<PAGE>
 
                                   FORM 10-K                                1996

                                 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, 1996
                                      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:*


<TABLE> 
<CAPTION> 
=====================================================================================================
                                         Title of Each Class
- -----------------------------------------------------------------------------------------------------
<S>                                              <C>
USX-Marathon Group                               6-3/4% Exchangeable Notes Due 2000
   Common Stock, par value $1.00                 Zero Coupon Convertible Senior Debentures
USX-U. S. Steel Group                               Due 2005
   Common Stock, par value $1.00                 7% Convertible Subordinated Debentures Due 2017
USX-Delhi Group                                  5-3/4% Convertible Subordinated Debentures
   Common Stock, par value $1.00                    Due 2001
6.50% Cumulative Convertible Preferred           8-7/8% Notes Due 1997
    (Liquidation Preference $50.00 per share)    8-3/4% Cumulative Monthly Income Preferred Shares,
                                                    Series A (Liquidation Preference $25 per share)**
- -----------------------------------------------------------------------------------------------------
         Obligations of Marathon Oil Company, a wholly owned subsidiary of the registrant***
- -----------------------------------------------------------------------------------------------------
                8-1/2% Sinking Fund Debentures Due 2006  7% Guaranteed Notes Due 2002
=====================================================================================================
</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,
1997: $10.5 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 287,601,839 shares of USX-Marathon Group Common Stock, 84,922,872
shares of USX-U. S. Steel Group Common Stock and 9,448,269 shares of USX-Delhi
Group Common Stock outstanding as of January 31, 1997.

Documents Incorporated By Reference:
  Proxy Statement dated March 10, 1997 is incorporated in Part III.
  Proxy Statement dated April 13, 1992 is incorporated in Part IV.
- --------------------
  * 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, a wholly owned subsidiary of the registrant.
*** All of the listed obligations of Marathon Oil Company have been
    guaranteed by the registrant.

<PAGE>
 
                                     INDEX


<TABLE>
<CAPTION>


PART I
<S>                      <C>                                                    <C> 
                         NOTE ON PRESENTATION................................     2            
                                                                                               

  Item 1.                BUSINESS                                                              
                            USX CORPORATION...................................     3            
                            MARATHON GROUP....................................     5            
                            U. S. STEEL GROUP.................................    24            
                            DELHI GROUP.......................................    34            

  Item 2.                PROPERTIES...........................................    43            

  Item 3.                LEGAL PROCEEDINGS                                                     
                            MARATHON GROUP....................................    43            
                            U. S. STEEL GROUP.................................    45            
                            DELHI GROUP.......................................    50            

  Item 4.                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..    50            
                                                                                               

PART II                                                                                        

  Item 5.                MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED                     
                            STOCKHOLDER MATTERS...............................    51            

  Item 6.                SELECTED FINANCIAL DATA                                               
                            USX CONSOLIDATED..................................    53            
                            MARATHON GROUP....................................    55            
                            U. S. STEEL GROUP.................................    56            
                            DELHI GROUP.......................................    57            

  Item 7.                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                     
                         CONDITION AND RESULTS OF OPERATIONS                                   
                            USX CONSOLIDATED..................................  U-38            
                            MARATHON GROUP....................................  M-23            
                            U. S. STEEL GROUP.................................  S-24            
                            DELHI GROUP.......................................  D-20            

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

  Item 9.                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                      
                          ACCOUNTING AND FINANCIAL DISCLOSURE................    58            
                                                                                               

PART III                                                                                       

  Item 10.               DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..    59            

  Item 11.               MANAGEMENT REMUNERATION.............................    60            

  Item 12.               SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS                       
                          AND MANAGEMENT.....................................    60            

  Item 13.               CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......    60            
                                                                                               

PART IV                                                                                        

  Item 14.               EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS                  
                          ON FORM 8-K........................................    61             
 
SIGNATURES...................................................................    64
 
GLOSSARY OF CERTAIN DEFINED TERMS............................................    65
 
SUPPLEMENTARY DATA
 
  SUMMARIZED FINANCIAL INFORMATION OF MARATHON OIL COMPANY...................    67

</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, in the
steel business through its U. S. Steel Group and in the gas gathering and
processing business through its Delhi Group.  USX has three classes of common
stock, USX-Marathon Group Common Stock ("Marathon Stock"), USX-U. S. Steel Group
Common Stock ("Steel Stock") and USX-Delhi Group Common Stock ("Delhi Stock"),
or the three classes collectively, the ("Common 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.

  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, the U. S. Steel Group and the Delhi 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, the U. S. Steel Group and the Delhi Group, 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 three groups.  The attribution of assets,
liabilities (including contingent liabilities) and stockholders' equity among
the Marathon Group, the U. S. Steel Group and the Delhi 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,
Steel Stock and Delhi 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 any of the
groups which affect the overall cost of USX's capital could affect the results
of operations and financial condition of all 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 all
classes of USX common stock.  Accordingly, the USX consolidated financial
information should be read in connection with the Marathon Group, the U. S.
Steel Group and the Delhi Group financial information.

  For information regarding accounting matters and policies affecting the
Marathon Group, the U. S. Steel Group and the Delhi Group financial statements,
see "Financial Statements and Supplementary Data - Notes to Financial Statements
- - 1. Basis of Presentation and - 3. Corporate Activities" for each respective
group.  For information regarding dividend limitations and dividend policies
affecting holders of Marathon Stock, Steel Stock and Delhi 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 65.

FORWARD-LOOKING STATEMENTS

  Certain sections of Form 10-K, particularly Management's Discussion and
Analysis, Item 1. Business and, for the Marathon and U. S. Steel Groups, Item 3.
Legal proceedings, 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.

                                       2

<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 correspond with
its three groups, 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; and domestic refining, marketing and transportation of
       petroleum products.  Marathon Group revenues as a percentage of total USX
       consolidated revenues were 68% in 1996 and 66% in each of 1995 and 1994.

     . The U. S. Steel Group includes U. S. Steel, the largest integrated steel
       producer in the United States (referred to hereinafter as "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,
       engineering and consulting services and technology licensing (together
       with U. S. Steel, the "Steel and Related Businesses").  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 27% in
       1996, and 31% in each of 1995 and 1994.

     . The Delhi Group ("Delhi") consists of Delhi Gas Pipeline Corporation
       ("DGP") and certain other subsidiaries of USX which are engaged in the
       purchasing, gathering, processing, treating, transporting and marketing
       of natural gas.  Delhi Group revenues as a percentage of total USX
       consolidated revenues were 5% in 1996, and 3% in each of 1995 and 1994.

                                       3

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


<TABLE>
<CAPTION>
 
                                             Operating
                                              Income         Assets       Capital
                              Revenues(a)  (Loss)(a)(b)   at Year-End   Expenditures
                              -----------  -------------  ------------  ------------
     <S>                      <C>          <C>            <C>           <C>
     (Millions)
     Marathon Group
      1996..................   $16,332        $1,234          $10,151         $  751
      1995..................    13,879           113           10,109            642
      1994..................    12,928           755           10,951            753
 
     U. S. Steel Group
      1996..................     6,547           360            6,580            337
      1995..................     6,475           500            6,521            324
      1994..................     6,077           324            6,480            248
 
     Delhi Group (c)
      1996..................     1,061            31              715             80
      1995..................       670            18              624             50
      1994..................       585           (35)             521             32
 
     Eliminations
      1996..................       (96)            -             (466)             -
      1995..................       (60)            -             (511)             -
      1994..................       (60)            -             (435)             -
 
     Total USX Corporation
      1996..................   $23,844        $1,625          $16,980         $1,168
      1995..................    20,964           631           16,743          1,016
      1994..................    19,530         1,044           17,517          1,033
 
</TABLE>


- -----------------
(a) Certain amounts in 1995 and 1994 were reclassified in 1996 to include gains
    and losses on disposal of operating assets.  Prior to reclassification,
    these gains and losses were included in other income.

(b) Includes the following:  Restructuring charges (credits) of $(6) million and
    $37 million for the Delhi Group in 1995 and 1994, respectively; favorable
    adjustments to the inventory market valuation reserve for the Marathon Group
    of $209 million, $70 million and $160 million in 1996, 1995 and 1994,
    respectively; and impairment of long-lived assets charges of $659 million
    for the Marathon Group and $16 million for the U. S. Steel Group in 1995.

(c) Prior to 1996, the Delhi Group reported natural gas treating, dehydration,
    compression and other service fees as a reduction to cost of sales.
    Beginning with 1996, these fees are reported as revenue; accordingly,
    amounts for prior years have been reclassified.

       For additional financial information about industry segments, see
"Financial Statements and Supplementary Data-Notes to Consolidated Financial
Statements-8. Operations and Segment Information" on page U-13.

       The total number of active USX Headquarters employees not assigned to a
specific group at year-end 1996 was 248.

       A narrative description of the primary businesses of each of the groups
is provided below.

                                       4

<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; and domestic refining, marketing and
transportation of petroleum products. Marathon Group revenues as a percentage of
total USX consolidated revenues were 68% in 1996 and 66% in each of 1995 and
1994.

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


<TABLE>
<CAPTION>
 
Revenues (a)
(Millions)                                  1996     1995     1994
                                           -------  -------  -------
<S>                                        <C>      <C>      <C>
     Refined Products....................  $ 7,132  $ 6,127  $ 5,622
     Merchandise.........................    1,000      941      869
     Liquid Hydrocarbons.................    1,111      881      800
     Natural Gas.........................    1,194      950      670
     Transportation and Other............      215      205      354
                                           -------  -------  -------
     Subtotal............................   10,652    9,104    8,315
     Matching Buy/Sell Transactions (b)..    2,912    2,067    2,071
     Excise Taxes (b)....................    2,768    2,708    2,542
                                           -------  -------  -------
       Total Revenues....................  $16,332  $13,879  $12,928
                                           =======  =======  =======
</TABLE>


- -----------------
(a) Amounts in 1995 and 1994 were reclassified to conform to 1996
    classifications.
(b) Included in both sales and operating costs, resulting in no effect on
    income.

     For additional financial information about all of USX's industry segments,
see "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements - 8. Operations and Segment Information" on page U-13.

     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 13th among U.S. based petroleum corporations on the
basis of worldwide liquid hydrocarbon and natural gas production. Marathon has
approximately 30 primary U.S. based exploration and production competitors, and
a much larger number worldwide. Marathon must also compete with these and many
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 ranks eighth among U.S. petroleum
corporations on the basis of crude oil refining capacity and tenth on the basis
of refined product sales volumes. Marathon competes in three distinct markets --
wholesale, branded and retail distribution -- for the sale of refined products
in the Midwest and Southeast, and believes it competes with over 50 companies in
the wholesale distribution of petroleum products to private brand marketers and
large commercial and industrial consumers; ten refiner/marketers in the supply
of branded petroleum products to dealers and jobbers; and over 700 petroleum
product retailers in the retail sale of petroleum products. Marathon also
competes in the convenience store industry through its 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.

     The Marathon Group had 20,468 active employees as of December 31, 1996. Of
that total, 13,026 were employees of Emro Marketing Company, primarily
representing employees at retail marketing

                                       5

<PAGE>
 
outlets. Certain Marathon hourly employees at two of its four operating
refineries and various other locations are represented by labor unions. Certain
hourly employees at the Texas City refinery are represented by the Oil, Chemical
and Atomic Workers Union under a labor agreement which expires on March 31,
1999. Certain hourly employees at the Detroit refinery are represented by the
International Brotherhood of Teamsters under a labor agreement which expires on
January 31, 2000.

