
             Stockholders' Equity and Note 26 to the Consolidated Financial
             Statements.

                NET CASH FROM OPERATING ACTIVITIES was $1,458 million in 1997,
             $1,649 million in 1996 and $1,632 million in 1995. Cash provided
             from operating activities in 1997 included a payment of $390
             million resulting from termination of a Marathon Group and Delhi
             Group accounts receivable sales program, payments of $199 million
             to fund employee benefit plans related to the U. S. Steel Group,
             and insurance recoveries of $40 million related to a 1996 hearth
             breakout at the Gary Works No. 13 blast furnace. Cash provided from
             operating activities in 1996 included a payment of $59 million to
             the Internal Revenue Service for certain agreed and unagreed
             adjustments relating to the tax year 1990, payments of $39 million
             related to certain state tax issues, and a payment of $28 million
             related to settlement of the Pickering litigation. Excluding the
             effects of these adjustments, cash provided from operating
             activities increased by $232 million in 1997 as compared with 1996,
             due primarily to favorable working capital changes, improved
             profitability and reduced interest payments, partially offset by
             increased income taxes paid.

                Net cash provided from operating activities in 1995 included
             payments of $204 million to fund employee benefit plans related to
             the U. S. Steel Group, $129 million for amortized discount on USX's
             zero coupon debentures and $20 million as partial settlement in the
             Pickering litigation. Excluding the effects of these adjustments,
             cash provided from operating activities decreased by $210 million
             in 1996 as compared with 1995, due primarily to unfavorable working
             capital changes.

                For additional discussion of 1997 funding of U. S. Steel benefit
             plans, see Benefit Plan Activity, herein.

                CAPITAL EXPENDITURES for each of the last three years are
             summarized in the following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                      1997    1996    1995
             ---------------------------------------------------------------------------------
             <S>                                                       <C>     <C>     <C>
             Marathon Group
              Exploration and production ("Upstream")          
               United States                                           $  647  $  424  $  322
               International                                              163      80     141
              Refining, marketing and transportation ("Downstream")       216     222     169
              Other                                                        12      25      10
                                                                       ------  ------  ------
                 Subtotal Marathon Group                                1,038     751     642
             U. S. Steel Group                                            261     337     324
             Discontinued operations (Delhi Group)/(a)/                    74      80      50
                                                                       ------  ------  ------
                 Total USX Corporation capital expenditures            $1,373  $1,168  $1,016
             ---------------------------------------------------------------------------------
</TABLE>


             /(a)/ Effective October 31, 1997, USX sold Delhi Gas Pipeline
                   Corporation and other subsidiaries of USX that comprised all
                   of the Delhi Group.

                   Marathon Group's domestic upstream capital expenditures in
             1997 mainly included development of Gulf of Mexico properties,
             including Viosca Knoll 786 (Petronius), Green Canyon 244 (Troika),
             Ewing Bank 963 (Arnold) and Ewing Bank 917 (Oyster). International
             upstream capital expenditures included development of the West Brae
             field in the U.K. North Sea and projects in Egypt and offshore
             Gabon. Downstream capital expenditures in 1997 were primarily for
             upgrading and expanding Emro Marketing Company's network of retail
             outlets, and refinery modification projects.

                   U. S. Steel Group capital expenditures in 1997 included a
             blast furnace reline at Mon Valley Works, a new heat-treat line for
             plate products at Gary Works and environmental expenditures,
             primarily at Gary Works.

                                                                            U-43

<PAGE>
 
             Management's Discussion and Analysis CONTINUED
  
                CAPITAL EXPENDITURES IN 1998 are expected to be $1.6 billion.
             Expenditures for the Marathon Group are expected to be
             approximately $1.3 billion. The increase from 1997 levels primarily
             reflects inclusion of 100% of the capital requirements for MAP.
             Domestic upstream projects planned for 1998 include continuing
             development of projects in the Gulf of Mexico. International
             upstream projects include development of properties offshore Gabon.
             Downstream spending is expected to be primarily for retail
             marketing upgrading and expansion projects and refinery
             modifications.

                Capital expenditures for the U. S. Steel Group in 1998 are
             expected to be approximately $340 million. Planned projects include
             a reline of the No. 6 blast furnace and other projects at Gary
             Works, and environmental expenditures.

                INVESTMENTS IN EQUITY AFFILIATES of $249 million in 1997, mainly
             reflected funding of Marathon Group equity affiliates' capital
             projects, primarily the Sakhalin II project in Russia and the
             Nautilus natural gas pipeline system in the Gulf of Mexico. Also
             included were the Marathon Group's acquisition of an additional
             7.5% interest in Sakhalin Energy Investment Company Ltd. ("Sakhalin
             Energy"), investment in the Odyssey crude oil pipeline system in
             the Gulf of Mexico (with a 29% interest) and acquisition of a 50%
             ownership in a power generation company in Ecuador. Sakhalin Energy
             is the incorporated joint venture company responsible for the
             Sakhalin II project. Following the acquisition of the additional
             interest, the Marathon Group holds a 37.5% interest in Sakhalin
             Energy. Investments in U. S. Steel Group equity affiliate capital
             projects included the addition of a second galvanizing line at the
             PRO-TEC Coating Company joint venture in northwest Ohio.

                INVESTMENTS IN EQUITY AFFILIATES IN 1998 are expected to be
             approximately $210 million. Projected investments include
             additional funding of Sakhalin Energy's spending on the Sakhalin II
             project, a U. S. Steel Group 50%-owned joint venture in the Slovak
             Republic, and Marathon Group power generation projects. Although
             project expenditures for the Sakhalin II project remain high,
             third-party financing arranged by Sakhalin Energy is expected to
             reduce the need for direct investment by the Marathon Group in
             1998.

                Contract commitments for capital expenditures were $424 million
             at year-end 1997, compared with $526 million at year-end 1996.

                The above statements with respect to 1998 capital expenditures
             and investments are forward-looking statements reflecting
             management's best estimates based on information currently
             available. To the extent this information proves to be inaccurate,
             the timing and levels of future expenditures and investments could
             differ materially from those included in the forward-looking
             statements. Factors that could cause future capital expenditures
             and investments to differ materially include changes in industry
             supply and demand, general economic conditions, the availability of
             business opportunities and levels of cash flow from operations for
             each of the Groups. The timing of completion or cost of particular
             capital projects could be affected by unforeseen hazards such as
             weather conditions, explosions or fires, or by delays in obtaining
             government or partner approval. In addition, levels of investments
             may be affected by the ability of equity affiliates to obtain
             third-party financing.

                PROCEEDS FROM SALE OF THE DELHI COMPANIES totaled $752 million.
             In January 1998, USX used the net proceeds of $195 million to
             redeem all of the 9.45 million outstanding shares of USX - Delhi
             Group Common Stock. For additional discussion, including a
             reconcilement of proceeds from the sale to net proceeds, see Note 3
             to the Consolidated Financial Statements.

                PROCEEDS FROM DISPOSAL OF ASSETS were $481 million in 1997,
             compared with $443 million in 1996 and $157 million in 1995.
             Proceeds in 1997 included $361 million resulting from USX's entry
             into a strategic partnership with two limited partners to acquire
             an interest in three coke batteries at its U. S. Steel Group's
             Clairton Works and $15 million from the sale of the plate mill at
             the U. S. Steel Group's former Texas Works. Proceeds in 1996
             primarily reflected the sale of the U. S. Steel Group's investment
             in National-Oilwell (an oil field service joint venture); the sale
             of a portion of its investment in RMI common stock; disposal of the
             Marathon Group's interests in Alaskan oil properties and certain
             domestic and international oil and gas production properties; and
             the sale of the Marathon Group's equity interest in a domestic
             pipeline company. Proceeds in 1995 primarily reflected sales of
             certain domestic oil and gas production properties, mainly in the
             Illinois Basin, and other properties.

                WITHDRAWAL FROM PROPERTY EXCHANGE TRUSTS of $98 million in 1997
             mainly represents cash withdrawn from an interest-bearing escrow
             account that was established in 1996 in connection with the
             disposal of oil production properties in Alaska.


U-44

<PAGE>
 
             Management's Discussion and Analysis CONTINUED

                FINANCIAL OBLIGATIONS (the net of debt repayments, borrowings,
             commercial paper and revolving credit arrangements on the
             Consolidated Statement of Cash Flows) decreased by $734 million in
             1997, compared with decreases of $673 million in 1996 and $511
             million in 1995. These amounts represent financial activities
             involving commercial paper, revolving credit agreements, lines of
             credit, other debt and preferred stock of a subsidiary. The
             decrease in financial obligations in each of the three years
             primarily reflected cash flows provided from operating activities
             and asset sales in excess of cash used for capital expenditures and
             dividend payments (and with respect to 1997, in excess of $249
             million of cash used for investments in equity affiliates).
             Financial obligations for USX obligated mandatorily redeemable
             convertible preferred securities of a subsidiary trust resulted
             from a noncash exchange in 1997.

                In 1997, USX redeemed, prior to maturity, $180 million of 5-3/4%
             Convertible Subordinated Debentures Due 2001, $227 million of 7%
             Convertible Subordinated Debentures Due 2017, $120 million of 8.50%
             Sinking Fund Debentures Due 2006 and $41 million of Zero Coupon
             Convertible Senior Debentures Due 2005. Maturities of long-term
             debt during 1997 consisted of $150 million of 8-7/8% Notes Due
             1997. In 1996, USX redeemed, prior to maturity, $161 million of
             Marathon Oil Company 9-3/4% Guaranteed Notes Due 1999. In 1995, USX
             extinguished, prior to maturity, $553 million of debt, primarily
             consisting of Zero Coupon Convertible Senior Debentures Due 2005,
             with a carrying value of $393 million ($264 million in original
             proceeds and $129 million of amortized discount) and $83 million of
             8-1/2% Sinking Fund Debentures. Also in 1995, USX redeemed all of
             the outstanding shares of its Adjustable Rate Cumulative Preferred
             Stock at a cost of $105 million.

                Issuance of long-term debt and Trust Preferred Securities for
             each of the last three years is summarized in the following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                        1997      1996      1995  
             ---------------------------------------------------------------------------------------
             <S>                                                        <C>       <C>        <C>       
             Aggregate principal amounts of:                                                           
              Trust Preferred Securities/(a)/                           $   182   $     -    $     -    
              Indexed Debt/(b)/                                               -       117          -   
              Environmental Improvement Revenue Refunding Bonds/(c)/          -        78         53   
                                                                        -------   -------    -------   
                 Total                                                  $   182   $   195    $    53    
             ---------------------------------------------------------------------------------------
</TABLE>
                                                            

             /(a)/ In 1997, USX exchanged 3.9 million 6.75% Convertible
                   Quarterly Income Preferred Securities ("Trust Preferred
                   Securities") of USX Capital Trust I for an equivalent number
                   of shares of USX's 6.50% Cumulative Convertible Preferred
                   Stock. This was a noncash transaction. For additional
                   discussion, see Note 26 to the Consolidated Financial
                   Statements.

             /(b)/ See description below.

             /(c)/ Issued to refinance certain environmental improvement bonds.

                   USX currently has three effective shelf registration
             statements with the Securities and Exchange Commission aggregating
             $943 million, of which $633 million is dedicated to offer and issue
             debt securities ("Debt Shelf"). The balance allows USX to offer and
             issue debt and/or equity securities. In December 1996, USX issued,
             under its Debt Shelf, $117 million in aggregate principal amount of
             Indexed Debt, mandatorily exchangeable at maturity for common stock
             of RMI (or for the equivalent amount of cash, at USX's option) at a
             defined exchange rate based upon the average market price of RMI
             common stock valued in January 2000. The carrying value of the
             notes is adjusted quarterly to settlement value and any resulting
             adjustment is charged or credited to income and included in
             interest and other financial costs. At December 31, 1997, the
             adjusted carrying value of Indexed Debt was $113 million. At
             December 31, 1997, USX owned 5,483,600 shares of RMI common stock,
             constituting approximately 27% of the outstanding shares.

                   In the event of a change in control of USX, debt and
             guaranteed obligations totaling $3.5 billion at year-end 1997 may
             be declared immediately due and payable or required to be
             collateralized. See Notes 13, 16 and 18 to the Consolidated
             Financial Statements.

                   DIVIDENDS PAID increased by $9 million in 1997 as compared
             with 1996, due primarily to the full-year effect of a two-cents-
             per-share increase in the quarterly USX - Marathon Group Common
             Stock dividend rate declared October 29, 1996. The increase was
             partially offset by decreased dividends on preferred stock,
             reflecting 6.50% Preferred Stock exchanged for Trust Preferred
             Securities during 1997. Dividends paid increased by $12 million in
             1996 as compared with 1995, due primarily to the sale of 5,000,000
             shares of USX -U.S. Steel Group Common Stock ("Steel Stock") to the
             public in 1995 and the previously mentioned increase in the
             quarterly USX - Marathon Group Common Stock dividend rate.


                                                                            U-45

<PAGE>
 
             Management's Discussion and Analysis CONTINUED

                In January 1998, the USX Board of Directors declared a fourth
             quarter dividend on the USX - Marathon Group Common Stock of 21
             cents per share, an increase of two cents per share over the
             previous quarterly dividend. Total dividends paid on the USX -
             Marathon Group Common Stock in the first quarter of 1998 will
             increase by approximately $6 million as a result of this dividend
             increase.

             BENEFIT PLAN ACTIVITY

                In accordance with USX's long-term funding practice, which is
             designed to maintain an appropriate funded status, USX contributed
             $49 million in 1997 to fund the U. S. Steel Group's principal
             pension plan for the 1996 plan year. In 1995, net proceeds of $169
             million from the public offering of 5,000,000 shares of Steel Stock
             were used to fund the U. S. Steel Group's principal pension plan
             for the 1994 and the 1995 plan years.

                Also in 1997, USX contributed $80 million for elective funding
             of retiree life insurance of union and nonunion participants, and
             $70 million to the United Steelworkers of America ("USWA")
             Voluntary Employee Benefit Association Trust ("VEBA"). A total of
             $40 million of the $70 million VEBA contribution represented
             prefunding for the years 1998 and 1999.

             DEBT AND PREFERRED STOCK RATINGS

                Standard & Poor's Corp. currently rates USX and Marathon Oil
             Company ("Marathon") senior debt as investment grade, following an
             upgrade in November 1996 to BBB- from BB+. USX's subordinated debt
             and preferred stock were also upgraded to BB+ from BB-. Moody's
             Investors Services, Inc. currently rates USX's and Marathon's
             senior debt as investment grade at Baa3 and USX's subordinated debt
             and preferred stock as Ba2. Duff & Phelps Credit Rating Co.
             currently rates USX's senior notes as investment grade at BBB and
             USX's subordinated debt as BBB-.

             DERIVATIVE INSTRUMENTS
                See Quantitative and Qualitative Disclosures About Market Risk
             for discussion of derivative instruments and associated market
             risk.

             LIQUIDITY

                USX management believes that its short-term and long-term
             liquidity is adequate to satisfy its obligations as of December 31,
             1997, and to complete currently authorized capital spending
             programs. Future requirements for USX's business needs, including
             the funding of capital expenditures, debt maturities for the years
             1998, 1999 and 2000, and any amounts that may ultimately be paid in
             connection with contingencies (which are discussed in Note 30 to
             the Consolidated Financial Statements), are expected to be financed
             by a combination of internally generated funds, proceeds from the
             sale of stock, borrowings or other external financing sources.

                USX management's opinion concerning liquidity and USX's ability
             to avail itself in the future of the financing options mentioned in
             the above forward-looking statements are based on currently
             available information. To the extent that this information proves
             to be inaccurate, future availability of financing may be adversely
             affected. Factors that affect the availability of financing include
             the performance of each Group (as indicated by levels of cash
             provided from operating activities, and other measures), the state
             of the debt and equity markets, investor perceptions and
             expectations of past and future performance, the overall U.S.
             financial climate, and, in particular, with respect to borrowings,
             levels of USX's outstanding debt and credit ratings by rating
             agencies. For a summary of long-term debt, see Note 16 to the
             Consolidated Financial Statements.


U-46

<PAGE>
 
            Management's Discussion and Analysis C O N T I N U E D

MANAGEMENT'S DISCUSSION AND ANALYSIS OF ENVIRONMENTAL MATTERS, LITIGATION AND
CONTINGENCIES

                USX has incurred and will continue to incur substantial capital,
             operating and maintenance, and remediation expenditures as a result
             of environmental laws and regulations. To the extent these
             expenditures, as with all costs, are not ultimately reflected in
             the prices of USX's products and services, operating results will
             be adversely affected. USX believes that domestic competitors of
             the U. S. Steel Group and substantially all the competitors of the
             Marathon Group are subject to similar environmental laws and
             regulations. However, the specific impact on each competitor may
             vary depending on a number of factors, including the age and
             location of its operating facilities, marketing areas, production
             processes and the specific products and services it provides.

                The following table summarizes USX's environmental expenditures
             for each of the last three years/(a)/:


<TABLE>
<CAPTION>
             (Dollars in millions)                 1997   1996   1995
             ---------------------------------------------------------
             <S>                                  <C>    <C>    <C>
             Capital
              Marathon Group                      $  81  $  66  $  50
              U. S. Steel Group                      43     90     55
              Discontinued operations/(b)/           10      9      6
                                                  -----  -----  -----
                 Total capital                    $ 134  $ 165  $ 111
             --------------------------------------------------------  
             Compliance
              Operating & maintenance
               Marathon Group                     $  84  $  75  $ 102
               U. S. Steel Group                    196    199    195
               Discontinued operations/(b)/           4      4      4
                                                  -----  -----  -----
                 Total operating & maintenance      284    278    301
              Remediation/(c)/
               Marathon Group                        19     26     37
               U. S. Steel Group                     29     33     35
                                                  -----  -----  -----
                 Total remediation                   48     59     72
                 Total compliance                 $ 332  $ 337  $ 373
             --------------------------------------------------------  
</TABLE>


             /(a)/Amounts for the Marathon Group are based on American
                  Petroleum Institute survey guidelines. Amounts for the U. S.
                  Steel Group are based on previously established U.S.
                  Department of Commerce survey guidelines.
             /(b)/Effective October 31, 1997, USX sold Delhi Gas Pipeline
                  Corporation and other subsidiaries of USX that comprised all
                  of the Delhi Group.
             /(c)/Amounts do not include noncash provisions recorded for
                  environmental remediation, but include spending charged
                  against such reserves, net of recoveries where permissible.

                  USX's environmental capital expenditures accounted for 10%,
             14% and 11% of total consolidated capital expenditures in 1997,
             1996 and 1995, respectively.

                  USX's environmental compliance expenditures averaged 2% of
             total consolidated operating costs in each of 1997, 1996 and 1995.
             Remediation spending primarily reflected ongoing clean-up costs for
             soil and groundwater contamination associated with underground
             storage tanks and piping at retail gasoline stations, and
             remediation activities at former and present operating locations.

                  The Resource Conservation and Recovery Act ("RCRA")
             establishes standards for the management of solid and hazardous
             wastes. Besides affecting current waste disposal practices, RCRA
             also addresses the environmental effects of certain past waste
             disposal operations, the recycling of wastes and the regulation of
             storage tanks.

                  A significant portion of USX's currently identified
             environmental remediation projects relate to the remediation of
             former and present operating locations. These projects include
             continuing remediation at an in situ uranium mining operation, the
             remediation of former coke-making facilities, a closed and
             dismantled refinery site and the closure of permitted hazardous and
             non-hazardous waste landfills.

                  USX has been notified that it is a potentially responsible
             party ("PRP") at 45 waste sites under the Comprehensive
             Environmental Response, Compensation and Liability Act ("CERCLA")
             as of December 31, 1997. In addition, there are 27 sites where USX
             has received information requests or other indications that USX may
             be a PRP under CERCLA but where sufficient information is not
             presently available to confirm the existence of liability. There
             are also 110 additional sites, excluding


                                                                            U-47

<PAGE>
 
             Management's Discussion and Analysis C O N T I N U E D 

             retail gasoline stations, where remediation is being sought under
             other environmental statutes, both federal and state, or where
             private parties are seeking remediation through discussions or
             litigation. At many of these sites, USX is one of a number of
             parties involved and the total cost of remediation, as well as
             USX's share thereof, is frequently dependent upon the outcome of
             investigations and remedial studies. USX accrues for environmental
             remediation activities when the responsibility to remediate is
             probable and the amount of associated costs is reasonably
             determinable. As environmental remediation matters proceed toward
             ultimate resolution or as additional remediation obligations arise,
             charges in excess of those previously accrued may be required. See
             Note 30 to the Consolidated Financial Statements.

                New or expanded environmental requirements, which could increase
             USX's environmental costs, may arise in the future. USX intends to
             comply with all legal requirements regarding the environment, but
             since many of them are not fixed or presently determinable (even
             under existing legislation) and may be affected by future
             legislation, it is not possible to predict accurately the ultimate
             cost of compliance, including remediation costs which may be
             incurred and penalties which may be imposed. However, based on
             presently available information, and existing laws and regulations
             as currently implemented, USX does not anticipate that
             environmental compliance expenditures (including operating and
             maintenance and remediation) will materially increase in 1998. USX
             expects environmental capital expenditures in 1998 to be
             approximately $165 million, or approximately 10% of total estimated
             consolidated capital expenditures. Predictions beyond 1998 can only
             be broad-based estimates which have varied, and will continue to
             vary, due to the ongoing evolution of specific regulatory
             requirements, the possible imposition of more stringent
             requirements and the availability of new technologies, among other
             matters. Based upon currently identified projects, USX anticipates
             that environmental capital expenditures in 1999 will total
             approximately $110 million; however, actual expenditures may vary
             as the number and scope of environmental projects are revised as a
             result of improved technology or changes in regulatory requirements
             and could increase if additional projects are identified or
             additional requirements are imposed.

                Effective January 1, 1997, USX adopted American Institute of
             Certified Public Accountants Statement of Position No. 96-1 -
             "Environmental Remediation Liabilities", which requires that
             companies include certain direct costs and post-closure monitoring
             costs in accruals for remediation liabilities. USX income from
             operations included first quarter charges of $27 million (net of
             expected recoveries) related to adoption, primarily for accruals of
             post-closure monitoring costs, study costs and administrative
             costs. See Note 2 to the Consolidated Financial Statements for
             additional discussion.

                Income from operations in 1997 also included net favorable
             effects of $13 million related to other environmental accrual
             adjustments.

                USX is the subject of, or party to, a number of pending or
             threatened legal actions, contingencies and commitments involving a
             variety of matters. The ultimate resolution of these contingencies
             could, individually or in the aggregate, be material to the
             consolidated financial statements. However, management believes
             that USX will remain a viable and competitive enterprise even
             though it is possible that these contingencies could be resolved
             unfavorably.

             OUTLOOK AND YEAR 2000

                For Outlook with respect to the Marathon Group and U. S. Steel
             Group, see Management's Discussion and Analysis of Operations by
             Industry Segment, herein.

                For discussion of the Year 2000 issue as it affects the Marathon
             Group and the U. S. Steel Group, see Management's Discussion and
             Analysis of Operations by Industry Segment, herein.

             ACCOUNTING STANDARDS

                In June 1997, the Financial Accounting Standards Board issued
             two new accounting standards:

                Statement of Financial Accounting Standards No. 130, "Reporting
             Comprehensive Income" requires that companies report all recognized
             changes in assets and liabilities that are not the result of
             transactions with owners, including those that are not reported in
             net income. USX plans to adopt the standard, effective with its
             1998 financial statements, as required.

                Statement of Financial Accounting Standards No. 131,
             "Disclosures about Segments of an Enterprise and Related
             Information" introduces a "management approach" for identifying
             reportable industry segments of an enterprise. USX plans to adopt
             the standard, effective with its 1998 financial statements, as
             required.


U-48

<PAGE>
 
             Management's Discussion and Analysis C O N T I N U E D  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS BY INDUSTRY SEGMENT

             THE MARATHON GROUP

                The Marathon Group consists of Marathon Oil Company and certain
             other subsidiaries of USX, which are engaged in worldwide
             exploration, production, transportation and marketing of crude oil
             and natural gas; domestic refining, marketing and transportation of
             petroleum products; and power generation. Effective January 1,
             1998, the USX  Marathon Group and Ashland Inc. formed a new
             refining, marketing and transportation company, Marathon Ashland
             Petroleum LLC.

                Marathon Group REVENUES (excluding matching buy/sell
             transactions and excise taxes) decreased by $132 million in 1997
             from 1996, and increased by $1,576 million in 1996 from 1995. The
             decrease in 1997 was due primarily to lower average refined product
             prices and worldwide liquid hydrocarbon prices and volumes,
             partially offset by increased volumes of refined products and
             increased volumes and higher prices for domestic natural gas. The
             increase in 1996 from 1995 was due primarily to higher average
             prices for refined products, worldwide liquid hydrocarbons and
             natural gas, partially offset by decreased volumes for worldwide
             liquid hydrocarbons.

                Marathon Group INCOME FROM OPERATIONS and certain items included
             in income from operations for each of the last three years are
             summarized in the following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                           1997     1996    1995
             --------------------------------------------------------------------------------------
             <S>                                                           <C>      <C>      <C>
 
             Income from operations/(a)/                                   $  932   $1,296   $ 147
             Less: Certain favorable (unfavorable) items
              IMV reserve adjustment/(b)/                                    (284)     209      70
              Net gains on certain asset sales/(c)/                            -        35      -
              Charges for withdrawal from MPA/(d)/                             -       (10)     -
              Certain state tax adjustments/(e)/                               -       (11)     -
              Impairment of long-lived assets/(f)/                             -        -     (659)
              Expected environmental remediation recoveries/(g)/               -        -       15
                                                                           -------  -------  ------
                 Subtotal                                                    (284)     223    (574)
                                                                           -------  -------  ------
                 Income from operations adjusted to exclude above items    $1,216   $1,073   $ 721
             --------------------------------------------------------------------------------------
</TABLE>

             /(a)/Consists of operating income, dividend and affiliate income,
                  net gains on disposal of investments and other income. Amounts
                  for 1996 and 1995 were reclassified in 1997 to include
                  dividend and affiliate income and other income, and to conform
                  to other 1997 classifications. See Note 9 to the Consolidated
                  Financial Statements for a discussion of operating income.
             /(b)/The inventory market valuation reserve ("IMV") reflects the
                  extent to which the recorded LIFO cost basis of crude oil and
                  refined products inventories exceeds net realizable value. For
                  additional details of this noncash adjustment, see discussion
                  below.
             /(c)/Includes net gains on sales of interests in a domestic
                  pipeline company and certain production properties.
             /(d)/Marine Preservation Association ("MPA") is a non-profit oil
                  spill response group.
             /(e)/Reflected domestic production tax accruals for prior years.
             /(f)/Related to adoption of SFAS No. 121.
             /(g)/Expected recoveries from state governments of expenditures
                  related to underground storage tanks at retail marketing
                  outlets.

                Adjusted income from operations for the Marathon Group increased
             by $143 million in 1997 from 1996, and by $352 million in 1996 from
             1995. The increase in 1997 was due primarily to higher average
             refined product margins and higher worldwide natural gas prices,
             partially offset by reduced worldwide liquid hydrocarbon production
             and prices, increased worldwide exploration expense and increased
             administrative expenses. The increase in 1996 from 1995 was due
             primarily to higher average prices for worldwide liquid
             hydrocarbons and natural gas, reduced DD&A expense and increased
             worldwide volumes of natural gas. These favorable effects were
             partially offset by decreased worldwide liquid hydrocarbon volumes,
             net losses on production hedging activities (primarily occurring in
             the fourth quarter of 1996) and lower refined product margins.
             Reduced DD&A expense resulted mainly from the fourth quarter 1995
             adoption of SFAS No. 121, and property sales.


                                                                            U-49

<PAGE>
 
             Management's Discussion and Analysis C O N T I N U E D

                With respect to the IMV reserve adjustment, when U. S. Steel
             Corporation acquired Marathon Oil Company in March 1982, crude oil
             and refined product prices were at historically high levels. In
             applying the purchase method of accounting, Marathon's crude oil
             and refined product inventories were revalued by reference to
             current prices at the time of acquisition. This became the new LIFO
             cost basis of the inventories, which has been maintained since the
             1982 acquisition. Generally accepted accounting principles require
             that inventories be valued at lower of cost or market. Accordingly,
             Marathon has established an IMV reserve to reduce the LIFO cost
             basis of these inventories on a quarterly basis, to the extent
             necessary, to current market value. Adjustments to the IMV reserve
             result in noncash charges or credits to income from operations.
             These adjustments affect the comparability of financial results
             from period to period as well as comparisons with other energy
             companies, which may not have such adjustments. The IMV reserve
             adjustments have been separately reported, on a consistent basis,
             as a component of operating results and separately identified in
             management's discussion of operations.

                Commodity prices have fluctuated widely and, since 1986, have
             generally remained below prices that existed at the time of the
             1982 acquisition, resulting in periodic adjustments to the LIFO
             cost basis of the inventories. At December 31, 1997, LIFO cost
             exceeded market prices by $284 million, resulting in a
             corresponding charge to income from operations for total year 1997.
             During 1996 and 1995, favorable market price movements resulted in
             credits to income from operations of $209 million and $70 million,
             respectively. The $493 million variance in income from operations
             between 1997 and 1996 for the IMV reserve adjustments (and $139
             million variance between 1996 and 1995) affects the comparability
             of reported financial results. In management's opinion, the
             Marathon Group's operating performance should be evaluated
             exclusive of the IMV reserve adjustments, which management believes
             provides a more indicative view of the profit and cash flow
             performance of the Group.

             OUTLOOK-MARATHON GROUP

                The outlook regarding the Marathon Group's sales levels, margins
             and income is largely dependent upon future prices and volumes of
             crude oil, natural gas and refined products. Prices have
             historically been volatile and have frequently been driven by
             unpredictable changes in supply and demand resulting from
             fluctuations in economic activity and political developments in the
             world's major oil and gas producing areas, including OPEC member
             countries. Any substantial decline in such prices could have a
             material adverse effect on the Marathon Group's results of
             operations. A prolonged decline in such prices could also adversely
             affect the quantity of crude oil and natural gas reserves that can
             be economically produced and the amount of capital available for
             exploration and development.

                With respect to Marathon's upstream operations, worldwide liquid
             hydrocarbon volumes are expected to increase by twenty-five percent
             in 1998, with most of the increase anticipated in the second half
             of the year. This primarily reflects projected new production from
             fields in the Gulf of Mexico (such as Green Canyon 244 and Ewing
             Bank Blocks 963 and 917), the Tchatamba Marine field in Gabon and
             the West Brae field in the U.K. North Sea, partially offset by
             natural production declines of mature fields. Marathon's worldwide
             natural gas volumes in 1998 are expected to remain consistent with
             1997 volumes at around 1.2 billion cubic feet per day, as natural
             declines in mature international fields, primarily in Ireland and
             Norway, are anticipated to be offset by anticipated increases in
             domestic production (mainly in the Austin Chalk area in Texas,
             Green Canyon 244 and the Vermillion Basin in Wyoming). These
             projections are based on known discoveries and do not include any
             additions from acquisitions or future exploratory drilling.

                Other major upstream projects which are currently underway or
             under evaluation and are expected to improve future income streams,
             include Viosca Knoll Block 786 and Green Canyon Blocks 112 and 113
             in the Gulf of Mexico, the Tchatamba South field, located offshore
             Gabon, and the Sakhalin II project in the Russian Far East Region
             (discussed below).

U-50

<PAGE>
 
             Management's Discussion and Analysis C O N T I N U E D

                The Marathon Group holds a 37.5% interest in Sakhalin Energy, an
             incorporated joint venture company responsible for the overall
             management of the Sakhalin II project. This project includes
             development of the Piltun-Astokhskoye ("P-A") oil field and the
             Lunskoye gas field located offshore Sakhalin Island in the Russian
             Far East Region. During 1997, authorized representatives of the
             Russian Government approved the Development Plan for the P-A
             License Area, Phase 1: Astokh Feature. Appraisal work for the
             remainder of the P-A field was also authorized. The P-A full field
             development plan is scheduled to be completed and submitted to the
             Russian Government by June 1999. First production of oil from the
             Astokh Feature, which will be developed using an arctic-class
             drilling vessel called the Molikpaq, remains on target for the
             summer of 1999. Late in 1997, the Sakhalin Energy consortium
             arranged for a limited recourse project financing facility of $348
             million with a group of international financial institutions.
             Subject to various conditions, initial borrowings by Sakhalin
             Energy under this facility are anticipated in 1998 to partially
             fund Phase 1 expenditure requirements.

                Looking at downstream operations, Marathon and Ashland Inc.
             officially formed MAP, which commenced operations on January 1,
             1998. Major elements of both firms' refining, marketing and
             transportation operations were combined, with Marathon having a 62%
             ownership interest in MAP and Ashland holding a 38% interest. MAP
             has seven refineries with a combined capacity of 935,000 barrels
             per day ("bpd"), 84 light products and asphalt terminals in the
             Midwest and Southeast United States, about 5,400 retail marketing
             outlets in 20 states and significant pipeline holdings. Potential
             efficiencies derived by MAP have been broadly estimated to be in
             excess of $200 million annually on a pretax basis. While a modest
             part of these efficiencies will be achieved in mid- to late 1998,
             full realization of efficiencies should occur over the next few
             years as MAP's integration plans are implemented. In conjunction
             with the formation of MAP, the Marathon Group is expected to
             recognize an estimated $250 million one-time, pretax change-in-
             interest gain in the first quarter of 1998. For additional details
             of the agreements and the one-time financial gain, see Note 31 to
             the USX Consolidated Financial Statements.

                MAP's refined product sales volumes for 1998 are expected to
             increase slightly from 1997 levels of Marathon's and Ashland's
             separate downstream operations, which were a combined volume of
             approximately 1.2 million bpd. A major maintenance shutdown
             ("turnaround") was completed at the Garyville (La.) refinery in
             early 1998, and major turnarounds are planned for the Canton (Ohio)
             refinery in the fourth quarter of 1998, the Catlettsburg (Ky.)
             refinery in the first quarter of 1999 and the Detroit (Mich.)
             refinery in the fourth quarter of 1999. Each turnaround is expected
             to last about one month.

                The above forward-looking statements of projects, expected
             production and sales levels, and dates of initial production are
             based on a number of assumptions, including (among others) prices,
             supply and demand, regulatory constraints, reserve estimates,
             production decline rates for mature fields, reserve replacement
             rates, and geological and operating considerations. In addition,
             development of new production properties in countries outside the
             United States may require protracted negotiations with host
             governments and is frequently subject to political considerations,
             such as tax regulations, which could adversely affect the economics
             of projects. With respect to the Sakhalin II project in Russia,
             Sakhalin Energy continues to seek to have certain Russian laws and
             normative acts at the Russian Federation and local levels brought
             into compliance with the existing Production Sharing Agreement Law.
             To the extent these assumptions prove inaccurate and/or
             negotiations, legal developments and other considerations are not
             satisfactorily resolved, actual results could be materially
             different than present expectations.

                The above discussion also contains forward-looking statements
             with respect to the amount and timing of efficiencies to be
             realized by MAP. Some factors that could potentially cause actual
             results to differ materially from present expectations include
             unanticipated costs to implement shared technology, difficulties in
             integrating corporate structures, delays in leveraging volume
             procurement advantages or delays in personnel rationalization.

             YEAR 2000

                Marathon continues to identify, analyze, modify and/or replace
             non-compliant systems, equipment and other devices that utilize
             date/time-oriented software or computer chips. Marathon has
             contacted all of its vendors from which systems have been purchased
             and has requested that appropriate corrections be provided by mid-
             1998. Modifications to internally developed systems are being
             handled in-house. In addition, during 1997, Marathon began
             including Year 2000 provisions in a variety of its contracts. In
             management's opinion, the incremental costs associated with these
             efforts will not be material to the operating results of the
             Marathon Group.

                                                                            U-51

<PAGE>
 
             Management's Discussion and Analysis C O N T I N U E D   
 
                This discussion of Marathon's efforts and management's
             expectations relating to the effect of Year 2000 compliance on
             operating results are forward-looking statements. Actual results
             could be materially different because Marathon's ability to achieve
             Year 2000 compliance and the level of incremental costs associated
             therewith could be adversely affected by unanticipated problems
             identified in the ongoing compliance review. In addition, Marathon
             has limited or no control over comparable corrective actions by
             proprietary software vendors and other entities with which it
             interacts. Therefore, Year 2000 compliance problems experienced by
             these entities could adversely affect the operating results of the
             Marathon Group.

             THE U. S. STEEL GROUP

                The U. S. Steel Group includes U. S. Steel, which is primarily
             engaged in the production and sale of steel mill products, coke and
             taconite pellets. The U. S. Steel Group also includes the
             management of mineral resources, domestic coal mining and
             engineering and consulting services. Other businesses that are part
             of the U. S. Steel Group include real estate development and
             management, and leasing and financing activities.