Oil and Natural Gas Exploration and Development

     Marathon is currently conducting exploration and development activities in
13 countries, including the United States. Principal exploration activities are
in the United States, the United Kingdom, Egypt, Ireland, Gabon, the Netherlands
and Tunisia. Principal development activities are in the United States, the
United Kingdom, Ireland, Egypt, the Netherlands and Russia. Marathon is also
pursuing development opportunities in Syria.

     Exploration activities during 1996 resulted in discoveries in the United
States (both onshore and in the Gulf of Mexico), Egypt and Gabon.

     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):

 
Net Productive and Dry Wells Completed (a)


<TABLE>
<CAPTION>


                                         1996          1995       1994
                                         ----          ----       ----
Development (b)                        Prod.  Dry   Prod.  Dry  Prod.  Dry
                                       -----  ----  -----  ---  -----  ---
<S>                                    <C>    <C>   <C>    <C>  <C>    <C>
   United States...............          116     9    114    3    139    9
   Europe......................            3     -      2    1      3    -
   Other International.........            -     -      4    -      -    -
                                        ----  ----    ---   --    ---   --
  WORLDWIDE....................          119     9    120    4    142    9
                                        ====  ====    ===   ==    ===   ==
 
Exploratory
   United States...............           18    14     11   12     13   11
   Europe......................            -     2      -    4      2    1
   Other International.........            3     4      2    5      -    4
                                        ----  ----    ---   --    ---   --
  WORLDWIDE....................           21    20     13   21     15   16
                                        ====  ====    ===   ==    ===   ==
</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.

United States

     In the United States during 1996, Marathon completed 45 gross wildcat and
delineation ("exploratory") wells (32 net wells). Marathon drilled to total
depth 56 gross (37 net) exploratory wells of which 30 gross (21 net) wells
encountered hydrocarbons. Of these 30 wells, 11 gross (5 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, Wyoming,
Oklahoma, Alaska, New Mexico and Louisiana.

     Exploration expenditures during the three-year period ended December 31,
1996, totaled $342 million in the United States, of which $134 million was
incurred in 1996. Development expenditures during the three-year period ended
December 31, 1996, totaled $767 million in the United States, of which $268
million was incurred in 1996.

                                       6

<PAGE>
 
     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 considers the Gulf of Mexico a core area in its
domestic growth strategy, and has committed significant resources towards
exploitation of available opportunities.

     In 1996, Marathon and its co-venturers approved the Troika project
development plan for the Green Canyon 244 field, which consists of four blocks
(Green Canyon Blocks 200, 201, 244 and 245) located in the Central Gulf. The
Troika project is estimated to have recoverable reserves of 200 million gross
barrels of oil equivalent ("BOE"). First production is expected in late 1997
with gross production rates forecasted to be 80,000 barrels per day ("bpd") of
oil and 140 million cubic feet per day ("mmcfd") of gas. Marathon holds a 33.3%
working interest in this four-block unit. Additional recoveries from smaller
hydrocarbon accumulations in the unit are being evaluated.

     In 1996, Marathon and its co-venturer successfully completed a three-well
appraisal program on the Viosca Knoll Block 786 discovery in the deepwater Gulf
and confirmed commercial hydrocarbon reserves estimated at 95 million gross BOE.
Design and construction of a $430 million drilling and production project,
"Petronius," are underway. The project will include the construction of a 1,850
foot compliant tower, designed to flex with the forces of the ocean. It will
include drilling, production and processing facilities and connections to
pipeline infrastructure. The production design capacity of Petronius is 60,000
bpd and 100 mmcfd. Marathon holds a 50% interest in this project. First
production is expected by early 1999.

     In 1996, Marathon announced a discovery on Ewing Bank Block 963, 135 miles
south of New Orleans, Louisiana, in 1,740 feet of water. The well tested at
rates of 8,700 bpd of oil and 6.4 mmcfd of gas. A second well has confirmed
commercial hydrocarbon reserves of approximately 30 million BOE. A third well
was drilled in 1997 and temporarily abandoned, pending further evaluation. It is
expected that three wells will be completed subsea and tied back to the
Marathon-operated Ewing Bank 873 platform, which is located eight miles to the
northwest. First production is expected in the first quarter of 1998. Marathon
owns a 62.5% working interest in this discovery.

     Marathon also announced in 1996 an oil discovery on Ewing Bank Block 917,
130 miles south of New Orleans, Louisiana, in 1,185 feet of water. The well was
suspended, pending design and installation of subsea facilities. It also will be
tied back to the Ewing Bank 873 platform, which is located three miles to the
north. This single-well development is expected to recover approximately 10
million BOE. First production is expected in early 1998 from this discovery, in
which Marathon owns a 66.67% working interest.

     Texas - In the Cotton Valley Pinnacle Reef trend in east Texas, application
of three-dimensional seismic technology has led to twelve successful natural gas
wells since 1993, with current production from ten wells at approximately 100
net mmcfd. Three wells were completed during 1996, and two additional wells were
completed in early 1997 from the 1996 drilling program with one awaiting
completion. Marathon is the operator of these wells with working interests
ranging from 75% to 100%. Marathon continues an active exploration program in
this play and has recently acquired an additional 50,000 net acres in the trend
area, bringing its total leasehold position to approximately 90,000 net acres.
Five additional exploratory wells are expected to be drilled in this area during
1997.

International

     Outside the United States during 1996, Marathon completed 12 gross
exploratory wells (9 net wells). Marathon drilled to total depth 16 gross (10
net) exploratory wells in five countries. Of these 16 wells, 9 gross (5 net)
wells encountered hydrocarbons, four in Egypt, two each in Gabon and the
Netherlands and one in the United Kingdom. Two of the wells in Egypt began
producing in 1996.

                                       7

<PAGE>
 
The remaining wells in Egypt, Gabon and the Netherlands were suspended, pending
completion, while the United Kingdom well was suspended, pending further
evaluation.

     Marathon's expenditures for international oil and natural gas exploration
activities, including Marathon's 50% equity interest in CLAM Petroleum Company
("CLAM"), during the three-year period ended December 31, 1996, totaled $231
million, of which $61 million was incurred in 1996. Marathon's international
development expenditures, including CLAM, during the three-year period ended
December 31, 1996, totaled $294 million, of which $49 million was incurred in
1996.

     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 United Kingdom sector of the North Sea ("U.K. North Sea") where it is the
operator and owns a 41.6% revenue interest in the South, Central and North Brae
fields and a 38.5% revenue interest in the East Brae field. Marathon has
interests in 24 blocks in the U.K. North Sea and other offshore areas.

     In 1996, government approval was given to Marathon and its co-venturers for
development of the West Brae field in the U.K. North Sea. Work is ongoing for a
subsea development tied back to the nearby Marathon-operated Brae A platform.
Early in 1997, arrangements were approved to develop the field jointly with the
Sedgwick field, which is owned by a separate consortium. Gross reserves for the
joint West Brae/Sedgwick development are estimated at 40 million barrels of oil.
Production is expected to begin in late 1997, and the two fields are expected to
produce at a combined peak rate of 27,000 gross bpd in 1998. Marathon will
operate the joint development with a 28.1% interest.

     East Brae development continued during 1996 with the drilling and
completion of five wells. See "Oil and Natural Gas Production-International-
North Sea" for a description of Brae production operations.

     Two exploration wells were drilled in the North Sea during 1996. One well
was plugged and abandoned, while the other one encountered hydrocarbons and was
suspended pending further evaluation.

     Egypt - In January 1996, production commenced from the Ras El Ush field,
located onshore near the southern Gulf of Suez. Production is processed in
nearby third-party facilities and averaged 2,100 net bpd in 1996. Development
drilling continued in 1996 with three wells, one of which was suspended, one
placed on production in the fourth quarter, and the other placed on production
in January 1997. Five wells are planned to be drilled in 1997. Marathon holds a
100% working interest in the Ras El Ush field.

     In 1996, a discovery was made in the Ashrafi Concession, located offshore
in the southern Gulf of Suez. The Ashrafi SW-1X well, along with one development
well planned in 1997, will be tied back to existing Ashrafi field producing
facilities. Marathon holds a 50% working interest in this concession.

     In the Nile Delta region, a third discovery was made in 1996 in the Abu
Madi West Development, where Marathon holds a 25% working interest. The Nidoco-9
exploratory well, located about two miles offshore in the Mediterranean Sea,
encountered gas and condensate in the Abu Madi formation. The well was tied into
existing El Qar'a production facilities and began producing in December 1996.
The well is currently producing at a gross rate of 36 mmcfd.

     Gabon - In 1996, Marathon and its partner drilled a successful delineation
well on the Tchatamba discovery, in the Kowe permit in 151 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 is expected to
start in early 1998 and peak at 15,000 gross bpd at this field, where Marathon
is the operator with a 75% working interest. Under

                                       8

<PAGE>
 
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.

     Also in 1996, Marathon signed an exploration and production sharing
contract with the Republic of Gabon. The contract covers the 636,000-acre
Akoumba Marin Permit located approximately 30 miles offshore the central portion
of the nation, which is an established hydrocarbon producing area. Marathon has
a 100% working interest in this permit.

     Ireland - During 1996, Marathon continued to evaluate development options
for well 48/25-3, drilled in 1995, located 4.5 miles southwest of the Kinsale
Head Facilities in the Celtic Sea. Marathon holds a 100% working interest in
this well.

     Also during 1996, Marathon continued preparatory work for a 1997 well to be
drilled in the Porcupine Basin off the west coast of Ireland. This well will
complete a seven-well exploratory drilling program required by a 1991 agreement
between Marathon and the Irish Government.

     Tunisia - Marathon's interest in the 470,000-acre Jenein permit in Southern
Tunisia was formally ratified by the government in 1996. During 1996, Marathon
farmed out 40% of its 100% working interest in this permit. Marathon has planned
an exploratory well for 1997.

     Indonesia - During 1996, Marathon relinquished interest in the Tiram block
located in the Natuna Sea. Marathon continues to hold a 22.2% working interest
in the three-million-acre Natuna "B" block, also located in the Natuna Sea. This
block is in moratorium, pending resolution of a border dispute between Indonesia
and Vietnam.

     Netherlands - In 1996, Marathon, through its 50% equity interest in CLAM,
drilled two gross exploratory wells and four gross development wells in the
Netherlands North Sea. Six development wells and four exploratory wells are
planned for 1997.

     Russia - The Marathon Group holds a 30% interest in Sakhalin Energy
Investment Company Ltd. ("Sakhalin Energy"), an incorporated joint venture
company responsible for the overall management of the Sakhalin II Project. The
Sakhalin II Production Sharing Contract ("PSC") was signed in June 1994 for the
development of the Piltun-Astokhskoye ("PA") oil field and the Lunskoye gas
field located offshore Sakhalin Island in the Russian Far East Region. During
1995, the Russian government enacted a production sharing law. Licenses were
granted to Sakhalin Energy for the two fields in 1996. On June 15, 1996,
Commencement Date was effective under the PSC, at which time appraisal
activities commenced. Sakhalin Energy is currently seeking approval for the
first phase of development of the PA field, which develops the Astokh feature
utilizing an arctic-class mobile drilling vessel. In anticipation of Russian
approval, Sakhalin Energy has taken steps to commence the first phase by
awarding construction and equipment contracts. Subject to timely approval, first
production from the PA field could be realized as early as mid-1999, with sales
forecasted to average 45,000 gross bpd annually as early as 2000. This 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. Further development remains
subject to passage of legislation or equivalent measures that enables
implementation of the terms of the PSC. As recently approved by the Russian
State Reserve Committee, the PA and Lunskoye fields are estimated to contain
combined reserves of one billion barrels of liquid hydrocarbons and 14 trillion
cubic feet of natural gas.

     Syria - Marathon is awaiting approval of a revised plan of development
("POD") submitted to the Syria Petroleum Company in July 1995, for the
development of gas reserves in the Palmyra Block. Negotiation of a gas sales
agreement would be required following approval of the POD.

     The above discussions of projects, expected production and sales levels,
reserves 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

                                       9

<PAGE>
 
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, development plans need to be finalized prior to final
commitment by the shareholders of Sakhalin Energy. In addition, 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.

     The following table sets forth, by geographic area, the developed and
undeveloped oil and gas acreage held as of December 31, 1996:
 
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.........  2,567    985   2,457   1,305   5,024   2,290
  Europe................    316    255   1,843   1,029   2,159   1,284
  Other International...    116     40  35,254  12,978  35,370  13,018
                          -----  -----  ------  ------  ------  ------
   Total Consolidated...  2,999  1,280  39,554  15,312  42,553  16,592
  Equity Affiliate (a)..    435     45     184      24     619      69
                          -----  -----  ------  ------  ------  ------
  WORLDWIDE.............  3,434  1,325  39,738  15,336  43,172  16,661
                          =====  =====  ======  ======  ======  ======
</TABLE>


- --------------------
     (a) Represents Marathon's equity interest in CLAM.

Reserves

     At December 31, 1996, 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 69% 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 136% of its
1996 worldwide oil and gas production. Including dispositions, Marathon replaced
102% of worldwide production, mainly reflecting the sales of certain oil and gas
producing properties in Indonesia, Tunisia and the U.K. North Sea, and the
disposal of Alaskan oil interests. Additions during 1996 were primarily
attributable to reserves from Gulf of Mexico properties (such as Viosca Knoll
786, and Ewing Bank Blocks 963, 873 and 917), the West Brae field in the U.K.
North Sea and the Tchatamba field in Gabon. Marathon continues to make small
acquisitions in core producing areas. In 1996, approximately $36 million was
spent on producing properties, primarily in Texas, Wyoming, and Alaska,
resulting in reserve additions of 28 million BOE.

                                       10

<PAGE>
 
     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
                                   ---------         -----------------------
                            1996     1995     1994    1996     1995    1994
                            -----  ---------  -----  -------  ------  ------
<S>                         <C>    <C>        <C>    <C>      <C>     <C>
(Millions of Barrels)
Liquid Hydrocarbons
  United States...........    443        470    493      589     558     553
  International...........    174        203    224      203     206     242
                            -----      -----  -----    -----   -----   -----
WORLDWIDE.................    617        673    717      792     764     795
                            =====      =====  =====    =====   =====   =====
 
(Billions of Cubic Feet)
Natural Gas
  United States...........  1,720      1,517  1,442    2,239   2,210   2,127
  International...........  1,149      1,335  1,477    1,199   1,379   1,527
                            -----      -----  -----    -----   -----   -----
     Total Consolidated...  2,869      2,852  2,919    3,438   3,589   3,654
  Equity Affiliate (a)....    100        105    104      132     131     153
                            -----      -----  -----    -----   -----   -----
WORLDWIDE.................  2,969      2,957  3,023    3,570   3,720   3,807
                            =====      =====  =====    =====   =====   =====
</TABLE>


- -----------------
(a) Represents Marathon's equity interest in CLAM.

     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 1995 and 1994 disclosing the year-end estimated oil and gas
reserves. A similar report will be filed for 1996. The year-end estimates
reported to the DOE are the same as the estimates reported in the USX
Consolidated Supplementary Data.

                                       11

<PAGE>
 
Oil and Natural Gas Production

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


<TABLE>
<CAPTION>
 
 Net Liquid Hydrocarbons Production (a)
 (Thousands of Barrels per Day)            1996   1995   1994
                                          -----  -----  -----
<S>                                       <C>    <C>    <C>
United States (b).......................    122    132    110
International (c).......................     59     73     62
                                          -----  -----  -----
WORLDWIDE...............................    181    205    172
                                          =====  =====  =====
 
Net Natural Gas Production (d)
(Millions of Cubic Feet per Day)
United States (b).......................    676    634    574
International (e).......................    499    463    400
                                          -----  -----  -----
  Total Consolidated....................  1,175  1,097    974
Equity Affiliate (f)....................     45     44     40
                                          -----  -----  -----
WORLDWIDE...............................  1,220  1,141  1,014
                                          =====  =====  =====
</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 and exclude volumes purchased
    from third parties for resale.
(e) Amounts reflect production before royalties.
(f) Represents Marathon's equity interest in CLAM.

     At year-end 1996, Marathon was producing crude oil and/or natural gas in
six countries, including the United States. Marathon's worldwide liquid
hydrocarbon production decreased by 12% from 1995, mainly reflecting the sales
of international properties (in Indonesia and Tunisia) and Illinois Basin
domestic operations, as well as lower production from the Brae fields in the
U.K. North Sea and Ewing Bank Block 873 in the Gulf of Mexico. Marathon's 1997
worldwide liquid hydrocarbon production is expected to decline by seven percent
from 1996, primarily reflecting natural production declines from mature fields
and the disposal of Alaskan oil properties.

     Marathon's 1996 worldwide sales of equity natural gas production, including
Marathon's share of CLAM's production, increased by seven percent from 1995,
primarily reflecting increased demand in the United Kingdom and Alaska and
increased production from New Mexico and east Texas. Worldwide natural gas
volumes in 1997 are expected to remain consistent with 1996 volumes, in the
range of 1.2 to 1.3 billion cubic feet per day, as natural declines in mature
international fields will be offset by anticipated increases in domestic
production. In addition to sales of 544 net mmcfd of international equity
natural gas production, Marathon sold 32 net mmcfd of natural gas acquired for
injection and resale during 1996.

United States

     Approximately 67% of Marathon's 1996 worldwide liquid hydrocarbon
production and equity liftings and 55% 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 and
Alaska. 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.

                                       12

<PAGE>
 
     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 feasibility study of thermal recovery techniques.

     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 24,700 net bpd of 1996 liquid hydrocarbon
production from the Yates field and gas plant accounted for 20% of Marathon's
total U.S. liquids production. The field's average annual production increased
again in 1996 from 1995, following the trend started in 1993.

     Gulf of Mexico - During 1996, Marathon produced 29,100 net bpd of liquid
hydrocarbons, representing 24% of Marathon's total U.S. liquid hydrocarbon
production, and 84 net mmcfd of natural gas in the U.S. Gulf of Mexico. Liquid
hydrocarbon production decreased by 3,300 net bpd from the prior year and
natural gas production decreased by six net mmcfd, mainly reflecting natural
production declines from the Ewing Bank 873 field and other mature fields. At
year-end 1996, Marathon held working interests in 13 fields producing from 34
platforms, 21 of which Marathon operates.

     Ewing Bank 873 is an important part of Marathon's deepwater infrastructure.
Nearby discoveries, such as Ewing Bank 917 and 963, will be tied into this
facility for processing and pipeline connections. Reserves of 12 million BOE
were added for the Ewing Bank 873 field in 1996 due to improved waterflood
recovery. Marathon is the operator and holds a 66.7% working interest in Blocks
873 and 874. In 1996, production averaged 20,600 net bpd and 14 net mmcfd,
compared with 23,000 net bpd and 15 net mmcfd in 1995.

     Wyoming - Production for 1996 averaged 23,600 net bpd, representing 19% of
Marathon's total U.S. liquid hydrocarbon production. Production in 1995 averaged
24,600 net bpd. The decline in 1996 from 1995 was primarily due to natural
production declines.

     Alaska - Marathon's production from Alaska averaged 7,900 net bpd of liquid
hydrocarbons and 143 net mmcfd of natural gas in 1996, compared with 8,800 net
bpd and 131 net mmcfd in 1995. In December 1996, Marathon sold its oil producing
properties in the Cook Inlet area and Prudhoe Bay Unit. Marathon has retained
its ownership interest in the natural gas reserves and infrastructure associated
with the Cook Inlet properties. This divestiture will allow Marathon to focus on
the expansion of its natural gas business in Alaska through exploration,
exploitation, development and marketing.

     New development activity in the Kenai gas field is expected to improve
recovery. Since 1994, over 100 net billion cubic feet ("bcf") of new gas
reserves have been added, of which 44 bcf was added in 1996.

     New Mexico - Production in New Mexico, primarily from the Indian Basin
field, averaged 11,500 net bpd and 103 net mmcfd in 1996, compared with 10,000
net bpd and 92 net mmcfd in 1995. The increase in production was mainly due to a
1995 acquisition and continued development drilling in the Indian Basin field.
Marathon owns an 82% working interest in new producing and development
activities in this mature field.

                                       13

<PAGE>
 
International

     Interests in liquid hydrocarbon and/or natural gas production are held in
the U.K. North Sea, Ireland, 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
     (Net Barrels per Day)


<TABLE>
<CAPTION>

                                               1996    1995    1994
                                             ------  ------  ------
     <S>                                     <C>     <C>     <C>
     East Brae......................         29,800  32,700  23,400
     North Brae.....................         10,000  11,400  13,000
     South Brae.....................          4,700   5,000   4,800
     Central Brae...................          4,200   4,800   4,700
                                             ------  ------  ------
     TOTAL..........................         48,700  53,900  45,900
                                             ======  ======  ======
</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 from 1995
primarily reflects completion of the initial development drilling program. In
addition, the rate of liquid recovery from the field also reflects reservoir
complexities which impact the overall sweep efficiency of the gas injection
program.

     North Brae is a gas condensate field and production continues using the gas
cycling technique. Although partial cycling continues, North Brae has begun the
depletion sequence, with the majority of gas 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.

     South Brae facilities act as the host platform for the underlying South
Brae field and adjacent Central Brae field, Marathon's first multi-well subsea
development. 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. Beginning in late 1997, production from the
nearby West Brae/Sedgwick joint development project is expected to use this
facility for processing and transportation.

     The strategic location of the East, North and South Brae platforms and
pipeline infrastructure has generated significant third-party revenue since
1986. Agreement has been reached, and arrangements are being finalized, for the
processing and transportation of reservoir fluids from the outside-operated
Kingfisher field. Production will be tied back to North Brae facilities and is
expected to be on stream in the fourth quarter of 1997. This agreement brings to
14 the number of third-party fields contracted to the Brae system, of which 11
are currently on stream. 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 172 net
mmcfd in 1996. Primary sales of Brae-area gas through the SAGE pipeline system
averaged 161 net mmcfd for the year

                                       14

<PAGE>
 
1996. Of that total, 129 mmcfd was Brae-area equity gas and 32 mmcfd was gas
acquired for injection and subsequent resale.

     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 259 net mmcfd in 1996, compared with 269 net mmcfd in 1995.
Volumes are expected to decrease in succeeding 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 1996 sales of 87 net mmcfd of natural
gas and 2,600 net bpd of condensate, compared with 1995 sales of 81 net mmcfd of
natural gas and 1,900 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. Liquid
hydrocarbon and natural gas production from these fields totaled 7,800 net bpd
and 13 net mmcfd in 1996, compared with 5,500 net bpd and 15 net mmcfd in 1995.
The increase in liquid hydrocarbon volumes was mainly attributable to the Ras El
Ush field, which commenced production in 1996, averaging 2,100 net bpd. Marathon
owns a 100% working interest in this field and shares in its production with the
Egyptian Government under the terms of a production sharing agreement.