                U. S. Steel Group REVENUES were $6.9 billion in 1997, as
             compared with $6.7 billion in 1996 and $6.6 billion in 1995. The
             increase in 1997 from 1996 primarily reflected higher average
             realized steel prices and increased shipment volumes. The increase
             in 1996 from 1995 resulted primarily from improved product mix,
             partially offset by lower average steel product prices. Steel
             shipment volumes in 1996 remained at 1995 levels.

                U. S. Steel Group INCOME FROM OPERATIONS and certain items
             included in income from operations for each of the last three years
             are summarized in the following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                          1997    1996    1995
             -----------------------------------------------------------------------------------
             <S>                                                           <C>     <C>     <C>
             Income from operations/(a)/                                   $ 773   $ 483   $ 582
             Less: Certain favorable (unfavorable) items
              Effect of adoption of SOP 96-1/(b)/                            (20)     -       -
              Certain other environmental accrual adjustments  net            11      -       -
               Net gains on certain asset sales/(c)/                          15      -       -
              Gain on affiliate stock offering/(d)/                           -       53      -
              Certain Gary Works blast furnace repairs/(e)/                   -      (39)    (34)
              Employee reorganization charges/(f)/                            -      (13)     -
              Impairment of long-lived assets/(g)/                            -       -      (16)
              Adjustments for certain employee-related costs                  -       -       18
              Certain legal accruals                                          -       -      (44)
                                                                           -----   -----   ----- 
                 Subtotal                                                      6       1     (76)
                                                                           -----   -----   ----- 
                 Income from operations adjusted to exclude above items    $ 767   $ 482   $ 658
             ------------------------------------------------------------------------------------
</TABLE>


             /(a)/ Consists of operating income, affiliate income, net gains on
                   disposal of investments, gain on affiliate stock offering and
                   other income. Amounts for 1996 and 1995 were reclassified in
                   1997 to include affiliate income, gain on affiliate stock
                   offering and other income. See Note 9 to the Consolidated
                   Financial Statements for a discussion of operating income.
             /(b)/ American Institute of Certified Public Accountants Statement
                   of Position No. 96-1 "Environmental Remediation Liabilities"
                   provides additional guidance on recognition, measurement and
                   disclosure of remediation liabilities.
             /(c)/ Reflects the sale of the plate mill at the U. S. Steel
                   Group's former Texas Works.
             /(d)/ See Note 8 to the Consolidated Financial Statements.
             /(e)/ Amounts in 1996 and 1995 reflect repair of damages incurred
                   at Gary Works during a hearth break-out at the No. 13 blast
                   furnace on April 2, 1996, and in an explosion at the No. 8
                   blast furnace on April 5, 1995, respectively.
             /(f)/ Related to employee costs associated with work force
                   reduction programs.
             /(g)/ Related to adoption of SFAS No. 121.

U-52

<PAGE>
 
             Management's Discussion and Analysis C O N T I N U E D      

                Adjusted income from operations increased by $285 million in
             1997 as compared with 1996, due primarily to increased shipment
             volumes, higher average realized steel prices, improved operating
             efficiencies, and receipt of $40 million in insurance settlements
             related to the 1996 hearth break-out at the Gary Works No. 13 blast
             furnace. These improvements were partially offset by higher 1997
             accruals for profit sharing. Adjusted income from operations
             decreased by $176 million in 1996 from 1995, due primarily to lower
             average prices for steel products, cost inefficiencies and reduced
             shipments related to outages at U. S. Steel's three largest blast
             furnaces including lost sales from the unplanned outage of the No.
             13 blast furnace at Gary Works. These factors were partially offset
             by improved product mix and decreased accruals for profit sharing
             plans.

             OUTLOOK - U. S. STEEL GROUP

                The U. S. Steel Group presently anticipates that steel demand
             will remain relatively strong in 1998, and the outlook remains
             positive for the markets it serves. This market strength is
             dependent on continued strong demand for capital goods, oil and gas
             tubular products and consumer durables in domestic and
             international economies. Based on the continuing strong demand for
             its products, U. S. Steel Group announced in December 1997, price
             increases for plate and tubular products for spot market shipments
             scheduled for delivery after March 28, 1998, for plate and March
             31, 1998, for tubular. In January 1998, price increases were also
             announced for sheet products affecting orders scheduled for
             shipment after April 1, 1998. These increases will not apply to
             shipments under long term contracts where prices were previously
             negotiated. However, growing domestic production for flat-rolled
             products (an estimated 4.6 million tons of additional production
             capability from new and existing sources is expected in 1998),
             continuing high levels of imports and a return to the market of a
             competitor following a lengthy strike, could have an adverse effect
             on U. S. Steel's product prices and shipment levels. In addition,
             uncertainties related to the Asian economies could potentially
             impact the domestic markets, if Asian countries increase their
             level of steel exports to the United States.

                Steel imports to the United States accounted for an estimated
             24%, 23% and 21% of the domestic steel market in the first eleven
             months of 1997, and for the years 1996 and 1995, respectively.
             Steel imports of hot rolled, cold rolled and galvanized sheets as a
             percentage of total finished imports, increased 4% in the first
             eleven months of 1997, compared to the same period in 1996. The
             domestic steel industry has, in the past, been adversely affected
             by unfairly traded imports, and higher levels of imported steel may
             have an adverse effect on product prices, shipment levels and
             results of operations.

                U. S. Steel Group shipments in the first quarter of 1998 are
             expected to be lower than in the fourth quarter of 1997 due to a
             seasonal industry decline in first quarter shipments. During the
             second and third quarters of 1998, raw steel production is expected
             to be reduced by a 100-day planned blast furnace reline at Gary
             Works. U. S. Steel expects to supplement raw steel production with
             the purchase of slabs from outside sources, which should allow it
             to maintain shipment levels during this planned outage.

                On February 5, 1998, U. S. Steel Group and VSZ a.s., Kosice,
             entered into a 50-50 joint venture in Kosice, Slovakia, for the
             production and marketing of tin mill products to serve an emerging
             Central European market. In February 1998, the joint venture, doing
             business as VSZ U. S. Steel, s. r.o., took ownership and commenced
             operations of an existing tin mill facility (VSZ's Ocel plant in
             Kosice) with an annual production capacity of 140,000 metric tons.
             The joint venture plans to add 200,000 annual metric tons of new
             tin mill production capacity in the next two years.

                In 1997, U. S. Steel Group, through a subsidiary, United States
             Steel Export Company de Mexico, along with Feralloy Mexico, S.R.L.
             de C.V., and Intacero de Mexico, S.A. de C.V., formed a joint
             venture for a slitting and warehouse facility in San Luis Potosi,
             Mexico. The joint venture will conduct business as Acero Prime and
             will service primarily the appliance industry. Construction will
             begin in 1998 with operations commencing in early 1999.

                The preceding statements concerning anticipated steel demand,
             steel pricing, purchasing slabs to supplement raw steel production
             and shipment levels are forward-looking and are based upon
             assumptions as to future product prices and mix, and levels of
             steel production capability, production and shipments. These
             forward-looking statements can be affected by imports, domestic and
             international economies, domestic production capacity, availability
             of slabs, and customer demand. In the event these assumptions prove
             to be inaccurate, actual results may differ significantly from
             those presently anticipated.

                                                                            U-53

<PAGE>
 
             Management's Discussion and Analysis C O N T I N U E D      

             YEAR 2000

                A task force has been established to identify all potential
             areas of risk and to make any required modifications as they relate
             to business computer systems, technical infrastructure, end-user
             computing, business partners, manufacturing, environmental
             operations, systems products produced and sold, and dedicated R&D
             test facilities. A Year 2000 impact assessment for all of the
             aforementioned areas is expected to be completed by the end of
             first quarter 1998. The U. S. Steel Group technical software
             infrastructure for mainframe computers is essentially Year 2000
             compliant; however, vendor software and other computing platforms
             are still in the process of being analyzed for compliance. The U.
             S. Steel Group is monitoring the compliance efforts of the entities
             with which it does business, and is participating with steel
             industry and other trade associations to collectively address Year
             2000 issues involving such entities. The U. S. Steel Group's
             objective is to achieve compliance by the end of 1998, and to use
             the year 1999 to validate and confirm Year 2000 compliance,
             including continued monitoring of progress by the U. S. Steel
             Group's business partners. Based on information available at this
             time, management believes that the incremental costs associated
             with achieving Year 2000 compliance will not be material to the
             operating results of the U. S. Steel Group.

                The discussion of the U. S. Steel Group's efforts, and
             management's expectations, relating to Year 2000 compliance are
             forward-looking statements. The U. S. Steel Group's ability to
             achieve Year 2000 compliance and the level of incremental costs
             associated therewith, could be adversely impacted by, among other
             things, the availability and cost of programming and testing
             resources, vendors' ability to modify proprietary software and
             unanticipated problems identified in the ongoing compliance review.
             The U. S. Steel Group has limited or no control over the actions of
             proprietary software vendors and other entities with which it
             interacts. Therefore, Year 2000 compliance problems experienced by
             these entities could adversely affect the operating results of the
             U. S. Steel Group.

             THE DELHI GROUP

                Effective October 31, 1997, USX sold Delhi Gas Pipeline
             Corporation and other subsidiaries of USX that comprise all of the
             Delhi Group.

U-54

<PAGE>
 
             Quantitative and Qualitative Disclosures About Market Risk

             MANAGEMENT OPINION CONCERNING DERIVATIVE INSTRUMENTS

                USX employs a strategic approach of limiting its use of
             derivative instruments principally to hedging activities, whereby
             gains and losses are generally offset by price changes in the
             underlying commodity. Based on this approach, combined with risk
             assessment procedures and internal controls, management believes
             that its use of derivative instruments does not expose USX to
             material risk. USX's use of derivative instruments for hedging
             activities could materially affect USX's results of operations in
             particular quarterly or annual periods. This is primarily because
             use of such instruments may limit the company's ability to benefit
             from favorable price movements. However, management believes that
             use of these instruments will not have a material adverse effect on
             financial position or liquidity. For a summary of accounting
             policies related to derivative instruments, see Note 1 to the
             Consolidated Financial Statements.

             COMMODITY PRICE RISK AND RELATED RISKS

                In the normal course of its business, USX is exposed to market
             risk, or price fluctuations related to the purchase, production or
             sale of crude oil, natural gas, refined products and steel
             products. To a lesser extent, USX is exposed to the risk of price
             fluctuations on coal, coke, natural gas liquids, electricity,
             petroleum feedstocks and certain nonferrous metals used as raw
             materials. USX is also exposed to effects of price fluctuations on
             the value of its commodity inventories.

                USX's market risk strategy has generally been to obtain
             competitive prices for its products and services and allow
             operating results to reflect market price movements dictated by
             supply and demand. However, USX uses fixed-price contracts and
             derivative commodity instruments to manage a relatively small
             portion of its commodity price risk. USX uses fixed-price contracts
             for portions of its natural gas production to manage exposure to
             fluctuations in natural gas prices. In addition, USX uses
             derivative commodity instruments such as exchange-traded futures
             contracts and options, and over-the-counter ("OTC") commodity swaps
             and options to manage exposure to market risk related to the
             purchase, production or sale of crude oil, natural gas, refined
             products, certain nonferrous metals and electricity. USX's
             strategic approach is to limit the use of these instruments
             principally to hedging activities. Accordingly, gains and losses on
             derivative commodity instruments are generally offset by the
             effects of price changes in the underlying commodity. However,
             certain derivative commodity instruments have the effect of
             restoring the equity portion of fixed-price sales of natural gas to
             variable market-based pricing. These instruments are used as part
             of USX's overall risk management programs.

                                                                            U-55

<PAGE>
 
             Quantitative Qualitative Disclosures
             About Market Risk CONTINUED                      

                Sensitivity analyses of the incremental effects on pretax income
             of hypothetical 10% and 25% changes in commodity prices for open
             derivative commodity instruments as of December 31, 1997, are
             provided in the following table:/(a)/


<TABLE>                                                   
<CAPTION>                                                 
             (Dollars in millions)                                     
             --------------------------------------------------------------------------------------------
                                                                            INCREMENTAL DECREASE IN           
                                                                            PRETAX INCOME ASSUMING A          
                                                                        HYPOTHETICAL PRICE CHANGE OF/(a)/ 
             DERIVATIVE COMMODITY INSTRUMENTS                                10%                25%                 
            ---------------------------------------------------------------------------------------------
            <S>                                                         <C>                   <C>   
             Marathon Group/(b)(c)/:                                   
              Crude oil (price increase)/(d)/                               $2.7               $ 8.6   
              Natural gas (price decrease)/(d)/                              2.9                 7.1
              Refined products (price decrease)/(d)/                          .4                 1.1
                                                                            ----               -----
               Total                                                        $6.0               $16.8
                                                                       
             U. S. Steel Group:                                        
              Natural gas (price decrease)/(d)/                             $1.1               $ 2.8    
             --------------------------------------------------------------------------------------------
</TABLE>


             /(a)/ Gains and losses on derivative commodity instruments are
                   generally offset by price changes in the underlying
                   commodity. Effects of these offsets are not reflected in the
                   sensitivity analyses. Amounts reflect the estimated
                   incremental effect on pretax income of hypothetical 10% and
                   25% changes in closing commodity prices for each open
                   contract position at December 31, 1997. Marathon Group and U.
                   S. Steel Group management evaluate their portfolios of
                   derivative commodity instruments on an ongoing basis and add
                   or revise strategies to reflect anticipated market conditions
                   and changes in risk profiles. Changes to the portfolios
                   subsequent to December 31, 1997, would cause future pretax
                   income effects to differ from those presented in the table.

             /(b)/ The number of net open contracts varied throughout 1997, from
                   a low of 637 contracts at December 31, to a high of 9,307
                   contracts at June 11, and averaged 5,400 for the year. The
                   derivative commodity instruments used and hedging positions
                   taken also varied throughout 1997, and will continue to vary
                   in the future. Because of these variations in the composition
                   of the portfolio over time, the number of open contracts, by
                   itself, cannot be used to predict future income effects.
                   During 1998, the size of the portfolio is expected to
                   increase above average 1997 levels as a result of increased
                   volumes for Marathon Ashland Petroleum LLC, on a basis
                   consistent with guidelines established in previously existing
                   downstream hedging programs. 

             /(c)/ The calculation of sensitivity amounts for basis swaps
                   assumes that the physical and paper indices are perfectly
                   correlated. Gains and losses on options are based on the
                   difference between the strike price and the underlying
                   commodity price.

             /(d)/ The direction of the price change used in calculating the
                   sensitivity amount for each commodity reflects that which
                   would result in the largest incremental decrease in pretax
                   income when applied to the derivative commodity instruments
                   used to hedge that commodity.

                While derivative commodity instruments are generally used to
             reduce risks from unfavorable commodity price movements, they also
             may limit the opportunity to benefit from favorable movements.
             During the fourth quarter of 1996, certain hedging strategies
             matured which limited the Marathon Group's ability to benefit from
             favorable market price increases on the sales of equity crude oil
             and natural gas production, resulting in pretax hedging losses of
             $33 million. In total, Marathon's upstream operations recorded net
             pretax hedging losses of $3 million in 1997, compared with net
             losses of $38 million in 1996, and net gains of $10 million in
             1995.

                Marathon's downstream operations generally use derivative
             commodity instruments to lock-in costs of certain raw material
             purchases, to protect carrying values of inventories and to protect
             margins on fixed-price sales of refined products. In total,
             Marathon's downstream operations recorded net pretax hedging gains
             of $29 million in 1997, compared with net losses of $22 million in
             1996 and $4 million in 1995. Essentially, all of these upstream and
             downstream gains and losses were offset by changes in the prices of
             the underlying hedged commodities, with the net effect
             approximating the targeted results of the hedging strategies.

                The U. S. Steel Group uses OTC commodity swaps to manage
             exposure to market risk related to the purchase of natural gas used
             as a raw material. The U. S. Steel Group recorded net pretax
             hedging gains of $5 million in 1997, compared with pretax gains of
             $21 million in 1996 and pretax losses of $15 million in 1995. These
             gains and losses were offset by changes in the realized prices of
             the underlying hedged natural gas.

                For additional quantitative information relating to derivative
             commodity instruments, including aggregate contract values and fair
             values, where appropriate, see Note 28 to the Consolidated
             Financial Statements.

U-56

<PAGE>
 
             Quantitative Qualitative Disclosures
             About Market Risk CONTINUED                      

                USX is subject to basis risk, caused by factors that affect the
             relationship between commodity futures prices reflected in
             derivative commodity instruments and the cash market price of the
             underlying commodity. Natural gas transaction prices are frequently
             based on industry reference prices that may vary from prices
             experienced in local markets. For example, New York Mercantile
             Exchange ("NYMEX") contracts for natural gas are priced at
             Louisiana's Henry Hub, while the underlying quantities of natural
             gas may be produced and sold in the Western United States at prices
             that do not move in strict correlation with NYMEX prices. To the
             extent that commodity price changes in one region are not reflected
             in other regions, derivative commodity instruments may no longer
             provide the expected hedge, resulting in increased exposure to
             basis risk. These regional price differences could yield favorable
             or unfavorable results. OTC transactions are being used to manage
             exposure to a portion of basis risk.

                USX is subject to liquidity risk, caused by timing delays in
             liquidating contract positions due to a potential inability to
             identify a counterparty willing to accept an offsetting position.
             Due to the large number of active participants, liquidity risk
             exposure is relatively low for exchange-traded transactions.

             INTEREST RATE RISK

                USX is subject to the effects of interest rate fluctuations on
             certain of its non-derivative financial instruments. A sensitivity
             analysis of the projected incremental effect of a hypothetical 10%
             decrease in year-end 1997 interest rates on the fair value of USX's
             non-derivative financial instruments, is provided in the following
             table:


<TABLE>
<CAPTION>
             (Dollars in millions)
             -------------------------------------------------------------------------------------------------------
                                                                                                       Incremental
                                                                                                       Increase in
                                                                              Carrying       Fair           Fair
             Non-Derivative Financial Instruments/(a)/                       Value  (b)  Value  /(b)/  Value  /(c)/
             <S>                                                             <C>         <C>           <C>  
             Financial assets:
              Investments and long-term receivables/(d)/                          $120        $   177       $     -
 
             Financial liabilities:
              Long-term debt (including amounts due within one year)/(e)/       $3,281        $ 3,646       $   117
              Preferred stock of subsidiary/(f)/                                   250            254            24
              USX obligated mandatorily redeemable convertible preferred
               securities of a subsidiary trust/(g)/                               182            181            17
                                                                                ------        -------       -------
              Total                                                             $3,713        $ 4,081       $   158
             -------------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/ Fair values of cash and cash equivalents, cash restricted for
                   redemption of Delhi Stock, receivables, notes payable,
                   accounts payable and accrued interest, approximate carrying
                   value and are relatively insensitive to changes in interest
                   rates due to the short-term maturity of the instruments.
                   Accordingly, these instruments are excluded from the table.

             /(b)/ At December 31, 1997. For additional discussion, see Note
                   29 to the Consolidated Financial Statements.

             /(c)/ Reflects, by class of financial instrument, the estimated
                   incremental effect of a hypothetical 10% decrease in interest
                   rates at December 31, 1997, on the fair value of USX's non-
                   derivative financial instruments. For financial liabilities,
                   this assumes a 10% decrease in the weighted average yield to
                   maturity of USX's long-term debt at December 31, 1997.

             /(d)/ For additional information, see Note 14 to the Consolidated
                   Financial Statements.

             /(e)/ Fair value was based on market prices where available, or
                   current borrowing rates for financings with similar terms and
                   maturities. For additional information, see Note 16 to the
                   Consolidated Financial Statements.

             /(f)/ In 1994, USX Capital LLC, a wholly owned subsidiary of USX,
                   sold 10,000,000 shares of 8-3/4% Cumulative Monthly Income
                   Preferred Shares. For further discussion, see Note 25 to the
                   Consolidated Financial Statements.

             /(g)/ In 1997, USX exchanged 3.9 million 6.75% Convertible
                   Quarterly Income Preferred Securities of USX Capital Trust I,
                   a Delaware statutory business trust, for an equivalent number
                   of shares of its 6.50% Cumulative Convertible Preferred
                   Stock. For further discussion, see Note 26 to the
                   Consolidated Financial Statements.

                At December 31, 1997, USX's portfolio of long-term debt was
             comprised primarily of fixed-rate instruments. Therefore, the fair
             value of the portfolio is relatively sensitive to effects of
             interest rate fluctuations. This sensitivity is illustrated by the
             $117 million increase in the fair value of long-term debt assuming
             a hypothetical 10% decrease in interest rates. However, USX's
             sensitivity to interest rate declines and corresponding increases
             in the fair value of its debt portfolio would unfavorably affect
             USX's results and cash flows only to the extent that USX elected to
             repurchase or otherwise retire all or a portion of its fixed-rate
             debt portfolio at prices above carrying value.

                                                                            U-57

<PAGE>
 
             Quantitative Qualitative Disclosures
             About Market Risk CONTINUED                      

             FOREIGN CURRENCY EXCHANGE RATE RISK

                USX is subject to the risk of price fluctuations related to
             anticipated revenues and operating costs, firm commitments for
             capital expenditures and existing assets or liabilities denominated
             in currencies other than U.S. dollars. USX has not generally used
             derivative instruments to manage this risk. However, USX has made
             limited use of forward currency contracts to manage exposure to
             certain currency price fluctuations. 

                At December 31, 1997, a forward currency contract with a fair
             value of $10 million was outstanding. This contract hedges exposure
             to currency price fluctuations relating to a Swiss franc debt
             obligation with a fair value of $69 million at December 31, 1997.
             The debt obligation and forward contract mature in 1998.

             EQUITY PRICE RISK

                USX is subject to equity price risk resulting from its issuance
             in December 1996 of $117 million of 6 3/4% Exchangeable Notes Due
             February 1, 2000 ("Indexed Debt"). At maturity, USX must exchange
             the notes for shares of RMI Titanium Company ("RMI") common stock,
             or redeem the notes for the equivalent amount of cash. Each
             quarter, USX adjusts the carrying value of Indexed Debt to
             settlement value, based on changes in the value of RMI common
             stock. Any resulting adjustment is charged or credited to income
             and included in interest and other financial costs. During 1997,
             USX recorded adjustments of $16 million favorable in the first
             quarter, $10 million unfavorable in the second quarter and $4
             million favorable in the fourth quarter. At year-end 1997, a
             hypothetical 10% increase in the value of RMI common stock would
             have resulted in a $4 million unfavorable effect on pretax income.
             USX holds a 27% interest in RMI which is accounted for under the
             equity method. At December 31, 1997, this investment in RMI common
             stock had a fair market value of $110 million and a carrying value
             of $56 million. The unfavorable effects on income described above
             would generally be offset by changes in the market value of USX's
             investment in RMI. However, under the equity method of accounting,
             USX cannot recognize in income these changes in the market value
             until the investment is liquidated.

                The Marathon Group holds investments in common stock and
             warrants of certain third parties. The fair value of these
             investments has not been material.

             SAFE HARBOR

                USX's quantitative and qualitative disclosures about market risk
             include forward-looking statements as defined in the Private
             Securities Litigation Reform Act of 1995. These statements are
             accompanied by cautionary language identifying important factors
             (particularly the underlying assumptions and limitations disclosed
             in footnotes to the tables), though not necessarily all such
             factors, that could cause future outcomes to differ materially from
             those projected.

                Forward-looking statements with respect to management's opinion
             about risks associated with USX's use of derivative instruments,
             and projected increases in the size of the Marathon Group's hedge
             portfolio are based on certain assumptions with respect to market
             prices and industry supply of and demand for crude oil, refined
             products, steel products and certain raw materials. To the extent
             that these assumptions prove to be inaccurate, future outcomes with
             respect to USX's hedging programs may differ materially from those
             discussed in the forward-looking statements.

U-58

<PAGE>
 

- --------------------------
           Marathon Group
- --------------------------


           Index to Financial Statements, Supplementary Data,
           Management's Discussion and Analysis and Quantitative and 
           Qualitative Disclosures About Market Risk
 
 
                                                                           Page
                                                                           ----
           Management's Report...........................................  M-1 

           Audited Financial Statements:                                      

             Report of Independent Accountants...........................  M-1 

             Statement of Operations.....................................  M-2 

             Balance Sheet...............................................  M-3 

             Statement of Cash Flows.....................................  M-4 

             Notes to Financial Statements...............................  M-5 

            Selected Quarterly Financial Data............................  M-21

            Principal Unconsolidated Affiliates..........................  M-21

            Supplementary Information....................................  M-21

            Five-Year Operating Summary..................................  M-22

            Five-Year Financial Summary..................................  M-24

            Management's Discussion and Analysis.........................  M-25

            Quantitative and Qualitative Disclosures About Market Risk...  M-35



<PAGE>
 
             Management's Report

             The accompanying financial statements of the Marathon Group are
             the responsibility of and have been prepared by USX Corporation
             (USX) in conformity with generally accepted accounting principles.
             They necessarily include some amounts that are based on best
             judgments and estimates. The Marathon Group financial information
             displayed in other sections of this report is consistent with these
             financial statements.

                USX seeks to assure the objectivity and integrity of its
             financial records by careful selection of its managers, by
             organizational arrangements that provide an appropriate division of
             responsibility and by communications programs aimed at assuring
             that its policies and methods are understood throughout the
             organization.

                USX has a comprehensive formalized system of internal
             accounting controls designed to provide reasonable assurance that
             assets are safeguarded and that financial records are reliable.
             Appropriate management monitors the system for compliance, and the
             internal auditors independently measure its effectiveness and
             recommend possible improvements thereto. In addition, as part of
             their audit of the financial statements, USX's independent
             accountants, who are elected by the stockholders, review and test
             the internal accounting controls selectively to establish a basis
             of reliance thereon in determining the nature, extent and timing of
             audit tests to be applied.

                The Board of Directors pursues its oversight role in the
             area of financial reporting and internal accounting control through
             its Audit Committee. This Committee, composed solely of
             nonmanagement directors, regularly meets (jointly and separately)
             with the independent accountants, management and internal auditors
             to monitor the proper discharge by each of its responsibilities
             relative to internal accounting controls and the consolidated and
             group financial statements.


<TABLE>
             <S>                             <C>                        <C> 
             Thomas J. Usher                 Robert M. Hernandez        Kenneth L. Matheny
             Chairman, Board of Directors    Vice Chairman              Vice President
             & Chief Executive Officer       & Chief Financial Officer  & Comptroller
</TABLE>



             Report of Independent Accountants

             To the Stockholders of USX Corporation:

             In our opinion, the accompanying financial statements appearing
             on pages M-2 through M-20 present fairly, in all material respects,
             the financial position of the Marathon Group at December 31, 1997
             and 1996, and the results of its operations and its cash flows for
             each of the three years in the period ended December 31, 1997, in
             conformity with generally accepted accounting principles. These
             financial statements are the responsibility of USX's management;
             our responsibility is to express an opinion on these financial
             statements based on our audits. We conducted our audits of these
             statements in accordance with generally accepted auditing standards
             which require that we plan and perform the audit to obtain
             reasonable assurance about whether the financial statements are
             free of material misstatement. An audit includes examining, on a
             test basis, evidence supporting the amounts and disclosures in the
             financial statements, assessing the accounting principles used and
             significant estimates made by management, and evaluating the
             overall financial statement presentation. We believe that our
             audits provide a reasonable basis for the opinion expressed above.

                As discussed in Note 7, page M-9, in 1995 USX adopted a new
             accounting standard for the impairment of long-lived assets.

                The Marathon Group is a business unit of USX Corporation (as
             described in Note 1, page M-5); accordingly, the financial
             statements of the Marathon Group should be read in connection with
             the consolidated financial statements of USX Corporation.



             Price Waterhouse LLP
             600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
             February 10, 1998


                                                                             M-1

<PAGE>
 
             Statement of Operations


<TABLE>
<CAPTION>
             (Dollars in millions)                                          1997        1996      1995
             ------------------------------------------------------------------------------------------- 
             <S>                                                          <C>         <C>       <C> 
             REVENUES:
              Sales (Note 5)                                              $15,668     $16,297   $13,871
              Dividend and affiliate income                                    36          33        23
              Gain on disposal of assets                                       37          55         8
              Other income                                                     13           9        11
                                                                          --------    --------  -------- 
                 Total revenues                                            15,754      16,394    13,913
                                                                          --------    --------  -------- 
             COSTS AND EXPENSES:
              Cost of sales (excludes items shown below)                   10,392      11,188     9,011
              Selling, general and administrative expenses                    355         309       297
              Depreciation, depletion and amortization                        664         693       817
              Taxes other than income taxes                                 2,938       2,971     2,903
              Exploration expenses                                            189         146       149
              Inventory market valuation charges (credits) (Note 20)          284        (209)      (70)
              Impairment of long-lived assets (Note 7)                        --          --        659
                                                                          --------    --------  -------- 
                 Total costs and expenses                                  14,822      15,098    13,766
                                                                          --------    --------  -------- 
             INCOME FROM OPERATIONS                                           932       1,296       147
             Net interest and other financial costs (Note 6)                  260         305       337
                                                                          --------    --------  -------- 
             INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS         672         991      (190)
             Provision (credit) for estimated income taxes (Note 18)          216         320      (107)
                                                                          --------    --------  -------- 
             INCOME (LOSS) BEFORE EXTRAORDINARY LOSS                          456         671       (83)
             Extraordinary loss (Note 8)                                      --            7         5
                                                                          --------    --------  -------- 
             NET INCOME (LOSS)                                                456         664       (88)
             Dividends on preferred stock                                     --          --          4
                                                                          --------    --------  -------- 
             NET INCOME (LOSS) APPLICABLE TO MARATHON STOCK               $   456     $   664   $   (92)
             -------------------------------------------------------------------------------------------
 </TABLE>
 
             Income Per Common Share Applicable to Marathon Stock


<TABLE> 
<CAPTION> 
                                                                             1997        1996      1995
             -------------------------------------------------------------------------------------------
             <S>                                                          <C>         <C>       <C> 
             BASIC:
              Income (loss) before extraordinary loss                     $  1.59     $  2.33   $  (.31)
              Extraordinary loss                                              -          (.02)     (.02)
                                                                          -------     --------  --------
              Net income (loss)                                           $  1.59     $  2.31   $  (.33)
             DILUTED:
              Income (loss) before extraordinary loss                     $  1.58     $  2.31   $  (.31)
              Extraordinary loss                                              -          (.02)     (.02)
                                                                          -------     --------  --------
              Net income (loss)                                           $  1.58     $  2.29   $  (.33)
              ------------------------------------------------------------------------------------------
</TABLE>

             See Note 24, for a description and computation of income per common
             share.
             The accompanying notes are an integral part of these financial
             statements.


 

M-2

<PAGE>
 
             Balance Sheet


<TABLE>
<CAPTION>
             (Dollars in millions)                                 December 31          1997         1996
             ----------------------------------------------------------------------------------------------- 
             <S>                                                   <C>               <C>          <C> 
             ASSETS
             Current assets:
              Cash and cash equivalents                                              $    36      $    32
              Receivables, less allowance for doubtful accounts
               of $2 and $2 (Note 23)                                                    856          613
              Inventories (Note 20)                                                      980        1,282
              Other current assets                                                       146          119
                                                                                     -------      -------
                 Total current assets                                                  2,018        2,046
 
             Investments and long-term receivables (Note 19)                             455          311
             Property, plant and equipment - net (Note 17)                             7,566        7,298
             Prepaid pensions (Note 15)                                                  290          280
             Other noncurrent assets                                                     236          216
                                                                                     -------      -------
                 Total assets                                                        $10,565      $10,151
             --------------------------------------------------------------------------------------------
             LIABILITIES
             Current liabilities:
              Notes payable                                                          $   108      $    59

              Accounts payable                                                         1,348        1,385
              Payroll and benefits payable                                               142          106
              Accrued taxes                                                              102           98
              Deferred income taxes (Note 18)                                             61          155
              Accrued interest                                                            84           75
              Long-term debt due within one year (Note 11)                               417          264
                                                                                     -------      -------
                 Total current liabilities                                             2,262        2,142
             Long-term debt (Note 11)                                                  2,476        2,642
             Long-term deferred income taxes (Note 18)                                 1,318        1,178
             Employee benefits (Note 16)                                                 375          356
             Deferred credits and other liabilities                                      332          311
 
             Preferred stock of subsidiary (Note 9)                                      184          182
 
             STOCKHOLDERS' EQUITY (Note 22)                                            3,618        3,340
                                                                                     -------      -------
                 Total liabilities and stockholders' equity                          $10,565      $10,151
             --------------------------------------------------------------------------------------------
</TABLE>


             The accompanying notes are an integral part of these financial
               statements.


 

                                                                             M-3

<PAGE>
 
Statement of Cash Flows


<TABLE>
<CAPTION>
(Dollars in millions)                                              1997         1996         1995
- ------------------------------------------------------------------------------------------------- 
<S>                                                             <C>           <C>          <C> 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

OPERATING ACTIVITIES:
Net income (loss)                                               $   456       $  664       $  (88)
Adjustments to reconcile to net cash provided
 from operating activities:
  Extraordinary loss                                                 -             7            5
  Depreciation, depletion and amortization                          664          693          817
  Exploratory dry well costs                                         78           54           64
  Inventory market valuation charges (credits)                      284         (209)         (70)
  Pensions                                                           (4)          (3)         (16)
  Postretirement benefits other than pensions                        10           15           12
  Deferred income taxes                                              30          104         (204)
  Gain on disposal of assets                                        (37)         (55)          (8)
  Payment of amortized discount on zero coupon debentures           (13)          -           (96)
  Impairment of long-lived assets                                    -            -           659
  Changes in: Current receivables - sold                           (340)          -             8
                                  - operating turnover               97         (119)        (120)
     Inventories                                                     18           72           55
     Current accounts payable and accrued expenses                   11          211          (27)
  All other - net                                                    (8)          69           53
                                                                -------       ------       ------
    Net cash provided from operating activities                   1,246        1,503        1,044
                                                                -------       ------       ------
INVESTING ACTIVITIES:
Capital expenditures                                             (1,038)        (751)        (642)
Disposal of assets                                                   60          282           77
Elimination of Retained Interest in Delhi Group                      -            -            58
Withdrawal (deposit) - property exchange trusts                      98          (98)         -
Investments in equity affiliates                                   (233)         (13)          (4)
                                                                -------       ------       ------
    Net cash used in investing activities                        (1,113)        (580)        (511)
                                                                -------       ------       ------
FINANCING ACTIVITIES (Note 4):
Increase (decrease) in Marathon Group's portion of
 USX consolidated debt                                               97         (769)        (204)
Specifically attributed debt - repayments                           (39)          (1)          (2)
Preferred stock redeemed                                             -            -           (78)
Marathon Stock repurchased                                           -            -            (1)
Marathon Stock issued                                                34            2          -
Dividends paid                                                     (219)        (201)        (199)
                                                                -------       ------       ------
    Net cash used in financing activities                          (127)        (969)        (484)
                                                                -------       ------       ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                              (2)           1          -
                                                                -------       ------       ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  4          (45)          49

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                       32           77           28
                                                                -------       ------       ------
CASH AND CASH EQUIVALENTS AT END OF YEAR                        $    36       $   32       $   77
- --------------------------------------------------------------------------------------------------
</TABLE>


See Note 12, for supplemental cash flow information.
The accompanying notes are an integral part of these financial statements.


 

M-4

<PAGE>
 
             Notes to Financial Statements

1. BASIS OF PRESENTATION

             After the redemption of the USX - Delhi Group stock on January
             26, 1998, USX Corporation (USX) has two classes of common stock:
             USX - Marathon Group Common Stock (Marathon Stock) and USX - U. S.
             Steel Group Common Stock (Steel Stock), which are intended to
             reflect the performance of the Marathon Group and the U. S. Steel
             Group, respectively.

                The financial statements of the Marathon Group include the
             financial position, results of operations and cash flows for the
             businesses of Marathon Oil Company and certain other subsidiaries
             of USX, and a portion of the corporate assets and liabilities and
             related transactions which are not separately identified with
             ongoing operating units of USX. The Marathon Group is involved in
             worldwide exploration, production, transportation and marketing of
             crude oil and natural gas; domestic refining, marketing and
             transportation of petroleum products; and power generation. The
             Marathon Group financial statements are prepared using the amounts
             included in the USX consolidated financial statements.

                Although the financial statements of the Marathon Group and the
             U. S. Steel Group separately report the assets, liabilities
             (including contingent liabilities) and stockholders' equity of USX
             attributed to each such group, such attribution of assets,
             liabilities (including contingent liabilities) and stockholders'
             equity among the Marathon Group and the U. S. Steel Group for the
             purpose of preparing their respective financial statements does not
             affect legal title to such assets or responsibility for such
             liabilities. Holders of Marathon Stock and Steel Stock are holders
             of common stock of USX and continue to be subject to all the risks
             associated with an investment in USX and all of its businesses and
             liabilities. Financial impacts arising from one Group that affect
             the overall cost of USX's capital could affect the results of
             operations and financial condition of the other Group. In addition,
             net losses of either Group, as well as dividends and distributions
             on any class of USX Common Stock or series of preferred stock and
             repurchases of any class of USX Common Stock or series of preferred
             stock at prices in excess of par or stated value, will reduce the
             funds of USX legally available for payment of dividends on both
             classes of Common Stock. Accordingly, the USX consolidated
             financial information should be read in connection with the
             Marathon Group financial information.