     Netherlands - Marathon's 50% equity interest in CLAM, a natural gas and gas
liquids producer in the Netherlands North Sea, provides a 6.7% entitlement in
the production of 21 gas fields which provided sales of 45 net mmcfd of natural
gas in 1996.

     Indonesia/Tunisia - Effective January 1, 1996, Marathon sold Marathon
Petroleum Indonesia, Ltd., which owned a 37.5% interest in the Kakap production
sharing contract encompassing the Kakap Block in the Natuna Sea, offshore
Indonesia. Effective January 1, 1996, Marathon also sold its interest in all
producing properties and in the Zarat Permit in the Gulf of Gabes in Southern
Tunisia.

                                       15

<PAGE>
 
     The following tables set forth productive wells and drilling wells as of
December 31, 1996, and average production costs and sales prices per unit of
production for each of the last three years:

 
Gross and Net Wells


<TABLE>
<CAPTION>

                                        Productive Wells (a)
                        ----------------------------------------------------
                              Oil          Gas            Drilling 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             64     48 
Europe................      28     12     55     30              -      - 
Other International...      11      7     10      2              1      1 
                        ------  -----  -----  -----             --     -- 
 Total Consolidated...  10,978  3,879  3,313  1,433             65     49 
                        ------  -----  -----  -----             --     -- 
Equity Affiliate (c)..       -      -     76      5              1      - 
                        ------  -----  -----  -----             --     -- 
WORLDWIDE.............  10,978  3,879  3,389  1,438             66     49  
                        ======  =====  =====  =====             ==     ==
</TABLE>

- ---------------
(a) Include active wells and wells temporarily shut-in. Of the gross productive
    wells, gross wells with multiple completions operated by Marathon totaled
    329. Information on wells with multiple completions operated by other
    companies is not available to Marathon.
(b) Consist of exploratory and development wells.
(c) Represents CLAM.


<TABLE>
<CAPTION>

Average Production Costs (a)                        1996                  1995                   1994   
                                                    ----                  ----                   ----
(Dollars per Equivalent Barrel)                                                                         
<S>                                                <C>                   <C>                    <C>
United States......................                $ 3.97                $ 3.52                 $ 4.04  
International - Europe                               4.38                  4.76                   5.40  
              - Other International                  3.29                  3.31                   4.23  
Total Consolidated.................                $ 4.09                $ 3.92                 $ 4.48  
              - Equity Affiliate (b)               $ 5.22                $ 5.56                 $ 3.07  
WORLDWIDE..........................                $ 4.11                $ 3.95                 $ 4.45   
 
</TABLE>
 


<TABLE>
<CAPTION> 
 
                                                               1996    1995    1994          1996    1995     1994
                                                               ----    ----    ----          ----    ----     ----
Average Sales Prices (c)                                      Crude Oil and Condensate        Natural Gas Liquids
(Dollars per Barrel)                                         -------------------------      ------------------------
<S>                                                          <C>      <C>      <C>          <C>      <C>      <C>
United States......................                          $19.12   $15.02   $14.02       $13.59   $10.34   $ 9.26
International - Europe                                        20.77    17.10    16.05        17.33    13.94    12.11
              - Other International                           19.74    16.23    15.13        17.65    14.62    11.47
WORLDWIDE..........................                          $19.63   $15.68   $14.69       $14.71   $11.35   $ 9.94
</TABLE>
 


<TABLE>
<CAPTION>


                                                                        Natural Gas
                                                                        -----------
(Dollars per Thousand Cubic Feet)
<S>                                                          <C>          <C>           <C>
United States......................                          $ 2.09       $ 1.63        $ 1.94
International - Europe                                         1.96         1.78          1.57
              - Other International                            2.34         2.11          1.84
Total Consolidated.................                          $ 2.04       $ 1.70        $ 1.79
              - Equity Affiliate (b)                         $ 2.74       $ 2.60        $ 2.28
WORLDWIDE..........................                          $ 2.06       $ 1.74        $ 1.81 
</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.

                                       16

<PAGE>
 
Refining, Marketing and Transportation

     Marathon's refining, marketing and transportation ("RM&T") operations are
geographically concentrated in the Midwest and Southeast. This regional focus
allows Marathon to achieve operating efficiencies between its integrated
refining and distribution systems and its marketing operations.

Refining

     Marathon is a leading domestic petroleum refiner with 570,000 bpd of
combined in-use crude oil refining capacity. Marathon's refining system operated
at 89.7% of its in-use capacity in 1996.

     The following table sets forth the location and throughput capacity of each
of Marathon's refineries at December 31, 1996:


<TABLE>
<CAPTION>
 
                  In-Use Refining Capacity (a)
                  (Barrels per Day)
                  <S>                                      <C>
                  Garyville, La......                       255,000
                  Robinson, Ill......                       175,000
                  Texas City, Texas..                        70,000
                  Detroit, Mich......                        70,000
                                                            -------
                  TOTAL..............                       570,000
                                                            =======
</TABLE>

- ---------------
(a) Marathon's 50,000 bpd Indianapolis refinery has remained temporarily idle
    since October 1993.

     Marathon's 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. Light cycle oil is moved from Texas City to Robinson for sulfur
removal to produce low-sulfur diesel fuel.

     In order to comply with provisions of the 1990 Amendments to the Clean Air
Act ("CAA"), Marathon began selling reformulated gasoline ("RFG") in January
1995 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 1996, Marathon's RFG sales averaged 43,000 bpd, or
12% of its gasoline yield. Marathon has the capability of producing about 33% of
its gasoline output as RFG should profitable sales opportunities arise. A major
cost of reformulation is the mandated use of oxygenates in gasoline. Marathon
has oxygenate units at its Detroit and Robinson refineries.

     Maintenance activities requiring temporary shutdown of certain refinery
operating units ("turnarounds") are periodically performed at each of Marathon's
operating refineries. Major turnarounds are currently scheduled for the first
half of 1997 at the Texas City and Robinson refineries and for the first quarter
of 1998 at the Garyville refinery.

     In late 1993, Marathon temporarily idled its 50,000 bpd Indianapolis
refinery due to unfavorable plant economics and increased environmental spending
requirements. The status of the refinery is periodically reviewed. This includes
consideration of economic as well as regulatory matters. Upon adoption of SFAS
No. 121 in the fourth quarter of 1995, Marathon wrote down the recorded value of
the Indianapolis refinery. As of February 28, 1997, the refinery remained
temporarily idled.

     In January 1997, Marathon and a co-venturer announced plans, subject to
execution of final agreements, to develop polymer grade propylene and
polypropylene facilities at the Garyville refinery. Marathon's part of the
project includes construction of purification facilities capable of producing up
to

                                       17

<PAGE>
 
800 million pounds per year of polymer grade propylene from the current refinery
feedstock stream. The co-venturer will construct and market output from an 800
million pounds-per-year polypropylene facility. Plant start-up is slated for
1999.

Marketing

     In 1996, Marathon's refined product sales volumes (excluding matching
buy/sell transactions) totaled 10.8 billion gallons (704,000 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 1996. Approximately
41% of Marathon's gasoline volumes and 70% of its distillate volumes were sold
on a wholesale basis to independent unbranded customers in 1996.

     The following table sets forth the volume of consolidated refined product
sales by product group for each of the last three years:


<TABLE>
<CAPTION>
 
Refined Product Sales
(Thousands of Barrels per Day)                   1996  1995  1994
                                                 ----  ----  ----
<S>                                              <C>   <C>   <C>
Gasoline.......................................   468   445   443
Distillates....................................   192   180   183
Other Products.................................   115   122   117
                                                 ----  ----  ----
TOTAL..........................................   775   747   743
                                                 ====  ====  ====
Matching Buy/Sell Volumes included in above....    71    47    73

</TABLE>


     As of December 31, 1996, Marathon supplied petroleum products to 2,392
Marathon branded retail outlets located primarily in Ohio, Michigan, Indiana,
Kentucky and Illinois. Substantially all Marathon branded petroleum products are
sold to independent dealers and jobbers. At December 31, 1996, Marathon supplied
over 190 stations in states outside its traditional branded marketing territory
including Virginia, Tennessee, West Virginia, Wisconsin, North Carolina and
Pennsylvania.

     Retail sales of gasoline and diesel fuel are 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,
1996, this subsidiary had 1,592 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 $991 million in 1996, compared with $928
million in 1995. 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--1,253 of Emro's 1,592 outlets at December 31,
1996, 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.

     Emro continually monitors its operations in order to reduce costs and
enhance profitability. Emro has closed or sold 158 marginal outlets during the
three-year period ended December 31, 1996, of which 62 outlets were closed or
sold in 1996. Emro attempts to expand its business through construction of new
outlets, the rebuilding of existing facilities or through acquisitions when
profitable opportunities arise. In the three-year period ended December 31,
1996, Emro has built, rebuilt or completed the acquisition of 236 stations and
20 truck stops in its marketing area, of which 37 stations and nine truck stops
were added or rebuilt in 1996.

     Certain Marathon branded and Emro retail outlets feature on-premises brand-
name restaurants as a means of increasing overall profitability. Typically, Emro
or the independent Marathon jobber or dealer becomes a restaurant franchisee at
these locations, although some sites are leased for food-service

                                       18

<PAGE>
 
management under different ownership. As of December 31, 1996, there were
approximately 140 Marathon branded and Emro retail outlets with branded food
service. Additional locations are expected to be added in the future.

Supply and Transportation

     Marathon obtains around 60% of its crude oil feedstocks from North and
South America and the balance primarily from the Middle East, West Africa and
the North Sea. In 1996, Marathon was a net purchaser of 400,000 bpd of crude oil
from both domestic and international sources, including approximately 166,000
bpd obtained from the Middle East.

     Marathon's strategy in acquiring raw materials for its refineries is to
obtain a substantial portion of its supply from secure, long-term sources.
Marathon generally sells its international equity production into local markets,
but has the ability to satisfy about 75% 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 terminals and pipelines 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.

     Marathon, through a wholly owned subsidiary, Marathon Pipe Line Company
("MPLC"), owns and operates, as a common carrier, approximately 1,050 miles of
crude oil gathering lines; 1,500 miles of crude oil trunk lines; and 1,500 miles
of products trunk lines. MPLC also owns interests in various pipeline systems,
including 11.1% of the Capline system, a large diameter crude pipeline extending
from St. James, La. to Patoka, Ill. Additionally, MPLC owns 32.1% of LOOP LLC,
which is the owner and operator of the only U.S. deepwater oil port. LOOP's port
is located 18 miles off the coast of Louisiana. Marathon holds equity interests
in a number of pipeline companies, including 17.4% of the Explorer Pipeline
Company, which operates a light products pipeline system extending from the Gulf
Coast to the Midwest, and 2.5% of the Colonial Pipeline Company, which operates
a light products pipeline system extending from the Gulf Coast to the East
Coast. In 1996, Marathon sold its 25% stock ownership in Platte Pipeline
Company, which owned a crude pipeline system extending from the Rocky Mountain
area of Wyoming to Wood River, Ill. In January 1997, Marathon sold its 30% stock
ownership in Cook Inlet Pipe Line Company ("CIPL"). CIPL owns a pipeline system
in Alaska, which is used to gather and transport crude oil on the west side of
the Cook Inlet.