- --------------------------------------------------------------------------------
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

             PRINCIPLES APPLIED IN CONSOLIDATION - These financial statements
             include the accounts of the businesses comprising the Marathon
             Group. The Marathon Group and the U. S. Steel Group financial
             statements, taken together, comprise all of the accounts included
             in the USX consolidated financial statements.

                Investments in unincorporated oil and gas joint ventures,
             undivided interest pipelines and jointly-owned gas processing
             plants are consolidated on a pro rata basis.

                Investments in other entities over which the Marathon Group has
             significant influence are accounted for using the equity method of
             accounting and are carried at the Marathon Group's share of net
             assets plus advances. The proportionate share of income from these
             equity method investments is included in revenues.

                Investments in other companies whose stock is publicly traded
             are carried at market value. The difference between the cost of
             these investments and market value is recorded as a direct
             adjustment to stockholders' equity (net of tax). Investments in
             companies whose stock has no readily determinable fair value are
             carried at cost. Dividends from these investments are recognized in
             revenues.

                Gains or losses from a change in ownership interest of a
             consolidated subsidiary or an unconsolidated affiliate are
             recognized in revenues in the period of change.

                The proportionate share of income represented by the Retained
             Interest (Note 4) in the Delhi Group prior to June 15, 1995, is
             included in revenues. In November 1997, USX sold its stock in Delhi
             Gas Pipeline Corporation and other subsidiaries of USX that
             comprise all of the Delhi Group (Delhi Companies).

             USE OF ESTIMATES - Generally accepted accounting principles
             require management to make estimates and assumptions that affect
             the reported amounts of assets and liabilities, the disclosure of
             contingent assets and liabilities at year-end and the reported
             amounts of revenues and expenses during the year.

             CASH AND CASH EQUIVALENTS - Cash and cash equivalents include
             cash on hand and on deposit and highly liquid debt instruments with
             maturities generally of three months or less.

             INVENTORIES - Inventories are carried at lower of cost or market.
             Cost of inventories is determined primarily under the last-in,
             first-out (LIFO) method.


 

                                                                             M-5

<PAGE>
 
             DERIVATIVE INSTRUMENTS - The Marathon Group engages in commodity
             and currency risk management activities within the normal course of
             its business as an end-user of derivative instruments (Note 25).
             Management is authorized to manage exposure to price fluctuations
             related to the purchase, production or sale of crude oil, natural
             gas, refined products and electricity through the use of a variety
             of derivative financial and nonfinancial instruments. Derivative
             financial instruments require settlement in cash and include such
             instruments as over-the-counter (OTC) commodity swap agreements and
             OTC commodity options. Derivative nonfinancial instruments require
             or permit settlement by delivery of commodities and include
             exchange-traded commodity futures contracts and options. At times,
             derivative positions are closed, prior to maturity, simultaneous
             with the underlying physical transaction and the effects are
             recognized in income accordingly. The Marathon Group's practice
             does not permit derivative positions to remain open if the
             underlying physical market risk has been removed. Derivative
             instruments relating to fixed price sales of equity production are
             marked-to-market in the current period and the related income
             effects are included within income from operations. All other
             changes in the market value of derivative instruments are deferred,
             including both closed and open positions, and are subsequently
             recognized in income, as sales or cost of sales, in the same period
             as the underlying transaction. Premiums on all commodity-based
             option contracts are initially recorded based on the amount paid or
             received; the options' market value is subsequently recorded as a
             receivable or payable, as appropriate. The margin receivable
             accounts required for open commodity contracts reflect changes in
             the market prices of the underlying commodity and are settled on a
             daily basis.

                Forward currency contracts are used to manage currency risks
             related to anticipated revenues and operating costs, firm
             commitments for capital expenditures and existing assets or
             liabilities denominated in a foreign currency. Gains or losses
             related to firm commitments are deferred and included with the
             underlying transaction; all other gains or losses are recognized in
             income in the current period as sales, cost of sales, interest
             income or expense, or other income, as appropriate. Net contract
             values are included in receivables or payables, as appropriate.

                Recorded deferred gains or losses are reflected within other
             noncurrent assets or deferred credits and other liabilities. Cash
             flows from the use of derivative instruments are reported in the
             same category as the hedged item in the statement of cash flows.

             EXPLORATION AND DEVELOPMENT - The Marathon Group follows the
             successful efforts method of accounting for oil and gas exploration
             and development.

             GAS BALANCING - The Marathon Group follows the sales method of
             accounting for gas production imbalances.

             LONG-LIVED ASSETS - Depreciation and depletion of oil and gas
             producing properties are computed using predetermined rates based
             upon estimated proved oil and gas reserves applied on a units-of-
             production method. Other items of property, plant and equipment are
             depreciated principally by the straight-line method.

                When an entire property, major facility or facilities
             depreciated on an individual basis are sold or otherwise disposed
             of, any gain or loss is reflected in income. Proceeds from disposal
             of other facilities depreciated on a group basis are credited to
             the depreciation reserve with no immediate effect on income.

                The Marathon Group evaluates impairment of its oil and gas
             assets primarily on a field-by-field basis. Other assets are
             evaluated on an individual asset basis or by logical groupings of
             assets. Assets deemed to be impaired are written down to their fair
             value, including any related goodwill, using discounted future cash
             flows and, if available, comparable market values.

             ENVIRONMENTAL LIABILITIES - The Marathon Group provides for
             remediation costs and penalties when the responsibility to
             remediate is probable and the amount of associated costs is
             reasonably determinable. Generally, the timing of remediation
             accruals coincides with completion of a feasibility study or the
             commitment to a formal plan of action. Remediation liabilities are
             accrued based on estimates of known environmental exposure and
             could be discounted in certain instances. If recoveries of
             remediation costs from third parties are probable, a receivable is
             recorded. Estimated abandonment and dismantlement costs of offshore
             production platforms are accrued based upon estimated proved oil
             and gas reserves on a units-of-production method.

             INSURANCE - The Marathon Group is insured for catastrophic casualty
             and certain property and business interruption exposures, as well
             as those risks required to be insured by law or contract. Costs
             resulting from noninsured losses are charged against income upon
             occurrence.

             RECLASSIFICATIONS - Certain reclassifications of prior years'
             data have been made to conform to 1997 classifications.


 

M-6

<PAGE>
 
- --------------------------------------------------------------------------------
3. NEW ACCOUNTING STANDARDS

             The following accounting standards were adopted by USX during
             1997:

                Environmental remediation liabilities - Effective January 1,
                1997, USX adopted American Institute of Certified Public
                Accountants Statement of Position No. 96-1, "Environmental
                Remediation Liabilities" (SOP 96-1), which provides additional
                interpretation of existing accounting standards related to
                recognition, measurement and disclosure of environmental
                remediation liabilities. As a result of adopting SOP 96-1, the
                Marathon Group identified additional environmental remediation
                liabilities of $11 million. Estimated receivables for
                recoverable costs related to adoption of SOP 96-1 were $4
                million. The net unfavorable effect of adoption on the Marathon
                Group's income from operations at January 1, 1997, was $7
                million.

                Earnings per share  USX adopted Statement of Financial
                Accounting Standards No. 128, "Earnings per Share" (SFAS No.
                128). This Statement establishes standards for computing and
                presenting earnings per share (EPS). SFAS No. 128 requires dual
                presentation of basic and diluted EPS. Basic EPS excludes
                dilution and is computed by dividing net income available to
                common stockholders by the weighted average number of common
                shares outstanding for the period. Diluted EPS reflects the
                potential dilution that could occur if stock options or
                convertible securities were exercised or converted into common
                stock. The adoption of SFAS No. 128 did not materially change
                current and prior years' EPS of the Marathon Group.

- --------------------------------------------------------------------------------
4. CORPORATE ACTIVITIES

             FINANCIAL ACTIVITIES - As a matter of policy, USX manages most
             financial activities on a centralized, consolidated basis. Such
             financial activities include the investment of surplus cash; the
             issuance, repayment and repurchase of short-term and long-term
             debt; the issuance, repurchase and redemption of preferred stock;
             and the issuance and repurchase of common stock. Transactions
             related primarily to invested cash, short-term and long-term debt
             (including convertible debt), related net interest and other
             financial costs, and preferred stock and related dividends are
             attributed to the Marathon Group, the U. S. Steel Group and, prior
             to November 1, 1997, the Delhi Group based upon the cash flows of
             each group for the periods presented and the initial capital
             structure of each group. Most financing transactions are attributed
             to and reflected in the financial statements of all groups. See
             Note 9, for the Marathon Group's portion of USX's financial
             activities attributed to all groups. However, transactions such as
             leases, certain collaterized financings, certain indexed debt
             instruments, financial activities of consolidated entities which
             are less than wholly owned by USX and transactions related to
             securities convertible solely into any one class of common stock
             are or will be specifically attributed to and reflected in their
             entirety in the financial statements of the group to which they
             relate.

             CORPORATE GENERAL AND ADMINISTRATIVE COSTS - Corporate general and
             administrative costs are allocated to the Marathon Group, the U. S.
             Steel Group and, prior to November 1, 1997, the Delhi Group based
             upon utilization or other methods management believes to be
             reasonable and which consider certain measures of business
             activities, such as employment, investments and sales. The costs
             allocated to the Marathon Group were $37 million in 1997 and $30
             million in 1996 and 1995, and primarily consist of employment costs
             including pension effects, professional services, facilities and
             other related costs associated with corporate activities.

             COMMON STOCK TRANSACTIONS - The USX Board of Directors, prior to
             June 15, 1995, had designated 14,003,205 shares of USX - Delhi
             Group Common Stock (Delhi Stock) to represent 100% of the common
             stockholders' equity value of USX attributable to the Delhi Group.
             The Delhi Fraction was the percentage interest in the Delhi Group
             represented by the shares of Delhi Stock that were outstanding at
             any particular time and, based on 9,438,391 outstanding shares at
             June 14, 1995, was approximately 67%. The Marathon Group financial
             statements reflected a percentage interest in the Delhi Group of
             approximately 33% (Retained Interest) through June 14, 1995. The
             financial position, results of operations and cash flows of the
             Delhi Group were reflected in the financial statements of the
             Marathon Group only to the extent of the Retained Interest. The
             shares deemed to represent the Retained Interest were not
             outstanding shares of Delhi Stock and could not be voted by the
             Marathon Group. As additional shares of Delhi Stock deemed to
             represent the Retained Interest were sold, the Retained Interest
             decreased. When a dividend was paid in respect to the outstanding
             Delhi Stock, the Marathon Group financial statements were credited,
             and the Delhi Group financial statements were charged, with the
             aggregate transaction amount times the quotient of the Retained
             Interest divided by the Delhi Fraction.

                On June 15, 1995, USX eliminated the Marathon Group's Retained
             Interest in the Delhi Group (equivalent to 4,564,814 shares of
             Delhi Stock). This was accomplished through a reallocation of
             assets and a corresponding adjustment to debt and equity attributed
             to the Marathon and Delhi Groups. The reallocation was made at a
             price of $12.75 per equivalent share of Delhi Stock, or an
             aggregate of $58 million, resulting in a corresponding reduction of
             the Marathon Group debt.


 

                                                                             M-7

<PAGE>
 
             INCOME TAXES - All members of the USX affiliated group are
             included in the consolidated United States federal income tax
             return filed by USX. Accordingly, the provision for federal income
             taxes and the related payments or refunds of tax are determined on
             a consolidated basis. The consolidated provision and the related
             tax payments or refunds have been reflected in the Marathon Group,
             the U. S. Steel Group and, prior to November 1, 1997, the Delhi
             Group financial statements in accordance with USX's tax allocation
             policy. In general, such policy provides that the consolidated tax
             provision and related tax payments or refunds are allocated among
             the Marathon Group, the U. S. Steel Group and, prior to November 1,
             1997, the Delhi Group, for group financial statement purposes,
             based principally upon the financial income, taxable income,
             credits, preferences and other amounts directly related to the
             respective groups.

                 For tax provision and settlement purposes, tax benefits
             resulting from attributes (principally net operating losses and
             various tax credits), which cannot be utilized by one of the groups
             on a separate return basis but which can be utilized on a
             consolidated basis in that year or in a carryback year, are
             allocated to the group that generated the attributes. To the extent
             that one of the groups is allocated a consolidated tax attribute
             which, as a result of expiration or otherwise, is not ultimately
             utilized on the consolidated tax return, the prior years'
             allocation of such attribute is adjusted such that the effect of
             the expiration is borne by the group that generated the attribute.
             Also, if a tax attribute cannot be utilized on a consolidated basis
             in the year generated or in a carryback year, the prior years'
             allocation of such consolidated tax effects is adjusted in a
             subsequent year to the extent necessary to allocate the tax
             benefits to the group that would have realized the tax benefits on
             a separate return basis. As a result, the allocated group amounts
             of taxes payable or refundable are not necessarily comparable to
             those that would have resulted if the groups had filed separate tax
             returns.

- --------------------------------------------------------------------------------
5. REVENUES

             The items below are included in revenues and costs and expenses,
             with no effect on income.


<TABLE> 
<CAPTION> 
             (In millions)                                                                            1997     1996     1995
             ----------------------------------------------------------------------------------------------------------------- 
             <S>                                                                                    <C>      <C>      <C> 
             Consumer excise taxes on petroleum products and merchandise                            $2,736   $2,768   $2,708
             Matching crude oil and refined product
               buy/sell transactions settled in cash                                                 2,436    2,912    2,067
             ----------------------------------------------------------------------------------------------------------------- 
</TABLE>
 

- -------------------------------------------------------------------------------
6. OTHER ITEMS


<TABLE> 
<CAPTION> 
             (In millions)                                                                            1997     1996     1995
             ----------------------------------------------------------------------------------------------------------------- 
               <S>                                                                                  <C>      <C>      <C> 
               NET INTEREST AND OTHER FINANCIAL COSTS
               INTEREST AND OTHER FINANCIAL INCOME/(a)/:
                 Interest income                                                                    $    7   $    4   $    9
                 Other                                                                                  (6)      (1)       3
                                                                                                    ------   ------   ------
                   Total                                                                                 1        3       12
                                                                                                    ------   ------   ------
               INTEREST AND OTHER FINANCIAL COSTS/(a)/:
                 Interest incurred                                                                     232      260      297
                 Less interest capitalized                                                              24        3        8
                                                                                                    ------   ------   ------
                   Net interest                                                                        208      257      289
                 Interest on tax issues                                                                  7        4       (5) /(b)/
                 Financial costs on preferred stock of subsidiary                                       16       16       16
                 Amortization of discounts                                                               4        7       21
                 Expenses on sales of accounts receivable (Note 23)                                     19       20       24
                 Other                                                                                   7        4        4
                                                                                                    ------   ------   ------
                   Total                                                                               261      308      349
                                                                                                    ------   ------   ------
               NET INTEREST AND OTHER FINANCIAL COSTS/(a)/                                          $  260   $  305   $  337
               ----------------------------------------------------------------------------------------------------------------- 
</TABLE>

               /(a)/ See Note 4, for discussion of USX net interest and other
                     financial costs attributable to the Marathon Group.

               /(b)/ Includes a $17 million benefit related to refundable
                     federal income taxes paid in prior years.
               ----------------------------------------------------------------
               FOREIGN CURRENCY TRANSACTIONS

               For 1997, 1996 and 1995, the aggregate foreign currency
               transaction gains (losses) included in determining net income
               were $4 million, $(24) million and $3 million, respectively.


 

M-8

<PAGE>
 
- -------------------------------------------------------------------------------
7. IMPAIRMENT OF LONG-LIVED ASSETS

             In 1995, USX adopted Statement of Financial Accounting Standards
             No. 121, "Accounting for the Impairment of Long-Lived Assets and
             for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). SFAS No.
             121 requires that long-lived assets, including related goodwill, be
             reviewed for impairment and written down to fair value whenever
             events or changes in circumstances indicate that the carrying value
             may not be recoverable.

                 Adoption of SFAS No. 121 resulted in an impairment charge
             included in 1995 costs and expenses of $659 million. The impaired
             assets primarily included certain domestic and international oil
             and gas properties, an idled refinery and related goodwill.

                 The Marathon Group assessed impairment of its oil and gas
             properties based primarily on a field-by-field approach. The
             predominant method used to determine fair value was a discounted
             cash flow approach and where available, comparable market values
             were used. The impairment provision reduced capitalized costs of
             oil and gas properties by $533 million.

                 In addition, the Indianapolis, Indiana refinery, which
             was temporarily idled in October 1993, was impaired by $126
             million, including related goodwill. The impairment was based on a
             discounted cash flow approach and comparable market values.

- -------------------------------------------------------------------------------
8. EXTRAORDINARY LOSS

             On December 30, 1996, USX irrevocably called for redemption on
             January 30, 1997, $120 million of debt, resulting in a 1996
             extraordinary loss to the Marathon Group of $7 million, net of a $4
             million income tax benefit. In 1995, USX extinguished $553 million
             of debt prior to maturity, which resulted in an extraordinary loss
             to the Marathon Group of $5 million, net of a $3 million income tax
             benefit.

- -------------------------------------------------------------------------------
9. FINANCIAL ACTIVITIES ATTRIBUTED TO GROUPS

             The following is the portion of USX financial activities attributed
             to the Marathon Group. These amounts exclude debt amounts
             specifically attributed to the Marathon Group.


<TABLE>
<CAPTION>
                                                                                   Marathon Group          Consolidated USX/(a)/
                                                                               -----------------------   -----------------------
             (In millions)                              December 31                1997        1996            1997       1996
             -------------------------------------------------------------------------------------------------------------------
             <S>                                                            <C>              <C>       <C>              <C>
 
             Cash and cash equivalents                                           $    5      $    6         $    6      $    8
             Receivables/(b)/                                                         9          -              10          -
             Long-term receivables/(b)/                                               -          12             -           16
             Other noncurrent assets/(b)/                                             7           5              8           8
                                                                                 ------      ------         ------  ----------
                 Total assets                                                    $   21      $   23         $   24      $   32
             -----------------------------------------------------------------------------------------------------------------
             Notes payable                                                       $  108      $   58         $  121      $   80
             Accounts payable                                                         1           2              1           2
             Accrued interest                                                        79          71             89          98
             Long-term debt due within one year (Note 11)                           416         224            466         309
             Long-term debt (Note 11)                                             2,452       2,618          2,704       3,615
             Preferred stock of subsidiary                                          184         182            250         250
                                                                                 ------      ------         ------  ----------
                 Total liabilities                                               $3,240      $3,155  $       3,631      $4,354
             -----------------------------------------------------------------------------------------------------------------
</TABLE>
 


<TABLE> 
<CAPTION> 
                                                                      Marathon Group/(c)/          Consolidated USX
                                                                    -----------------------     ----------------------
             (In millions)                                           1997      1996    1995      1997    1996    1995
            ---------------------------------------------------------------------------------------------------------- 
             <S>                                                    <C>      <C>      <C>       <C>    <C>      <C> 
             Net interest and other financial
               costs (Note 6)                                       $ 246    $  277   $ 329     $ 309  $  376   $ 439
            ----------------------------------------------------------------------------------------------------------
</TABLE>


            /(a)/  For details of USX long-term debt and preferred stock of
                   subsidiary, see Notes 16 and 25, respectively, to the USX
                   consolidated financial statements.
            /(b)/  Primarily reflects forward currency contracts used to manage
                   currency risks related to USX debt and interest denominated
                   in a foreign currency.
            /(c)/  The Marathon Group's net interest and other financial costs
                   reflect weighted average effects of all financial activities
                   attributed to all groups.

 

                                                                             M-9

<PAGE>
 
- -------------------------------------------------------------------------------
10. LEASES

             Future minimum commitments for capital leases and for operating
             leases having remaining noncancelable lease terms in excess of one
             year are as follows:


<TABLE>
<CAPTION>
                                                               Capital    Operating
             (In millions)                                     Leases       Leases
             -----------------------------------------------------------------------
             <S>                                              <C>         <C>
 
              1998                                            $  2        $ 106           
              1999                                               2           80           
              2000                                               2          157           
              2001                                               2           57           
              2002                                               2           55           
              Later years                                       27          140           
              Sublease rentals                                  -           (29)          
                                                              -----   ---------           
               Total minimum lease payments                     37        $ 566           
                                                                      =========           
              Less imputed interest costs                       13                        
                                                              -----                       
               Present value of net minimum lease payments                                
                included in long-term debt                    $ 24                         
         ---------------------------------------------------------------------------------------
</TABLE>
 
               Operating lease rental expense:


<TABLE> 
<CAPTION> 
             (In millions)                                1997         1996        1995
          ---------------------------------------------------------------------------------------
          <S>                                            <C>          <C>         <C> 
          Minimum rental                                 $ 102        $  96       $  97
          Contingent rental                                 10           10          10
          Sublease rentals                                  (7)          (6)         (5)
                                                          -----        -----   ---------
             Net rental expense                          $ 105        $ 100       $ 102
          ---------------------------------------------------------------------------------------
</TABLE>


                 The Marathon Group leases a wide variety of facilities and
             equipment under operating leases, including land and building
             space, office equipment, production facilities and transportation
             equipment. Most long-term leases include renewal options and, in
             certain leases, purchase options. In the event of a change in
             control of USX, as defined in the agreements, or certain other
             circumstances, operating lease obligations totaling $109 million
             may be declared immediately due and payable.

- --------------------------------------------------------------------------------
11. LONG-TERM DEBT

                 The Marathon Group's portion of USX's consolidated long-term
             debt is as follows:


<TABLE>
<CAPTION>
                                                                     Marathon Group        Consolidated USX/(a)/
                                                                 ----------------------    ----------------------
             (In millions)               December 31             1997              1996    1997            1996
             ----------------------------------------------------------------------------------------------------
             <S>                                                 <C>             <C>       <C>          <C>       
              Specifically attributed debt/(b)/:
              Sale-leaseback financing and capital leases            $   24      $   24      $  123      $  129
              Indexed debt less unamortized discount                    -          -            110         119
              Seller-provided financing                                 -            40         -            40
                                                                     ------      ------      ------  ----------
                 Total                                                   24          64         233         288
              Less amount due within one year                           -            40           5          44
                                                                     ------      ------      ------  ----------
                 Total specifically attributed long-term debt        $   24      $   24      $  228      $  244
             --------------------------------------------------------------------------------------------------
             Debt attributed to groups/(c)/                          $2,889      $2,860      $3,194      $3,949
              Less unamortized discount                                  21          18          24          25
              Less amount due within one year                           416         224         466         309
                                                                     ------      ------      ------  ----------
                 Total long-term debt attributed to groups           $2,452      $2,618      $2,704      $3,615
             --------------------------------------------------------------------------------------------------
             Total long-term debt due within one year                $  416      $  264      $  471      $  353
             Total long-term debt due after one year                  2,476       2,642       2,932       3,859
             --------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/ See Note 16, to the USX consolidated financial statements
                   for details of interest rates, maturities and other terms of
                   long-term debt.

             /(b)/ As described in Note 4, certain financial activities are
                   specifically attributed only to the Marathon Group and the U.
                   S. Steel Group.

             /(c)/ Most long-term debt activities of USX Corporation and its
                   wholly owned subsidiaries are attributed to all groups (in
                   total, but not with respect to specific debt issues) based on
                   their respective cash flows (Notes 4, 9 and 12).

 

M-10

<PAGE>
 
- -------------------------------------------------------------------------------
12. SUPPLEMENTAL CASH FLOW INFORMATION


<TABLE> 
<CAPTION> 
            (In millions)                                                                  1997      1996       1995
            ----------------------------------------------------------------------------------------------------------  
            <S>                                                                       <C>         <C>         <C>
             CASH USED IN OPERATING ACTIVITIES INCLUDED:
              Interest and other financial costs paid (net of amount capitalized)     $   (257)   $  (339)    $  (431)
              Income taxes paid, including settlements with other groups                  (178)       (74)       (163)
            ----------------------------------------------------------------------------------------------------------   
             USX DEBT ATTRIBUTED TO ALL GROUPS - NET:
              Commercial paper:
               Issued                                                                 $    -      $ 1,422     $ 2,434
               Repayments                                                                  -       (1,555)     (2,651)
              Credit agreements:
               Borrowings                                                               10,454     10,356       4,719
               Repayments                                                              (10,449)   (10,340)     (4,659)
              Other credit arrangements - net                                               36        (36)         40
              Other debt:
               Borrowings                                                                   10         78          52
               Repayments                                                                 (741)      (705)       (440)
                                                                                      --------   --------     -------
                 Total                                                                $   (690)  $   (780)    $  (505)
              -------------------------------------------------------------------------------------------------------- 
              Marathon Group activity                                                 $     97   $   (769)    $  (204)
              U. S. Steel Group activity                                                  (561)       (31)       (399)
              Delhi Group activity                                                        (226)        20          98
                                                                                      --------   --------     -------
                 Total                                                                $   (690)  $   (780)    $  (505)
              --------------------------------------------------------------------------------------------------------
             NONCASH INVESTING AND FINANCING ACTIVITIES:
              Marathon Stock issued for employee stock plans                          $      5   $      2     $     5
              Disposal of assets - common stock received                                    -          -            5
                                 - liabilities assumed by buyers                             5         25          -
            ----------------------------------------------------------------------------------------------------------  
</TABLE>


- -------------------------------------------------------------------------------
13. DIVIDENDS

             In accordance with the USX Certificate of Incorporation,
             dividends on the Marathon Stock and Steel Stock are limited to the
             legally available funds of USX. Net losses of either Group, as well
             as dividends and distributions on any class of USX Common Stock or
             series of preferred stock and repurchases of any class of USX
             Common Stock or series of preferred stock at prices in excess of
             par or stated value, will reduce the funds of USX legally available
             for payment of dividends on both classes of Common Stock. Subject
             to this limitation, the Board of Directors intends to declare and
             pay dividends on the Marathon Stock based on the financial
             condition and results of operation of the Marathon Group, although
             it has no obligation under Delaware law to do so. In making its
             dividend decisions with respect to Marathon Stock, the Board of
             Directors considers among other things, the long-term earnings and
             cash flow capabilities of the Marathon Group as well as the
             dividend policies of similar publicly traded energy companies.

- --------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION PLANS AND STOCKHOLDER RIGHTS PLAN

             USX Stock-Based Compensation Plans and Stockholder Rights Plan
             are discussed in Note 21, and Note 23, respectively, to the USX
             consolidated financial statements.

                 In 1996, USX adopted SFAS No. 123, Accounting for Stock-
             Based Compensation and elected to continue to follow the accounting
             provisions of APB No. 25, as discussed in Note 2, to the USX
             consolidated financial statements. The Marathon Group's actual
             stock-based compensation expense was $20 million in 1997, $6
             million in 1996 and $2 million in 1995. Incremental compensation
             expense, as determined under SFAS No. 123, was not material ($.02
             or less per share for all years presented). Therefore, pro forma
             net income and earnings per share data have been omitted.

 

                                                                            M-11

<PAGE>
 
- --------------------------------------------------------------------------------
15. PENSIONS
 
             The Marathon Group has noncontributory defined benefit plans
             covering substantially all employees. Benefits under these plans
             are based primarily upon years of service and the highest three
             years earnings during the last ten years before retirement. Certain
             subsidiaries provide benefits for employees covered by other plans
             based primarily upon employees' service and career earnings. The
             funding policy for all plans provides that payments to the pension
             trusts shall be equal to the minimum funding requirements of ERISA
             plus such additional amounts as may be approved.

             PENSION COST (CREDIT) - The defined benefit cost for major plans
             for 1997, 1996 and 1995 was determined assuming an expected long-
             term rate of return on plan assets of 9.5%, 10% and 10%,
             respectively, and was as follows:


<TABLE>
<CAPTION>
             (In millions)                                                1997      1996     1995
             --------------------------------------------------------------------------------------
             <S>                                                        <C>       <C>       <C>
             Major plans:                                               
              Cost of benefits earned during the period                 $    31   $    35   $    26
              Interest cost on projected benefit obligation             
               (7.5% for 1997; 7% for 1996; and 8% for 1995)                 45        45        41   
              Return on assets - actual return                             (217)     (139)     (197) 
                               - deferred gain                              132        55       116  
              Net amortization of unrecognized gains                         (3)       (3)       (4) 
                                                                        -------   -------   -------   
                 Total major plans                                          (12)       (7)      (18) 
             Other plans                                                      4         4         4  
                                                                        -------   -------   -------   
                 Total periodic pension credit                               (8)       (3)      (14) 
             Curtailment losses                                               -         -         2  
                                                                        -------   -------   -------   
                 Total pension credit                                   $    (8)  $    (3)  $   (12)  
             --------------------------------------------------------------------------------------
</TABLE>


             FUNDS' STATUS - The assumed discount rate used to measure the
             benefit obligations of major plans was 7% at December 31, 1997, and
             7.5% at December 31, 1996. The assumed rate of future increases in
             compensation levels was 5% at both year-ends. The following table
             sets forth the plans' funded status and the amounts reported in the
             Marathon Group's balance sheet:


<TABLE>
<CAPTION>
             (In millions)                                         December 31        1997          1996
             -------------------------------------------------------------------------------------------
             <S>                                                   <C>             <C>           <C>
             Reconciliation of funds' status to reported amounts:     
             Projected benefit obligation (PBO)/(a)/                               $   (771)     $   (627)
             Plan assets at fair market value/(b)/                                    1,150           989
                                                                                   --------      -------- 
                      Assets in excess of PBO/(c)/                                      379           362
             Unrecognized net gain from transition                                      (40)          (45)
             Unrecognized prior service cost                                             45             8
             Unrecognized net gain                                                     (115)          (65)
             Additional minimum liability/(d)/                                          (14)          (11)
                                                                                   --------      -------- 
                      Net pension asset included in balance sheet                  $    255      $    249
             --------------------------------------------------------------------------------------------
             /(a)/  PBO includes:
                      Accumulated benefit obligation (ABO)                         $   (562)     $   (479)
                      Vested benefit obligation                                        (496)         (424) 
             /(b)/  Types of assets held:
                      Stocks of other corporations                                       70%           70%
                      U.S. Government securities                                          9%           10%
                      Corporate debt instruments and other                               21%           20%
             /(c)/  Includes several small plans that have ABOs in excess of
                    plan assets:
                      PBO                                                          $    (82)     $    (68)
                      Plan assets                                                        24            18
                                                                                   --------      --------
                       PBO in excess of plan assets                                $    (58)     $    (50)
             /(d)/  Additional minimum liability recorded was offset by the
                    following:
                      Intangible asset                                             $      3      $      3
                      Stockholders' equity adjustment - net of deferred income tax        7             5
             --------------------------------------------------------------------------------------------   
</TABLE>


 

M-12

<PAGE>
 
- --------------------------------------------------------------------------------
16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

             The Marathon Group has defined benefit retiree health and life
             insurance plans covering most employees upon their retirement.
             Health benefits are provided, for the most part, through
             comprehensive hospital, surgical and major medical benefit
             provisions subject to various cost sharing features. Life insurance
             benefits are provided to nonunion and most union represented
             retiree beneficiaries primarily based on employees' annual base
             salary at retirement. Benefits have not been prefunded.

             POSTRETIREMENT BENEFIT COST - Postretirement benefit cost for
             defined benefit plans for 1997, 1996 and 1995 was determined
             assuming discount rates of 7.5%, 7% and 8%, respectively, and was
             as follows:


<TABLE>
<CAPTION>
             (In millions)                                                       1997    1996    1995
             -----------------------------------------------------------------------------------------
             <S>                                                                 <C>     <C>     <C>
 
             Cost of benefits earned during the period                           $   6   $   8   $   7
             Interest on accumulated postretirement benefit obligation (APBO)       22      23      22
             Amortization of unrecognized gains                                     (3)     (3)     (3)
                                                                                 -----   -----   -----
                 Total postretirement benefit cost                               $  25   $  28   $  26
             ----------------------------------------------------------------------------------------- 
</TABLE>


             OBLIGATIONS - The following table sets forth the plans' obligations
             and the amounts reported in the Marathon Group's balance sheet:


<TABLE>
<CAPTION>
             (In millions)                                 December 31            1997        1996
             -------------------------------------------------------------------------------------           
             <S>                                           <C>                   <C>         <C>       
             Reconciliation of APBO to reported amounts:
             APBO attributable to:
              Retirees                                                           $ 196       $ 162
              Fully eligible plan participants                                      72          53
              Other active plan participants                                       113          84
                                                                                 -----       -----
                 Total APBO                                                        381         299
             Unrecognized net loss                                                 (73)         (4)
             Unrecognized prior service cost                                        18          21
                                                                                 -----       -----
                 Accrued liability included in balance sheet                     $ 326       $ 316
             -------------------------------------------------------------------------------------
</TABLE>


                The assumed discount rate used to measure the APBO was 7% and
             7.5% at December 31, 1997, and December 31, 1996, respectively. The
             assumed rate of future increases in compensation levels was 5% at
             both year-ends. The weighted average health care cost trend rate in
             1998 is approximately 8%, gradually declining to an ultimate rate
             in 2004 of approximately 5%. A one percentage point increase in the
             assumed health care cost trend rates for each future year would
             have increased the aggregate of the service and interest cost
             components of the 1997 net periodic postretirement benefit cost by
             $5 million and would have increased the APBO as of December 31,
             1997, by $56 million.
- --------------------------------------------------------------------------------
17. PROPERTY, PLANT AND EQUIPMENT


<TABLE> 
<CAPTION> 
             (In millions)                                              December 31         1997         1996
             --------------------------------------------------------------------------------------------------
             <S>                                                        <C>                <C>          <C>   
             Production                                                                    $13,219      $12,605
             Refining                                                                        1,703        1,633
             Marketing                                                                       1,442        1,350
             Transportation                                                                    626          515
             Other                                                                             243          226
                                                                                           -------      -------
                 Total                                                                      17,233       16,329
             Less accumulated depreciation, depletion and amortization                       9,667        9,031
                                                                                           -------      -------
                 Net                                                                       $ 7,566      $ 7,298
             --------------------------------------------------------------------------------------------------
</TABLE>


                Property, plant and equipment includes gross assets acquired
             under capital leases of $24 million at December 31, 1997 and 1996;
             the related amounts for the years 1997 and 1996 in accumulated
             depreciation, depletion and amortization were $24 million.
                                                                                
 

                                                                            M-13

<PAGE>
 
- --------------------------------------------------------------------------------
18. INCOME TAXES

             Income tax provisions and related assets and liabilities attributed
             to the Marathon Group are determined in accordance with the USX
             group tax allocation policy (Note 4).
                 Provisions (credits) for estimated income taxes were:
             

<TABLE>
<CAPTION>
                                                    1997                             1996                           1995
                                      ------------------------------    ---------------------------    ---------------------------
             (In millions)            Current     Deferred     Total    Current    Deferred   Total    Current    Deferred   Total
             ---------------------------------------------------------------------------------------------------------------------
             <S>                      <C>         <C>          <C>      <C>        <C>        <C>      <C>        <C>        <C>
             Federal                    $171       $  (5)       $166       $193      $  13    $ 206      $  72      $(221)   $(149)
             State and local               3           7          10         12          9       21         10        (14)      (4)
             Foreign                      12          28          40         11         82       93         15         31       46
                                        ----       -----        ----       ----      -----    -----      -----      -----    -----
                Total                   $186       $  30        $216       $216      $ 104    $ 320      $  97      $(204)   $(107)
             ---------------------------------------------------------------------------------------------------------------------
</TABLE>
 

                 A reconciliation of federal statutory tax rate (35%) to total
                 provisions (credits) follows:
 

<TABLE> 
<CAPTION> 
             (In millions)                                                              1997          1996             1995
             --------------------------------------------------------------------------------------------------------------------  
             <S>                                                                       <C>           <C>            <C> 
             Statutory rate applied to income (loss) before income taxes               $ 235         $ 347            $ (67)
             State and local income taxes after federal income tax effects                 6            14               (3)
             Effects of foreign operations, including foreign tax credits                 (8)          (14)             (36)/(a)/
             Effects of partially-owned companies                                         (6)          (10)              (7)
             Dispositions of subsidiary investments                                        -            (8)              (6)
             Credits other than foreign tax credits                                       (9)           (8)              (1)
             Nondeductible business and amortization expenses                              3             3               10
             Adjustment of prior years' income taxes                                      (4)           (6)              (1)
             Adjustment of valuation allowances                                           (4)            -                4
             Other                                                                         3             2                -
                                                                                       -----         -----            -----
                 Total provisions (credits)                                            $ 216         $ 320            $(107)
             --------------------------------------------------------------------------------------------------------------------
</TABLE>
 

             /(a)/  Includes incremental tax benefits of $44 million resulting
                    from USX's election to credit, rather than deduct, certain
                    foreign income taxes for federal income tax purposes.

                 Deferred tax assets and liabilities resulted from the
                 following:


<TABLE>
<CAPTION>
             (In millions)                                                         December 31           1997                1996
             ----------------------------------------------------------------------------------------------------------------------
             <S>                                                                                       <C>                  <C>
             Deferred tax assets:
               Minimum tax credit carryforwards                                                        $   42               $  110
               State tax loss carryforwards (expiring in 1998 through 2012)                                52                   40
               Foreign tax loss carryforwards (portion of which expire in 1998 through 2012)              483                  519
               Employee benefits                                                                          172                  158
               Expected federal benefit for:
                 Crediting certain foreign deferred income taxes                                          249                  216
                 Deducting state and other foreign deferred
                income taxes                                                                               53                   51
               Contingency and other accruals                                                             148                  116
               Other                                                                                       54                   56
               Valuation allowances                                                                      (311)                (325)
                                                                                                       ------               ------
                  Total deferred tax assets/(a)/                                                          942                  941
                                                                                                       ------               ------
             Deferred tax liabilities:
               Property, plant and equipment                                                            1,820                1,685
               Inventory                                                                                  199                  306
               Prepaid pensions                                                                           129                  121
               Other                                                                                      114                  118
                                                                                                       ------                -----
                  Total deferred tax liabilities                                                        2,262                2,230
                                                                                                       ------                -----
                   Net deferred tax liabilities                                                        $1,320               $1,289
             ----------------------------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/ USX expects to generate sufficient future taxable income to
                   realize the benefit of the Marathon Group's deferred tax
                   assets. In addition, the ability to realize the benefit of
                   foreign tax credits is based upon certain assumptions
                   concerning future operating conditions (particularly as
                   related to prevailing oil prices), income generated from
                   foreign sources and USX's tax profile in the years that such
                   credits may be claimed.

                      The consolidated tax returns of USX for the years 1990
             through 1994 are under various stages of audit and administrative
             review by the IRS. USX believes it has made adequate provision for
             income taxes and interest which may become payable for years not
             yet settled.

                      Pretax income (loss) included $250 million, $341 million
             and $(50) million attributable to foreign sources in 1997, 1996 and
             1995, respectively.

                       Undistributed earnings of consolidated foreign
             subsidiaries at December 31, 1997, amounted to $108 million. No
             provision for deferred U.S. income taxes has been made because the
             Marathon Group intends to permanently reinvest such earnings in its
             foreign operations. If such earnings were not permanently
             reinvested, a deferred tax liability of $38 million would have been
             required.


 

M-14

<PAGE>
 
- --------------------------------------------------------------------------------
19. INVESTMENTS AND LONG-TERM RECEIVABLES


<TABLE> 
<CAPTION> 
             (In millions)                           December 31       1997         1996
             ----------------------------------------------------------------------------
             <S>                                     <C>              <C>           <C>
             Equity method investments                                 $ 366        $ 135
             Other investments                                            32           31
             Deposit in property exchange trusts                           -           98
             Receivables due after one year                               49           34
             Forward currency contracts                                    -           12
             Other                                                         8            1
                                                                       -----        -----
                 Total                                                 $ 455        $ 311
             ----------------------------------------------------------------------------
</TABLE>


                    The following represents summarized financial information of
             affiliates accounted for by the equity method of accounting, except
             for the Retained Interest in the Delhi Group:


<TABLE>
<CAPTION>
             (In millions)                         1997       1996      1995
             ---------------------------------------------------------------
             <S>                                 <C>        <C>        <C>
             Income data - year:
              Revenues                           $  562     $  405     $ 255
              Operating income                      114         95        77
              Net income                             52         53        24
             ---------------------------------------------------------------
             Balance sheet data - December 31:
              Current assets                     $  170     $  146
              Noncurrent assets                   1,470      1,150
              Current liabilities                   236        198
              Noncurrent liabilities                721        737
             ---------------------------------------------------------------
</TABLE>


                    Dividends and partnership distributions received from equity
             affiliates were $21 million in 1997, $24 million in 1996 and $14
             million in 1995.

                    Marathon Group purchases from equity affiliates totaled
             $37 million, $49 million and $52 million in 1997, 1996 and 1995,
             respectively. Marathon Group sales to equity affiliates were $10
             million in 1997, $6 million in 1996 and immaterial in 1995.

                    Summarized financial information of the Delhi Group, which
             was accounted for by the equity method of accounting follows:


<TABLE>
<CAPTION>
             (In millions)                               1995/(a)/
             ------------------------------------------------------
             <S>                                         <C>
             Income data for the period:
              Revenues                                    $  276
              Operating income                                14
              Net income                                       7
              -----------------------------------------------------
</TABLE>


             /(a)/ Retained Interest in the Delhi Group was eliminated on June
                   15, 1995.
 
20. INVENTORIES


<TABLE> 
<CAPTION> 
             (In millions)                               December 31      1997         1996
             -------------------------------------------------------------------------------  
<S>                                                      <C>              <C>          <C>
             Crude oil and natural gas liquids                            $  452       $  463
             Refined products and merchandise                                735          746
             Supplies and sundry items                                        77           73
                                                                          ------       ------
                 Total (at cost)                                           1,264        1,282
             Less inventory market valuation reserve                         284            -
                                                                          ------       ------
                 Net inventory carrying value                             $  980       $1,282
             --------------------------------------------------------------------------------
</TABLE>
 

                    Inventories of crude oil and refined products are valued by
             the LIFO method. The LIFO method accounted for 91% and 94% of total
             inventory value at December 31, 1997, and December 31, 1996,
             respectively.

                    The inventory market valuation reserve reflects the extent
             that the recorded LIFO cost basis of crude oil and refined products
             inventories exceeds net realizable value. The reserve is decreased
             to reflect increases in market prices and inventory turnover and
             increased to reflect decreases in market prices. Changes in the
             inventory market valuation reserve result in noncash charges or
             credits to costs and expenses. 

 

                                                                            M-15

<PAGE>
 
- --------------------------------------------------------------------------------
21. INTERGROUP TRANSACTIONS
                         
          SALES AND PURCHASES - Marathon Group sales to other groups totaled
          $105 million, $87 million and $54 million in 1997, 1996 and 1995,
          respectively. Marathon Group purchases from the Delhi Group totaled
          $18 million in 1997, $9 million in 1996 and $6 million in 1995. At
          December 31, 1997 and 1996, Marathon Group receivables included $3
          million and $19 million, respectively, related to transactions with
          other groups. Marathon Group accounts payable included none at
          December 31, 1997, and $2 million at December 31, 1996, related to
          transactions with the Delhi Group. These transactions were conducted
          on an arm's-length basis. After October 31, 1997, transactions with
          the Delhi Companies were treated as third-party transactions.

          INCOME TAXES RECEIVABLE FROM/PAYABLE TO OTHER GROUPS - At December 31,
          1997 and 1996, amounts receivable from/payable to other groups for
          income taxes were included in the balance sheet as follows:


<TABLE>
<CAPTION>
          (In millions)                                                  December 31   1997   1996
          ------------------------------------------------------------------------------------------           
          <S>                                                            <C>         <C>      <C>
          Current:
           Receivables                                                               $   2    $   1
           Accounts payable                                                             22       30
          Noncurrent:
           Deferred credits and other liabilities                                       97       83
          ------------------------------------------------------------------------------------------ 
</TABLE>


               These amounts have been determined in accordance with the tax
          allocation policy described in Note 4. Amounts classified as current
          are settled in cash in the year succeeding that in which such amounts
          are accrued. Noncurrent amounts represent estimates of intergroup tax
          effects of certain issues for years that are still under various
          stages of audit and administrative review. Such tax effects are not
          settled among the groups until the audit of those respective tax years
          is closed. The amounts ultimately settled for open tax years will be
          different than recorded noncurrent amounts based on the final
          resolution of all of the audit issues for those years.

- --------------------------------------------------------------------------------
22. STOCKHOLDERS' EQUITY


<TABLE> 
<CAPTION> 

          (In millions, except per share data)                             1997     1996     1995
          ------------------------------------------------------------------------------------------ 
          <S>                                                              <C>      <C>      <C>
          PREFERRED STOCK:
           Balance at beginning of year                                    $   -    $   -    $   78
           Redeemed                                                            -        -       (78)
                                                                            ------   ------   ------  
           Balance at end of year                                          $   -    $   -    $   - 
          ------------------------------------------------------------------------------------------ 
          COMMON STOCKHOLDERS' EQUITY (Note 4):   
           Balance at beginning of year                                    $3,340   $2,872   $3,163
           Net income (loss)                                                  456      664      (88)
           Marathon Stock issued                                               39        4        5
           Marathon Stock repurchased                                          -        -        (1)
           Dividends on preferred stock                                        -        -        (4)
           Dividends on Marathon Stock                            
            (per share: $.76 in 1997, $.70 in 1996 and $.68 in 1995)         (219)    (201)    (195)
           Foreign currency translation adjustments                            -        -         1
           Deferred compensation adjustments                                    1       -        (3)
           Minimum pension liability adjustments (Note 15)                     (2)       1       (6)
           Unrealized holding gains on investments                              3       -        -
                                                                           -------  -------  -------  
           Balance at end of year                                          $3,618   $3,340   $2,872
          ------------------------------------------------------------------------------------------ 
          TOTAL STOCKHOLDERS' EQUITY                                       $3,618   $3,340   $2,872
          ------------------------------------------------------------------------------------------ 
</TABLE>


 

M-16

<PAGE>
 
- --------------------------------------------------------------------------------
23. SALES OF RECEIVABLES

          The Marathon Group, prior to December 1997, participated in an
          agreement (the program) to sell an undivided interest in certain
          accounts receivable. At December 31, 1997, the amount sold under the
          program that had not been collected was zero, since the program was
          terminated in December 1997. The amount sold under the program
          averaged $314 million in 1997, $340 million in 1996 and $361 million
          in 1995.

- --------------------------------------------------------------------------------
24. INCOME PER COMMON SHARE

          The method of calculating net income per share for the Marathon Stock,
          the Steel Stock and, prior to November 1, 1997, the Delhi Stock
          reflects the USX Board of Directors' intent that the separately
          reported earnings and surplus of the Marathon Group, the U. S. Steel
          Group and the Delhi Group, as determined consistent with the USX
          Certificate of Incorporation, are available for payment of dividends
          to the respective classes of stock, although legally available funds
          and liquidation preferences of these classes of stock do not
          necessarily correspond with these amounts.

               Basic net income (loss) per share is calculated by adjusting net
          income (loss) for dividend requirements of preferred stock and is
          based on the weighted average number of common shares outstanding.

               Diluted net income (loss) per share assumes conversion of
          convertible securities for the applicable periods outstanding and
          assumes exercise of stock options, provided in each case, the effect
          is not antidilutive.


<TABLE>
<CAPTION>
                                                                      1997                1996                  1995
                                                               ------------------  --------------------  --------------------
     COMPUTATION OF INCOME PER SHARE                            BASIC    DILUTED     Basic     Diluted     Basic     Diluted
     -------------------------------                           --------  --------  ---------  ---------  ---------  ---------
     <S>                                                       <C>       <C>       <C>        <C>        <C>        <C>
     Net income (loss) (millions):                                
      Income (loss) before extraordinary loss                  $    456  $    456  $    671   $    671   $    (83)  $    (83)
      Dividends on preferred stock                                  -         -         -          -           (4)        (4)
      Extraordinary loss                                            -         -          (7)        (7)        (5)        (5)
                                                               --------  --------  --------   --------   --------   -------- 
      Net income (loss) applicable to Marathon Stock                456       456       664        664        (92)       (92)
      Effect of dilutive securities -                          
       Convertible debentures                                       -           3       -           14       -        -
                                                               --------  --------  --------   --------   --------   -------- 
         Net income (loss) assuming conversions                $    456  $    459  $    664   $    678   $    (92)  $    (92)
                                                               ========  ========  ========   ========   ========   ======== 
     Shares of common stock outstanding (thousands):         
      Average number of common shares outstanding               288,038   288,038   287,460    287,460    287,271    287,271
      Effect of dilutive securities:                         
       Convertible debentures                                       -       1,936       -        8,975        -          -
       Stock options                                                -         546       -          133        -          -
                                                               --------  --------  --------   --------   --------   -------- 
         Average common shares and dilutive effect              288,038   290,520   287,460    296,568    287,271    287,271
                                                               --------  --------  --------   --------   --------   --------
     Per share:                                              
      Income (loss) before extraordinary loss                  $   1.59  $   1.58  $   2.33   $   2.31   $   (.31)  $   (.31)
      Extraordinary loss                                            -         -        (.02)      (.02)      (.02)      (.02)
                                                               --------  --------  --------   --------   --------   -------- 
      Net income (loss)                                        $   1.59  $   1.58  $   2.31   $   2.29   $   (.33)  $   (.33)
                                                               ========  ========  ========   ========   ========   ======== 
</TABLE>


- --------------------------------------------------------------------------------
25. DERIVATIVE INSTRUMENTS

          The Marathon Group uses commodity-based derivative instruments to
          manage exposure to price fluctuations related to the anticipated
          purchase or production and sale of crude oil, natural gas, refined
          products and electricity. The derivative instruments used, as a part
          of an overall risk management program, include exchange-traded futures
          contracts and options, and instruments which require settlement in
          cash such as OTC commodity swaps and OTC options. While risk
          management activities generally reduce market risk exposure due to
          unfavorable commodity price changes for raw material purchases and
          products sold, such activities can also encompass strategies which
          assume certain price risk in isolated transactions.

               USX has used forward currency contracts to hedge foreign
          denominated debt, a portion of which has been attributed to the
          Marathon Group.

               The Marathon Group remains at risk for possible changes in the
          market value of the derivative instrument; however, such risk should
          be mitigated by price changes in the underlying hedged item. The
          Marathon Group is also exposed to credit risk in the event of
          nonperformance by counterparties. The credit worthiness of
          counterparties is subject to continuing review, including the use of
          master netting agreements to the extent practical, and full
          performance is anticipated.

 

                                                                            M-17

<PAGE>
 
               The following table sets forth quantitative information by class
          of derivative instrument:


<TABLE>
<CAPTION>
                                                       FAIR                 CARRYING     RECORDED
                                                       VALUE                 AMOUNT      DEFERRED    AGGREGATE
                                                      ASSETS                 ASSETS       GAIN OR    CONTRACT
          (In millions)                           (LIABILITIES) /(A)/    (LIABILITIES)    (LOSS)     VALUES /(B)/
          ----------------------------------------------------------------------------------------------------- 
          <S>                                     <C>                     <C>            <C>        <C>        
          DECEMBER 31, 1997:                                
           Exchange-traded commodity futures         $  -                 $    -         $  -          $     30
           Exchange-traded commodity options              1  /(c)/               1            2             129
           OTC commodity swaps /(d)/                     (2) /(e)/              (2)          (3)             30
           OTC commodity options                        -                      -            -                 6
                                                     ------                -------       ------        -------- 
             Total commodities                       $   (1)               $    (1)      $   (1)       $    195
                                                     ------                -------       ------        --------
           Forward currency contract /(f)/:        
              - receivable                           $   10                $     9       $  -          $     52
              - payable                                  (1)                    (1)          (1)              5
                                                     ------                -------       ------        --------      
             Total currencies                        $    9                $     8       $   (1)         $   57
          -----------------------------------------------------------------------------------------------------  
          December 31, 1996:                      
           Exchange-traded commodity futures         $  -                  $   -         $   (2)         $   38
           Exchange-traded commodity options             (1) /(c)/              (1)          (2)            251
           OTC commodity swaps                           (3) /(e)/              (2)         -                32
           OTC commodity options                         (7)                    (7)          (1)             80
                                                     ------                -------       ------        -------- 
             Total commodities                       $  (11)               $   (10)      $   (5)         $  401
                                                     ------                -------       ------        --------
           Forward currency contract:             
              - receivable                           $   14                $    12       $  -            $   43
              - payable                                  (1)                    (1)          (1)              7
                                                     ------                -------       ------        -------- 
             Total currencies                        $   13                $    11       $   (1)         $   50
          -----------------------------------------------------------------------------------------------------  
</TABLE>


          /(a)/ The fair value amounts for OTC positions are based on various
                indices or dealer quotes. The fair value amounts for currency
                contracts are based on dealer quotes of forward prices covering
                the remaining duration of the foreign exchange contract. The
                exchange-traded futures contracts and certain option contracts
                do not have a corresponding fair value since changes in the
                market prices are settled on a daily basis.
          /(b)/ Contract or notional amounts do not quantify risk exposure, but
                are used in the calculation of cash settlements under the
                contracts. The contract or notional amounts do not reflect the
                extent to which positions may offset one another.
          /(c)/ Includes fair values as of December 31, 1997 and 1996, for
                assets of $3 million and $1 million and liabilities of $(2)
                million and $(2) million, respectively.
          /(d)/ The OTC swap arrangements vary in duration with certain
                contracts extending into mid 2000.
          /(e)/ Includes fair values as of December 31, 1997 and 1996, for
                assets of $1 million and $1 million and liabilities of $(3)
                million and $(4) million, respectively.
          /(f)/ The forward currency contract matures in 1998.

- --------------------------------------------------------------------------------
26. FAIR VALUE OF FINANCIAL INSTRUMENTS

          Fair value of the financial instruments disclosed herein is not
          necessarily representative of the amount that could be realized or
          settled, nor does the fair value amount consider the tax consequences
          of realization or settlement. The following table summarizes financial
          instruments, excluding derivative financial instruments disclosed in
          Note 25, by individual balance sheet account. As described in Note 4,
          the Marathon Group's specifically attributed financial instruments and
          the Marathon Group's portion of USX's financial instruments attributed
          to all groups are as follows:


<TABLE>
<CAPTION>
                                                                           1997                        1996
                                                                  ------------------------    ----------------------
                                                                      FAIR     CARRYING          Fair      Carrying
          (In millions)                         December 31           VALUE     AMOUNT           Value      Amount
          ----------------------------------------------------------------------------------------------------------
          <S>                                   <C>               <C>          <C>            <C>          <C>
          FINANCIAL ASSETS:                                                     
           Cash and cash equivalents                                 $   36     $   36          $   32       $   32  
           Receivables                                                  856        856             613          613 
           Investments and long-term receivables                        143         86             204          163 
                                                                     ------     ------          ------       ------
               Total financial assets                                $1,035     $  978          $  849       $  808  
          ---------------------------------------------------------------------------------------------------------- 
          FINANCIAL LIABILITIES:                                      
           Notes payable                                             $  108     $  108          $   59       $   59
           Accounts payable                                           1,348      1,348           1,385        1,385
           Accrued interest                                              84         84              75           75
           Long-term debt (including amounts due within one year)     3,198      2,869           3,062        2,882
           Preferred stock of subsidiary                                187        184             185          182
                                                                     ------     ------          ------       ------
               Total financial liabilities                           $4,925     $4,593          $4,766       $4,583
          ---------------------------------------------------------------------------------------------------------- 
</TABLE>


 

M-18

<PAGE>
 
               Fair value of financial instruments classified as current assets
          or liabilities approximates carrying value due to the short-term
          maturity of the instruments. Fair value of investments and long-term
          receivables was based on discounted cash flows or other specific
          instrument analysis. Fair value of preferred stock of subsidiary was
          based on market prices. Fair value of long-term debt instruments was
          based on market prices where available or current borrowing rates
          available for financings with similar terms and maturities.

               The Marathon Group's unrecognized financial instruments consist
          of accounts receivables sold and financial guarantees. It is not
          practicable to estimate the fair value of these forms of financial
          instrument obligations because there are no quoted market prices for
          transactions which are similar in nature. For details relating to
          sales of receivables see Note 23, and for details relating to
          financial guarantees see Note 27.

- --------------------------------------------------------------------------------
27. CONTINGENCIES AND COMMITMENTS

          USX is the subject of, or party to, a number of pending or threatened
          legal actions, contingencies and commitments relating to the Marathon
          Group involving a variety of matters, including laws and regulations
          relating to the environment. Certain of these matters are discussed
          below. The ultimate resolution of these contingencies could,
          individually or in the aggregate, be material to the Marathon Group
          financial statements. However, management believes that USX will
          remain a viable and competitive enterprise even though it is possible
          that these contingencies could be resolved unfavorably to the Marathon
          Group.

          ENVIRONMENTAL MATTERS -

               The Marathon Group is subject to federal, state, local and
          foreign laws and regulations relating to the environment. These laws
          generally provide for control of pollutants released into the
          environment and require responsible parties to undertake remediation
          of hazardous waste disposal sites. Penalties may be imposed for
          noncompliance. At December 31, 1997, and December 31, 1996, accrued
          liabilities for remediation totaled $52 million and $37 million,
          respectively. It is not presently possible to estimate the ultimate
          amount of all remediation costs that might be incurred or the
          penalties that may be imposed. Receivables for recoverable costs from
          certain states, under programs to assist companies in cleanup efforts
          related to underground storage tanks at retail marketing outlets, were
          $42 million at December 31, 1997, and $23 million at December 31,
          1996.

               For a number of years, the Marathon Group has made substantial
          capital expenditures to bring existing facilities into compliance with
          various laws relating to the environment. In 1997 and 1996, such
          capital expenditures totaled $81 million and $66 million,
          respectively. The Marathon Group anticipates making additional such
          expenditures in the future; however, the exact amounts and timing of
          such expenditures are uncertain because of the continuing evolution of
          specific regulatory requirements.

               At December 31, 1997, and December 31, 1996, accrued liabilities
          for platform abandonment and dismantlement totaled $128 million and
          $118 million, respectively.

          GUARANTEES -

               Guarantees by USX and its consolidated subsidiaries of the
          liabilities of affiliated entities of the Marathon Group totaled $23
          million and $46 million at December 31, 1997, and December 31, 1996,
          respectively. As of December 31, 1997, the largest guarantee for a
          single affiliate was $23 million.

               At December 31, 1997, and December 31, 1996, the Marathon Group's
          pro rata share of obligations of LOOP LLC and various pipeline
          affiliates secured by throughput and deficiency agreements totaled
          $165 million and $176 million, respectively. Under the agreements, the
          Marathon Group is required to advance funds if the affiliates are
          unable to service debt. Any such advances are prepayments of future
          transportation charges.

          COMMITMENTS -

               At December 31, 1997, and December 31, 1996, contract commitments
          for the Marathon Group's capital expenditures for property, plant and
          equipment totaled $268 million and $388 million, respectively.

 

                                                                            M-19

<PAGE>
 
- --------------------------------------------------------------------------------
28. SUBSEQUENT EVENT - BUSINESS COMBINATIONS

               On December 12, 1997, the Marathon Group and Ashland Inc.
          (Ashland) signed definitive agreements to combine the major elements
          of their refining, marketing and transportation (RM&T) operations.
          Pursuant to those agreements, on January 1, 1998, the Marathon Group
          transferred certain RM&T net assets to a new consolidated subsidiary,
          which was named Marathon Ashland Petroleum LLC (MAP). Also on January
          1, 1998, the Marathon Group acquired certain RM&T net assets from
          Ashland in exchange for a 38% interest in MAP. The acquisition will be
          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 the Marathon Group's ownership interest in
          MAP resulted in a change in interest gain which will be recognized in
          the first quarter 1998.

               In connection with the formation of MAP, the Marathon Group and
          Ashland entered into a Limited Liability Company Agreement dated
          January 1, 1998 (the LLC Agreement). The LLC Agreement provides for an
          initial term of MAP expiring on December 31, 2022 (25 years from its
          formation). The term will automatically be extended for ten-year
          periods, unless a termination notice is given by either party.

               Also in connection with the formation of MAP, the parties entered
          into a Put/Call, Registration Rights and Standstill Agreement (the
          Put/Call Agreement). The Put/Call Agreement provides that at any time
          after December 31, 2004, Ashland will have the right to sell to the
          Marathon Group all of Ashland's ownership interest in MAP, for an
          amount in cash and/or the Marathon Oil Company or USX debt or equity
          securities equal to the product of 85% (90% if equity securities are
          used) of the fair market value of MAP at that time, multiplied by
          Ashland's percentage interest in MAP. Payment could be made at
          closing, or at the Marathon Group's option, in three equal annual
          installments, the first of which would be payable at closing. At any
          time after December 31, 2004, the Marathon Group will have the right
          to purchase all of Ashland's ownership interests in MAP, for an amount
          in cash equal to the product of 115% of the fair market value of MAP
          at that time, multiplied by Ashland's percentage interest in MAP.

               The following unaudited pro forma data for the Marathon Group
          includes the results of operations for the Ashland RM&T net assets,
          giving effect to the acquisition as if it had been consummated at the
          beginning of the year 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.


<TABLE> 
<CAPTION> 
          (In millions, except per share amounts)                     1997 /(a)/
          ----------------------------------------------------------------------
          <S>                                                         <C>
          Revenues                                                    $22,454
          Net income                                                      455
          Net income per common share:     
           Basic                                                         1.58
           Diluted                                                       1.57
          ----------------------------------------------------------------------
</TABLE>

         /(a)/ The Marathon Group data is based on a calendar year. Ashland data
               is based on a twelve-month period ended September 30, 1997.

         /(b)/ Excluding the pro forma inventory market valuation adjustment,
               pro forma net income would have been $618 million. Reported net
               income, excluding the reported inventory market valuation
               adjustment, would have been $635 million.

M-20

<PAGE>
 
Selected Quarterly Financial Data (Unaudited)


<TABLE>
<CAPTION>
                                                                  1997
                                        --------------------------------------------------------------
(In millions, except per share data)    4TH QTR.       3RD QTR.          2ND QTR.          1ST QTR.
- ------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>               <C>               <C>
Revenues                                $ 3,920     $ 3,944/(a)/      $ 3,787/(a)/      $ 4,103/(a)/
Income from operations                       94         360/(a)/          243/(a)/          235/(a)/
  Costs and expenses include:
    Inventory market valuation
      charges (credits)                     147         (41)               64               114
Income before
  extraordinary loss                         38         192               118               108
Net income                                   38         192               118               108
- ------------------------------------------------------------------------------------------------------

MARATHON STOCK DATA:
- -------------------
Income before extraordinary
  loss applicable to
  Marathon Stock                         $   38      $  192            $  118            $  108
  -Per share: basic                         .14         .66               .41               .37
              diluted                       .13         .66               .41               .37
Dividends paid per share                    .19         .19               .19               .19
Price range of Marathon Stock (b):
  -Low                                       29          28-5/16           25-5/8            23-3/4
  -High                                      38-7/8      38-3/16           31-1/8            28-1/2
- ------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                    1996
                                        --------------------------------------------------------------
(In millions, except per share data)      4TH QTR.       3RD QTR.        2ND QTR.       1ST QTR.
- ------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>           <C>             <C>
Revenues                                $ 4,457/(a)/   $ 4,202/(a)/  $ 4,078/(a)/    $ 3,657/(a)
Income from operations                      323/(a)/       325/(a)/      241/(a)/        407/(a)
  Costs and expenses include:
    Inventory market valuation
      charges (credits)                     (30)           (96)           72            (155)
Income before
  extraordinary loss                        167            164           124             216
Net income                                  160            164           124             216
- ------------------------------------------------------------------------------------------------------

MARATHON STOCK DATA:
- -------------------
Income before extraordinary
  loss applicable to
  Marathon Stock                        $   167        $   164       $   124         $   216
  -Per share: basic                         .58            .57           .43             .75
              diluted                       .57            .57           .43             .74
Dividends paid per share                    .19            .17           .17             .17
Price range of Marathon Stock /(b)/:
  -Low                                       21-1/8         20            19-1/8          17-1/4
  -High                                      25-1/2         22-1/8        22-7/8          20-1/2
- ------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Reclassified to conform to current classifications.
/(b)/ Composite tape.

Principal Unconsolidated Affiliates (Unaudited)


<TABLE>
<CAPTION>
                                                                      DECEMBER 31, 1997
                 COMPANY                           COUNTRY                OWNERSHIP                    ACTIVITY
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>                      <C>
CLAM Petroleum BV                                Netherlands                 50%               Oil & Gas Production
Kenai LNG Corporation                            United States               30%               Natural Gas Liquification
LOCAP, Inc.                                      United States               37%               Pipeline & Storage Facilities
LOOP LLC                                         United States               32%               Offshore Oil Port
Nautilus Pipeline Company, LLC                   United States               24%               Natural Gas Transmission
Sakhalin Energy Investment Company Ltd.          Russia                      38%               Oil & Gas Development
- ------------------------------------------------------------------------------------------------------------------------------- 
</TABLE>


Supplementary Information on Oil and Gas Producing Activities (Unaudited)

See the USX consolidated financial statements for Supplementary Information on
Oil and Gas Producing Activities relating to the Marathon Group, pages U-30
through U-34.

 

                                                                            M-21

<PAGE>
 
             Five-Year Operating Summary


<TABLE>
<CAPTION>
                                                                                      1997      1996      1995      1994      1993
             -----------------------------------------------------------------------------------------------------------------------

             <S>                                                                      <C>       <C>       <C>       <C>       <C> 
             NET LIQUID HYDROCARBON PRODUCTION (thousands of barrels per day) 
              United States (by region)
               Alaska                                                                    -         8         9         9         9
               Gulf Coast                                                               29        30        33        12        10
               Southern                                                                  8         9        11        12        12
               Central                                                                   5         4         8         9         9
               Mid-Continent - Yates                                                    25        25        24        23        22
               Mid-Continent - Other                                                    21        20        19        18        18
               Rocky Mountain                                                           27        26        28        27        31
                                                                                    ------------------------------------------------

                 Total United States                                                   115       122       132       110       111
                                                                                    ------------------------------------------------

              International
               Abu Dhabi                                                                 -         -         -         1         2
               Egypt                                                                     8         8         5         7         6
               Indonesia                                                                 -         -        10         3         3
               Norway                                                                    2         3         2         2         2
               Tunisia                                                                   -         -         2         3         8
               United Kingdom                                                           39        48        54        46        24
                                                                                    ------------------------------------------------

                 Total International                                                    49        59        73        62        45
                                                                                    ------------------------------------------------

                  Total                                                                164       181       205       172       156
              Natural gas liquids included in above                                     17        17        17        15        14
             -----------------------------------------------------------------------------------------------------------------------

             NET NATURAL GAS PRODUCTION (millions of cubic feet per day) 
              United States (by region)
               Alaska                                                                  151       145       133       123       116
               Gulf Coast                                                               78        88        94        79        98
               Southern                                                                189       161       142       134        94
               Central                                                                 119       109       105       110       107
               Mid-Continent                                                           125       122       112        89        78
               Rocky Mountain                                                           60        51        48        39        36
                                                                                    ------------------------------------------------

                 Total United States                                                   722       676       634       574       529
              International                                                         ------------------------------------------------

               Egypt                                                                    11        13        15        17        17
               Ireland                                                                 228       259       269       263       258
               Norway                                                                   54        87        81        81        75
               United Kingdom - equity                                                 130       140        98        39        23
                              - other/(a)/                                              32        32        35         -         -
                                                                                    ------------------------------------------------

                 Total International                                                   455       531       498       400       373
                                                                                    ------------------------------------------------

                  Consolidated                                                       1,177     1,207     1,132       974       902
                 Equity affiliate/(b)/                                                  42        45        44        40        35
                                                                                    ------------------------------------------------

                  Total                                                              1,219     1,252     1,176     1,014       937
             -----------------------------------------------------------------------------------------------------------------------

             AVERAGE SALES PRICES
              Liquid Hydrocarbons (dollars per barrel)/(c)/
               United States                                                        $16.88    $18.58    $14.59    $13.53    $14.54
               International                                                         18.77     20.34     16.66     15.61     16.22
              Natural Gas (dollars per thousand cubic feet)/(c)/
               United States                                                        $ 2.20    $ 2.09    $ 1.63    $ 1.94    $ 1.94
               International                                                          2.00      1.97      1.80      1.58      1.52
             -----------------------------------------------------------------------------------------------------------------------

             NET PROVED RESERVES AT YEAR-END (developed and undeveloped) 
              Liquid Hydrocarbons (millions of barrels)
               United States                                                           609       589       558       553       573
               International                                                           187       203       206       242       269
                                                                                    ------------------------------------------------

                  Consolidated                                                         796       792       764       795       842
               Equity affiliate/(d)/                                                    82         -         -         -         -
                                                                                    ------------------------------------------------

                  Total                                                                878       792       764       795       842
              Developed reserves as % of total net reserves                             75%       78%       88%       90%       88%
             -----------------------------------------------------------------------------------------------------------------------

              Natural Gas (billions of cubic feet)
               United States                                                         2,220     2,239     2,210     2,127     2,045
               International                                                         1,071     1,199     1,379     1,527     1,703
                                                                                    ------------------------------------------------

                  Consolidated                                                       3,291     3,438     3,589     3,654     3,748
               Equity affiliate/(b)/                                                   111       132       131       153       153
                                                                                    ------------------------------------------------

                  Total                                                              3,402     3,570     3,720     3,807     3,901
              Developed reserves as % of total net reserves                             83%       83%       80%       79%       80%
             -----------------------------------------------------------------------------------------------------------------------

</TABLE>


             /(a)/  Represents gas acquired for injection and subsequent
                    resale.
             /(b)/  Represents Marathon's equity interest in CLAM Petroleum
                    B.V.
             /(c)/  Prices exclude gains/losses from hedging activities.
             /(d)/  Represents Marathon's equity interest in Sakhalin Energy
                    Investment Company Ltd.