     In 1996, Marathon announced its participation in two Gulf of Mexico
pipeline systems designed to transport crude oil and natural gas to shore from
the growing development activities in the deepwater and subsalt areas of the
Central Gulf. With respect to the first system, Marathon acquired a 28% interest
in Poseidon Oil Pipeline Company, L.L.C. ("Poseidon"), a joint venture company
which has constructed and is operating a crude oil pipeline system. Concurrent
with becoming an owner, Marathon contributed to Poseidon its 66.7% partnership
interest in Block 873 Pipeline Company, which owned a 60-mile pipeline connected
to the Marathon-operated Ewing Bank 873 platform. The offshore portion of the
pipeline is complete and operational and, with the planned completion of the
onshore segment in the third quarter of 1997, Poseidon will consist of over 250
miles of pipeline capable of delivering up to 400,000 bpd of crude oil to
multiple distribution outlets located onshore Louisiana.

     The second system, when constructed, will consist of a new natural gas
pipeline ("Nautilus") and expansion of an existing gas gathering system ("Manta
Ray"). Nautilus will have a capacity of approximately 600 mmcfd. Marathon
anticipates that it will be operated under the jurisdiction of the Federal
Energy Regulatory Commission ("FERC"). Manta Ray, once expanded, will have
capacity of up to one billion cubic feet per day. Marathon anticipates that
Manta Ray will not fall under FERC jurisdiction.

                                       19

<PAGE>
 
Marathon holds a 24.33% interest in the entire project. The system is expected
to be ready for service in the fourth quarter of 1997, subject to timely receipt
of necessary government approvals.

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
1996, LNG deliveries totaled 67.6 gross bcf (20.2 net bcf), up from 65.3 gross
bcf (19.6 net bcf) in 1995.

     In addition to the sale of domestic equity production of natural gas,
Marathon purchases gas from third-party producers and marketers for resale in
order to offer customers secure and source-flexible supplies. In 1995, the
Marathon Group, along with two co-venturers, formed Inventory Management and
Distribution Company, L.L.C. ("IMD"), a limited liability company. IMD provides
asset management and economic optimization services to natural gas distribution
utilities and pipeline companies, and natural gas inventory management services
to natural gas producers and end-users in North America. The Marathon Group owns
a 42.5% profit participation in IMD.

Other

Natural Gas Utilities

     Carnegie Interstate Pipeline Company ("CIPCO") is an interstate pipeline
company engaged in the transportation of natural gas in interstate commerce.
Carnegie Production Company produces and sells natural gas. Carnegie Natural Gas
Company ("Carnegie") functions as a local distribution company serving
residential, commercial and industrial customers in West Virginia and western
Pennsylvania. Apollo Gas Company, which was engaged in the distribution of
natural gas to residential, commercial and industrial customers in western
Pennsylvania, was merged into Carnegie on December 31, 1996. Carnegie Natural
Gas Sales, Inc. is an unregulated marketer of natural gas. These companies
comprise the "Gas Gathering and Processing" component of the Marathon Group's
operations, as referenced in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

     Carnegie is regulated as a public utility by state commissions within its
service areas, while CIPCO is regulated by FERC as an interstate pipeline. Total
natural gas throughput was 34 bcf in 1996 and 1995 and 28 bcf in 1994.

Power Generation

     In 1995, Marathon formed a new business unit, Marathon Power Company, Ltd.
("Marathon Power"), to pursue development, construction and operation of
independent electric power projects in the global electrical power market. The
unit has a geographic focus in Latin America, Europe, North Africa and the Asia
Pacific Region. During early 1996, Marathon Power and a co-venturer formed
ElectroGen International, L.L.C., a joint venture company, to pursue electric
power generation projects principally in India, Pakistan, Thailand and Vietnam.

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-25.

                                       20

<PAGE>
 
Environmental Matters

     The Marathon Group maintains a comprehensive environmental policy overseen
by the Public Policy Committee of the USX Board of Directors. The Environmental
Affairs, Health 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,
Environmental 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 the
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 expenditures, 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-27 and "Legal Proceedings" for the
Marathon Group on page 43.

     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.

Air

     The 1990 Amendments to 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 1990 Amendments to the CAA on the Marathon Group is on its RM&T operations.
The amendments established attainment deadlines and control requirements based
on the severity of air pollution in a geographical area. For example, starting
in October 1993, the amendments required a reduction in the amount of sulfur in
diesel fuel produced for highway transportation use, and, starting in January
1995, cleaner burning RFG was required in nine metropolitan areas classified as
severe or extreme for ozone non-attainment, and in other areas opting into the
program. The standards for RFG become even more stringent in the year 2000, when
Phase II RFG will be required.

     In November 1996, the Environmental Protection Agency ("EPA") proposed and
published for comment revisions to the National Ambient Air Quality Standards
for ozone and particulate matter. The EPA proposed to replace the existing
standards with significantly more stringent ones. It is anticipated that the EPA
will issue final standards this year. The impact of these revised standards
could be significant to

                                       21

<PAGE>
 
Marathon, but the potential financial effects cannot be reasonably estimated
until the final revised standards are issued and, more importantly, the states
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. Unlike many of its
competitors within the oil industry, Marathon does not operate tank vessels, and
therefore, has significantly less exposure under OPA-90 than competitors who do
operate tank vessels. However, it does operate facilities at which spills of oil
and hazardous substances could occur. Furthermore, 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 approximately 50 emergency oil response
plans for all 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

     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.

     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. For a discussion of remediation matters relating
to the Marathon Group, see "Legal Proceedings - Environmental Proceedings" on
page 43.

                                       22

<PAGE>
 
Capital Expenditures

     For information on capital expenditures for environmental controls in 1994,
1995 and 1996 and estimated capital expenditures for such purposes in 1997 and
1998, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management's Discussion and Analysis of Environmental
Matters, Litigation and Contingencies" for the Marathon Group on page M-27.

                                       23

<PAGE>
 
U.S.  STEEL GROUP

     The U. S. Steel Group includes U. S. Steel, the largest integrated 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,
engineering and consulting services and technology licensing. 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 27% in 1996, and 31% in
each of 1995 and 1994.

     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)                                              1996    1995    1994
                                                       ------  ------  ------
<S>                                                    <C>     <C>     <C>
     Steel and Related Businesses
       Sheet and Tin Mill Products...................  $4,071  $4,022  $3,806
       Plate, Tubular and Other Steel Mill Products..   1,241   1,279   1,048
       Taconite Pellets and Coke.....................     548     525     552
       Coal..........................................     209     206     202
       All Other.....................................     409     359     310
     Other Businesses................................      54      65     148
     Asset Sales.....................................      15      19      11
                                                       ------  ------  ------
     TOTAL REVENUES (a)..............................  $6,547  $6,475  $6,077
                                                       ======  ======  ======
</TABLE>


- ----------
(a) Amounts in 1995 and 1994 were reclassified to conform to 1996
classifications.

     For additional financial information about all of USX's industry segments,
  see "Financial Statements and Supplementary Data - Notes to Consolidated
  Financial Statements - 8. Operations and Segment Information" on page U-13.

     The total number of active U. S. Steel Group employees at year-end was
  20,433 in 1996. 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 the reopener negotiations of specific payroll items with
  the contingency for binding interest arbitration if agreement concerning such
  items was not reached. The parties did not reach a settlement and U. S. Steel
  and the USWA submitted their final offers to arbitration. Both final offers
  follow the settlements reached by other major integrated producers through
  interest arbitration. The sole issue in dispute concerns the timing of a final
  lump-sum bonus payment in 1999. Following the interest arbitration, which will
  be held in March of 1997, the revised contract terms will become retroactively
  effective as of February 1, 1997.

     In January 1994, U. S. Steel Mining Co., Inc., presently known as U. S.
  Steel Mining Company, LLC ("U. S. Steel Mining"), entered into a five-year
  agreement with the United Mine Workers of America which now covers
  approximately 1,100 employees. The contract provided for the reopener
  negotiations of economic items and the parties reached a settlement agreement
  in December 1996.

                                       24

<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 integrated 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 have commenced operation in 1996 or will commence operations 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.

     The domestic steel industry has, in the past, been adversely affected by
  unfairly traded imports. Steel imports to the United States accounted for an
  estimated 23%, 21% and 25% of the domestic steel market in 1996, 1995 and
  1994, respectively. Steel imports increased sharply in the second half of 1996
  and, in November and December, accounted for an estimated 29% and 25%,
  respectively, of the domestic market. 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. Increases in levels of imported steel could adversely affect
  future market prices and demand levels for domestic steel.

     Carbon cut-to-length plate products accounted for 9% of U. S. Steel Group
  shipments in 1996.  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
  Russia, China, Ukraine, and South Africa have engaged in unfair trade
  practices with respect to the export of carbon cut-to-length plate to the
  United States. U. S. Steel Group supports these cases. In December 1996, the
  ITC announced a preliminary determination of injury to the domestic industry
  from these unfairly traded imports. In the next step, Commerce is required to
  make a preliminary determination sometime during the second quarter of 1997,
  whether or not carbon cut-to-length steel plate is being dumped in the United
  States from each of these four countries. Final determination of dumping, by
  Commerce, and of material injury, by the ITC, may occur sometime during the
  third quarter of 1997.

     Oil country tubular goods ("OCTG") accounted for 6% and 4% of U. S. Steel
  Group shipments in 1996 and 1995, respectively. On June 30, 1994, in
  conjunction with six other domestic producers, USX filed antidumping and
  countervailing duty cases with Commerce and the ITC asserting that seven
  foreign nations have engaged in unfair trade practices with respect to the
  export of OCTG. In June 1995, Commerce issued its final affirmative
  determinations of the applicable margins of dumping and/or subsidies in the
  OCTG cases against producers in all seven countries. On July 24, 1995, the ITC
  rendered determinations that there had been material injury to domestic
  producers by reason of illegal dumping of imported products. Determinations
  favorable to domestic producers were rendered with respect to OCTG imports
  from Argentina, Italy, Japan, Korea and Mexico and with respect to imports of
  drill pipe from Argentina, Japan and Mexico.

                                       25

<PAGE>
 
     USX will 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 may not be required to undertake
  equivalent costs in their operations. For further information, see
  "Environmental Matters."

  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 1996, U. S. Steel added two key
  production facilities that will produce higher value-added products - the
  vacuum degasser at Mon Valley Works which will provide U. S. Steel the
  opportunity to produce ultra low carbon sheet grades primarily for automotive
  application, and a new galvanized/galvalume line at Fairfield Works, which
  will add 260,000 tons to annual galvanizing capacity. In February, 1997, U. S.
  Steel Group and Kobe Steel, Ltd, of Japan signed a memorandum of understanding
  to construct a second hot-dip galvanized sheet product line at the PRO-TEC
  Coating Company (a 50/50 joint venture between USX and Kobe Steel), and in
  January 1997, U. S. Steel Group and Olympic Steel, Inc. announced they will
  form a 50/50 joint venture to process laser welded sheet steel blanks (see
  "Joint Venture and Other Investments" discussion below for more information).
  In addition, 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.

     Since 1982, U. S. Steel has invested approximately $4.0 billion in capital
  facilities for its steel operations. U. S. Steel believes that these
  expenditures have made its remaining steel operations among the most modern,
  efficient and competitive in the world.

     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
  plate, tubular, bar and plate consuming industries. See "Joint Ventures and
  Other Investments."

  Steel and Related Businesses

     U. S. Steel operates plants which produce steel mill products in a variety
  of forms and grades. Raw steel production was 11.4 million tons in 1996,
  compared with 12.2 million tons in 1995 and 11.7 million tons in 1994. Raw
  steel produced was nearly 100% continuous cast in 1996, 1995 and 1994. Raw
  steel production averaged 89% of capability in 1996, compared with 97% of
  capability in 1995 and 97% of capability in 1994. As a result of improvements
  in operating efficiency, U. S. Steel increased its stated annual

                                       26

<PAGE>
 
  raw steel production capability by 0.3 million tons to 12.8 millions tons for
  1996 (7.7 million at Gary Works, 2.8 million at Mon Valley Works and 2.3
  million at Fairfield Works), following an increase of 0.5 million tons in 1995
  to 12.5 million tons.

     Steel shipments were 11.4 million tons in 1996 and 1995, and 10.6 million
  tons in 1994. U. S. Steel Group shipments comprised approximately 11% of the
  domestic steel market in 1996. Exports accounted for approximately 4% of U. S.
  Steel Group shipments in 1996, compared with 13% in 1995 and 3% in 1994.

     The following tables set forth significant U. S. Steel shipment data by
  major market and product 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
                                                    Plates,
                                          Sheets &  Tubular
Major  Market - 1996                      Tin Mill  & Other  Total
- --------------------                      --------  -------  ------
<S>                                       <C>       <C>      <C>
(Thousands of Net Tons)
Steel Service Centers...................     2,268      563   2,831
Further Conversion:
 Trade Customers........................     1,014      213   1,227
 Joint Ventures.........................     1,542        0   1,542
Transportation (Including Auto).........     1,506      215   1,721
Containers..............................       874        0     874
Construction and Construction Products..       746      119     865
Oil, Gas and Petrochemicals.............         0      746     746
Export..................................       377      116     493
All Other...............................       910      163   1,073
                                             -----    -----  ------
 TOTAL..................................     9,237    2,135  11,372
                                             =====    =====  ======
 
Major Market - 1995
- -------------------
(Thousands of Net Tons)
Steel Service Centers...................     1,954      610   2,564
Further Conversion:
 Trade Customers........................       971      113   1,084
 Joint Ventures.........................     1,332        0   1,332
Transportation (Including Auto).........     1,447      189   1,636
Containers..............................       857        0     857
Construction and Construction Products..       565      106     671
Oil, Gas and Petrochemicals.............         1      747     748
Export..................................     1,296      219   1,515
All Other...............................       844      127     971
                                             -----    -----  ------
 TOTAL..................................     9,267    2,111  11,378
                                             =====    =====  ======
 
Major Market - 1994
- -------------------
(Thousands of Net Tons)
Steel Service Centers...................     2,008      772   2,780
Further Conversion:
 Trade Customers........................     1,008       50   1,058
 Joint Ventures.........................     1,308        0   1,308
Transportation (Including Auto).........     1,721      231   1,952
Containers..............................       955        7     962
Construction and Construction Products..       533      189     722
Oil, Gas and Petrochemicals.............         0      367     367
Export..................................       275       80     355
All Other...............................       920      144   1,064
                                             -----    -----  ------
 TOTAL..................................     8,728    1,840  10,568
                                             =====    =====  ======
</TABLE>


                                       27

<PAGE>
 
The following table set forth products and services by facility:

Principal Products and Services


<TABLE>

           <S>                                         <C>
           Gary......................................  Sheets & Tin Mill; Plates; Coke
           Fairfield.................................  Sheets; Tubular Products
           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.............  Technical Services 

</TABLE>

- ------------------ 
  (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 subsidiary, U. S. Steel Mining, have domestic coal
  properties with demonstrated bituminous coal reserves of approximately 860
  million net tons at year-end 1996 compared with approximately 863 million net
  tons at year-end 1995. The reserves are of metallurgical and steam quality in
  approximately equal proportions. They are located in Alabama, Pennsylvania,
  Virginia, West Virginia, Illinois and Indiana. Approximately 80% of the
  reserves are owned, and the rest are leased. Of the leased properties, 85% are
  renewable indefinitely and the balance are covered by a lease which expires in
  2005. Coal production was 7.3 million tons in 1996, compared with 7.5 million
  tons in 1995 and 7.4 million tons in 1994. Coal production averaged 90% of
  capability in 1996, compared with 93% of capability in 1995 and 94% of
  capability in 1994. Coal shipments were 7.1 million tons in 1996, compared
  with 7.5 million tons in 1995 and 7.7 million tons in 1994. U. S. Steel
  Mining's Maple Creek coal mine and a related preparation plant located in
  Pennsylvania were idled in January 1994 and sold in June 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 716 million tons at year-end 1996, 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 15.1
  million net tons of taconite pellets in 1996, 15.3 million net tons in 1995
  and 16.0 million net tons in 1994. Iron ore production averaged 85% of
  capability in 1996, compared with 86% of capability in 1995 and 90% of
  capability in 1994. Iron ore shipments were 15.0 million tons in 1996,
  compared with 15.2 million tons in 1995 and 16.2 million tons in 1994.

     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-36.

                                       28

<PAGE>
 
Other Businesses

  In addition to the 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 1% of the U.S. Steel Group's sales in 1996, 1% in 1995 and 2% in
1994.

  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 $76 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.

Joint Ventures and Other Investments

     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, Inc. ("Transtar") and RMI Titanium Company ("RMI"). For financial
information regarding joint ventures and other investments, see "Financial
Statements and Supplementary Data - Notes to Financial Statements - 15.
Investments and Long-term Receivables" for the U. S. Steel Group on page S-15.

     USX and Pohang Iron & Steel Co., Ltd. ("POSCO") of South Korea participate
in a joint venture ("USS-POSCO Industries") which owns and operates the former
U. S. Steel Pittsburg, CA Plant.  The joint venture markets high quality sheet
and tin products, principally in the western United States market area. USS-
POSCO Industries produces cold-rolled sheets, galvanized sheets, tin plate and
tin-free steel. USS-POSCO Industries' annual shipment capacity is 1.4 million
tons with hot bands provided by U. S. Steel and POSCO. Total shipments were
approximately 1.5 million tons in 1996.

     USX and Kobe Steel Ltd. ("Kobe") of Japan participate in a joint venture
("USS/Kobe Steel Company") 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 Steel Company while
U. S. Steel retains sales and marketing responsibilities for tubular products.
Total shipments in 1996 were approximately 1.6 million tons. USS/Kobe Steel
Company entered into a five and one-half year labor contract with the USWA
effective February 1, 1994, covering approximately 2,300 employees. USS/Kobe
Steel Company'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 2.0 million tons in 1996.

     USX and Kobe participate in a joint venture ("PRO-TEC Coating Company")
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 Coating Company produced
652,000 tons of galvanized steel in 1996. In February, 1997, USX and Kobe signed
a memorandum of understanding to construct a second hot-dip galvanized sheet
product line at the PRO-TEC Coating Company with a yearly capacity of 400,000
tons. Construction is anticipated to begin in the first quarter of 1997 with
startup of operations projected for third quarter 1998. Uncoated coils would be
provided by U. S. Steel.

     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

                                       29

<PAGE>
 
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 1996, Worthington Specialty Processing processed 455,000 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 1996, DESCO produced 848,000
tons of electrogalvanized steel.

           In 1997, U. S. Steel Group and Olympic Steel, Inc. announced that
they will form a 50/50 joint venture to process laser welded sheet steel blanks.
The joint venture, which will conduct business as Olympic Laser Processing,
plans to construct a new facility and purchase two laser welding lines in 1997,
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%.

          USX owns a 27% interest in RMI, a leading producer of titanium metal
products.  RMI is a publicly traded company listed on the New York Stock
Exchange. USX's ownership in RMI reflects a decrease of approximately 24% from
1995. For additional information, see Note 5 to the U. S. Steel Group Financial
Statements.

          National-Oilwell, a joint venture between USX and National Supply
Company, Inc., a subsidiary of Armco Inc., which operated in the oil field
service industry, was sold in January 1996.

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-26.

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, such as the innovative regulatory-negotiation activities
for coke plants, which are regulated under the Clean Air Act ("CAA").

                                       30

<PAGE>
 
          The U. S. Steel Group has voluntarily participated in and successfully
completed the Environmental Protection Agency ("EPA") 33/50 program to reduce
toxic releases and the EPA Greenlights program to promote energy efficiency. The
U. S. Steel Group has also developed an award winning environmental education
program (the Continuous Improvement to the Environment program), a corporate
program to reduce the volume of wastes the U. S. Steel Group generates, and
wildlife management programs certified by the Wildlife Habitat Council at U. S.
Steel Group operating facilities. Additionally, over the past eight years, it
has reduced the volume of toxic releases reported under the Superfund Amendments
and Reauthorization Act of 1986 (Section 313) by 32%, primarily through
recycling and process changes.

          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 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 1990 Amendments to the CAA and new water
quality standards, could result in substantially increased capital, operating
and compliance costs. For a discussion of environmental expenditures, see
"Management's Discussion and Analysis of Financial Condition, Cash Flows and
Liquidity" on page S-26, and "Management's Discussion and Analysis of
Environmental Matters, Litigation and Contingencies" on page S-28 and "Legal
Proceedings" for the U. S. Steel Group on page 45.

          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. The U. S. Steel Group believes that all of
its domestic 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 and its production methods.

Air

          The 1990 Amendments to the CAA impose more stringent limits on air
emissions, establish a federally mandated operating permit program and allow for
enhanced civil and criminal enforcement sanctions. The principal impact of the
1990 Amendments to the CAA on the U. S. Steel Group is on the coke-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 1990 Amendments to the CAA specifically address the regulation and
control of hazardous air pollutants, including emissions from coke ovens.
Generally, emissions for existing coke ovens must have complied with technology-
based limits at the end of 1995 and comply with a health risk-based standard by
the end of 2003. However, a coke oven will not be required to comply with the
health risk-based standard until January 1, 2020, if it complied with the
technology-based standard at the end of 1993 and also complies with additional
technology-based standards by January 1, 1998 and by January 1, 2010. USX
believes that it met the 1993 requirement and will be able to meet the 1998 and
2010 compliance dates.

                                       31

<PAGE>
 
          The 1990 Amendments to the CAA also mandate 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 November 1996, the EPA proposed and published for comment revisions
to the National Ambient Air Quality Standards for ozone and particulate matter.
The EPA proposed to replace the existing standards with significantly more
stringent ones. It is anticipated that the EPA will issue final standards this
year. The impact of these revised standards could be significant to U. S. Steel,
but the potential financial effects cannot be reasonably estimated until the
final revised standards are issued and, more importantly, the states implement
their State Implementation Plans covering their standards.

          In 1996, 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. Since the EPA has not yet promulgated implementing
regulations relating to past disposal or handling operations, 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 cannot be
appraised until their implementation becomes more accurately defined. 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 dismantlement and restoration
of former and present operating locations. These projects include continuing
remediation at an in situ uranium mining operation, the dismantling of former
coke-making facilities and the closure 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."

                                       32

<PAGE>
 
Capital Expenditures

     For a discussion of environmental capital expenditures, see "U. S. Steel
Group - Management's Discussion and Analysis of Environmental Matters,
Litigation and Contingencies" on page S-28.

                                       33

<PAGE>
 
DELHI  GROUP

     The Delhi Group ("Delhi") consists of Delhi Gas Pipeline Corporation
("DGP") and certain other subsidiaries of USX which are engaged in the
purchasing, gathering, processing, treating, transporting and marketing of
natural gas. Delhi Group revenues as a percentage of total USX consolidated
revenues were 5% in 1996, and 3% in each of 1995 and 1994.