 

M-22

<PAGE>
 
Five-Year Operating Summary  CONTINUED


<TABLE>
<CAPTION>
                                                                        1997      1996      1995      1994      1993
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>       <C>       <C>       <C>       <C> 
U.S. REFINERY OPERATIONS (thousands of barrels per day)
  In-use crude oil capacity at year-end                                   575       570       570       570       570
  Refinery runs - crude oil refined                                       525       511       503       491       549
                - other charge and blend stocks                            99        96        94       107       102
  In-use crude oil capacity utilization rate                               92%       90%       88%       86%       90%
- -------------------------------------------------------------------------------------------------------------------------- 
SOURCE OF CRUDE PROCESSED (thousands of barrels per day)
  United States                                                           202       229       254       218       299
  Europe                                                                   10        12         6        31         3
  Middle East and Africa                                                  241       193       183       171       173
  Other International                                                      72        79        58        70        75
                                                                      ----------------------------------------------------
          Total                                                           525       513       501       490       550
- -------------------------------------------------------------------------------------------------------------------------- 
REFINED PRODUCT YIELDS (thousands of barrels per day)
  Gasoline                                                                353       345       339       340       369
  Distillates                                                             154       155       146       146       157
  Propane                                                                  13        13        12        13        15
  Feedstocks and special products                                          36        35        38        33        33
  Heavy fuel oil                                                           35        30        31        38        39
  Asphalt                                                                  39        36        36        30        38
                                                                      ----------------------------------------------------
          Total                                                           630       614       602       600       651
- -------------------------------------------------------------------------------------------------------------------------- 
REFINED PRODUCTS YIELDS (% breakdown)
  Gasoline                                                                 56%       56%       57%       57%       57%
  Distillates                                                              24        25        24        24        24
  Other products                                                           20        19        19        19        19
                                                                      ----------------------------------------------------
          Total                                                           100%      100%      100%      100%      100%
- -------------------------------------------------------------------------------------------------------------------------- 
U.S. REFINED PRODUCT SALES (thousands of barrels per day)
  Gasoline                                                                452       468       445       443       420
  Distillates                                                             198       192       180       183       179
  Propane                                                                  12        12        12        16        18
  Feedstocks and special products                                          40        37        44        32        32
  Heavy fuel oil                                                           34        31        31        38        39
  Asphalt                                                                  39        35        35        31        38
                                                                      ----------------------------------------------------
          Total                                                           775       775       747       743       726
  Matching buy/sell volumes included in above                              51        71        47        73        47
- -------------------------------------------------------------------------------------------------------------------------- 
REFINED PRODUCTS SALES BY CLASS OF TRADE (as a % of total sales)
  Wholesale - independent private-brand
              marketers and consumers                                      61%       62%       61%       62%       63%
  Retail    - Marathon brand outlets                                       13        13        13        13        13
            - Emro Marketing Company outlets                               26        25        26        25        24
                                                                      ----------------------------------------------------
          Total                                                           100%      100%      100%      100%      100%
- -------------------------------------------------------------------------------------------------------------------------- 
REFINED PRODUCTS (dollars per barrel)
  Average sales price                                                 $ 26.38   $ 27.43   $ 23.80   $ 22.75   $ 23.42
  Average cost of crude oil throughput                                  19.00     21.94     18.09     16.59     17.05
- -------------------------------------------------------------------------------------------------------------------------- 
PETROLEUM INVENTORIES AT YEAR-END (thousands of barrels)
  Crude oil and natural gas liquids                                    18,660    19,325    21,598    21,892    21,689
  Refined products                                                     20,598    21,283    22,102    23,657    23,136
- -------------------------------------------------------------------------------------------------------------------------- 
U.S. REFINED PRODUCT MARKETING OUTLETS AT YEAR-END
  Marathon operated terminals                                              51        51        51        51        51
  Retail - Marathon brand                                               2,465     2,392     2,380     2,356     2,331
         - Emro Marketing Company                                       1,544     1,592     1,627     1,659     1,571
- -------------------------------------------------------------------------------------------------------------------------- 
PIPELINES (miles of common carrier pipelines, including affiliates)
  Crude Oil - gathering lines                                           1,003     1,052     1,115     1,115     1,130
            - trunklines                                                2,552     2,552     2,553     2,559     2,581
  Products  - trunklines                                                1,493     1,493     1,494     1,494     1,495
                                                                      ----------------------------------------------------
          Total                                                         5,048     5,097     5,162     5,168     5,206
- -------------------------------------------------------------------------------------------------------------------------- 
PIPELINE BARRELS HANDLED (millions)
  Crude Oil - gathering lines                                            43.9      43.2      43.8      43.4      43.8
            - trunklines                                                369.6     378.7     371.3     353.0     382.4
  Products  - trunklines                                                262.4     274.8     252.3     282.2     295.6
                                                                      ----------------------------------------------------
          Total                                                         675.9     696.7     667.4     678.6     721.8
- -------------------------------------------------------------------------------------------------------------------------- 
CARNEGIE NATURAL GAS COMPANY STATISTICS
  Miles of pipeline                                                     1,794     1,787     1,800     1,799     1,810
  Reserves dedicated to gathering operations -- owned
   (proved developed -- billions of cubic feet)                          39.8      42.8      44.3      43.8      46.7
  Natural gas throughput (billions of cubic feet)                        31.8      34.1      34.1      27.9      37.2
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>


 

                                                                            M-23

<PAGE>
 
Five-Year Financial Summary


<TABLE>
<CAPTION>
(Dollars in millions, except as noted)                    1997        1996             1995            1994            1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>              <C>             <C>             <C> 
REVENUES
 Refined products                                       $ 7,012      $ 7,132          $ 6,127         $ 5,622         $ 5,769
 Merchandise                                              1,045        1,000              941             869             792
 Liquid hydrocarbons                                        941        1,111              881             800             627
 Natural gas                                              1,331        1,194              950             670             607
 Crude oil and refined products
  matching buy/sell transactions/(a)/                     2,436        2,912            2,067           2,071           2,018
 Excise taxes/(a)/                                        2,736        2,768            2,708           2,542           1,927
 Gain on sale of assets                                      37           55                8             172              33
 All other                                                  216          222              231             203             248
                                                      -----------------------------------------------------------------------------
  Total revenues                                        $15,754      $16,394/(b)/     $13,913/(b)/    $12,949/(b)/    $12,021/(b)/
- ----------------------------------------------------------------------------------------------------------------------------------- 


INCOME FROM OPERATIONS
 U.S. production                                        $   626      $   627          $   376         $   258         $   179
 U.S. exploration expense                                  (126)         (97)             (70)            (84)            (60)
 International production                                   336          423              257             138              55
 International exploration expense                          (63)         (49)             (79)            (73)            (85)
 Refining, marketing and transportation                     563          239              274             423             413
 Other energy related businesses                             48           77               60              34              37
 Administrative                                            (168)        (133)             (82)            (80)            (70)
 Inventory market valuation
  (charges) credits                                        (284)         209               70             160            (241)
 Impairment of long-lived assets                             -            -              (659)             -               -
                                                      -----------------------------------------------------------------------------
  Total income from operations                              932        1,296/(b)/         147/(b)/        776/(b)/        228/(b)/
 Net interest and other financial costs                     260          305              337             300             283
 Provision (credit) for income taxes                        216          320             (107)            155             (49)
                                                      -----------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
  AND CUMULATIVE EFFECT OF CHANGES IN
  ACCOUNTING PRINCIPLES                                 $   456      $   671          $   (83)        $   321         $    (6)
 Per common share - basic (in dollars)                     1.59         2.33             (.31)           1.10            (.04)
                  - diluted (in dollars)                   1.58         2.31             (.31)           1.10            (.04)
- ----------------------------------------------------------------------------------------------------------------------------------- 


NET INCOME (LOSS)                                       $   456      $   664          $   (88)        $   321         $   (29)
 Per common share - basic (in dollars)                     1.59         2.31             (.33)           1.10            (.12)
                  - diluted (in dollars)                   1.58         2.29             (.33)           1.10            (.12)
- ----------------------------------------------------------------------------------------------------------------------------------- 


BALANCE SHEET POSITION AT YEAR-END
 Current assets                                         $ 2,018      $ 2,046          $ 1,888         $ 1,737         $ 1,572
 Net property, plant and equipment                        7,566        7,298            7,521           8,471           8,536
 Total assets                                            10,565       10,151           10,109          10,951          10,822
 Short-term debt                                            525          323              384              56              24
 Other current liabilities                                1,737        1,819            1,641           1,656           1,619
 Long-term debt                                           2,476        2,642            3,367           3,983           4,274
 Common stockholders' equity                              3,618        3,340            2,872           3,163           3,032
  Per share (in dollars)                                  12.53        11.62             9.99           11.01           10.58
- ----------------------------------------------------------------------------------------------------------------------------------- 


CASH FLOW DATA
 Net cash from operating activities                     $ 1,246      $ 1,503          $ 1,044         $   720         $   830
 Net cash from operating activities
  before working capital changes                          1,460        1,339            1,128             944             910
 Capital expenditures                                     1,038          751              642             753             910
 Disposal of assets                                          60          282               77             263             174
 Dividends paid                                             219          201              199             201             201
- ----------------------------------------------------------------------------------------------------------------------------------- 


EMPLOYEE DATA
 Marathon Group:
  Total employment costs                                $   854      $   790          $   781         $   856         $   845
  Average number of employees                            20,695       20,461           21,015          21,005          21,963
  Number of pensioners at year-end                        3,099        3,203            3,378           3,495           3,572
 Emro Marketing Company:
 (Included in Marathon Group totals)
  Total employment costs                                $   263      $   241          $   229         $   221         $   211
  Average number of employees                            12,816       12,474           12,087          11,669          11,550
  Number of pensioners at year-end                          215          207              206             199             187
- ----------------------------------------------------------------------------------------------------------------------------------- 


STOCKHOLDER DATA AT YEAR-END
 Number of common shares
 outstanding (in millions)                                288.8        287.5            287.4           287.2           286.6
 Registered shareholders (in thousands)                    84.0         92.1            101.2           110.4           118.5
 Market price of common stock                           $33.750      $23.875          $19.500         $16.375         $16.500
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/  These items are included in both revenues and costs and expenses,
       resulting in no effect on income.

/(b)/  Reclassified to conform to 1997 classifications.

 

M-24

<PAGE>
 
 
              Management's Discussion and Analysis

                   The Marathon Group includes Marathon Oil Company ("Marathon")
               and certain other subsidiaries of USX Corporation ("USX"), which
               are engaged in worldwide exploration, production, transportation
               and marketing of crude oil and natural gas; domestic refining,
               marketing and transportation of petroleum products; and power
               generation. Effective January 1, 1998, the USX - Marathon Group
               and Ashland Inc. formed a new refining, marketing and
               transportation company, Marathon Ashland Petroleum LLC ("MAP").
               For further discussion of MAP, see Note 28 to the Marathon Group
               Financial Statements and Management's Discussion and Analysis of
               Operations - Outlook herein. Management's Discussion and Analysis
               should be read in conjunction with the Marathon Group's Financial
               Statements and Notes to Financial Statements.

                   During 1997, the Marathon Group's financial performance was
               primarily led by strong refined product margins, which
               significantly offset the unfavorable effects of lower worldwide
               liquid hydrocarbon prices and volumes. In addition, Marathon
               increased its 1997 capital and investment expenditures by $507
               million, or 66%, from 1996 levels, substantially funding its
               spending with cash provided by operating activities.

                   Certain sections of Management's Discussion and Analysis
               include forward-looking statements concerning trends or events
               potentially affecting the businesses of the Marathon Group. These
               statements typically contain words such as "anticipates",
               "believes", "estimates", "expects" or similar words indicating
               that future outcomes are uncertain. In accordance with "safe
               harbor" provisions of the Private Securities Litigation Reform
               Act of 1995, these statements are accompanied by cautionary
               language identifying important factors, though not necessarily
               all such factors, that could cause future outcomes to differ
               materially from those set forth in forward-looking statements.
               For additional risk factors affecting the businesses of the
               Marathon Group, see Supplementary Data - Disclosures About
               Forward-Looking Statements in USX's 1997 Form 10-K.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF INCOME

                   REVENUES for each of the last three years are summarized in
               the following table:


<TABLE>
<CAPTION>
               (Dollars in millions)                               1997       1996       1995
               -----------------------------------------------------------------------------------
               <S>                                               <C>        <C>        <C>
               Refined products                                  $  7,012   $  7,132   $  6,127
               Merchandise                                          1,045      1,000        941
               Liquid hydrocarbons                                    941      1,111        881
               Natural gas                                          1,331      1,194        950
               Transportation and other/(a)/(c)/                      253        277        239
                                                                 --------   --------   --------
               Subtotal                                            10,582     10,714      9,138
                                                                 --------   --------   --------
               Matching buy/sell transactions/(b)/                  2,436      2,912      2,067
               Excise taxes/(b)/                                    2,736      2,768      2,708
                                                                 --------   --------   --------
                     Total revenues/(c)/                         $ 15,754   $ 16,394   $ 13,913
               -----------------------------------------------------------------------------------
</TABLE>


               /(a)/ Includes dividend and affiliate income, net gains on
                     disposal of assets and other income.
               /(b)/ Included in both revenues and operating costs, resulting in
                     no effect on income.
               /(c)/ Amounts in 1996 and 1995 were reclassified in 1997 to
                     include dividend and affiliate income and other income, and
                     to conform to other 1997 classifications.

                   Revenues (excluding matching buy/sell transactions and excise
               taxes) decreased by $132 million in 1997 from 1996 and increased
               by $1,576 million in 1996 from 1995. The decrease in 1997 mainly
               reflected lower average refined product prices and lower
               worldwide liquid hydrocarbon prices and volumes, partly offset by
               increased volumes of refined products and higher domestic natural
               gas volumes and prices. The increase in 1996 primarily resulted
               from higher average refined product, worldwide liquid hydrocarbon
               and natural gas prices, partially offset by lower worldwide
               liquid hydrocarbon volumes.

 

                                                                            M-25

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

                    INCOME FROM OPERATIONS and certain items included in income
               from operations for each of the last three years are summarized
               in the following table:


<TABLE>
<CAPTION>
               (Dollars in millions)                                              1997       1996       1995
               --------------------------------------------------------------------------------------------------
               <S>                                                              <C>        <C>        <C>
               Income from operations/(a)/                                      $   932    $ 1,296    $   147
               Less: Certain favorable (unfavorable) items
                IMV reserve adjustment/(b)/                                        (284)       209         70
                Net gains on certain asset sales/(c)/                                -          35         -
                Charges for withdrawal from MPA/(d)/                                 -         (10)        -
                Certain state tax adjustments/(e)/                                   -         (11)        -
                Impairment of long-lived assets/(f)/                                 -          -        (659)
                Expected environmental remediation recoveries/(g)/                   -          -          15
                                                                                -------    -------    -------
                    Subtotal                                                       (284)       223       (574)
                                                                                -------    -------    -------
                    Income from operations excluding above items                $ 1,216    $ 1,073    $   721
               --------------------------------------------------------------------------------------------------
</TABLE>


               /(a)/ Consists of operating income, dividend and affiliate
                     income, net gains on disposal of investments and other
                     income. Amounts for 1996 and 1995 were reclassified in 1997
                     to include dividend and affiliate income and other income,
                     and to conform to other 1997 classifications. See Note 9 to
                     the Consolidated Financial Statements for a discussion of
                     operating income.
               /(b)/ The inventory market valuation ("IMV") reserve reflects the
                     extent to which the recorded LIFO cost basis of crude oil
                     and refined products inventories exceeds net realizable
                     value. For additional details of this noncash adjustment,
                     see discussion below.
               /(c)/ Includes net gains on sales of interests in a domestic
                     pipeline company and certain production properties.
               /(d)/ Marine Preservation Association ("MPA") is a non-profit oil
                     spill response group.
               /(e)/ Accrual of domestic production taxes for prior years.
               /(f)/ Related to adoption of Statement of Financial Accounting
                     Standards No. 121 - "Accounting for the Impairment of Long-
                     Lived Assets and for Long-Lived Assets to be Disposed Of "
                     ("SFAS No. 121").
               /(g)/ Expected recoveries from state governments of expenditures
                     related to underground storage tanks at retail marketing
                     outlets.

                    Adjusted income from operations increased by $143 million in
               1997 from 1996 and by $352 million in 1996 from 1995. The
               improvement in 1997 was primarily due to higher average refined
               product margins and higher worldwide natural gas prices,
               partially offset by reduced worldwide liquid hydrocarbon
               production and prices, higher worldwide exploration expense and
               increased administrative expenses. The improvement in 1996 from
               1995 was primarily due to higher worldwide liquid hydrocarbon and
               natural gas prices, reduced depreciation, depletion and
               amortization ("DD&A") expense, resulting mainly from the fourth
               quarter 1995 adoption of SFAS No. 121 and property sales, and
               increased worldwide volumes of natural gas. These favorable
               effects were partially offset by lower worldwide liquid
               hydrocarbon volumes, net losses on production hedging activities
               (primarily occurring in the fourth quarter of 1996) and lower
               refined product margins. For additional details, see Management's
               Discussion and Analysis of Operations.

                    With respect to the IMV reserve adjustment, when U. S. Steel
               Corporation acquired Marathon Oil Company in March 1982, crude
               oil and refined product prices were at historically high levels.
               In applying the purchase method of accounting, Marathon's crude
               oil and refined product inventories were revalued by reference to
               current prices at the time of acquisition. This became the new
               LIFO cost basis of the inventories, which has been maintained
               since the 1982 acquisition. Generally accepted accounting
               principles require that inventories be valued at lower of cost or
               market. Accordingly, Marathon has established an IMV reserve to
               reduce the LIFO cost basis of these inventories on a quarterly
               basis, to the extent necessary, to current market value.
               Adjustments to the IMV reserve result in noncash charges or
               credits to income from operations. These adjustments affect the
               comparability of financial results from period to period as well
               as comparisons with other energy companies, which may not have
               such adjustments. The IMV reserve adjustments have been
               separately reported, on a consistent basis, as a component of
               operating results and separately identified in management's
               discussion of operations.

                    Commodity prices have fluctuated widely and, since 1986,
               have generally remained below prices that existed at the time of
               the 1982 acquisition, resulting in periodic adjustments to the
               LIFO cost basis of the inventories. At December 31, 1997, LIFO
               cost exceeded market prices by $284 million, resulting in a
               corresponding charge to income from operations for total year
               1997. During 1996 and 1995, favorable market price movements
               resulted in credits to income from operations of $209 million

 

M-26

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

               and $70 million, respectively. The $493 million variance in
               income from operations between 1997 and 1996 for the IMV reserve
               adjustments (and $139 million variance between 1996 and 1995)
               affects the comparability of reported financial results. In
               management's opinion, the Marathon Group's operating performance
               should be evaluated exclusive of the IMV reserve adjustments,
               which management believes provides a more indicative view of the
               profit and cash flow performance of the Group.

                    NET INTEREST AND OTHER FINANCIAL COSTS decreased by $45
               million in 1997 from 1996, following a decrease of $32 million in
               1996 from 1995. The decrease in both periods was mainly due to
               lower average debt levels, while 1997 also reflected an increase
               in capitalized interest on worldwide exploration and production
               projects. For additional details, see Note 6 to the Marathon
               Group Financial Statements.

                    The CREDIT FOR ESTIMATED INCOME TAXES in 1995 included
               incremental tax benefits of $44 million resulting from USX's
               election to credit, rather than deduct, foreign income taxes for
               U.S. federal income tax purposes. For reconciliation of the
               federal statutory tax rate to total provisions (credits), see
               Note 18 to the Marathon Group Financial Statements.

                    An EXTRAORDINARY LOSS on extinguishment of debt of $7
               million in 1996 and $5 million in 1995 represents the portion of
               the loss on early extinguishment of USX debt attributed to the
               Marathon Group. For additional information, see Note 8 to the
               Marathon Group Financial Statements.

                    NET INCOME decreased by $208 million in 1997 from 1996,
               following an increase of $752 million in 1996 from 1995.
               Excluding the aftertax effects of the IMV reserve adjustment and
               other special items, financial results increased by $106 million
               in 1997 from 1996 and by $300 million in 1996 from 1995,
               primarily reflecting the factors discussed above.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, CASH FLOWS AND
LIQUIDITY

                    CURRENT ASSETS declined $28 million from year-end 1996,
               primarily due to a decrease in inventories, offset by an increase
               in receivables. The reduced inventory values were due mainly to
               lower year-end refined product prices, which resulted in an IMV
               reserve of $284 million. The increase in receivables was
               primarily due to the termination of the accounts receivable sales
               program (see Note 23 to the Marathon Group Financial Statements),
               partly offset by a reduction in trade receivables from lower 
               year-end commodity prices.

                    CURRENT LIABILITIES increased $120 million from year-end
               1996, primarily due to an increase in long-term debt due within
               one year.

                    NET PROPERTY, PLANT AND EQUIPMENT increased by $268 million
               from year-end 1996, primarily reflecting property additions in
               excess of DD&A and dry well write-offs. Net property, plant and
               equipment for each of the last three years is summarized in the
               following table:


<TABLE>
<CAPTION>
               (Dollars in millions)                          1997      1996      1995
               ---------------------------------------------------------------------------
               <S>                                          <C>       <C>       <C>
               Exploration and production
                United States                               $ 3,452   $ 3,172   $ 3,220
                International                                 2,165     2,197     2,419
               Refining                                         751       758       766
               Marketing                                        834       802       753
               Transportation                                   271       285       276
               Other                                             93        84        87
                                                            -------   -------   -------
                    Total                                   $ 7,566   $ 7,298   $ 7,521
               ---------------------------------------------------------------------------
</TABLE>


                    TOTAL LONG-TERM DEBT AND NOTES PAYABLE at December 31, 1997
               was $3.0 billion, essentially unchanged from year-end 1996,
               mainly reflecting that cash required for Marathon's expanded
               capital and investment expenditure program and for dividend
               payments was substantially provided by cash from operating
               activities, trust withdrawals and asset disposals. Virtually all
               of the debt is a direct obligation of, or is guaranteed by, USX.

                    Net cash provided from operating activities totaled $1,246
               million in 1997, compared with $1,503 million in 1996 and $1,044
               million in 1995. Cash provided from operating activities in 1997
               included the impact of terminating Marathon's participation in an
               accounts receivable sales program, resulting in a cash outflow of
               $340 million. Operating cash flow in 1996 included payments of
               $39 million related to certain state tax issues, while 1995
               included payments of $96 million

 

                                                                            M-27

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

               representing the Marathon Group's share of the amortized discount
               on USX's zero coupon debentures. Excluding the effects of these
               items, net cash from operating activities increased by $44
               million in 1997 from 1996 and by $402 million in 1996 from 1995.
               The increase in 1997 mainly reflected improved net income
               (excluding the IMV reserve adjustment and other noncash items),
               partially offset by increased income tax payments. The increase
               in 1996 was primarily due to favorable working capital changes
               and improved net income (excluding the IMV reserve adjustment and
               other noncash items).

                    CAPITAL EXPENDITURES for each of the last three years are
               summarized in the following table:


<TABLE>
<CAPTION>
               (Dollars in millions)                                              1997      1996      1995
               ------------------------------------------------------------------------------------------------
               <S>                                                              <C>       <C>       <C>
               Exploration and production ("Upstream")
                United States                                                   $   647   $   424   $   322
                International                                                       163        80       141
                                                                                -------   -------   -------
                    Total exploration and production                                810       504       463
               Refining, marketing and transportation ("Downstream")                216       222       169
               Other                                                                 12        25        10
                                                                                -------   -------   -------
                    Total                                                       $ 1,038   $   751   $   642
               ------------------------------------------------------------------------------------------------
</TABLE>


                    During 1997, domestic upstream capital spending mainly
               included development of Gulf of Mexico properties, including
               Viosca Knoll 786 (Petronius), Green Canyon 244 (Troika), Ewing
               Bank 963 (Arnold) and Ewing Bank 917 (Oyster). International
               upstream spending included development of the West Brae field in
               the U.K. North Sea and projects in Egypt and offshore Gabon.
               Downstream spending in 1997 mainly consisted of upgrading and
               expanding Emro Marketing Company's network of retail outlets, and
               refinery modification projects. Contract commitments for capital
               expenditures at year-end 1997 were $268 million, compared with
               $388 million at year-end 1996.

                    Capital expenditures in 1998 are expected to increase to
               approximately $1.3 billion, with the increase from 1997 levels
               mainly due to the inclusion of 100% of the capital requirements
               for MAP, which commenced operations on January 1, 1998. Domestic
               upstream projects planned for 1998 include continuing development
               of Petronius and Green Canyon 112/113 (Stellaria) in the Gulf of
               Mexico, while international upstream projects include development
               of the Tchatamba South field, offshore Gabon. Downstream spending
               by MAP will primarily consist of upgrades and expansions of
               retail marketing outlets and refinery modifications.

                    INVESTMENTS IN EQUITY AFFILIATES of $233 million in 1997
               mainly reflected funding of equity affiliates' capital projects,
               primarily the Sakhalin II project in the Russian Far East Region
               and the Nautilus natural gas pipeline system in the Gulf of
               Mexico. Also included were Marathon's acquisition of an
               additional 7.5% interest in Sakhalin Energy Investment Company
               Ltd. ("Sakhalin Energy"), bringing its total interest to 37.5%,
               investment in the Odyssey crude oil pipeline system in the Gulf
               of Mexico (with a 29% interest) and acquisition of a 50%
               ownership in a power generation company in Ecuador.

                    In 1998, investments in equity affiliates are expected to be
               approximately $150 million, primarily reflecting additional
               funding of Sakhalin Energy's spending on the Sakhalin II project
               and funding of power generation projects. Although project
               expenditures for the Sakhalin II project remain high, third-party
               financing arranged by Sakhalin Energy is expected to reduce the
               need for direct investment by Marathon in 1998.

                    The above statements with respect to future capital
               expenditures and investments are forward-looking statements,
               reflecting management's best estimates, based on information
               currently available. To the extent this information proves to be
               inaccurate, the timing and levels of future spending could differ
               materially from those included in the forward-looking statements.
               Factors that could cause future capital expenditures and
               investments to differ materially from present expectations
               include industry supply and demand factors, general economic
               conditions, levels of cash flow from operations, available
               business opportunities, unforeseen hazards such as weather
               conditions, and/or by delays in obtaining government or partner
               approval. In addition, levels of investments may be affected by
               the ability of equity affiliates to obtain third-party financing.

                    Cash from disposal of assets was $60 million in 1997,
               compared with $282 million in 1996 and $77 million in 1995.
               Proceeds in 1997 were mainly from the sales of interests in
               various domestic upstream properties, certain cost-basis
               investments and an interest in a domestic pipeline company.
               Proceeds in 1996 primarily reflected the sales of interests in
               certain domestic and international oil

 

M-28

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

               and gas production properties and the sale of an equity interest
               in a domestic pipeline company. Proceeds in 1995 were mainly from
               the sales of certain domestic oil and gas production properties.

                    WITHDRAWAL FROM PROPERTY EXCHANGE TRUSTS of $98 million in
               1997 mainly represented cash withdrawn from an interest-bearing
               escrow account that was established in 1996 in connection with
               the disposal of oil production properties in Alaska.

                    FINANCIAL OBLIGATIONS increased $58 million in 1997 as net
               cash provided from operating activities, trust withdrawals and
               asset sales was slightly exceeded by cash used for capital
               expenditures, investments in equity affiliates and dividend
               payments. Financial obligations consist of the Marathon Group's
               portion of USX debt and preferred stock of a subsidiary
               attributed to both groups, as well as debt specifically
               attributed to the Marathon Group. For discussion of USX financing
               activities attributed to both groups, see Management's Discussion
               and Analysis of USX Consolidated Financial Condition, Cash Flows
               and Liquidity.

                    DIVIDENDS PAID in 1997 increased by $18 million from 1996,
               mainly due to a two-cents-per-share increase in the quarterly
               USX - Marathon Group Common Stock dividend rate, initially
               declared in October 1996.

                    In January 1998, the USX Board of Directors declared a
               fourth quarter dividend on the USX - Marathon Group Common Stock
               of 21 cents per share, an increase of two cents per share over
               the previous quarterly dividend. Total dividends paid on the USX
               Marathon Group Common Stock in the first quarter of 1998 will
               increase by approximately $6 million as a result of this
               increase.

               DERIVATIVE INSTRUMENTS

                    See Quantitative and Qualitative Disclosures About Market
               Risk for a discussion of derivative instruments and associated
               market risk.

               LIQUIDITY

                    For discussion of USX's liquidity and capital resources, see
               Management's Discussion and Analysis of USX Consolidated
               Financial Condition, Cash Flows and Liquidity.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF ENVIRONMENTAL MATTERS, LITIGATION AND
CONTINGENCIES

                    The Marathon Group has incurred and will continue to incur
               substantial capital, operating and maintenance, and remediation
               expenditures as a result of environmental laws and regulations.
               To the extent these expenditures, as with all costs, are not
               ultimately reflected in the prices of the Marathon Group's
               products and services, operating results will be adversely
               affected. The Marathon Group believes that substantially all of
               its competitors are subject to similar environmental laws and
               regulations. However, the specific impact on each competitor may
               vary depending on a number of factors, including the age and
               location of its operating facilities, marketing areas, production
               processes and whether or not it is engaged in the petrochemical
               or power business or the marine transportation of crude oil and
               refined products.

                    Marathon Group environmental expenditures for each of the
               last three years were/(a)/:


<TABLE>
<CAPTION>
               (Dollars in millions)                    1997      1996      1995
               ----------------------------------------------------------------------
               <S>                                     <C>       <C>       <C>
               Capital                                 $   81    $   66    $   50
               Compliance
                Operating & maintenance                    84        75       102
                Remediation/(b)/                           19        26        37
                                                       ------    ------    ------
                    Total                              $  184    $  167    $  189
               ----------------------------------------------------------------------
</TABLE>


               /(a)/ Amounts are based on American Petroleum Institute survey
                     guidelines.
               /(b)/ These amounts do not include noncash provisions recorded
                     for environmental remediation, but include spending charged
                     against such reserves, net of recoveries, where
                     permissible.

                    The Marathon Group's environmental capital expenditures
               accounted for 8% of total capital expenditures in 1997 and 1995
               and 9% in 1996.

                    During 1995 through 1997, compliance expenditures
               represented 1% of the Marathon Group's total operating costs.
               Remediation spending during this period was primarily related to
               retail

 

                                                                            M-29

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

               marketing outlets which incur ongoing clean-up costs for soil and
               groundwater contamination associated with underground storage
               tanks and piping.

                    USX has been notified that it is a potentially responsible
               party ("PRP") at 20 waste sites related to the Marathon Group
               under the Comprehensive Environmental Response, Compensation and
               Liability Act ("CERCLA") as of December 31, 1997. In addition,
               there are 11 sites related to the Marathon Group where USX has
               received information requests or other indications that USX may
               be a PRP under CERCLA but where sufficient information is not
               presently available to confirm the existence of liability. There
               are also 71 additional sites, excluding retail marketing outlets,
               related to the Marathon Group where remediation is being sought
               under other environmental statutes, both federal and state, or
               where private parties are seeking remediation through discussions
               or litigation. At many of these sites, USX is one of a number of
               parties involved and the total cost of remediation, as well as
               USX's share thereof, is frequently dependent upon the outcome of
               investigations and remedial studies. The Marathon Group accrues
               for environmental remediation activities when the responsibility
               to remediate is probable and the amount of associated costs is
               reasonably determinable. As environmental remediation matters
               proceed toward ultimate resolution or as additional remediation
               obligations arise, charges in excess of those previously accrued
               may be required. See Note 27 to the Marathon Group Financial
               Statements.

                    Effective January 1, 1997, USX adopted the American
               Institute of Certified Public Accountants Statement of Position
               No. 96-1 - "Environmental Remediation Liabilities" - which
               requires that companies include direct costs in accruals for
               remediation liabilities. Income from operations in 1997 included
               first quarter charges of $7 million (net of expected recoveries)
               related to such adoption, primarily for accruals of post-closure
               monitoring costs, study costs and administrative costs. See Note
               3 to the Marathon Group Financial Statements for additional
               discussion.

                    New or expanded environmental requirements, which could
               increase the Marathon Group's environmental costs, may arise in
               the future. USX intends to comply with all legal requirements
               regarding the environment, but since many of them are not fixed
               or presently determinable (even under existing legislation) and
               may be affected by future legislation, it is not possible to
               predict accurately the ultimate cost of compliance, including
               remediation costs which may be incurred and penalties which may
               be imposed. However, based on presently available information,
               and existing laws and regulations as currently implemented, the
               Marathon Group does not anticipate that environmental compliance
               expenditures (including operating and maintenance and
               remediation) will materially increase in 1998. The Marathon
               Group's capital expenditures for environmental controls are
               expected to be approximately $100 million in 1998. Predictions
               beyond 1998 can only be broad-based estimates which have varied,
               and will continue to vary, due to the ongoing evolution of
               specific regulatory requirements, the possible imposition of more
               stringent requirements and the availability of new technologies,
               among other matters. Based upon currently identified projects,
               the Marathon Group anticipates that environmental capital
               expenditures will be approximately $70 million in 1999; however,
               actual expenditures may vary as the number and scope of
               environmental projects are revised as a result of improved
               technology or changes in regulatory requirements and could
               increase if additional projects are identified or additional
               requirements are imposed.

                    USX is the subject of, or party to, a number of pending or
               threatened legal actions, contingencies and commitments relating
               to the Marathon Group involving a variety of matters, including
               laws and regulations relating to the environment, certain of
               which are discussed in Note 27 to the Marathon Group Financial
               Statements. The ultimate resolution of these contingencies could,
               individually or in the aggregate, be material to the Marathon
               Group financial statements. However, management believes that USX
               will remain a viable and competitive enterprise even though it is
               possible that these contingencies could be resolved unfavorably
               to the Marathon Group. See Management's Discussion and Analysis
               of USX Consolidated Financial Condition, Cash Flows and
               Liquidity.

 

M-30

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

                    The Marathon Group's income from operations and average
               volumes and selling prices for each of the last three years were
               as follows:

                          INCOME FROM OPERATIONS/(a)/


<TABLE> 
<CAPTION> 
               (Dollars in millions)                                              1997       1996      1995
               -------------------------------------------------------------------------------------------------
               <S>                                                              <C>        <C>        <C>
               Exploration and production (Upstream)
                Domestic                                                        $   500    $   530    $  306
                International                                                       273        374       178
                                                                                -------    -------    ------
                    Total exploration and production                                773        904       484
               Refining, marketing and transportation (Downstream)                  563        239       274
               Other energy related businesses/(b)/                                  48         77        60
               Administrative/(c)/                                                 (168)      (133)      (82)
                                                                                -------    -------    ------
                                                                                  1,216      1,087       736
               Impairment of long-lived assets/(d)/                                 -          -        (659)
               IMV reserve adjustment                                              (284)       209        70
                                                                                -------    -------    ------
                    Total                                                       $   932    $ 1,296    $  147
               -------------------------------------------------------------------------------------------------
</TABLE>


               /(a)/ Consists of operating income, dividend and affiliate
                     income, net gains on disposal of investments and other
                     income. Amounts for 1996 and 1995 were reclassified in 1997
                     to include dividend and affiliate income and other income,
                     and to conform to other 1997 classifications. See Note 9 to
                     the Consolidated Financial Statements for a discussion of
                     operating income.
               /(b)/ Includes marketing and transportation of domestic natural
                     gas and crude oil, and power generation.
               /(c)/ Includes the portion of the Marathon Group's administrative
                     costs not allocated to the operating components and the
                     portion of USX corporate general and administrative costs
                     allocated to the Marathon Group.
               /(d)/ Reflects adoption of SFAS No. 121, effective October 1,
                     1995. Consists of $(343) million related to Domestic
                     upstream, $(190) million related to International upstream,
                     and $(126) million related to Downstream.

                      AVERAGE VOLUMES AND SELLING PRICES


<TABLE> 
<CAPTION> 
                                                                                       1997      1996      1995
               ------------------------------------------------------------------------------------------------------
               <S>                                                                   <C>       <C>       <C>
               (thousands of barrels per day)
               Net liquids production/(a)/   - U.S.                                      115       122       132
                                             - International/(b)/                         49        59        73
                                                                                     -------   -------   -------
                                             - Worldwide                                 164       181       205
               (millions of cubic feet per day)
               Net natural gas production    - U.S.                                      722       676       634
                                             - International - equity                    423       499       463
                                             - International - other/(c)/                 32        32        35
                                                                                     -------   -------   -------
                                             - Total Consolidated                      1,177     1,207     1,132
                                             - Equity affiliate                           42        45        44
                                                                                     -------   -------   -------
                                             - Worldwide                               1,219     1,252     1,176
               ------------------------------------------------------------------------------------------------------
               (dollars per barrel)
               Liquid hydrocarbons/(a)(d)/   - U.S.                                  $ 16.88   $ 18.58   $ 14.59
                                             - International                           18.77     20.34     16.66
               (dollars per mcf)
               Natural gas/(d)/              - U.S.                                  $  2.20   $  2.09   $  1.63
                                             - International - equity                   2.00      1.97      1.80
               ------------------------------------------------------------------------------------------------------
               (thousands of barrels per day)
               Refined products sold                                                     775       775       747
                 Matching buy/sell volumes included in above                              51        71        47
               ------------------------------------------------------------------------------------------------------
</TABLE>


               /(a)/ Includes crude oil, condensate and natural gas liquids.
               /(b)/ Represents equity tanker liftings, truck deliveries and
                     direct deliveries.
               /(c)/ Represents gas acquired for injection and subsequent
                     resale.
               /(d)/ Prices exclude gains/losses from hedging activities.

 

                                                                            M-31

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

                    DOMESTIC UPSTREAM income from operations decreased by $30
               million in 1997 from 1996 following an increase of $224 million
               in 1996 from 1995. The decrease in 1997 was primarily due to
               lower liquid hydrocarbon prices and production and higher
               exploration expense, partially offset by increased natural gas
               production and prices. In addition, results in 1996 included net
               losses of $38 million on production hedging activities (see
               Quantitative and Qualitative Disclosures About Market Risk for
               the Marathon Group for additional details). The lower liquid
               hydrocarbon volumes were mostly due to the fourth quarter 1996
               disposal of oil producing properties in Alaska, while the
               increase in natural gas volumes was mainly attributable to
               properties in east Texas, Oklahoma and Wyoming.

                    The increase in 1996 from 1995 was primarily due to higher
               average liquid hydrocarbon and natural gas prices, reduced DD&A
               expense resulting, in part, from the fourth quarter 1995 adoption
               of SFAS No. 121, and increased natural gas volumes, partially
               offset by lower liquid hydrocarbon volumes, net losses on hedging
               activities, higher exploration expense and an unfavorable
               production tax adjustment for prior years.

                    INTERNATIONAL UPSTREAM income from operations decreased by
               $101 million in 1997 following an increase of $196 million in
               1996. The decrease in 1997 was mainly due to lower liquid
               hydrocarbon liftings, lower natural gas volumes and lower liquid
               hydrocarbon prices. These items were partially offset by reduced
               pipeline and terminal expenses and reduced DD&A expenses, due
               largely to the lower volumes. The lower liquid hydrocarbon
               liftings primarily reflected lower production in the U.K. North
               Sea, while the lower natural gas volumes were mainly due to
               natural field declines in Ireland and Norway.

                    The increase in 1996 from 1995 primarily reflected higher
               average liquid hydrocarbon and natural gas prices, reduced DD&A
               expense resulting, mainly, from property sales and the adoption
               of SFAS No. 121, lower exploration expense and increased natural
               gas volumes, partially offset by lower liquid hydrocarbon
               liftings. Income from operations in 1996 also included a gain on
               the sale of certain production properties in the U.K. North Sea.

                    DOWNSTREAM income from operations increased by $324 million
               in 1997 following a decrease of $35 million in 1996. The increase
               in 1997 was predominantly due to an improvement in refined
               product margins as favorable effects of reduced crude oil and
               other feedstock costs more than offset a decrease in refined
               product sales prices.

                    The decrease in 1996 from 1995 was mainly due to lower
               refined product margins as increases in wholesale and retail
               prices were unable to keep up with the increased costs of
               acquiring crude oil and other feedstocks. In addition, 1996
               results included a $10 million charge for the withdrawal from the
               MPA, a non-profit oil response group, while 1995 results included
               a $15 million favorable noncash adjustment for expected
               environmental remediation recoveries.