     Delhi uses its pipeline systems to provide gas producers with a ready
purchaser for their gas or transportation to other pipelines and markets, and to
provide customers with an aggregated, reliable gas supply. Delhi offers a
complete package of services to customers, relieving them of the need to locate,
negotiate for, purchase and arrange transportation of gas. As a result, margins
realized by Delhi, when providing premium supply services, are generally higher
than those realized when providing separate gathering, processing or
transporting services or those realized from short-term, interruptible ("spot")
market sales. Delhi provides premium supply services to customers, such as local
distribution companies ("LDCs") and utility electric generators ("UEGs"). These
services include providing reliable supplies tailored to meet the peak demand
requirements of customers. Premium supply services range from standby service,
where the customer has no obligation to take any volumes but may immediately
receive gas from Delhi upon an increase in the customer's demand, to baseload
firm service where delivery of continuous volumes is assured by Delhi and the
customer is obligated to take the gas provided. Delhi attempts to structure its
gas sales to balance the peak demand requirements of LDCs during the winter
heating season and of UEGs during the summer air conditioning season. Gas
supplies not sold under premium service contracts are generally sold in the spot
market.

     Delhi also extracts and markets natural gas liquids ("NGLs") from natural
gas gathered on its pipeline systems. Delhi sells NGLs to a variety of
purchasers, including petrochemical companies, refiners, retailers, resellers
and trading companies. At February 28, 1997, Delhi owned interests in 17 natural
gas processing facilities including 21 gas processing plants, 11 of which were
50% owned and the remainder of which were wholly owned. Fifteen of the plants
were operating as of February 28, 1997. These facilities straddle Delhi's
pipelines and have been located to maximize utilization.

     Delhi faces intense competition in all of its businesses, including
obtaining additional dedicated gas reserves and providing premium supply
services and gas transportation services. Delhi's competitors include major
integrated oil and gas companies, more than 100 major intrastate and interstate
pipelines, and national and local gas gatherers, brokers, marketers,
distributors and end-users of varying size, financial resources and experience.
Based on 1995 data published in the September 1996 Pipeline & Gas Journal, Delhi
ranked eighteenth among domestic pipeline companies in terms of total miles of
gas pipeline operated and fifth in terms of miles of gathering line operated.
With respect to competition in Delhi's gas processing business, Delhi estimates
there are approximately 400 gas processing plants in Texas and Oklahoma. Certain
competitors, including major integrated oil companies and some intrastate and
interstate pipeline companies, have substantially greater financial resources
and control larger supplies of gas than Delhi. Competition for premium supply
services varies for individual customers depending on the number of other
potential suppliers capable of providing the level of service required by such
customers.

     Since the adoption of Federal Energy Regulatory Commission ("FERC") Order
No. 636 in 1992, competition has increased significantly in the domestic gas
industry and is expected to remain highly competitive in the future. On the
supply side, gas producers now have easier access to end-user sales markets,
which, at times, has resulted in the conversion of their contracts with
midstream gathering and distribution companies, like DGP, from sales to
transportation agreements. On the sales side, securing new premium service
agreements has become increasingly difficult. However, management believes that
its increased focus on core operating areas, an emphasis on sour gas gathering
and treating services and its ability to maintain a long-term dedicated reserve
base and to provide reliable sales services will enable the Delhi Group to
remain a competitive entity in the markets that it serves.

                                       34

<PAGE>
 
     The total number of active employees at Delhi at year-end 1996 was 637.
Delhi employees are not represented by labor unions.

     The Delhi Group's revenues and gross margin for each of the last three
years were:


<TABLE>
<CAPTION>
 
(Dollars in millions)                  1996     1995     1994
                                     --------  -------  -------
<S>                                  <C>       <C>      <C>
     Revenues
       Gas sales and trading.......  $  917.8   $572.0   $490.9
       Transportation..............      17.5     11.7     11.7
       Gas processing..............      97.3     70.4     64.1
       Gathering service fees (a)..      23.1     16.0     17.4
       Other (b)...................       5.6       .4      1.0
                                     --------   ------   ------
         Total revenues (c)........  $1,061.3   $670.5   $585.1
                                     ========   ======   ======
 
     Gross Margin (d)
       Gas sales and trading.......  $   63.1   $ 56.0   $ 70.3
       Transportation..............      17.5     11.7     11.7
       Gas processing..............      31.4     24.7     15.6
       Gathering service fees (a)..      23.1     16.0     17.4
                                     --------   ------   ------
         Total gross margin (c)....  $  135.1   $108.4   $115.0
                                     ========   ======   ======
</TABLE>


- --------------------
(a) Prior to 1996, Delhi reported natural gas treating, dehydration, compression
    and other service fees as a reduction to cost of sales. Beginning with 1996,
    these fees are reported as revenue; accordingly, amounts for prior years
    have been reclassified.
(b) Amounts in 1995 and 1994 were reclassified to conform to 1996
    classifications.
(c) Includes Delhi's intergroup transactions with the USX - Marathon Group,
    which are conducted on an arm's-length basis. The majority of these
    transactions relate to transportation and gathering services, primarily for
    volumes covered by long-term agreements, most of which are subject to
    periodic price adjustments.
(d) Gas sales and trading reflects revenues less associated gas purchase costs.
    Transportation reflects fees charged by Delhi for the transportation of
    volumes owned by third parties. Gas processing reflects (i) the sale of NGLs
    extracted from gas, less the cost of gas purchased for feedstock and (ii)
    processing fees charged by Delhi to third parties. Gathering service fees
    reflects fees charged by Delhi for treating, compressing and dehydrating.

     For additional financial information about all of USX's industry segments,
see "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements - 8. Operations and Segment Information" on page U-13.

Natural Gas Gathering

     Delhi provides a valuable service to producers of natural gas by providing
a direct market for the sale of their natural gas. Following discovery of
commercial quantities of natural gas, producers generally must either build
their own gathering lines or negotiate with another party, such as Delhi, to
have gathering lines built to connect their wells to a pipeline for delivery to
market. Delhi typically aggregates natural gas production from several wells in
a gathering system where it may also provide additional services for the
producers by compressing and dehydrating the gas. Depending on the quality of
the gas stream, the gas may be treated to make it suitable for market. Delhi's
ability to offer producers treating services and its willingness to purchase
untreated gas give it an advantage in acquiring gas supplies, particularly in
east Texas, where much of the gas produced is not pipeline quality gas. After
these services, the gas flows through pipelines for ultimate delivery to market.

     Delhi owns and operates extensive gathering systems which are strategically
located in major gas producing areas of Texas and Oklahoma. In 1996, Delhi
constructed pipelines to expand its east Texas and Oklahoma systems, and
purchased pipelines from third-parties to expand its west Texas system. Delhi's
principal intrastate natural gas pipeline systems interconnect with other
intrastate and interstate pipelines at more than 100 points, and totaled
approximately 7,360 miles at December 31, 1996, compared to

                                       35

<PAGE>
 
approximately 6,930 miles at December 31, 1995 and approximately 7,400 miles at
December 31, 1994. Total throughput was 365 billion cubic feet ("bcf") in 1996,
compared to 319 bcf in 1995 and 334 bcf in 1994.


Natural Gas Supply

     Delhi obtains gas supplies from various sources, including major oil and
gas companies, other pipelines and independent producers. It offers competitive
prices for gas, a full range of pipeline services and stable, year-round takes
of production. Stable takes are particularly important to small producers who
may not have the financial capacity to withstand significant variations in cash
flow.

     The services Delhi provides to producers include gathering, dehydration,
treating, compression, blending, processing and transportation. Delhi's ability
to provide this wide range of services, together with the location of its
gathering systems within major gas-producing basins, has allowed it to build a
large, flexible gas supply base.

     Delhi generally buys gas at prices based on a market index. Gas purchase
contracts generally include provisions for periodically renegotiable prices. The
majority of Delhi's contracts with producers are "take-or-release" contracts
under which Delhi has the right to purchase the gas or, if it does not purchase
minimum volumes of gas over a specified period, the producer has the right to
sell the gas to another party and may have it transported on Delhi's system for
a fee. Take-or-release contracts present less risk to Delhi than the formerly
prevalent take-or-pay contracts, while affording producers an opportunity to
protect their cash flow by selling to other buyers. As of December 31, 1996,
Delhi's potential liability on take-or-pay contracts was not material.

     Delhi must add dedicated gas reserves in order to offset the natural
declines in production from existing wells on its systems and to meet any
increase in demand. In the past, Delhi has successfully connected new sources of
supply to its pipeline systems. Management attributes this past success to the
strategic location of Delhi's gathering systems in major producing basins,
acquisitions of third-party systems, expansions of existing systems, the quality
of its service and its ability to adjust to changing market conditions. Delhi's
future ability to contract for additional dedicated gas reserves also depends,
in part, on the level and success of drilling by producers in the areas in which
Delhi operates.

     The Delhi's dedicated gas reserves for each of the last three years were:


<TABLE>
<CAPTION>
 
Dedicated Gas Reserves (a)        1996    1995    1994
                                 ------  ------  ------
<S>                              <C>     <C>     <C>
     (Billions of Cubic Feet)
 
     Beginning of year.........  1,743   1,650   1,663
       Additions...............    611     455     431
       Production..............   (365)   (317)   (334)
       Revisions/Asset Sales...      -     (45)   (110)
                                 -----   -----   -----
     Total (at year-end).......  1,989   1,743   1,650
                                 =====   =====   =====
</TABLE>


- -----------------
(a)  Reserves typically associated with third-party wells, to be purchased or
     transported by Delhi.

Natural Gas Sales

     Delhi sells natural gas nationwide to LDCs, UEGs, pipeline companies,
various industrial end-users and marketers under both long- and short-term
contracts. As a result of Delhi's ability to offer a complete package of
services to customers, relieving them of the need to locate, negotiate for,
purchase and arrange transportation and processing of gas, margins realized by
Delhi when providing premium supply services are generally higher than those
realized when providing separate gathering, processing or transportation
services or those realized from spot market sales. In 1996, gas sales
represented

                                       36

<PAGE>
 
approximately 54% of Delhi's total systems throughput and 47% of Delhi's total
gross margin. Delhi sells gas under both firm and interruptible contracts at
varying volumes, and in 1996 sold gas to over 350 customers.

     LDCs and UEGs generally are willing to pay higher prices to gas suppliers
who can provide reliable gas supplies and adjust to rapid changes in their
demand for gas service. Fluctuations in demand for natural gas by LDCs and UEGs
are influenced by the seasonal requirements of purchasers using gas for space
heating and the generation of electricity for air conditioning. LDCs require
maximum deliveries during the winter heating season, while UEGs require maximum
deliveries during the summer air-conditioning season. Delhi serves over 40 LDCs
and UEGs, and total sales to these customers in 1996 exceeded 107 bcf. Delhi
also sells gas to industrial end-users. Although these customers are generally
more price-sensitive, they diversify Delhi's customer base and provide a stable
market for natural gas.

     In order to increase flexibility for supplying gas to premium customers,
and in balancing its gas supply, Delhi has an arrangement with a large LDC in
Texas to store up to 2.5 bcf of natural gas in an east Texas storage facility,
and has, from time to time, entered into various other storage agreements. As of
January 31, 1997, Delhi had 3.1 bcf of natural gas in storage pursuant to these
arrangements.

     Because of prevailing industry conditions, most recent sales contracts are
for periods of one year or less, and many are for periods of 30 days or less.
Pricing mechanisms under Delhi's contracts result in gas sales primarily at
market sensitive prices with the unit margin fluctuating based on the sales
price and the cost of gas. Various contracts permit the customer or Delhi to
interrupt the gas purchased or sold, under certain circumstances. Other
contracts provide Delhi or the customer the right to renegotiate the gas sales
price at specified intervals, often monthly or annually. Sales under these
contracts may be terminated if the parties are unable to agree on a new price.
These contract provisions may make the specified term of a contract less
meaningful.

     Delhi's four largest gas sales customers accounted for 21% of total
revenues in 1996, 19% in 1995 and 30% in 1994. Sales to these customers
contributed 19%, 19% and 24% of total gross margin in 1996, 1995 and 1994,
respectively. For the years 1996, 1995 and 1994, Delhi's four largest customers
were ONEOK, Inc. ("ONEOK"), which includes Oklahoma Natural Gas Company, the
largest LDC in Oklahoma; Noram Energy Corp., which includes Entex, the second
largest LDC in Texas; Central and South West Corporation ("CSW"), which includes
UEGs primarily serving locations in Oklahoma, Texas, Louisiana and Arkansas; and
Enserch Corp., which includes Lone Star Gas Company, the largest LDC in Texas,
serving the north central part of the state. CSW includes Central Power and
Light Company and Southwestern Electric Power Company, which operate in
different geographical areas, but have centralized purchasing functions. In the
event that one or more of Delhi's large premium supply service customers reduce
volumes taken under an existing contract or choose not to renew such contract,
Delhi would be adversely affected to the extent it is unable to find alternative
customers to buy gas at the same level of profitability.

     During 1996 and 1994, one customer, ONEOK, accounted for 10% or more of the
Delhi Group's total revenues. Delhi has maintained long-term sales relationships
with many of its customers and has done business with ONEOK since 1971. ONEOK
accounted for 10%, 7%, and 13% of total revenues in 1996, 1995 and 1994,
respectively. Delhi executed a 10-year contract with ONEOK in 1992 which
provided for annual negotiation of contract prices. During the 1995 negotiation
process, Delhi and ONEOK agreed to pricing terms and volume commitments for the
next two contract years with options for the following year. Annual
renegotiation rights become effective with the 1997-1998 contract year, or the
sixth year of the contract.

     Delhi continues to pursue opportunities for long-term gas sales to LDCs and
UEGs. Delhi can sell gas to customers which are not directly connected to its
pipeline systems ("off-system") because of its numerous interconnections with
other pipelines and the availability of transportation service from other
pipelines. These interconnections give Delhi access to virtually every
significant interstate pipeline in the

                                       37

<PAGE>
 
United States and permit it to take advantage of regional pricing differentials,
when not limited by the availability of downstream pipeline capacity.

     In a typical off-system sale transaction, Delhi sells gas to a customer at
an interconnection point with another pipeline, and the customer arranges
further pipeline transportation of the gas to the point of consumption. Margins
realized from off-system sales to LDCs and UEGs have traditionally been lower
than those realized from on-system sales to such customers, reflecting increased
competition and the lower level of service typically received by the off-system
customers. However, firm off-system sales to LDCs and UEGs generally provide a
premium over off-system industrial and spot market sales. During 1996, Delhi
negotiated 14 firm sales of gas moving to off-system markets.

     In 1996, Delhi continued to significantly expand its natural gas trading
operations in order to increase its customer base and provide greater
opportunities for attracting off-system customers requiring firm supply
services. The trading business, which began in 1994, involves the purchase of
natural gas from sources other than wells directly connected to Delhi's systems,
and the subsequent sale of like volumes. Although unit margins earned in the
trading business are significantly less than those earned on firm system sales,
the increased volumes provide more flexibility in reacting to changes in on- and
off-system market demands.

     With the deregulation of the gas industry, LDCs are opening their systems
to transportation, allowing companies like Delhi to sell gas to customers
downstream of the LDCs. To pursue these downstream markets, Delhi opened a
marketing office in the Chicago area in late 1995 and another in Pittsburgh in
early 1996. These offices serve those industrial and commercial end-users behind
the LDCs in the Midwest and Northeast where unit margins exceed those on the
spot market. In addition to on-system supplies, Delhi intends to use volumes
from its trading operations to supply these downstream markets.

     The Delhi Group's natural gas volumes for each of the last three years
were:

<TABLE>
<CAPTION>
 
Natural Gas Volumes                    1996   1995   1994
                                       -----  -----  -----
<S>                                    <C>    <C>    <C>
     (Billions of Cubic Feet)
     Natural Gas Sales...............  198.9  206.9  227.9
     Transportation..................  166.4  109.7   99.1
                                       -----  -----  -----
       Total Systems.................  365.3  316.6  327.0
     Trading Sales...................  204.6  154.7   34.6
     Partnership - equity share (a)..      -    1.9    7.1
                                       -----  -----  -----
     TOTAL...........................  569.9  473.2  368.7
                                       =====  =====  =====
</TABLE>

- ----------------
(a)  Related to an investment in Ozark, which was sold in 1995.

Transportation

     Delhi transports natural gas on its pipeline systems for third parties at
negotiated fees. When transporting gas for others, Delhi does not take title but
delivers equivalent amounts to designated locations. The core of Delhi's
transportation business is moving gas for on-system producers who market their
own gas. Delhi's transportation business complements its sales and gas
processing businesses by generating incremental revenues and margins.
Transportation volumes also may be available for purchase by Delhi during
periods of peak demand to increase Delhi's supply base. Transportation services
accounted for approximately 46% of Delhi's total systems throughput and 13% of
its total gross margin in 1996, compared with 35% and 11%, in 1995.

                                       38

<PAGE>
 
Gas Processing and NGLs Marketing

Gas Processing

     Natural gas processing involves the extraction of NGLs (ethane, propane,
isobutane, normal butane and natural gasoline) from the natural gas stream,
thereby removing some of the British thermal units ("Btus") from the gas. Delhi
processes most of the gas moved on its pipeline systems in its own plants, which
straddle its pipelines, and processes a smaller portion at third-party plants.
Delhi has the processing rights under a substantial majority of its contracts
with producers. By processing gas, Delhi captures the differential between the
price obtainable for the Btus if sold as NGLs and the price obtainable for the
Btus if left in the gas. Delhi has the ability to take advantage of such price
differentials by utilizing additional processing capacity at operating plants,
by choosing not to extract certain NGLs from the gas stream or, to a lesser
extent, by starting up or idling processing plants. Delhi monitors the economics
of removing NGLs from the gas stream for processing on an ongoing basis to
determine the appropriate level of each plant's operation and the viability of
starting up or idling individual plants. At February 28, 1997, 15 of Delhi's 21
plants were operating.

     The following table sets forth information about Delhi's processing plants
as of December 31, 1996:


<TABLE>
<CAPTION>
Processing Plants
                                          Gross              Gross
                                       Natural Gas            NGLs
                         Number        Throughput          Production
Location                of Plants       Capacity            Capacity
- --------                ---------       --------            --------
                                   (Millions of Cubic    (Thousands of
                                      Feet per Day)     Gallons per Day)
<S>                     <C>        <C>                  <C>
 
     Oklahoma (a)(b)           11               465.0            1289.0
     East Texas                 3               355.0             500.0
     West Texas                 2               140.0             380.0
     South Texas                3                85.0             220.0
     Louisiana (c)              2                32.0              36.0
     -------------             --             -------           -------
     Total                     21             1,077.0           2,425.0
                                              =======           =======
</TABLE>


- ------------------
(a) Plants in Oklahoma are 50% owned (plants in all other states are 100%
    owned).
(b) Three Plants with total Gross Natural Gas Throughput Capacity of 80 million
    cubic feet per day and total Gross NGLs Production Capacity of 168 thousand
    gallons per day were idle at December 31, 1996.
(c) Idle at December 31, 1996. These plants were written down to net realizable
    value in 1994.

     Delhi retains the rights to the NGLs on more than 82% of the gas it
processes. The remainder is shared with either producers or other pipelines. For
certain 50% owned plants, Delhi shares the retained NGLs equally with the joint
owner. Delhi pursues incremental processing business from third parties with
unprocessed gas accessible to Delhi's pipeline systems to take advantage of
excess capacity when processing economics are favorable.

NGLs Marketing

     Delhi markets NGLs either at the two major domestic marketing centers for
NGLs, Mont Belvieu, Texas and Conway, Kansas, or at the processing plant sites.
Delhi also markets NGLs for third parties for a fee. Condensate (free liquids in
the gas stream before processing) is very similar to crude oil and is marketed
to crude oil purchasers at various separation or collection facilities located
throughout Delhi's pipeline systems. Prices for NGLs and condensates are closely
related to the price of crude oil.

                                       39

<PAGE>
 
     Delhi has transportation, fractionation and exchange agreements for the
movement of NGLs to market. Delhi sells NGLs to a variety of purchasers
including petrochemical companies, refiners, retailers, resellers and trading
companies. In 1996, Delhi marketed 289 million gallons ("mmgal") of NGLs to over
45 different customers at spot market prices. In the past, Delhi has entered
into agreements with third parties to store NGLs, in order to provide the
flexibility to delay NGLs sales until demand and prices are higher.

     Delhi's NGLs sales volumes totaled 289 mmgal, 289 mmgal and 276 mmgal in
1996, 1995 and 1994, respectively. In addition, NGLs volumes which Delhi
processed for third parties for a fee totaled 68 mmgal, 29 mmgal and 30 mmgal in
1996, 1995 and 1994, respectively. Gas processing unit margins averaged 11 cents
per gallon in 1996, compared with 9 cents per gallon in 1995 and 6 cents per
gallon in 1994.

Other Services

     In June 1995, Delhi received FERC approval to market wholesale electric
power and began limited trading in December 1995. Management believes that the
electric power business is a natural extension of and a complement to its
existing energy services. This added service should eventually enable Delhi to
offer both gas and electric services to those industrial and commercial
customers who can readily switch energy sources. In 1996, the marketing and
trading of electric power generated revenues of $5.1 million, on sales of
approximately 230 million megawatt hours of electricity. The Delhi Group may
also pursue cogeneration opportunities to convert its gas into electricity to
capture summer peaking premiums.

Property, Plant and Equipment Additions

     For property, plant and equipment additions see "Management's Discussion
and Analysis of Financial Condition, Cash Flows and Liquidity - Capital
Expenditures" for the Delhi Group on page D-22.

Regulatory Matters

     Delhi's facilities and operations are subject to regulation by various
governmental agencies.

State Regulation

     The Texas Railroad Commission ("RRC") has the authority to regulate natural
gas sales and transportation rates charged by intrastate pipelines in Texas. The
RRC requires tariff filings for certain of Delhi's transactions and, under
limited circumstances, could propose changes in such filed tariffs. Rates
charged for pipeline-to-pipeline transactions and rates charged to
transportation, industrial and other similar large volume contract customers
(other than LDCs) are presumed by the RRC to be just and reasonable where (i)
neither the supplier nor the customer had an unfair advantage during
negotiations, (ii) the rates are substantially the same as rates between the gas
utility and two or more of these customers for similar service or (iii)
competition does or did exist for the market with another supplier of natural
gas or an alternative form of energy. Competition generally exists in the
markets Delhi serves and rate cases have been infrequent.

     Delhi's Texas pipeline systems are subject to the "ratable take rules" of
the RRC. Under ratable take rules, each purchaser of gas is generally required
first to take ratably certain high-priority gas (i.e., principally casinghead
gas from