                    OTHER ENERGY RELATED BUSINESSES income from operations
               decreased by $29 million in 1997 following an increase of $17
               million in 1996. The decrease in 1997 and the increase in 1996
               were mainly due to a 1996 gain on the sale of an equity interest
               in a domestic pipeline company.

                    In the fourth quarter of 1997, the Marathon Group began
               reporting "Other energy related businesses" as an operating
               category. This category includes income from operations of
               Carnegie Natural Gas Company (formerly reported as "Gas Gathering
               and Processing"), Marathon Power Company, Ltd. and certain
               activities that were excluded from MAP (such as Marathon's
               natural gas and crude oil marketing operations and interests in
               various pipeline companies).

                    ADMINISTRATIVE expenses increased by $35 million in 1997
               following an increase of $51 million in 1996 from 1995. The
               increase in 1997 mainly reflected higher accruals for stock
               appreciation rights and increased accruals for other employee
               benefit and compensation plans, including Marathon's performance-
               based variable pay plan. The increase in 1996 from 1995 primarily
               resulted from a change in the methodology for distributing costs
               of certain administrative services to other operating components.

 

M-32

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

               OUTLOOK

                    The outlook regarding the Marathon Group's sales levels,
               margins and income is largely dependent upon future prices and
               volumes of crude oil, natural gas and refined products. Prices
               have historically been volatile and have frequently been driven
               by unpredictable changes in supply and demand resulting from
               fluctuations in economic activity and political developments in
               the world's major oil and gas producing areas, including OPEC
               member countries. Any substantial decline in such prices could
               have a material adverse effect on the Marathon Group's results of
               operations. A prolonged decline in such prices could also
               adversely affect the quantity of crude oil and natural gas
               reserves that can be economically produced and the amount of
               capital available for exploration and development.

                    With respect to Marathon's upstream operations, worldwide
               liquid hydrocarbon volumes are expected to increase by twenty-
               five percent in 1998, with most of the increase anticipated in
               the second half of the year. This primarily reflects projected
               new production from fields in the Gulf of Mexico (such as Green
               Canyon 244 and Ewing Bank Blocks 963 and 917), the Tchatamba
               Marine field in Gabon and the West Brae field in the U.K. North
               Sea, partially offset by natural production declines of mature
               fields. Marathon's worldwide natural gas volumes in 1998 are
               expected to remain consistent with 1997 volumes at around 1.2
               billion cubic feet per day, as natural declines in mature
               international fields, primarily in Ireland and Norway, are
               anticipated to be offset by increases in domestic production
               (mainly in the Austin Chalk area in Texas, Green Canyon 244 and
               the Vermillion Basin in Wyoming). These projections are based on
               known discoveries and do not include any additions from
               acquisitions or future exploratory drilling.

                    Other major upstream projects, which are currently underway
               or under evaluation and are expected to improve future income
               streams, include Viosca Knoll Block 786 and Green Canyon Blocks
               112 and 113 in the Gulf of Mexico, the Tchatamba South field,
               located offshore Gabon, and the Sakhalin II project in Russia
               (discussed below).

                    The Marathon Group holds a 37.5% interest in Sakhalin
               Energy, an incorporated joint venture company responsible for the
               overall management of the Sakhalin II project. This project
               includes development of the Piltun-Astokhskoye ("P-A") oil field
               and the Lunskoye gas field located offshore Sakhalin Island in
               the Russian Far East Region. During 1997, authorized
               representatives of the Russian Government approved the
               Development Plan for the P-A License Area, Phase 1: Astokh
               Feature. Appraisal work for the remainder of the P-A field was
               also authorized. The P-A full field development plan is scheduled
               to be completed and submitted to the Russian Government by June
               1999. First production of oil from the Astokh Feature, which will
               be developed using an arctic-class drilling vessel called the
               Molikpaq, remains on target for the summer of 1999. Late in 1997,
               the Sakhalin Energy consortium arranged for a limited recourse
               project financing facility of $348 million with a group of
               international financial institutions. Subject to various
               conditions, initial borrowings by Sakhalin Energy under this
               facility are anticipated in 1998 to partially fund Phase 1
               expenditure requirements.

                    Looking at downstream operations, Marathon and Ashland Inc.
               officially formed MAP, which commenced operations on January 1,
               1998. Major elements of both firms' refining, marketing and
               transportation operations were combined, with Marathon having a
               62% ownership interest in MAP and Ashland holding a 38% interest.
               MAP has seven refineries with a combined capacity of 935,000
               barrels per day ("bpd"), 84 light products and asphalt terminals
               in the Midwest and Southeast United States, about 5,400 retail
               marketing outlets in 20 states and significant pipeline holdings.
               Potential efficiencies derived by MAP have been broadly estimated
               to be in excess of $200 million annually on a pretax basis. While
               a modest part of these efficiencies will be achieved in mid- to
               late 1998, full realization of efficiencies should occur over the
               next few years as MAP's integration plans are implemented. In
               conjunction with the formation of MAP, the Marathon Group is
               expected to recognize an estimated $250 million one-time, pretax
               change in interest gain in the first quarter of 1998. For
               additional details of the agreements and the one-time financial
               gain, see Note 28 to the Marathon Group Financial Statements.

                    MAP's refined product sales volumes for 1998 are expected to
               increase slightly from 1997 levels of Marathon's and Ashland's
               separate downstream operations, which were a combined volume of
               approximately 1.2 million bpd. A major maintenance shutdown
               ("turnaround") was completed at the Garyville (La.) refinery in
               early 1998, and major turnarounds are planned for the Canton
               (Ohio) refinery in the fourth quarter of 1998, the Catlettsburg
               (Ky.) refinery in the first quarter of 1999 and the Detroit
               (Mich.) refinery in the fourth quarter of 1999. Each turnaround
               is expected to last about one month.

 

                                                                            M-33

<PAGE>
 
               Management's Discussion and Analysis CONTINUED

                    The above forward-looking statements of projects, expected
               production and sales levels, and dates of initial production are
               based on a number of assumptions, including (among others)
               prices, supply and demand, regulatory constraints, reserve
               estimates, production decline rates for mature fields, reserve
               replacement rates, and geological and operating considerations.
               In addition, development of new production properties in
               countries outside the United States may require protracted
               negotiations with host governments and is frequently subject to
               political considerations, such as tax regulations, which could
               adversely affect the economics of projects. With respect to the
               Sakhalin II project in Russia, Sakhalin Energy continues to seek
               to have certain Russian laws and normative acts at the Russian
               Federation and local levels brought into compliance with the
               existing Production Sharing Agreement Law. To the extent these
               assumptions prove inaccurate and/or negotiations, legal
               developments and other considerations are not satisfactorily
               resolved, actual results could be materially different than
               present expectations.

                    The above discussion also contains forward-looking
               statements with respect to the amount and timing of efficiencies
               to be realized by MAP. Some factors that could potentially cause
               actual results to differ materially from present expectations
               include unanticipated costs to implement shared technology,
               difficulties in integrating corporate structures, delays in
               leveraging volume procurement advantages or delays in personnel
               rationalization.

               YEAR 2000

                    The Marathon Group continues to identify, analyze, modify
               and/or replace non-compliant systems, equipment and other devices
               that utilize date/time-oriented software or computer chips.
               Marathon has contacted all of its vendors from which systems have
               been purchased and has requested that appropriate corrections be
               provided by mid-1998. Modifications to internally developed
               systems are being handled in-house. In addition, during 1997,
               Marathon began including Year 2000 provisions in a variety of its
               contracts. In management's opinion, the incremental costs
               associated with these efforts will not be material to the
               operating results of the Marathon Group.

                    This discussion of Marathon's efforts and management's
               expectations relating to the effect of Year 2000 compliance on
               operating results are forward-looking statements. Actual results
               could be materially different because Marathon's ability to
               achieve Year 2000 compliance and the level of incremental costs
               associated therewith could be adversely affected by unanticipated
               problems identified in the ongoing compliance review. In
               addition, Marathon has limited or no control over comparable
               corrective actions by proprietary software vendors and other
               entities with which it interacts. Therefore, Year 2000 compliance
               problems experienced by these entities could adversely affect the
               operating results of the Marathon Group.

               ACCOUNTING STANDARDS

                    In June 1997, the Financial Accounting Standards Board
               issued two new accounting standards: Statement of Financial
               Accounting Standards No. 130, "Reporting Comprehensive Income"
               requires that companies report all recognized changes in assets
               and liabilities that are not the result of transactions with
               owners, including those that are not reported in net income. USX
               plans to adopt the standard, effective with its 1998 financial
               statements, as required.

                    Statement of Financial Accounting Standards No. 131,
               "Disclosures about Segments of an Enterprise and Related
               Information" introduces a "management approach" for identifying
               reportable industry segments of an enterprise. USX plans to adopt
               the standard, effective with its 1998 financial statements, as
               required.

 

M-34

<PAGE>
 
             The Marathon Group
             Quantitative and Qualitative Disclosures About Market Risk

             MANAGEMENT OPINION CONCERNING DERIVATIVE INSTRUMENTS

                USX employs a strategic approach of limiting its use of
             derivative instruments principally to hedging activities, whereby
             gains and losses are generally offset by price changes in the
             underlying commodity. Based on this approach, combined with risk
             assessment procedures and internal controls, management believes
             that its use of derivative instruments does not expose the Marathon
             Group to material risk. The Marathon Group's use of derivative
             instruments for hedging activities could materially affect the
             Marathon Group's results of operations in particular quarterly or
             annual periods. This is primarily because use of such instruments
             may limit the company's ability to benefit from favorable price
             movements. However, management believes that use of these
             instruments will not have a material adverse effect on financial
             position or liquidity. For a summary of accounting policies related
             to derivative instruments, see Note 2 to the Marathon Group
             Financial Statements.

             COMMODITY PRICE RISK AND RELATED RISKS

                In the normal course of its business, the Marathon Group is
             exposed to market risk, or price fluctuations related to the
             purchase, production or sale of crude oil, natural gas and refined
             products. To a lesser extent, the Marathon Group is exposed to the
             risk of price fluctuations on natural gas liquids, electricity, and
             petroleum feedstocks used as raw materials. The Marathon Group is
             also exposed to effects of price fluctuations on the value of its
             commodity inventories.

                The Marathon Group's market risk strategy has generally been to
             obtain competitive prices for its products and services and allow
             operating results to reflect market price movements dictated by
             supply and demand. However, the Marathon Group uses fixed-price
             contracts and derivative commodity instruments to manage a
             relatively small portion of its commodity price risk. The Marathon
             Group uses fixed-price contracts to manage market risk exposure
             related to the sale of portions of its natural gas production. In
             addition, the Marathon Group uses derivative commodity instruments
             such as exchange-traded futures contracts and options, and over-
             the-counter ("OTC") commodity swaps and options to manage exposure
             related to the purchase, production or sale of crude oil, natural
             gas, refined products and electricity. The Marathon Group's
             strategic approach is to limit the use of these instruments
             principally to hedging activities. Accordingly, gains and losses on
             derivative commodity instruments are generally offset by the
             effects of price changes in the underlying commodity. However,
             certain derivative commodity instruments have the effect of
             restoring the equity portion of fixed-price sales of natural gas to
             variable market-based prices. These instruments are used as part of
             Marathon's overall risk management programs.

 

                                                                            M-35

<PAGE>
 
             Quantitative and Qualitative Disclosures
             About Market Risk CONTINUED

                Sensitivity analyses of the incremental effects on pretax income
             of hypothetical 10% and 25% changes in commodity prices for open
             derivative commodity instruments for the Marathon Group as of
             December 31, 1997, are provided in the following table:/(a)/


<TABLE>
<CAPTION>
             (Dollars in millions)
             --------------------------------------------------------------------------------
                                                                    INCREMENTAL DECREASE IN
                                                                   PRETAX INCOME ASSUMING A
                                                          HYPOTHETICAL PRICE CHANGE OF/(a)/
             Derivative Commodity Instruments                        10%     25%
             --------------------------------------------------------------------------------
             <S>                                                     <C>     <C>   
              Crude oil (price increase)/(b)/                        $2.7    $ 8.6   
               Natural gas (price decrease)/(b)/                      2.9      7.1 
              Refined products (price decrease)/(b)/                   .4      1.1
                                                                     ----    -----
               Total                                                 $6.0    $16.8
             --------------------------------------------------------------------------------
</TABLE>


             /(a)/ Gains and losses on derivative commodity instruments are
                   generally offset by price changes in the underlying
                   commodity. Effects of these offsets are not reflected in the
                   sensitivity analyses. Amounts reflect the estimated
                   incremental effect on pretax income of hypothetical 10% and
                   25% changes in closing commodity prices for each open
                   contract position at December 31, 1997. The Marathon Group
                   evaluates its portfolio of derivative commodity instruments
                   on an ongoing basis and adds or revises strategies to reflect
                   anticipated market conditions and changes in risk profiles.
                   Changes to the size or composition of the portfolio
                   subsequent to December 31, 1997, would cause future pretax
                   income effects to differ from those presented in the table.

                   The number of net open contracts varied throughout 1997, from
                   a low of 637 contracts at December 31, to a high of 9,307
                   contracts at June 11, and averaged 5,400 for the year. The
                   derivative commodity instruments used and hedging positions
                   taken also varied throughout 1997, and will continue to vary
                   in the future. Because of these variations in the composition
                   of the portfolio over time, the number of open contracts, by
                   itself, cannot be used to predict future income effects.
                   During 1998, the size of the portfolio is expected to
                   increase above average 1997 levels as a result of increased
                   volumes for Marathon Ashland Petroleum LLC, on a basis
                   consistent with guidelines established in previously existing
                   downstream hedging programs.

                   The calculation of sensitivity amounts for basis swaps
                   assumes that the physical and paper indices are perfectly
                   correlated. Gains and losses on options are based on the
                   difference between the strike price and the underlying
                   commodity price.

             /(b)/ The direction of the price change used in calculating the
                   sensitivity amount for each commodity reflects that which
                   would result in the largest incremental decrease in pretax
                   income when applied to the derivative commodity instruments
                   used to hedge that commodity.

                   While derivative commodity instruments are generally used to
             reduce risks from unfavorable commodity price movements, they also
             may limit the opportunity to benefit from favorable movements.
             During the fourth quarter of 1996, certain hedging strategies
             matured which limited the Marathon Group's ability to benefit from
             favorable market price increases on the sales of equity crude oil
             and natural gas production, resulting in pretax hedging losses of
             $33 million. In total, Marathon's upstream operations recorded
             pretax hedging losses of $3 million in 1997, compared with net
             losses of $38 million in 1996, and net gains of $10 million in
             1995.

                   Marathon's downstream operations generally use derivative
             commodity instruments to lock-in costs of certain raw material
             purchases, to protect carrying values of inventories and to protect
             margins on fixed-price sales of refined products. In total,
             downstream operations recorded net pretax hedging gains of $29
             million in 1997, compared with net losses of $22 million in 1996
             and $4 million in 1995. Essentially, all of these upstream and
             downstream gains and losses were offset by changes in the prices of
             the underlying hedged commodities, with the net effect
             approximating the targeted results of the hedging strategies. For
             additional information relating to derivative commodity
             instruments, including aggregate contract values, and fair values,
             where appropriate, see Note 25 to the Marathon Group Financial
             Statements.

                   The Marathon Group is subject to basis risk, caused by
             factors that affect the relationship between commodity futures
             prices reflected in derivative commodity instruments and the cash
             market price of the underlying commodity. Natural gas transaction
             prices are frequently based on industry reference prices that may
             vary from prices experienced in local markets. For example, New
             York Mercantile Exchange ("NYMEX") contracts for natural gas are
             priced at Louisiana's Henry Hub, while the underlying quantities of
             natural gas may be produced and sold in the Western United States
             at prices that do not move in strict correlation with NYMEX prices.
             To the extent that commodity price changes

 

M-36

<PAGE>
 
             Quantitative and Qualitative Disclosures
             About Market Risk CONTINUED
 
             in one region are not reflected in other regions, derivative
             commodity instruments may no longer provide the expected hedge,
             resulting in increased exposure to basis risk. These regional price
             differences could yield favorable or unfavorable results. OTC
             transactions are being used to manage exposure to most of the basis
             risk.

                The Marathon Group is subject to liquidity risk, caused by
             timing delays in liquidating contract positions due to a potential
             inability to identify a counterparty willing to accept an
             offsetting position. Due to the large number of active
             participants, exposure to liquidity risk is relatively low for
             exchange-traded transactions.

             INTEREST RATE RISK

                USX is subject to the effects of interest rate fluctuations on
             certain of its non-derivative financial instruments. A sensitivity
             analysis of the projected incremental effect of a hypothetical 10%
             decrease in year-end 1997 interest rates on the fair value of the
             Marathon Group's specifically attributed non-derivative financial
             instruments and the Marathon Group's portion of USX's non-
             derivative financial instruments attributed to all groups, is
             provided in the following table:


<TABLE>
<CAPTION>
            (Dollars in millions)
            ---------------------------------------------------------------------------------------------------------
                                                                                                         Incremental
                                                                                                         Increase in
                                                                            Carrying       Fair              Fair
            Non-Derivative Financial Instruments/(a)/                      Value /(b)/   Value /(b)/      Value /(c)/
            --------------------------------------------------------------------------------------------------------- 
            <S>                                                            <C>           <C>            <C>     
            Financial assets:
            Investments and long-term receivables/(d)/                         $   86        $  143          $    --
            --------------------------------------------------------------------------------------------------------- 
            Financial liabilities:
            Long-term debt (including amounts due within one year)/(e)/        $2,869        $3,198          $   106
            Preferred stock of subsidiary/(f)/                                    184           187               18
                                                                                -----         -----          -------
            Total                                                              $3,053        $3,385          $   124
            ---------------------------------------------------------------------------------------------------------
</TABLE>


            /(a)/  Fair values of cash and cash equivalents, receivables, notes
                   payable, accounts payable and accrued interest, approximate
                   carrying value and are relatively insensitive to changes in
                   interest rates due to the short-term maturity of the
                   instruments. Accordingly, these instruments are excluded from
                   the table.
            /(b)/  At December 31, 1997. For further discussion, see Note 26 to
                   the Marathon Group Financial Statements.
            /(c)/  Reflects, by class of financial instrument, the estimated
                   incremental effect of a hypothetical 10% decrease in interest
                   rates at December 31, 1997, on the fair value of non-
                   derivative financial instruments. For financial liabilities
                   this assumes a 10% decrease in the weighted average yield to
                   maturity of USX's long-term debt at December 31, 1997.
            /(d)/  For additional information, see Note 19 to the Marathon
                   Group Financial Statements.
            /(e)/  Fair value was based on market prices where available, or
                   current borrowing rates for financings with similar terms
                   and maturities. For additional information, see Note 11 to
                   the Marathon Group Financial Statements.
            /(f)/  In 1994, USX Capital LLC, a wholly owned subsidiary of USX,
                   sold 10,000,000 shares of 8-3/4% Cumulative Monthly Income
                   Preferred Shares. For further discussion, see Note 25 to
                   the Consolidated Financial Statements.

                   At December 31, 1997, USX's portfolio of long-term debt was
            comprised primarily of fixed-rate instruments. Therefore, the fair
            value of the portfolio is relatively sensitive to effects of
            interest rate fluctuations. This sensitivity is illustrated by the
            $106 million increase in the fair value of long-term debt assuming a
            hypothetical 10% decrease in interest rates. However, USX's
            sensitivity to interest rate declines and corresponding increases in
            the fair value of its debt portfolio would unfavorably affect USX's
            results and cash flows only to the extent that USX elected to
            repurchase or otherwise retire all or a portion of its fixed-rate
            debt portfolio at prices above carrying value.

            FOREIGN CURRENCY EXCHANGE RATE RISK

                   The Marathon Group is subject to the risk of price
            fluctuations related to anticipated revenues and operating costs,
            firm commitments for capital expenditures and existing assets or
            liabilities denominated in currencies other than U.S. dollars. USX
            has not generally used derivative instruments to manage this risk.
            However, USX has made limited use of forward currency contracts to
            manage exposure to certain currency price fluctuations. At December
            31, 1997, a forward currency contract with a fair value of $10
            million was outstanding. The Marathon Group's attributed portion of
            the contract was $9 million. This contract hedges exposure to
            currency price fluctuations relating to a Swiss franc debt
            obligation with a fair value of $69 million at December 31, 1997.
            The debt obligation and forward contract mature in 1998.

                                                                            M-37

<PAGE>
 
             Quantitative and Qualitative Disclosures
             About Market Risk CONTINUED


             EQUITY PRICE RISK

                The Marathon Group holds investments in common stock and
             warrants of certain third parties. The fair value of these
             investments ($17 million at December 31, 1997) has not been
             material.

             SAFE HARBOR

                The Marathon Group's quantitative and qualitative disclosures
             about market risk include forward-looking statements as defined in
             the Private Securities Litigation Reform Act of 1995. These
             statements are accompanied by cautionary language identifying
             important factors (particularly the underlying assumptions and
             limitations disclosed in footnotes to the tables), though not
             necessarily all such factors, that could cause future outcomes to
             differ materially from those projected.

                Forward-looking statements with respect to management's opinion
             about risks associated with USX's use of derivative instruments,
             and projected increases in the size of the Marathon Group's hedge
             portfolio are based on certain assumptions with respect to market
             prices and industry supply of and demand for crude oil, refined
             products and certain raw materials. To the extent that these
             assumptions prove to be inaccurate, future outcomes with respect to
             the Marathon Group's hedging programs may differ materially from
             those discussed in the forward-looking statements.



M-38

<PAGE>
 
- --------------------------
        U. S. Steel Group
- --------------------------



            Index to Financial Statements, Supplementary Data,
            Management's Discussion and Analysis and Quantitative and 
            Qualitative Disclosures About Market Risk
 
 
                                                                            Page
                                                                            ----
            Management's Report...........................................  S-1 
                                                                               
            Audited Financial Statements:                                      
                                                                               
              Report of Independent Accountants...........................  S-1 
                                                                               
              Statement of Operations.....................................  S-2 
                                                                               
              Balance Sheet...............................................  S-3 
                                                                               
              Statement of Cash Flows.....................................  S-4 
                                                                               
              Notes to Financial Statements...............................  S-5 
                                                                               
            Selected Quarterly Financial Data.............................  S-21
                                                                               
            Principal Unconsolidated Affiliates...........................  S-22
                                                                               
            Supplementary Information.....................................  S-22
                                                                               
            Five-Year Operating Summary...................................  S-23
                                                                               
            Five-Year Financial Summary...................................  S-24
                                                                               
            Management's Discussion and Analysis..........................  S-25
                                                                               
            Quantitative and Qualitative Disclosures About Market Risk....  S-36

<PAGE>
 
             MANAGEMENT'S REPORT

             The accompanying financial statements of the U. S. Steel Group
             are the responsibility of and have been prepared by USX Corporation
             (USX) in conformity with generally accepted accounting principles.
             They necessarily include some amounts that are based on best
             judgments and estimates. The U. S. Steel Group financial
             information displayed in other sections of this report is
             consistent with these financial statements.

               USX seeks to assure the objectivity and integrity of its
             financial records by careful selection of its managers, by
             organizational arrangements that provide an appropriate division of
             responsibility and by communications programs aimed at assuring
             that its policies and methods are understood throughout the
             organization.

               USX has a comprehensive formalized system of internal accounting
             controls designed to provide reasonable assurance that assets are
             safeguarded and that financial records are reliable. Appropriate
             management monitors the system for compliance, and the internal
             auditors independently measure its effectiveness and recommend
             possible improvements thereto. In addition, as part of their audit
             of the financial statements, USX's independent accountants, who are
             elected by the stockholders, review and test the internal
             accounting controls selectively to establish a basis of reliance
             thereon in determining the nature, extent and timing of audit tests
             to be applied.

               The Board of Directors pursues its oversight role in the area of
             financial reporting and internal accounting control through its
             Audit Committee. This Committee, composed solely of nonmanagement
             directors, regularly meets (jointly and separately) with the
             independent accountants, management and internal auditors to
             monitor the proper discharge by each of its responsibilities
             relative to internal accounting controls and the consolidated and
             group financial statements.



<TABLE>
             <S>                             <C>                          <C>                 
             Thomas J. Usher                 Robert M. Hernandez          Kenneth L. Matheny   
             Chairman, Board of Directors    Vice Chairman                Vice President      
             & Chief Executive Officer       & Chief Financial Officer    & Comptroller        
</TABLE>



             REPORT OF INDEPENDENT ACCOUNTANTS

             To the Stockholders of USX Corporation:

             In our opinion, the accompanying financial statements appearing
             on pages S-2 through S-20 present fairly, in all material respects,
             the financial position of the U. S. Steel Group at December 31,
             1997 and 1996, and the results of its operations and its cash flows
             for each of the three years in the period ended December 31, 1997,
             in conformity with generally accepted accounting principles. These
             financial statements are the responsibility of USX's management;
             our responsibility is to express an opinion on these financial
             statements based on our audits. We conducted our audits of these
             statements in accordance with generally accepted auditing standards
             which require that we plan and perform the audit to obtain
             reasonable assurance about whether the financial statements are
             free of material misstatement. An audit includes examining, on a
             test basis, evidence supporting the amounts and disclosures in the
             financial statements, assessing the accounting principles used and
             significant estimates made by management, and evaluating the
             overall financial statement presentation. We believe that our
             audits provide a reasonable basis for the opinion expressed above.

               As discussed in Note 5, page S-8, in 1995 USX adopted a new
             accounting standard for the impairment of long-lived assets.

               The U. S. Steel Group is a business unit of USX Corporation (as
             described in Note 1, page S-5); accordingly, the financial
             statements of the U. S. Steel Group should be read in connection
             with the consolidated financial statements of USX Corporation.



             Price Waterhouse LLP
             600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
             February 10, 1998



                                      

                                                                             S-1

<PAGE>
 
             STATEMENT OF OPERATIONS


<TABLE> 
<CAPTION> 
             (Dollars in millions)                                                      1997          1996          1995
             ------------------------------------------------------------------------------------------------------------
             <S>                                                                       <C>           <C>           <C> 
             REVENUES:
              Sales                                                                    $6,814        $6,533        $6,456
              Income from affiliates                                                       69            66            80
              Gain on disposal of assets                                                   57            16            21
              Gain on affiliate stock offering (Note 6)                                    --            53            --
              Other income                                                                  1             2            --
                                                                                       ------        ------        ------
                 Total revenues                                                         6,941         6,670         6,557
                                                                                       ------        ------        ------
             COSTS AND EXPENSES:
              Cost of sales (excludes items shown below)                                5,762         5,829         5,565
              Selling, general and administrative expenses (credits) (Note 13)           (137)         (165)         (134)
              Depreciation, depletion and amortization                                    303           292           318
              Taxes other than income taxes                                               240           231           210
              Impairment of long-lived assets (Note 5)                                     --            --            16
                                                                                       ------        ------        ------
                 Total costs and expenses                                               6,168         6,187         5,975
                                                                                       ------        ------        ------
             INCOME FROM OPERATIONS                                                       773           483           582
             Net interest and other financial costs (Note 8)                               87           116           129
                                                                                       ------        ------        ------
             INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS                            686           367           453
             Provision for estimated income taxes (Note 15)                               234            92           150
                                                                                       ------        ------        ------
             INCOME BEFORE EXTRAORDINARY LOSS                                             452           275           303
             Extraordinary loss (Note 7)                                                   --             2             2    
                                                                                       ------        ------        ------ 
             NET INCOME                                                                   452           273           301
             Noncash credit from exchange of preferred stock (Note 21)                     10            --            --
             Dividends on preferred stock                                                 (13)          (22)          (24)
                                                                                       ------        ------        ------
             NET INCOME APPLICABLE TO STEEL STOCK                                      $  449        $  251        $  277
             ------------------------------------------------------------------------------------------------------------
</TABLE>
 

             INCOME PER COMMON SHARE APPLICABLE TO STEEL STOCK


<TABLE> 
<CAPTION>
                                                                                        1997          1996          1995
             ------------------------------------------------------------------------------------------------------------
             <S>                                                                       <C>          <C>           <C>
             BASIC:
              Income before extraordinary loss                                         $ 5.24        $ 3.00        $ 3.53    
              Extraordinary loss                                                           --          (.02)         (.02)  
                                                                                       ------        ------        ------   
              Net income                                                               $ 5.24        $ 2.98        $ 3.51   
             DILUTED:                                                                                                       
              Income before extraordinary loss                                         $ 4.88        $ 2.97        $ 3.43   
              Extraordinary loss                                                           --          (.02)         (.02)  
                                                                                       ------        ------        ------   
              Net income                                                               $ 4.88        $ 2.95        $ 3.41    
             ------------------------------------------------------------------------------------------------------------
</TABLE>


             See Note 24, for a description and computation of income per common
             share.
             The accompanying notes are an integral part of these financial
             statements.

S-2

<PAGE>
 
             BALANCE SHEET


<TABLE>
<CAPTION>
             (Dollars in millions)                                          December 31         1997         1996
             ----------------------------------------------------------------------------------------------------
             <S>                                                                              <C>          <C> 
             ASSETS
             Current assets:
              Cash and cash equivalents                                                       $   18       $   23          
              Receivables, less allowance for doubtful accounts                                                            
               of $13 and $23 (Note 19)                                                          588          580          
              Inventories (Note 17)                                                              705          648          
              Deferred income tax benefits (Note 15)                                             220          177          
                                                                                              ------       ------          
                 Total current assets                                                          1,531        1,428          
             Investments and long-term receivables,                                                                        
              less reserves of $15 and $17 (Note 16)                                             670          621          
             Property, plant and equipment - net (Note 20)                                     2,496        2,551          
             Long-term deferred income tax benefits (Note 15)                                     19          217          
             Prepaid pensions (Note 13)                                                        1,957        1,734          
             Other noncurrent assets                                                              21           29          
                                                                                              ------       ------          
                 Total assets                                                                 $6,694       $6,580          
             ----------------------------------------------------------------------------------------------------
             LIABILITIES
             Current liabilities:
              Notes payable                                                                   $   13       $   18          

              Accounts payable                                                                   687          667          
              Payroll and benefits payable                                                       379          365          
              Accrued taxes                                                                      190          154          
              Accrued interest                                                                    11           22          
              Long-term debt due within one year (Note 10)                                        54           73          
                                                                                              ------       ------          
                 Total current liabilities                                                     1,334        1,299          
             Long-term debt (Note 10)                                                            456        1,014          
             Employee benefits (Note 14)                                                       2,338        2,430          
             Deferred credits and other liabilities                                              536          207          
                                                                                                                           
             Preferred stock of subsidiary (Note 9)                                               66           64          
             USX obligated mandatorily redeemable convertible preferred                                                    
              securities of a subsidiary trust holding solely junior subordinated                                          
              convertible debentures of USX (Note 21)                                            182           --          
                                                                                                                           
             STOCKHOLDERS' EQUITY (Note 22)                                                                                
             Preferred stock                                                                       3            7          
             Common stockholders' equity                                                       1,779        1,559          
                                                                                              ------       ------          
                 Total stockholders' equity                                                    1,782        1,566          
                                                                                              ------       ------          
                 Total liabilities and stockholders' equity                                   $6,694       $6,580          
             ----------------------------------------------------------------------------------------------------
</TABLE>


             The accompanying notes are an integral part of these financial
             statements.

                                                                             S-3

<PAGE>
 
             STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
             (Dollars in millions)                                                                1997          1996          1995
             ---------------------------------------------------------------------------------------------------------------------
             <S>                                                                                 <C>           <C>           <C> 
             INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 
             OPERATING ACTIVITIES:
             Net income                                                                          $ 452         $ 273         $ 301
             Adjustments to reconcile to net cash provided from operating activities: 
               Extraordinary loss                                                                   --             2             2
               Depreciation, depletion and amortization                                            303           292           318
               Pensions                                                                           (222)         (185)         (323)
               Postretirement benefits other than pensions                                        (127)           21            --
               Deferred income taxes                                                               193           150           133
               Gain on disposal of assets                                                          (57)          (16)          (21)
               Gain on affiliate stock offering                                                     --           (53)           --
               Payment of amortized discount on zero coupon debentures                              (3)           --           (28)
               Impairment of long-lived assets                                                      --            --            16
               Changes in:   Current receivables                                                   (24)          (10)          107
                             Inventories                                                           (57)          (47)          (14)
                             Current accounts payable and accrued expenses                          61          (193)          160
               All other - net                                                                     (49)         (148)          (64)
                                                                                                 -----         -----         -----
                 Net cash provided from operating activities                                       470            86           587
                                                                                                 -----         -----         -----
             INVESTING ACTIVITIES:
             Capital expenditures                                                                 (261)         (337)         (324)
             Disposal of assets                                                                    420           161            67
             Investments in equity affiliates - net                                                (16)           11             4
             All other - net                                                                        (3)           26             1
                                                                                                 -----         -----         -----
                 Net cash provided from (used in) investing activities                             140          (139)         (252)
                                                                                                 -----         -----         -----
             FINANCING ACTIVITIES (Note 4):
             Decrease in U. S. Steel Group's portion of USX consolidated debt                     (561)          (31)         (399)
             Specifically attributed debt:
               Borrowings                                                                           --           113            --
               Repayments                                                                           (6)           (5)           (4)
             Preferred stock redeemed                                                               --            --           (25)
             Steel Stock issued                                                                     48            51           218
             Dividends paid                                                                        (96)         (104)          (93)
                                                                                                 -----         -----         -----
                 Net cash provided from (used in) financing activities                            (615)           24          (303)
                                                                                                 -----         -----         -----
             NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   (5)          (29)           32
             CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                         23            52            20
                                                                                                 -----         -----         -----
             CASH AND CASH EQUIVALENTS AT END OF YEAR                                            $  18         $  23         $  52
             ---------------------------------------------------------------------------------------------------------------------
</TABLE>


             See Note 11, for supplemental cash flow information.
             The accompanying notes are an integral part of these financial
             statements.

S-4

<PAGE>
 
             NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

             After the redemption of the USX - Delhi Group stock on January 26,
             1998, USX Corporation (USX) has two classes of common stock: USX - 
             U.S. Steel Group Common Stock (Steel Stock) and USX - Marathon
             Group Common Stock (Marathon Stock), which are intended to reflect
             the performance of the U. S. Steel Group and the Marathon Group,
             respectively.

                The financial statements of the U. S. Steel Group include the
             financial position, results of operations and cash flows for all
             businesses of USX other than the businesses, assets and liabilities
             included in the Marathon Group, and a portion of the corporate
             assets and liabilities and related transactions which are not
             separately identified with ongoing operating units of USX. The U.
             S. Steel Group, which consists primarily of steel operations,
             includes the largest domestic integrated steel producer and is
             primarily engaged in the production and sale of steel mill
             products, coke and taconite pellets. The U. S. Steel Group also
             includes the management of mineral resources, domestic coal mining,
             and engineering and consulting services. Other businesses that are
             part of the U. S. Steel Group include real estate development and
             management and leasing and financing activities. The U. S. Steel
             Group financial statements are prepared using the amounts included
             in the USX consolidated financial statements.

                Although the financial statements of the U. S. Steel Group and
             the Marathon Group separately report the assets, liabilities
             (including contingent liabilities) and stockholders' equity of USX
             attributed to each such group, such attribution of assets,
             liabilities (including contingent liabilities) and stockholders'
             equity among the U. S. Steel Group and the Marathon Group for the
             purpose of preparing their respective financial statements does not
             affect legal title to such assets or responsibility for such
             liabilities. Holders of Steel Stock and Marathon Stock are holders
             of common stock of USX, and continue to be subject to all the risks
             associated with an investment in USX and all of its businesses and
             liabilities. Financial impacts arising from one Group that affect
             the overall cost of USX's capital could affect the results of
             operations and financial condition of the other Group. In addition,
             net losses of either Group, as well as dividends and distributions
             on any class of USX Common Stock or series of preferred stock and
             repurchases of any class of USX Common Stock or series of preferred
             stock at prices in excess of par or stated value, will reduce the
             funds of USX legally available for payment of dividends on both
             classes of Common Stock. Accordingly, the USX consolidated
             financial information should be read in connection with the U. S.
             Steel Group financial information.

________________________________________________________________________________
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

             PRINCIPLES APPLIED IN CONSOLIDATION - These financial statements
             include the accounts of the U. S. Steel Group. The U. S. Steel
             Group and the Marathon Group financial statements, taken together,
             comprise all of the accounts included in the USX consolidated
             financial statements.

                Investments in entities over which the U. S. Steel Group has
             significant influence are accounted for using the equity method of
             accounting and are carried at the U. S. Steel Group's share of net
             assets plus advances. The proportionate share of income from these
             equity method investments is included in revenues.

                Investments in companies whose stock has no readily determinable
             fair value are carried at cost. Dividends from these investments
             are recognized in revenues.

                Gains or losses from a change in ownership interest of an
             unconsolidated affiliate are recognized in revenues in the period
             of change.

             USE OF ESTIMATES - Generally accepted accounting principles require
             management to make estimates and assumptions that affect the
             reported amounts of assets and liabilities, the disclosure of
             contingent assets and liabilities at year-end and the reported
             amounts of revenues and expenses during the year.

             CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash
             on hand and on deposit and highly liquid debt instruments with
             maturities generally of three months or less.

             INVENTORIES - Inventories are carried at lower of cost or market.
             Cost of inventories is determined primarily under the last-in,
             first-out (LIFO) method.

             DERIVATIVE INSTRUMENTS - The U. S. Steel Group engages in commodity
             risk management activities within the normal course of its business
             as an end-user of derivative instruments (Note 26). Management is
             authorized to manage exposure to price fluctuations related to the
             purchase of natural gas and nonferrous metals through the use of a
             variety of derivative financial and nonfinancial

                                                                             S-5

<PAGE>
 
             instruments. Derivative financial instruments require settlement in
             cash and include such instruments as over-the-counter (OTC)
             commodity swap agreements and OTC commodity options. Derivative
             nonfinancial instruments require or permit settlement by delivery
             of commodities and include exchange-traded commodity futures
             contracts and options. At times, derivative positions are closed,
             prior to maturity, simultaneous with the underlying physical
             transaction and the effects are recognized in income accordingly.
             The U. S. Steel Group's practice does not permit derivative
             positions to remain open if the underlying physical market risk has
             been removed. Changes in the market value of derivative instruments
             are deferred, including both closed and open positions, and are
             subsequently recognized in income as cost of sales in the same
             period as the underlying transaction. Premiums on all commodity-
             based option contracts are initially recorded based on the amount
             paid or received; the options' market value is subsequently
             recorded as a receivable or payable, as appropriate. The margin
             receivable accounts required for open commodity contracts reflect
             changes in the market prices of the underlying commodity and are
             settled on a daily basis.

                Forward currency contracts are used to manage currency risks
             related to USX attributed debt denominated in a foreign currency.
             Gains or losses related to firm commitments are deferred and
             included with the underlying transaction; all other gains or losses
             are recognized in income in the current period as interest income
             or expense, as appropriate. Net contract values are included in
             receivables or payables, as appropriate.

                Recorded deferred gains or losses are reflected within other
             noncurrent assets or deferred credits and other liabilities. Cash
             flows from the use of derivative instruments are reported in the
             same category as the hedged item in the statement of cash flows.

             LONG-LIVED ASSETS - Depreciation is generally computed using a
             modified straight-line method based upon estimated lives of assets
             and production levels. The modification factors range from a
             minimum of 85% at a production level below 81% of capability, to a
             maximum of 105% for a 100% production level. No modification is
             made at the 95% production level, considered the normal long-range
             level.

                Depletion of mineral properties is based on rates which are
             expected to amortize cost over the estimated tonnage of minerals to
             be removed.

                When an entire plant, major facility or facilities depreciated
             on an individual basis are sold or otherwise disposed of, any gain
             or loss is reflected in income. Proceeds from disposal of other
             facilities depreciated on a group basis are credited to the
             depreciation reserve with no immediate effect on income.

                The U. S. Steel Group evaluates impairment of its long-lived
             assets on an individual asset basis or by logical groupings of
             assets. Assets deemed to be impaired are written down to their fair
             value, including any related goodwill, using discounted future cash
             flows and, if available, comparable market values.

             ENVIRONMENTAL REMEDIATION - The U. S. Steel Group provides for
             remediation costs and penalties when the responsibility to
             remediate is probable and the amount of associated costs is
             reasonably determinable. Generally, the timing of remediation
             accruals coincides with completion of a feasibility study or the
             commitment to a formal plan of action. Remediation liabilities are
             accrued based on estimates of known environmental exposure and
             could be discounted in certain instances.

             POSTEMPLOYMENT BENEFITS - The U. S. Steel Group recognizes an
             obligation to provide postemployment benefits, primarily for
             disability-related claims covering indemnity and medical payments.
             The obligation for these claims and the related periodic costs are
             measured using actuarial techniques and assumptions, including an
             appropriate discount rate, analogous to the required methodology
             for measuring pension and other postretirement benefit obligations.
             Actuarial gains and losses are deferred and amortized over future
             periods.

             INSURANCE - The U. S. Steel Group is insured for catastrophic
             casualty and certain property and business interruption exposures,
             as well as those risks required to be insured by law or contract.
             Costs resulting from noninsured losses are charged against income
             upon occurrence.

             RECLASSIFICATIONS - Certain reclassifications of prior years'
             data have been made to conform to 1997 classifications.

________________________________________________________________________________
3. NEW ACCOUNTING STANDARDS

             The following accounting standards were adopted by USX during
             1997:

                Environmental remediation liabilities Effective January 1, 1997,
                USX adopted American Institute of Certified Public Accountants
                Statement of Position No. 96-1, "Environmental Remediation
                Liabilities" (SOP 96-1), which provides additional
                interpretation of existing accounting standards related to
                recognition, measurement and disclosure of environmental
                remediation liabilities. As a result of adopting SOP 96-1, the
                U. S. Steel Group identified additional environmental
                remediation liabilities of $35 million, of which $28 million was
                discounted to a present value of $13 million and $7 million was
                not discounted. Assumptions used

S-6

<PAGE>
 
                in the calculation of the present value amount included an
                inflation factor of 2% and an interest rate of 7% over a range
                of 22 to 30 years. The net unfavorable effect of adoption on the
                U. S. Steel Group's income from operations at January 1, 1997,
                was $20 million.

                Earnings per share - USX adopted Statement of Financial
                Accounting Standards No. 128, "Earnings per Share" (SFAS No.
                128). This Statement establishes standards for computing and
                presenting earnings per share (EPS). SFAS No. 128 requires dual
                presentation of basic and diluted EPS. Basic EPS excludes
                dilution and is computed by dividing net income available to
                common stockholders by the weighted average number of common
                shares outstanding for the period. Diluted EPS reflects the
                potential dilution that could occur if stock options or
                convertible securities were exercised or converted into common
                stock. The adoption of SFAS No. 128 did not materially change
                current and prior years' EPS of the U. S. Steel Group.

________________________________________________________________________________
4. CORPORATE ACTIVITIES

             FINANCIAL ACTIVITIES - As a matter of policy, USX manages most
             financial activities on a centralized, consolidated basis. Such
             financial activities include the investment of surplus cash; the
             issuance, repayment and repurchase of short-term and long-term
             debt; the issuance, repurchase and redemption of preferred stock;
             and the issuance and repurchase of common stock. Transactions
             related primarily to invested cash, short-term and long-term debt
             (including convertible debt), related net interest and other
             financial costs, and preferred stock and related dividends are
             attributed to the U. S. Steel Group, the Marathon Group and, prior
             to November 1, 1997, the Delhi Group based upon the cash flows of
             each group for the periods presented and the initial capital
             structure of each group. Most financing transactions are attributed
             to and reflected in the financial statements of the groups. See
             Note 9, for the U. S. Steel Group's portion of USX's financial
             activities attributed to the groups. However, transactions such as
             leases, certain collateralized financings, certain indexed debt
             instruments, financial activities of consolidated entities which
             are less than wholly owned by USX and transactions related to
             securities convertible solely into any one class of common stock
             are or will be specifically attributed to and reflected in their
             entirety in the financial statements of the group to which they
             relate.

             CORPORATE GENERAL AND ADMINISTRATIVE COSTS - Corporate general and
             administrative costs are allocated to the U. S. Steel Group, the
             Marathon Group and, prior to November 1, 1997, the Delhi Group
             based upon utilization or other methods management believes to be
             reasonable and which consider certain measures of business
             activities, such as employment, investments and sales. The costs
             allocated to the U. S. Steel Group were $31 million in 1997, $29
             million in 1996 and $30 million in 1995, and primarily consist of
             employment costs including pension effects, professional services,
             facilities and other related costs associated with corporate
             activities.

             INCOME TAXES - All members of the USX affiliated group are included
             in the consolidated United States federal income tax return filed
             by USX. Accordingly, the provision for federal income taxes and the
             related payments or refunds of tax are determined on a consolidated
             basis. The consolidated provision and the related tax payments or
             refunds have been reflected in the U. S. Steel Group, the Marathon
             Group and, prior to November 1, 1997, the Delhi Group financial
             statements in accordance with USX's tax allocation policy. In
             general, such policy provides that the consolidated tax provision
             and related tax payments or refunds are allocated among the U. S.
             Steel Group, Marathon Group and, prior to November 1, 1997, the
             Delhi Group, for group financial statement purposes, based
             principally upon the financial income, taxable income, credits,
             preferences and other amounts directly related to the respective
             groups.

                For tax provision and settlement purposes, tax benefits
             resulting from attributes (principally net operating losses and
             various tax credits), which cannot be utilized by one of the groups
             on a separate return basis but which can be utilized on a
             consolidated basis in that year or in a carryback year, are
             allocated to the group that generated the attributes. To the extent
             that one of the groups is allocated a consolidated tax attribute
             which, as a result of expiration or otherwise, is not ultimately
             utilized on the consolidated tax return, the prior years'
             allocation of such attribute is adjusted such that the effect of
             the expiration is borne by the group that generated the attribute.
             Also, if a tax attribute cannot be utilized on a consolidated basis
             in the year generated or in a carryback year, the prior years'
             allocation of such consolidated tax effects is adjusted in a
             subsequent year to the extent necessary to allocate the tax
             benefits to the group that would have realized the tax benefits on
             a separate return basis. As a result, the allocated group amounts
             of taxes payable or refundable are not necessarily comparable to
             those that would have resulted if the groups had filed separate tax
             returns.

                                                                             S-7

<PAGE>
 
________________________________________________________________________________
5. IMPAIRMENT OF LONG-LIVED ASSETS

             In 1995, USX adopted Statement of Financial Accounting Standards
             No. 121, "Accounting for the Impairment of Long-Lived Assets and
             for Long-Lived Assets to Be Disposed Of " (SFAS No. 121). SFAS No.
             121 requires that long-lived assets, including related goodwill, be
             reviewed for impairment and written down to fair value whenever
             events or changes in circumstances indicate that the carrying value
             may not be recoverable. The impaired assets included certain iron
             ore mineral rights and surplus real estate holdings. The
             predominant method used to determine fair value was comparable
             market value analysis. The impairment charge recognized in 1995
             costs and expenses for these assets was $16 million.

________________________________________________________________________________
6. GAIN ON AFFILIATE STOCK OFFERING

             In 1996, an aggregate of 6.9 million shares of RMI Titanium Company
             (RMI) common stock was sold in a public offering at a price of
             $18.50 per share and total net proceeds of $121 million. Included
             in the offering were 2.3 million shares sold by USX for net
             proceeds of $40 million. The U. S. Steel Group recognized a total
             pretax gain of $53 million, of which $34 million was attributable
             to the shares sold by USX and $19 million was attributable to the
             increase in value of its investment as a result of the shares sold
             by RMI. The income tax effect related to the total gain was $19
             million. As a result of this transaction, USX's ownership in RMI
             decreased from approximately 50% to 27%. The U. S. Steel Group
             continues to account for its investment in RMI under the equity
             method of accounting.

________________________________________________________________________________
7. EXTRAORDINARY LOSS

             On December 30, 1996, USX irrevocably called for redemption on
             January 30, 1997, $120 million of debt, resulting in a 1996
             extraordinary loss to the U. S. Steel Group of $2 million, net of a
             $1 million income tax benefit. In 1995, USX extinguished $553
             million of debt prior to maturity, which resulted in an
             extraordinary loss to the U. S. Steel Group of $2 million, net of a
             $1 million income tax benefit.

________________________________________________________________________________
8. NET INTEREST AND OTHER FINANCIAL COSTS


<TABLE> 
<CAPTION> 
             (In millions)                                           1997    1996   1995
             --------------------------------------------------------------------------- 
<S>                                                                 <C>     <C>    <C>
             INTEREST AND OTHER FINANCIAL INCOME/(a)/ -
              Interest income                                       $   4   $   4  $   8
                                                                    -----   -----  -----
             INTEREST AND OTHER FINANCIAL COSTS/(a)/:
              Interest incurred                                        57      85     98
              Less interest capitalized                                 7       8      5
                                                                    -----   -----  -----
               Net interest                                            50      77     93
              Interest on tax issues                                   13      10     11
              Financial costs on trust preferred securities            10      --     --
              Financial costs on preferred stock of subsidiary          5       5      5
              Amortization of discounts                                 2       2      6
              Expenses on sales of accounts receivable (Note 19)       21      20     22
              Adjustment to settlement value of indexed debt          (10)      6     --
                                                                    -----   -----  -----
                 Total                                                 91     120    137
                                                                    -----   -----  -----
             NET INTEREST AND OTHER FINANCIAL COSTS/(a)/            $  87   $ 116  $ 129
             ---------------------------------------------------------------------------
</TABLE>


             /(a)/See Note 4, for discussion of USX net interest and other
               financial costs attributable to the U. S. Steel Group.

S-8

<PAGE>
 
- --------------------------------------------------------------------------------
9. FINANCIAL ACTIVITIES ATTRIBUTED TO GROUPS

             The following is the portion of USX financial activities attributed
             to the U. S. Steel Group. These amounts exclude debt amounts
             specifically attributed to the U. S. Steel Group.


<TABLE>
<CAPTION>
                                                                        U. S. Steel Group           Consolidated USX/(a)/
                                                                ---------------------------------  ------------------------
             (In millions)                  December 31               1997               1996        1997            1996
             --------------------------------------------------------------------------------------------------------------
             <S>                                                <C>                  <C>           <C>             <C> 
             Cash and cash equivalents                             $   1             $   2         $    6          $    8
             Receivables/(b)/                                          1                -              10              - 
             Long-term receivables/(b)/                               -                  3             -               16
             Other noncurrent assets/(b)/                              1                 2              8               8
                                                                    -----            -----         ------          -------
               Total assets                                        $   3             $   7         $   24          $   32
             --------------------------------------------------------------------------------------------------------------
             Notes payable                                         $  13             $  18         $  121          $   80
             Accounts payable                                         -                 -               1               2
             Accrued interest                                         10                22             89              98
             Long-term debt due within one year (Note 10)             50                69            466             309
             Long-term debt (Note 10)                                252               794          2,704           3,615
             Preferred stock of subsidiary                            66                64            250             250
                                                                    -----            -----         ------          -------
               Total liabilities                                   $ 391             $ 967         $3,631          $4,354
             -------------------------------------------------------------------------------------------------------------- 
<CAPTION>
                                                                        U. S. Steel Group/(c)/      Consolidated USX/(a)/
                                                                ---------------------------------  ------------------------
             (In millions)                                        1997       1996         1995      1997    1996      1995
             --------------------------------------------------------------------------------------------------------------
             <S>                                                <C>          <C>          <C>      <C>      <C>      <C>  
             Net interest and other financial costs (Note 8)      $  46       $  81       $  98     $ 309   $ 376    $  439
             --------------------------------------------------------------------------------------------------------------
</TABLE>

             /(a)/ For details of USX long-term debt and preferred stock of
                   subsidiary, see Notes 16 and 25, respectively, to the USX
                   consolidated financial statements.
             /(b)/ Primarily reflects forward currency contracts used to
                   manage currency risks related to USX debt and interest
                   denominated in a foreign currency.
             /(c)/ The U. S. Steel Group's net interest and other financial
                   costs reflect weighted average effects of all financial
                   activities attributed to all groups.

- --------------------------------------------------------------------------------
10. LONG-TERM DEBT

             The U. S. Steel Group's portion of USX's consolidated long-term
             debt is as follows:


<TABLE> 
<CAPTION>
                                                                        U. S. Steel Group           Consolidated USX/(a)/
                                                                ---------------------------------  ----------------------
             (In millions)                  December 31               1997               1996        1997            1996
             ------------------------------------------------------------------------------------------------------------
             <S>                                                <C>                  <C>           <C>             <C>  
             Specifically attributed debt/(b)/:
              Sale-leaseback financing and capital leases           $  99            $  105         $  123         $  129
              Indexed debt less unamortized discount                  110               119            110            119
              Seller-provided financing                                -                 -              -              40
                                                                    -----           -------        -------       --------
               Total                                                  209               224            233            288
              Less amount due within one year                           5                 4              5             44
                                                                    -----           -------        -------       --------
               Total specifically attributed long-term debt         $ 204            $  220         $  228         $  244
             ------------------------------------------------------------------------------------------------------------ 
             Debt attributed to groups/(c)/                         $ 305            $  869         $3,194         $3,949
              Less unamortized discount                                 3                 6             24             25
              Less amount due within one year                          50                69            466            309
                                                                    -----           -------        -------       --------
               Total long-term debt attributed to groups            $ 252            $  794         $2,704         $3,615
             ------------------------------------------------------------------------------------------------------------ 
             Total long-term debt due within one year               $  55            $   73         $  471         $  353
             Total long-term debt due after one year                  456             1,014          2,932          3,859
             ------------------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/ See Note 16, to the USX consolidated financial statements
                   for details of interest rates, maturities and other terms of
                   long-term debt.
             /(b)/ As described in Note 4, certain financial activities are
                   specifically attributed only to the U. S. Steel Group and the
                   Marathon Group.
             /(c)/ Most long-term debt activities of USX Corporation and its
                   wholly owned subsidiaries are attributed to all groups (in
                   total, but not with respect to specific debt issues) based on
                   their respective cash flows (Notes 4, 9 and 11).

                                                                             S-9

<PAGE>
 
- --------------------------------------------------------------------------------
11. SUPPLEMENTAL CASH FLOW INFORMATION


<TABLE> 
<CAPTION> 
          (In millions)                                                                 1997            1996          1995
          -------------------------------------------------------------------------------------------------------------------
          <S>                                                                      <C>              <C>           <C>
          CASH USED IN OPERATING ACTIVITIES INCLUDED:
           Interest and other financial costs paid (net of amount capitalized)          $    (99)     $   (129)      $  (159)
           Income taxes paid, including settlements
            with other groups                                                                (48)          (53)           (4)
          ------------------------------------------------------------------------------------------------------------------- 
          USX DEBT ATTRIBUTED TO ALL GROUPS - NET:
           Commercial paper:
            Issued                                                                      $     -       $  1,422       $ 2,434
            Repayments                                                                        -         (1,555)       (2,651)
           Credit agreements:
            Borrowings                                                                    10,454        10,356         4,719
            Repayments                                                                   (10,449)      (10,340)       (4,659)
           Other credit arrangements - net                                                    36           (36)           40
           Other debt:
            Borrowings                                                                        10            78            52
            Repayments                                                                      (741)         (705)         (440)
                                                                                        --------      --------       -------
             Total                                                                      $   (690)     $   (780)      $  (505)
          ------------------------------------------------------------------------------------------------------------------- 
           U. S. Steel Group activity                                                   $   (561)     $    (31)      $  (399)
           Marathon Group activity                                                            97          (769)         (204)
           Delhi Group activity                                                             (226)           20            98
                                                                                        --------      --------       -------
             Total                                                                      $   (690)     $   (780)      $  (505)
          ------------------------------------------------------------------------------------------------------------------- 
          NONCASH INVESTING AND FINANCING ACTIVITIES:
           Steel Stock issued for Dividend Reinvestment Plan and
            employee stock plans                                                        $      5      $      4       $    16
           Disposal of assets-notes received                                                  -             12             4
           Trust  preferred securities exchanged for preferred stock                         182           -             - 
          ------------------------------------------------------------------------------------------------------------------- 
</TABLE>


- --------------------------------------------------------------------------------
12. INTERGROUP TRANSACTIONS

             SALES AND PURCHASES - U. S. Steel Group sales to the Marathon
             Group in 1997 totaled $2 million. U. S. Steel Group purchases from
             the Marathon Group totaled $29 million, $21 million and $17 million
             in 1997, 1996 and 1995, respectively. At December 31, 1997 and
             1996, U. S. Steel Group accounts payable included $3 million
             related to transactions with the Marathon Group. These transactions
             were conducted on an arm's-length basis.

             INCOME TAXES RECEIVABLE FROM/PAYABLE TO OTHER GROUPS - At
             December 31, 1997 and 1996, amounts receivable from/payable to
             other groups for income taxes were included in the balance sheet as
             follows:


<TABLE>
<CAPTION>
             (In millions)                                December 31       1997        1996
             --------------------------------------------------------------------------------
             <S>                                                            <C>       <C>
             Current:
              Receivables                                                   $  22     $  30
              Accounts payable                                                  2         1
             Noncurrent:
              Investments and long-term receivables                            97        84
             --------------------------------------------------------------------------------
</TABLE>


             These amounts have been determined in accordance with the tax
             allocation policy described in Note 4. Amounts classified as
             current are settled in cash in the year succeeding that in which
             such amounts are accrued. Noncurrent amounts represent estimates of
             intergroup tax effects of certain issues for years that are still
             under various stages of audit and administrative review. Such tax
             effects are not settled among the groups until the audit of those
             respective tax years is closed. The amounts ultimately settled for
             open tax years will be different than recorded noncurrent amounts
             based on the final resolution of all of the audit issues for those
             years.

S-10

<PAGE>
 
- --------------------------------------------------------------------------------
13. PENSIONS

             The U. S. Steel Group has noncontributory defined benefit plans
             covering substantially all employees. Benefits under these plans
             are based upon years of service and final average pensionable
             earnings, or a minimum benefit based upon years of service,
             whichever is greater. In addition, pension benefits under the
             contributory benefit provisions cover certain participating
             salaried employees and are based upon a percent of total career
             pensionable earnings. The funding policy for defined benefit plans
             provides that payments to the pension trusts shall be equal to the
             minimum funding requirements of ERISA plus such additional amounts
             as may be approved. Certain of these plans provide benefits to USX
             corporate employees, and the related costs or credits for such
             employees are allocated to all groups (Note 4).

                 The U. S. Steel Group also participates in multiemployer plans,
             most of which are defined benefit plans associated with coal
             operations.

             PENSION COST (CREDIT) The defined benefit cost for major plans for
             1997, 1996 and 1995 was determined assuming an expected long-term
             rate of return on plan assets of 9.5%, 10% and 10%, respectively.
             The total pension credit is primarily included in selling, general
             and administrative expenses.


<TABLE>
<CAPTION>
             (In millions)                                                           1997          1996          1995
             ----------------------------------------------------------------------------------------------------------
             <S>                                                                   <C>           <C>           <C> 
             Major plans:
              Cost of benefits earned during the period                            $    65       $    69       $    57
              Interest cost on projected benefit obligation
               (7.5% for 1997; 7% for 1996; and 8% for 1995)                           517           523           563
              Return on assets - actual return                                      (1,755)       (1,136)       (1,842)
                               - deferred gain                                       1,012           367         1,084
              Net amortization of unrecognized losses                                    6            10             4
                                                                                   -------       -------   ------------
                 Total major plans                                                    (155)         (167)         (134)
             Multiemployer and other plans                                               2             2             2
                                                                                   -------       -------   ------------
                 Total periodic pension credit                                        (153)         (165)         (132)
             Settlement and termination costs                                            4             6            -
                                                                                   -------       -------   ------------
                 Total pension credit                                              $  (149)      $  (159)      $  (132)
             ----------------------------------------------------------------------------------------------------------
</TABLE>


             FUNDS' STATUS - The assumed discount rate used to measure the
             benefit obligations of major plans was 7% at December 31, 1997, and
             7.5% at December 31, 1996. The assumed rate of future increases in
             compensation levels was 4% at both year-ends. The following table
             sets forth the plans' funded status and the amounts reported in the
             U. S. Steel Group's balance sheet:


<TABLE>
<CAPTION>
             (In millions)                                         December 31                    1997          1996
             ------------------------------------------------------------------------------------------------------------
             <S>                                                                                  <C>        <C> 
             Reconciliation of funds' status to reported amounts:  
             Projected benefit obligation (PBO)/(a)/                                               $(7,314)      $(7,258)
             Plan assets at fair market value/(b)/                                                   9,775         8,860
                                                                                                   -------   ------------
                 Assets in excess of PBO/(c)/                                                        2,461         1,602
             Unrecognized net gain from transition                                                    (209)         (253)
             Unrecognized prior service cost                                                           583           631
             Unrecognized net gain                                                                    (878)         (244)
             Additional minimum liability/(d)/                                                         (65)          (65)
                                                                                                   -------   ------------
                 Net pension asset included in balance sheet                                       $ 1,892       $ 1,671
             ------------------------------------------------------------------------------------------------------------ 
             /(a)/ PBO includes:
                     Accumulated benefit obligation (ABO)                                          $(6,928)      $(6,884)
                     Vested benefit obligation                                                      (6,535)       (6,477)
             /(b)/ Types of assets held:
                     USX stocks                                                                         -              1%
                     Stocks of other corporations                                                       55%           54%
                     U.S. Government securities                                                         17%           19%
                     Corporate debt instruments and other                                               28%           26%
             /(c)/ Includes several small plans that have ABOs in excess of
                    plan assets:
                      PBO                                                                          $   (69)      $   (67)
                      Plan assets                                                                       -             -
                                                                                                   -------   ------------
                      PBO in excess of plan assets                                                  $  (69)      $   (67)
             /(d)/ Additional minimum liability recorded was offset by the following:
                     Intangible asset                                                              $    27       $    39
                     Stockholders' equity adjustment - net of deferred income tax                       25            17
             ------------------------------------------------------------------------------------------------------------ 
</TABLE>


                                                                            S-11

<PAGE>
 
- --------------------------------------------------------------------------------
14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

             The U. S. Steel Group has defined benefit retiree health and life
             insurance plans covering most employees upon their retirement.
             Health benefits are provided, for the most part, through
             comprehensive hospital, surgical and major medical benefit
             provisions subject to various cost sharing features. Life insurance
             benefits are provided to nonunion retiree beneficiaries primarily
             based on employees' annual base salary at retirement. These plans
             provide benefits to USX corporate employees, and the related costs
             for such employees are allocated to all groups (Note 4). For union
             retirees, benefits are provided for the most part based on fixed
             amounts negotiated in labor contracts with the appropriate unions.
             Except for certain life insurance benefits paid from reserves held
             by insurance carriers, most benefits have not been prefunded.

             POSTRETIREMENT BENEFIT COST - Postretirement benefit cost for
             defined benefit plans for 1997, 1996 and 1995 was determined
             assuming discount rates of 7.5%, 7% and 8%, respectively, and an
             expected return on plan assets of 9.5% for 1997 and 10% for 1996
             and 1995:


<TABLE>
<CAPTION>
             (In millions)                                                           1997          1996          1995
             ----------------------------------------------------------------------------------------------------------
             <S>                                                                   <C>           <C>           <C> 
 
             Cost of benefits earned during the period                             $  15         $  18         $  19       
             Interest on accumulated postretirement benefit obligation (APBO)        153           160           176       
             Return on assets - actual return                                        (19)          (12)          (11)      
                              - deferred gain (loss)                                   8             1            (1)      
             Amortization of unrecognized (gains) losses                              (9)            5             2       
                                                                                   -----         -----   -----------       
                 Total defined benefit plans                                         148           172           185       
             Multiemployer plans/(a)/                                                 15            15            15       
                                                                                   -----         -----   -----------       
                 Total postretirement benefit cost                                 $ 163         $ 187         $ 200   
            ----------------------------------------------------------------------------------------------------------    
</TABLE>


             /(a)/ Payments are made to a multiemployer benefit plan created by
                   the Coal Industry Retiree Health Benefit Act of 1992 based on
                   assigned beneficiaries receiving benefits. The present value
                   of this unrecognized obligation is broadly estimated to be
                   $108 million, including the effects of future medical
                   inflation, and this amount could increase if additional
                   beneficiaries are assigned.

             FUNDS' STATUS - The following table sets forth the plans' funded
             status and the amounts reported in the U. S. Steel Group's balance
             sheet:


<TABLE>
<CAPTION>
             (In millions)                                         December 31                    1997          1996
             ------------------------------------------------------------------------------------------------------------
             <S>                                                                                  <C>        <C> 
             Reconciliation of funds' status to reported amounts:
             Fair value of plan assets                                                            $  258          $  111
                                                                                                  ------     ------------
             Less APBO attributable to:                                                                                
              Retirees                                                                             1,576           1,622
              Fully eligible plan participants                                                       199             180
              Other active plan participants                                                         295             309
                                                                                                  ------     ------------
                 Total APBO                                                                        2,070           2,111
                                                                                                  ------     ------------
                 APBO in excess of plan assets                                                     1,812           2,000
             Unrecognized net gain                                                                   327             264
             Unrecognized prior service cost                                                         (11)            (15)
                                                                                                  ------     ------------
                 Accrued liability included in balance sheet                                      $2,128          $2,249
             ------------------------------------------------------------------------------------------------------------
</TABLE>


               The assumed discount rate used to measure the APBO was 7% and
             7.5% at December 31, 1997, and December 31, 1996, respectively. The
             assumed rate of future increases in compensation levels was 4% at
             both year-ends. The weighted average health care cost trend rate in
             1998 is approximately 8%, declining to an ultimate rate in 2004 of
             approximately 5%. A one percentage point increase in the assumed
             health care cost trend rates for each future year would have
             increased the aggregate of the service and interest cost components
             of the 1997 net periodic postretirement benefit cost by $17 million
             and would have increased the APBO as of December 31, 1997, by $186
             million.

S-12

<PAGE>
 
15. INCOME TAXES

             Income tax provisions and related assets and liabilities
             attributed to the U. S. Steel Group are determined in accordance
             with the USX group tax allocation policy (Note 4).
                Provisions (credits) for estimated income taxes were:


<TABLE>
<CAPTION>
                                              1997                            1996                               1995               

                                  ---------------------------     ----------------------------       -----------------------------  

             (In millions)        Current    Deferred   Total     Current    Deferred    Total       Current    Deferred    Total  
             ---------------------------------------------------------------------------------------------------------------------  

             <S>                  <C>       <C>         <C>       <C>       <C>       <C>            <C>        <C>        <C>
             Federal              $   37     $  168   $  205        $ (51)   $  138    $   87        $    8      $ 150     $  158 
             State and local           4         25       29            -        12        12             9        (17)        (8)
             Foreign                   -          -        -           (7)        -        (7)            -          -          - 
                                  ------     ------   ------        ------   ------    ------        ------      -----     ------  
               Total              $   41     $  193   $  234        $ (58)   $  150    $   92        $   17      $ 133     $  150  
             --------------------------------------------------------------------------------------------------------------------
</TABLE>
 

A reconciliation of federal statutory tax rate (35%) to total provisions
follows:


<TABLE> 
<CAPTION> 
             (In millions)                                                             1997           1996          1995 
             ------------------------------------------------------------------------------------------------------------
             <S>                                                                     <C>           <C>            <C> 
             Statutory rate applied to income before income taxes                    $  240        $   129        $  159 
             Credits other than foreign tax credits                                     (15)           (40)            - 
             State and local income taxes after federal income tax effects               19              8            (5)
             Excess percentage depletion                                                (10)            (7)           (8)
             Effects of partially-owned companies                                        (3)            (6)           (8)
             Effects of foreign operations, including foreign tax                                                        
              credits                                                                    (3)            (2)            1 
             Nondeductible business expenses                                              2              2             7 
             Adjustment of prior years' income taxes                                      6              9             3 
             Adjustment of valuation allowances                                          (1)             -             2 
             Other                                                                       (1)            (1)           (1)
                                                                                     ------         ------        -------
                Total provisions                                                     $  234         $   92        $  150  
             ------------------------------------------------------------------------------------------------------------
</TABLE>
 

Deferred tax assets and liabilities resulted from the following:


<TABLE> 
<CAPTION> 
             (In millions)                                                     December 31       1997         1996  
             -------------------------------------------------------------------------------------------------------
             <S>                                                                               <C>           <C>   
             Deferred tax assets:                                                                                   
              Minimum tax credit carryforwards                                                 $    180      $   320
              General business credit carryforwards                                                   -           24
              State tax loss carryforwards (expiring in 1998 through 2012)                           75          101
              Employee benefits                                                                     832          865
              Receivables, payables and debt                                                         59           77
              Contingency and other accruals                                                         50           50
              Other                                                                                  62           97
              Valuation allowances                                                                  (52)         (71)
                                                                                               --------     -------- 
                Total deferred tax assets/(a)/                                                    1,206        1,463 
                                                                                               --------     -------- 
             Deferred tax liabilities:                                                                              
              Property, plant and equipment                                                         221          342
              Prepaid pensions                                                                      657          600
              Inventory                                                                              13           13
              Federal effect of state deferred tax assets                                             6           15
              Other                                                                                 106          106
                                                                                               --------     -------- 
                Total deferred tax liabilities                                                    1,003        1,076
                                                                                               --------     -------- 
                 Net deferred tax assets                                                       $    203     $    387 
             ------------------------------------------------------------------------------------------------------- 
</TABLE>


             /(a)/ USX expects to generate sufficient future taxable income to
                   realize the benefit of the U. S. Steel Group's deferred tax
                   assets.

                     The consolidated tax returns of USX for the years 1990
             through 1994 are under various stages of audit and administrative
             review by the IRS. USX believes it has made adequate provision for
             income taxes and interest which may become payable for years not
             yet settled.

                                                                            S-13

<PAGE>
 
- --------------------------------------------------------------------------------
16. INVESTMENTS AND LONG-TERM RECEIVABLES


<TABLE> 
<CAPTION> 
             (In millions)                                             December 31        1997         1996
             ------------------------------------------------------------------------------------------------
             <S>                                                                         <C>          <C> 
             Equity method investments                                                   $  472       $  412
             Other investments                                                               56           63
             Receivables due after one year                                                  22           30
             Income tax receivable from other groups (Note 12)                               97           84
             Forward currency contracts                                                       -            3
             Other                                                                           23           29
                                                                                         ------       ------
               Total                                                                     $  670       $  621 
             -----------------------------------------------------------------------------------------------
</TABLE>
 

               Summarized financial information of affiliates accounted for by
             the equity method of accounting follows:


<TABLE> 
<CAPTION> 
             (In millions)                                                   1997        1996         1995  
             -----------------------------------------------------------------------------------------------
             <S>                                                          <C>          <C>          <C> 
             Income data - year:                                                                             
              Revenues                                                    $  3,143     $  2,868     $  3,268
              Operating income                                                 228          223          259
              Net income                                                       139          140          161
             -----------------------------------------------------------------------------------------------
             Balance sheet data - December 31:                                                               
              Current assets                                              $    924     $    779             
              Noncurrent assets                                              2,006        1,574             
              Current liabilities                                              627          583             
              Noncurrent liabilities                                           800          845              
             -----------------------------------------------------------------------------------------------
</TABLE>


                       Effective June 1, 1997, the U. S. Steel Group entered
             into a strategic partnership with two limited partners to acquire
             an interest in three coke batteries at its Clairton (Pa.) Works and
             to operate and sell coke and byproducts from those facilities. The
             U. S. Steel Group is the general partner and is responsible for
             purchasing, operations and products marketing. Proceeds as a result
             of the transaction were $361 million. The related unamortized
             deferred gains of $244 million at December 31, 1997 (included in
             deferred credits and other liabilities) are being recognized over
             the life of the partnership's assets. The U. S. Steel Group's
             partnership interest is accounted for under the equity method of
             accounting. The fair value attributed to the U. S. Steel Group for
             its general partnership interest exceeds the historical basis of
             contributed net assets by $38 million and is being amortized on a
             straight-line basis over the life of the partnership.

                       Dividends and partnership distributions received from
             equity affiliates were $13 million in 1997, $25 million in 1996 and
             $67 million in 1995.

                       U. S. Steel Group purchases of transportation services
             and semi-finished steel from equity affiliates totaled $424
             million, $460 million and $406 million in 1997, 1996 and 1995,
             respectively. At December 31, 1997 and 1996, U. S. Steel Group
             payables to these affiliates totaled $21 million and $23 million,
             respectively. U. S. Steel Group sales of steel and raw materials to
             equity affiliates totaled $802 million, $824 million and $768
             million in 1997, 1996 and 1995, respectively. At December 31, 1997
             and 1996, U. S. Steel Group receivables from these affiliates were
             $149 million. Generally, these transactions were conducted under
             long-term, market-based contractual arrangements.

- --------------------------------------------------------------------------------
17. INVENTORIES


<TABLE> 
<CAPTION> 
             (In millions)                   December 31         1997          1996   
             ------------------------------------------------------------------------
             <S>                                               <C>            <C>    
             Raw materials                                     $   130        $   124
             Semi-finished products                                331            309
             Finished products                                     187            162
             Supplies and sundry items                              57             53
                                                               -------        ------- 
                 Total                                         $   705        $   648 
             ------------------------------------------------------------------------  
</TABLE>


                       At December 31, 1997, and December 31, 1996,
             respectively, the LIFO method accounted for 93% and 92% of total
             inventory value. Current acquisition costs were estimated to exceed
             the above inventory values at December 31 by approximately $300
             million and $340 million in 1997 and 1996, respectively.

S-14

<PAGE>
 
- --------------------------------------------------------------------------------
18. LEASES

             Future minimum commitments for capital leases (including sale-
             leasebacks accounted for as financings) and for operating leases
             having remaining noncancelable lease terms in excess of one year
             are as follows:


<TABLE>
<CAPTION>
                                                                               Capital      Operating
             (In millions)                                                     Leases        Leases  
             ----------------------------------------------------------------------------------------
             <S>                                                              <C>           <C>      
                                                                                                     
             1998                                                             $      11     $     120
             1999                                                                    11           110
             2000                                                                    11            95
             2001                                                                    11           113
             2002                                                                    11            46
             Later years                                                            115            99
             Sublease rentals                                                         -            (1)
                                                                              ---------     ---------
              Total minimum lease payments                                          170     $     582
                                                                                            =========
             Less imputed interest costs                                             72              
                                                                              ---------              
              Present value of net minimum lease payments                                            
               included in long-term debt                                     $      98               
             ----------------------------------------------------------------------------------------
</TABLE>
 

                Operating lease rental expense:


<TABLE> 
<CAPTION> 
             (In millions)                                       1997          1996          1995    
             --------------------------------------------------------------------------------------
             <S>                                                <C>           <C>           <C> 
             Minimum rental                                     $   135       $   131       $   121  
             Contingent rental                                        6             5             9  
             Sublease rentals                                        (1)           (2)           (3) 
                                                                -------       -------       -------
              Net rental expense                                $   140       $   134       $   127   
             -------------------------------------------------------------------------------------- 
</TABLE>


                The U. S. Steel Group leases a wide variety of facilities
             and equipment under operating leases, including land and building
             space, office equipment, production facilities and transportation
             equipment. Most long-term leases include renewal options and, in
             certain leases, purchase options. In the event of a change in
             control of USX, as defined in the agreements, or certain other
             circumstances, lease obligations totaling $20 million may be
             declared immediately due and payable.

- --------------------------------------------------------------------------------
19. SALES OF RECEIVABLES

             The U. S. Steel Group participates in an agreement (the program)
             to sell an undivided interest in certain accounts receivable.
             Payments are collected from the sold accounts receivable; the
             collections are reinvested in new accounts receivable for the
             buyers; and a yield, based on defined short-term market rates, is
             transferred to the buyers. At December 31, 1997, the amount sold
             under the program that had not been collected was $350 million,
             which will be forwarded to the buyers at the end of the agreement
             in 1998, or in the event of earlier contract termination. If the U.
             S. Steel Group does not have a sufficient quantity of eligible
             accounts receivable to reinvest in for the buyers, the size of the
             program will be reduced accordingly. The amount sold under the
             program averaged $350 million in 1997, 1996 and 1995. The buyers
             have rights to a pool of receivables that must be maintained at a
             level of at least 115% of the program size. The U. S. Steel Group
             does not generally require collateral for accounts receivable, but
             significantly reduces credit risk through credit extension and
             collection policies, which include analyzing the financial
             condition of potential customers, establishing credit limits,
             monitoring payments and aggressively pursuing delinquent accounts.
             In the event of a change in control of USX, as defined in the
             agreement, the U. S. Steel Group may be required to forward
             payments collected on sold accounts receivable to the buyers.

                                                                            S-15

<PAGE>
 
- --------------------------------------------------------------------------------
20. PROPERTY, PLANT AND EQUIPMENT


<TABLE> 
<CAPTION> 
             (In millions)                                             December 31         1997         1996
             --------------------------------------------------------------------------------------------------
             <S>                                                                          <C>          <C>
             Land and depletable property                                                 $    161     $    155
             Buildings                                                                         477          471
             Machinery and equipment                                                         7,548        7,605
             Leased assets                                                                     109          116
                                                                                          --------     --------
                 Total                                                                       8,295        8,347
             Less accumulated depreciation, depletion and amortization                       5,799        5,796
                                                                                          --------     --------
                 Net                                                                      $  2,496     $  2,551
             --------------------------------------------------------------------------------------------------  
</TABLE>


                       Amounts in accumulated depreciation, depletion and
             amortization for assets acquired under capital leases (including
             sale-leasebacks accounted for as financings) were $70 million and
             $67 million at December 31, 1997, and December 31, 1996,
             respectively.

- --------------------------------------------------------------------------------
21. USX OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A
SUBSIDIARY TRUST

             In 1997, USX exchanged approximately 3.9 million 6.75%
             Convertible Quarterly Income Preferred Securities (Trust Preferred
             Securities) of USX Capital Trust I, a Delaware statutory business
             trust (Trust), for an equivalent number of shares of its 6.50%
             Cumulative Convertible Preferred Stock (6.50% Preferred Stock)
             (Exchange). The Exchange resulted in the recording of Trust
             Preferred Securities at a fair value of $182 million and a noncash
             credit to Retained Earnings of $10 million.

                       USX owns all of the common securities of the Trust, which
             was formed for the purpose of the Exchange. (The Trust Common
             Securities and the Trust Preferred Securities are together referred
             to as the Trust Securities.) The Trust Securities represent
             undivided beneficial ownership interests in the assets of the
             Trust, which consist solely of USX 6.75% Convertible Junior
             Subordinated Debentures maturing March 31, 2037 (Debentures),
             having an aggregate principal amount equal to the aggregate initial
             liquidation amount ($50.00 per security and $203 million in total)
             of the Trust Securities issued by the Trust. Interest and principal
             payments on the Debentures will be used to make quarterly
             distributions and to pay redemption and liquidation amounts on the
             Trust Preferred Securities. The quarterly distributions, which
             accumulate at the rate of 6.75% per annum on the Trust Preferred
             Securities and the accretion from fair value to the initial
             liquidation amount, are charged to income and included in net
             interest and other financial costs.

                       Under the terms of the Debentures, USX has the right to
             defer payment of interest for up to 20 consecutive quarters and, as
             a consequence, monthly distributions on the Trust Preferred
             Securities will be deferred during such period. If USX exercises
             this right, then, subject to limited exceptions, it may not pay any
             dividend or make any distribution with respect to any shares of its
             capital stock.

                       The Trust Preferred Securities are convertible at any
             time prior to the close of business on March 31, 2037 (unless such
             right is terminated earlier under certain circumstances) at the
             option of the holder, into shares of Steel Stock at a conversion
             price of $46.25 per share of Steel Stock (equivalent to a
             conversion ratio of 1.081 shares of Steel Stock for each Trust
             Preferred Security), subject to adjustment in certain
             circumstances.

                       The Trust Preferred Securities may be redeemed at any
             time at the option of USX, initially at a premium of 103.90% of the
             initial liquidation amount through March 31, 1998, and thereafter,
             declining annually to the initial liquidation amount on April 1,
             2003, and thereafter. They are mandatorily redeemable at March 31,
             2037, or earlier under certain circumstances.

                       Payments related to quarterly distributions and to the
             payment of redemption and liquidation amounts on the Trust
             Preferred Securities by the Trust are guaranteed by USX on a
             subordinated basis. In addition, USX unconditionally guarantees the
             Trust's Debentures. The obligations of USX under the Debentures,
             and the related indenture, trust agreement and guarantee constitute
             a full and unconditional guarantee by USX of the Trust's
             obligations under the Trust Preferred Securities.

S-16

<PAGE>
 
- --------------------------------------------------------------------------------
22. STOCKHOLDERS' EQUITY


<TABLE> 
<CAPTION> 
               (In millions, except per share data)                               1997          1996          1995
               ------------------------------------------------------------------------------------------------------
               <S>                                                              <C>            <C>           <C>
               PREFERRED STOCK:
                Balance at beginning of year                                    $     7        $     7        $    32
                Exchanged for trust preferred securities                             (4)           -              -
                Redeemed                                                            -              -              (25)
                                                                                -------        -------        -------
                Balance at end of year                                          $     3        $     7        $     7
               ------------------------------------------------------------------------------------------------------
               COMMON STOCKHOLDERS' EQUITY (Note 4):
                Balance at beginning of year                                    $ 1,559        $ 1,337        $   913
                Net income                                                          452            273            301
                6.50% preferred stock exchanged for
                 trust preferred securities (Note 21)                              (188)           -              -  
                Steel Stock issued                                                   53             55            234
                Dividends on preferred stock                                        (13)           (22)           (24)
                Dividends on Steel Stock (per share $1.00)                          (86)           (85)           (80)
                Deferred compensation adjustments                                   -                1             (2)
                Minimum pension liability adjustments (Note 13)                      (8)           -               (6)
                Other                                                                10            -                1
                                                                                -------        -------        -------
                Balance at end of year                                          $ 1,779        $ 1,559        $ 1,337
               ------------------------------------------------------------------------------------------------------
               TOTAL STOCKHOLDERS' EQUITY                                       $ 1,782        $ 1,566        $ 1,344
               ------------------------------------------------------------------------------------------------------
</TABLE>


- --------------------------------------------------------------------------------
23. DIVIDENDS

               In accordance with the USX Certificate of Incorporation,
               dividends on the Steel Stock and Marathon Stock are limited to
               the legally available funds of USX. Net losses of either Group,
               as well as dividends and distributions on any class of USX Common
               Stock or series of preferred stock and repurchases of any class
               of USX Common Stock or series of preferred stock at prices in
               excess of par or stated value, will reduce the funds of USX
               legally available for payment of dividends on both classes of
               Common Stock. Subject to this limitation, the Board of Directors
               intends to declare and pay dividends on the Steel Stock based on
               the financial condition and results of operations of the U. S.
               Steel Group, although it has no obligation under Delaware law to
               do so. In making its dividend decisions with respect to Steel
               Stock, the Board of Directors considers, among other things, the
               long-term earnings and cash flow capabilities of the U. S. Steel
               Group as well as the dividend policies of similar publicly traded
               steel companies.

                    Dividends on the Steel Stock are further limited to the
               Available Steel Dividend Amount. At December 31, 1997, the
               Available Steel Dividend Amount was at least $3,028 million. The
               Available Steel Dividend Amount will be increased or decreased,
               as appropriate, to reflect U. S. Steel Group net income,
               dividends, repurchases or issuances with respect to the Steel
               Stock and preferred stock attributed to the U. S. Steel Group and
               certain other items.

                                                                            S-17

<PAGE>
 
- --------------------------------------------------------------------------------
24. INCOME PER COMMON SHARE

               The method of calculating net income per share for the Steel
               Stock, the Marathon Stock and, prior to November 1, 1997, the
               Delhi Stock reflects the USX Board of Directors' intent that the
               separately reported earnings and surplus of the U. S. Steel
               Group, the Marathon Group and the Delhi Group, as determined
               consistent with the USX Certificate of Incorporation, are
               available for payment of dividends to the respective classes of
               stock, although legally available funds and liquidation
               preferences of these classes of stock do not necessarily
               correspond with these amounts.

                    Basic net income per share is calculated by adjusting net
               income for dividend requirements of preferred stock and the
               noncash credit on exchange of preferred stock and is based on the
               weighted average number of common shares outstanding.

                    Diluted net income per share assumes conversion of
               convertible securities for the applicable periods outstanding and
               assumes exercise of stock options, provided in each case, the
               effect is not antidilutive.


<TABLE>
<CAPTION>
                                                                         1997                 1996                   1995
                                                                 -------------------   -------------------    -------------------
                                                                  BASIC     DILUTED     BASIC     DILUTED      BASIC     DILUTED
                                                                  -----     --------    -----     --------     -----     --------
          <S>                                                    <C>        <C>        <C>        <C>         <C>        <C>
          COMPUTATION OF INCOME PER SHARE
          -------------------------------
          Net income (millions):
           Income before extraordinary loss                      $    452   $    452   $    275   $    275    $    303   $    303
           Dividends on preferred stock                               (13)       -          (22)       (22)        (24)       (24)

           Noncash credit from exchange of preferred stock             10        -          -          -           -          -
           Extraordinary loss                                         -          -           (2)        (2)         (2)        (2)
                                                                 --------   --------   --------   --------    --------   --------
 
           Net income applicable to Steel Stock                       449        452        251        251         277        277
           Effect of dilutive securities:
            Trust preferred securities                                -            6        -          -           -          - 
            Preferred stock                                           -          -          -          -           -           22
            Convertible debentures                                    -            2        -            3         -            6
                                                                 --------   --------   --------   --------    --------   --------
              Net income assuming conversions                    $    449   $    460   $    251   $    254    $    277   $    305
                                                                 ========   ========   ========   ========    ========   ========
          Shares of common stock outstanding (thousands):
           Average number of common shares outstanding             85,672     85,672     84,025     84,025      79,064     79,064
           Effect of dilutive securities:
            Trust preferred securities                                -        2,660        -          -           -          -
            Preferred stock                                           -        4,811        -          -           -        7,480
            Convertible debentures                                    -        1,025        -        1,925         -        2,814
            Stock options                                             -           35        -           12         -           21
                                                                 --------   --------   --------   --------    --------   --------
              Average common shares and dilutive effect            85,672     94,203     84,025     85,962      79,064     89,379
                                                                 ========   ========   ========   ========    ========   ========
          Per share:
           Income before extraordinary loss                      $   5.24   $   4.88   $   3.00   $   2.97    $   3.53   $   3.43
           Extraordinary loss                                         -          -         (.02)      (.02)       (.02)      (.02)
                                                                 --------   --------   --------   --------    --------   --------
           Net income                                            $   5.24   $   4.88   $   2.98   $   2.95    $   3.51   $   3.41
                                                                 ========   ========   ========   ========    ========   ========
</TABLE>
 

- --------------------------------------------------------------------------------
25. STOCK-BASED COMPENSATION PLANS AND STOCKHOLDER RIGHTS PLAN

               USX Stock-Based Compensation Plans and Stockholder Rights Plan
               are discussed in Note 21, and Note 23, respectively, to the USX
               consolidated financial statements.

                    In 1996, USX adopted SFAS No. 123, Accounting for Stock-
               Based Compensation and elected to continue to follow the
               accounting provisions of APB No. 25, as discussed in Note 2, to
               the USX consolidated financial statements. The U. S. Steel
               Group's actual stock-based compensation expense was $8 million in
               1997, $2 million in 1996 and $1 million in 1995. Incremental
               compensation expense, as determined under SFAS No. 123, was not
               material ($.02 or less per share for all years presented).
               Therefore, pro forma net income and earnings per share data have
               been omitted.

S-18

<PAGE>
 
- --------------------------------------------------------------------------------
26. DERIVATIVE INSTRUMENTS

                       The U. S. Steel Group uses derivative instruments, such
             as commodity swaps, to manage exposure to price fluctuations
             relevant to the cost of natural gas and nonferrous metals used in
             steel operations.

                       USX has used forward currency contracts to hedge foreign
             denominated debt, a portion of which has been attributed to the U.
             S. Steel Group.

                       The U. S. Steel Group remains at risk for possible
             changes in the market value of the derivative instrument; however,
             such risk should be mitigated by price changes in the underlying
             hedged item. The U. S. Steel Group is also exposed to credit risk
             in the event of nonperformance by counterparties. The credit
             worthiness of counterparties is subject to continuing review,
             including the use of master netting agreements to the extent
             practical, and full performance is anticipated.

                       The following table sets forth quantitative information
             by class of derivative instrument:


<TABLE>
<CAPTION>
                                                               FAIR            CARRYING     RECORDED                              
                                                               VALUE            AMOUNT      DEFERRED     AGGREGATE   
                                                              ASSETS            ASSETS       GAIN OR     CONTRACT    
             (In millions)                             (LIABILITIES)/(A)/   (LIABILITIES)    (LOSS)     VALUES/(B)/  
            ---------------------------------------------------------------------------------------------------------
            <S>                                        <C>                  <C>             <C>         <C>          
            DECEMBER 31, 1997:                                                                                       
            OTC commodity swaps/(c)/                           $    (1)         $    (1)      $    (1)       $     20
                                                               --------         --------      --------       --------
            Forward currency contract/(d)/:                                                                          
                  - receivable                                 $     1          $     1       $     -        $      7
            ---------------------------------------------------------------------------------------------------------
            December 31, 1996:                                                                                       
            OTC commodity swaps                                $     2          $     -       $     -        $     17
                                                               --------         --------      --------       --------
            Forward currency contract:                                                                               
                  - receivable                                 $     4          $     3       $     -        $     13
                  - payable                                          -                -             -               2
                                                               --------         --------      --------       -------- 
                    Total currencies                           $     4          $     3       $     -        $     15 
            ---------------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/  The fair value amounts are based on exchange-traded index
                    prices and dealer quotes.
             /(b)/  Contract or notional amounts do not quantify risk exposure,
                    but are used in the calculation of cash settlements under
                    the contracts.
             /(c)/  The OTC swap arrangements vary in duration with certain
                    contracts extending into 1999.
             /(d)/  The forward currency contract matures in 1998.

- --------------------------------------------------------------------------------
27. FAIR VALUE OF FINANCIAL INSTRUMENTS

             Fair value of the financial instruments disclosed herein is not
             necessarily representative of the amount that could be realized or
             settled, nor does the fair value amount consider the tax
             consequences of realization or settlement. The following table
             summarizes financial instruments, excluding derivative financial
             instruments disclosed in Note 26, by individual balance sheet
             account. As described in Note 4, the U. S. Steel Group's
             specifically attributed financial instruments and the U. S. Steel
             Group's portion of USX's financial instruments attributed to all
             groups are as follows:


<TABLE>
<CAPTION>
                                                                              1997             1996
                                                                       ----------------- ----------------
                                                                         FAIR   CARRYING   FAIR   CARRYING
             (In millions)                 December 31                  VALUE    AMOUNT   VALUE    AMOUNT
             ----------------------------------------------------------------------------------------------
             <S>                                                        <C>     <C>       <C>      <C>     
             FINANCIAL ASSETS:
              Cash and cash equivalents                                 $   18    $   18  $   23    $   23
              Receivables                                                  588       588     580       580
              Investments and long-term receivables                        131       131     132       132
                                                                        ------    ------  ------  --------
                  Total financial assets                                $  737    $  737  $  735    $  735
             ----------------------------------------------------------------------------------------------
             FINANCIAL LIABILITIES:
              Notes payable                                             $   13    $   13  $   18    $   18
              Accounts payable                                             687       687     667       667
              Accrued interest                                              11        11      22        22
              Long-term debt (including amounts due within one year)       448       412   1,037       982
              Trust preferred securities and preferred
               stock of subsidiary                                         248       248      65        64
                                                                        ------    ------  ------  --------
                  Total financial liabilities                           $1,407    $1,371  $1,809    $1,753
             ----------------------------------------------------------------------------------------------
</TABLE>


             Fair value of financial instruments classified as current assets or
             liabilities approximates carrying value due to the short-term
             maturity of the instruments. Fair value of investments and long-
             term receivables was based on discounted cash flows or other
             specific instrument analysis. Fair value of trust preferred
             securities and preferred stock of subsidiary was based on market
             prices. Fair value of long-term debt instruments was based on
             market prices where available or current borrowing rates available
             for financings with similar terms and maturities.

                                                                            S-19

<PAGE>
 
                       The U. S. Steel Group's unrecognized financial
             instruments consist of receivables sold and financial guarantees.
             It is not practicable to estimate the fair value of these forms of
             financial instrument obligations because there are no quoted market
             prices for transactions which are similar in nature. For details
             relating to sales of receivables see Note 19, and for details
             relating to financial guarantees see Note 28.

- --------------------------------------------------------------------------------
28. CONTINGENCIES AND COMMITMENTS

             USX is the subject of, or party to, a number of pending or
             threatened legal actions, contingencies and commitments relating to
             the U. S. Steel Group involving a variety of matters, including
             laws and regulations relating to the environment. Certain of these
             matters are discussed below. The ultimate resolution of these
             contingencies could, individually or in the aggregate, be material
             to the U. S. Steel Group financial statements. However, management
             believes that USX will remain a viable and competitive enterprise
             even though it is possible that these contingencies could be
             resolved unfavorably to the U. S. Steel Group.

             ENVIRONMENTAL MATTERS -

                       The U. S. Steel Group is subject to federal, state, and
             local laws and regulations relating to the environment. These laws
             generally provide for control of pollutants released into the
             environment and require responsible parties to undertake
             remediation of hazardous waste disposal sites. Penalties may be
             imposed for noncompliance. Accrued liabilities for remediation
             totaled $106 million and $107 million at December 31, 1997, and
             December 31, 1996, respectively. It is not presently possible to
             estimate the ultimate amount of all remediation costs that might be
             incurred or the penalties that may be imposed.

                       For a number of years, the U. S. Steel Group has made
             substantial capital expenditures to bring existing facilities into
             compliance with various laws relating to the environment. In 1997
             and 1996, such capital expenditures totaled $43 million and $90
             million, respectively. The U. S. Steel Group anticipates making
             additional such expenditures in the future; however, the exact
             amounts and timing of such expenditures are uncertain because of
             the continuing evolution of specific regulatory requirements.

             GUARANTEES -

                       Guarantees by USX of the liabilities of affiliated
             entities of the U. S. Steel Group totaled $50 million at December
             31, 1997, and $34 million at December 31, 1996. In the event that
             any defaults of guaranteed liabilities occur, USX has access to its
             interest in the assets of the affiliates to reduce potential U. S.
             Steel Group losses resulting from these guarantees. As of December
             31, 1997, the largest guarantee for a single affiliate was $17
             million.

             COMMITMENTS - 

                       At December 31, 1997, and December 31, 1996, contract
             commitments for the U. S. Steel Group's capital expenditures for
             property, plant and equipment totaled $156 million and $134
             million, respectively.

                       USX entered into a 15-year take-or-pay arrangement in
             1993, which requires the U. S. Steel Group to accept pulverized
             coal each month or pay a minimum monthly charge of approximately
             $1.3 million. Charges for deliveries of pulverized coal totaled $24
             million in 1997 and $23 million in 1996. If USX elects to terminate
             the contract early, a maximum termination payment of $114 million,
             which declines over the duration of the agreement, may be required.

                       The U. S. Steel Group is a party to a transportation
             agreement with a subsidiary of Transtar, Inc. (Transtar), for Great
             Lakes shipments of raw materials required by the U. S. Steel Group.
             The agreement is in effect until March 15, 2000, and requires the
             U. S. Steel Group to pay, at a minimum, Transtar's annual fixed
             costs related to the agreement, including lease/charter costs,
             depreciation of owned vessels, dry dock fees and other
             administrative costs. Total transportation costs under the
             agreement were $77 million in 1997 and $72 million in 1996,
             including fixed costs of $20 million in both years. The fixed costs
             are expected to continue at approximately the same level over the
             duration of the agreement.

S-20

<PAGE>
 
Selected Quarterly Financial Data (Unaudited)


<TABLE>
<CAPTION>
                                                                               1997                         
                                            --------------------------------------------------------------------------  
(In millions, except per share data)               4TH QTR.          3RD QTR.         2ND QTR.        1ST QTR. 
- ----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>               <C>              <C>             <C> 
Revenues                                           $  1,838          $ 1,735 /(a)/    $ 1,737 /(a)/   $ 1,631 /(a)/  
Income from operations                                  252              197 /(a)/        193 /(a)/       131 /(a)/     
Income before                                                                                  
  extraordinary loss                                    152              116               97              87
Net income                                              152              116               97              87
- ----------------------------------------------------------------------------------------------------------------------
STEEL STOCK DATA:                                                                              
- -----------------                                                                    
Income before                                                                                  
  extraordinary loss                                                                           
  applicable to Steel Stock                        $    149          $   114          $   105         $    81
  - Per share:   basic                                 1.74             1.32             1.23             .96
                 diluted                               1.64             1.25             1.06             .93
Dividends paid per share                                .25              .25              .25             .25
Price range of Steel                                                                           
 Stock/(b)/:                                                                                   
  - Low                                                  26-7/8           34-3/16          25-3/8          26-3/8
  - High                                                 36-15/16         40-3/4           35-5/8          33-3/8
- ----------------------------------------------------------------------------------------------------------------------

<CAPTION> 
                                                                              1996                                       
                                            --------------------------------------------------------------------------
(In millions, except per share data)              4TH QTR.           3RD QTR.         2ND QTR.        1ST QTR. 
- ----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                <C>              <C>             <C> 
Revenues                                          $ 1,794 /(a)/      $ 1,631 /(a)/    $ 1,646 /(a)/   $ 1,599 /(a)/   
Income from operations                                204 /(a)/          123 /(a)/         67 /(a)/        89 /(a)/   
Income before                                                                                                                   
  extraordinary loss                                  127                 70               32              46          
Net income                                            125                 70               32              46          
- ----------------------------------------------------------------------------------------------------------------------
STEEL STOCK DATA:                                                                                                                  
- -----------------                                                                                                             
Income before                                                                                                                   
  extraordinary loss                                                                                                            
  applicable to Steel Stock                       $   122            $    64          $    27         $    40               
  - Per share:   basic                               1.43                .76              .32             .49                
                 diluted                             1.36                .75              .32             .48                
Dividends paid per share                              .25                .25              .25             .25                
Price range of Steel                                                                                                            
 Stock/(b)/:                                                                                                                    
  - Low                                                26-1/2             24-1/8           27-3/4          30               
  - High                                               32                 29-5/8           35-7/8          37-7/8               
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
 

/(a)/ Reclassified to conform to current classifications.
/(b)/ Composite tape.

                                                                            S-21

<PAGE>
 
Principal Unconsolidated Affiliates (Unaudited)


<TABLE>
<CAPTION>
                                                                     December 31, 1997
          Company                                 Country                Ownership                     Activity
- --------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                   <C>                          <C>
Double Eagle Steel Coating Company             United States               50%                    Steel Processing          
PRO-TEC Coating Company                        United States               50%                    Steel Processing          
RMI Titanium Company                           United States               27%                    Titanium metal products   
Transtar, Inc.                                 United States               46%                    Transportation            
USS/Kobe Steel Company                         United States               50%                    Steel Products            
USS-POSCO Industries                           United States               50%                    Steel Processing          
Worthington Specialty Processing               United States               50%                    Steel Processing           
- -------------------------------------------------------------------------------------------------------------------------- 
</TABLE>



Supplementary Information on Mineral Reserves (Unaudited)

See the USX consolidated financial statements for Supplementary Information on
Mineral Reserves relating to the U. S. Steel Group, page U-30.

S-22

<PAGE>
 
             Five-Year Operating Summary


<TABLE>
<CAPTION>
             (Thousands of net tons, unless otherwise noted)            1997       1996    1995    1994    1993
             ---------------------------------------------------------------------------------------------------
             <S>                                                      <C>         <C>     <C>     <C>     <C>     
             RAW STEEL PRODUCTION                                                                                
              Gary, IN                                                 7,428       6,840   7,163   6,768   6,624 
              Mon Valley, PA                                           2,561       2,746   2,740   2,669   2,507 
              Fairfield, AL                                            2,361       1,862   2,260   2,240   2,203 
                                                                      ------------------------------------------ 
                  Total                                               12,350      11,448  12,163  11,677  11,334 
             ---------------------------------------------------------------------------------------------------
             RAW STEEL CAPABILITY                                                                                
              Continuous cast                                         12,800      12,800  12,500  11,990  11,850 
                  Total production as % of total capability             96.5        89.4    97.3    97.4    95.6 
             ---------------------------------------------------------------------------------------------------
             HOT METAL PRODUCTION                                     10,591       9,716  10,521  10,328   9,972 
             ---------------------------------------------------------------------------------------------------
             COKE PRODUCTION                                           5,757/(a)/  6,777   6,770   6,777   6,425 
             ---------------------------------------------------------------------------------------------------
             IRON ORE PELLETS  MINNTAC, MN                                                                       
              Shipments -                                             16,319      14,962  15,218  16,174  15,911 
             ---------------------------------------------------------------------------------------------------
             COAL PRODUCTION                                                                                     
              Metallurgical coal/(b)/                                  7,528       7,283   7,509   7,424   8,142 
              Steam coal/(b)(c)/                                           -           -       -       -   2,444 
                                                                      ------------------------------------------ 
                  Total                                                7,528       7,283   7,509   7,424  10,586 
             --------------------------------------------------------------------------------------------------- 
             COAL SHIPMENTS/(b)(c)/                                    7,811       7,117   7,502   7,698  10,980 
             --------------------------------------------------------------------------------------------------- 
             STEEL SHIPMENTS BY PRODUCT                                                                          
              Sheet and semi-finished steel products                   8,170       8,677   8,721   7,988   7,613 
              Tubular, plate and tin mill products                     3,473       2,695   2,657   2,580   2,356 
                                                                      ------------------------------------------ 
                  Total                                               11,643      11,372  11,378  10,568   9,969 
                  Total as % of domestic steel industry                 10.9        11.3    11.7    11.1    11.3 
             ---------------------------------------------------------------------------------------------------
             STEEL SHIPMENTS BY MARKET                                                                           
              Steel service centers                                    2,746       2,831   2,564   2,780   2,831 
              Transportation                                           1,758       1,721   1,636   1,952   1,771 
              Further conversion:                                                                                
               Joint ventures                                          1,568       1,542   1,332   1,308   1,074 
               Trade customers                                         1,378       1,227   1,084   1,058   1,150 
              Containers                                                 856         874     857     962     835 
              Construction                                               994         865     671     722     667 
              Oil, gas and petrochemicals                                810         746     748     367     342 
              Export                                                     453         493   1,515     355     327 
              All other                                                1,080       1,073     971   1,064     972 
                                                                      ------------------------------------------ 
                  Total                                               11,643      11,372  11,378  10,568   9,969  
             ---------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/ The reduction in coke production in 1997 reflected U. S.
                   Steel's entry into a strategic partnership with two limited
                   partners to acquire an interest in three coke batteries at
                   its Clairton (Pa.) Works.
             /(b)/ The Maple Creek Coal Mine, which was idled in January 1994
                   and sold in June 1995, produced 1.0 million net tons of
                   metallurgical coal and 0.7 million net tons of steam coal in
                   1993.
             /(c)/ The Cumberland Coal Mine, which was sold in June 1993,
                   produced 1.6 million net tons in 1993 prior to the sale.

                                                                            S-23

<PAGE>
 
             Five-Year Financial Summary


<TABLE>
<CAPTION>
             (Dollars in millions, except as noted)                     1997      1996         1995          1994          1993
             ------------------------------------------------------------------------------------------------------------------
             <S>                                                     <C>       <C>         <C>           <C>           <C>    
             REVENUES  
              Steel and related businesses 
               Sheet and semi-finished     
                steel products                                       $ 3,820   $ 3,677      $ 3,623      $  3,335      $  3,082   
               Tubular, plate and tin mill products                    1,754     1,635        1,677         1,518         1,302   
               Raw materials (coal, coke and iron ore)                   671       757          731           754           740   
               All other                                                 548       411          369           313           403   
                                                                     ----------------------------------------------------------   
                  Subtotal steel and related businesses                6,793     6,480        6,400         5,920         5,527   
              Steel and related  equity affiliates                        53        55           80            50            (2)  
                                                                     ----------------------------------------------------------   
                Total steel and related                                6,846     6,535        6,480         5,970         5,525   
              Administrative and other businesses                         95        82           77           171           297   
              Gain on affiliate stock offering                             -        53            -             -             -   
                                                                     ----------------------------------------------------------   
                 Total revenues                                      $ 6,941   $ 6,670/(a)/ $ 6,557/(a)/ $  6,141/(a)/ $  5,822/(a)/

             ------------------------------------------------------------------------------------------------------------------   
             INCOME FROM OPERATIONS                                                                                               
              Steel and related businesses                           $   522   $   167      $   412      $    228      $    186   
              Steel and related  equity affiliates                        53        55           80            50            (2)  
                                                                     ----------------------------------------------------------   
                Total steel and related                                  575       222          492           278           184   
              Administrative and other businesses                        198       208          106           110           (81)  
              Gain on affiliate stock offering                             -        53            -             -             -   
              Restructuring charges                                        -         -            -             -           (42)  
              Impairment of long-lived assets                              -         -          (16)            -             -   
                                                                     ----------------------------------------------------------   
                 Total income from operations                            773       483/(a)/     582/(a)/      388/(a)/       61/(a)/


              Net interest and other financial costs                      87       116          129           140           271   
              Provision (credit) for income taxes                        234        92          150            47           (41)  
             ------------------------------------------------------------------------------------------------------------------   
             INCOME (LOSS) BEFORE EXTRAORDINARY LOSS                                                                              
               and Cumulative Effect of Change in                                                                                 
               Accounting Principle                                  $   452   $   275      $   303      $    201      $   (169)  
              Per common share - basic (in dollars)                     5.24      3.00         3.53          2.35         (2.96)
                               - diluted (in dollars)                   4.88      2.97         3.43          2.33         (2.96)
                                                                                                                                
             NET INCOME (LOSS)                                       $   452   $   273      $   301      $    201      $   (238)
              Per common share - basic (in dollars)                     5.24      2.98         3.51          2.35         (4.04)
                               - diluted (in dollars)                   4.88      2.95         3.41          2.33         (4.04)
             ------------------------------------------------------------------------------------------------------------------ 
             BALANCE SHEET POSITION AT YEAR-END                                                                                 
              Current assets                                         $ 1,531   $ 1,428      $ 1,444      $  1,780      $  1,562 
              Net property, plant and equipment                        2,496     2,551        2,512         2,536         2,653 
              Total assets                                             6,694     6,580        6,521         6,480         6,629 
              Short-term debt                                             67        91          101            21            11 
              Other current liabilities                                1,267     1,208        1,418         1,246         1,612 
              Long-term debt                                             456     1,014          923         1,432         1,551 
              Employee benefits                                        2,338     2,430        2,424         2,496         2,491 
              Trust preferred securities and                                                                                    
               preferred stock of subsidiary                             248        64           64            64             - 
              Common stockholders' equity                              1,779     1,559        1,337           913           585 
                Per share (in dollars)                                 20.56     18.37        16.10         12.01          8.32 
             ------------------------------------------------------------------------------------------------------------------ 
             CASH FLOW DATA                                                                                                     
              Net cash from operating activities                     $   470   $    86      $   587      $     78      $     90 
              Capital expenditures                                       261       337          324           248           198 
              Disposal of assets                                         420       161           67            19           291 
              Dividends paid                                              96       104           93            98            85 
             ------------------------------------------------------------------------------------------------------------------ 
             EMPLOYEE DATA/(b)/                                                                                                 
              Total employment costs                                 $ 1,417   $ 1,372      $ 1,381      $  1,402      $  1,267 
              Average employment cost                                                                                           
               (dollars per hour)                                      31.63     30.35        31.24         31.15         28.09 
              Average number of employees                             20,683    20,831       20,845        21,310        21,527 
              Number of pensioners at year-end                        93,952    96,510       99,062       101,732       104,607 
             ------------------------------------------------------------------------------------------------------------------ 
             STOCKHOLDER DATA AT YEAR-END                                                                                    
              Number of common shares                                                                                           
               outstanding (in millions)                                86.6      84.9         83.0          76.0          70.3 
              Registered shareholders (in thousands)                    65.1      71.0         76.7          81.2          84.3 
              Market price of common stock                           $31.250   $31.375      $30.750      $ 35.500      $ 43.250 
             ------------------------------------------------------------------------------------------------------------------
</TABLE>
         

             /(a)/ Reclassified to conform to 1997 classifications.
             /(b)/ Excludes employee related costs attributed to restructuring 
                   charges.                                                    

S-24

<PAGE>
 
 
            Management's Discussion and Analysis


                The U. S. Steel Group includes U. S. Steel, which is primarily
             engaged in the production and sale of steel mill products, coke and
             taconite pellets. The U. S. Steel Group also includes the
             management of mineral resources, domestic coal mining and
             engineering and consulting services (together with U. S. Steel, the
             "Steel & Related Businesses"). Steel & Related Equity Affiliates
             includes joint ventures such as USS/Kobe Steel Ltd. ("USS/Kobe"),
             USS-POSCO Industries ("USS-POSCO"), PRO-TEC Coating Company ("PRO-
             TEC"), and Transtar Inc. Other businesses that are part of the U.
             S. Steel Group include real estate development and management, and
             leasing and financing activities. Management's Discussion and
             Analysis should be read in conjunction with the U. S. Steel Group's
             Financial Statements and Notes to Financial Statements.

                In 1997, U. S. Steel Group's income from operations increased
             primarily due to higher average steel product prices, higher
             shipments and a benefit of $40 million from insurance settlement
             payments related to a 1996 blast furnace hearth breakout.

                Certain sections of Management's Discussion and Analysis include
             forward-looking statements concerning trends or events potentially
             affecting the businesses of the U. S. Steel Group. These statements
             typically contain words such as "anticipates," "believes,"
             "estimates," "expects" or similar words indicating that future
             outcomes are not known with certainty and subject to risk factors
             that could cause these outcomes to differ significantly from those
             projected. In accordance with "safe harbor" provisions of the
             Private Securities Litigation Reform Act of 1995, these statements
             are accompanied by cautionary language identifying important
             factors, though not necessarily all such factors, that could cause
             future outcomes to differ materially from those set forth in
             forward-looking statements. For additional risk factors affecting
             the businesses of the U. S. Steel Group, see Supplementary Data
             Disclosures About Forward-Looking Statements USX Form 10-K.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF INCOME

                REVENUES for each of the last three years are summarized in the
             following table: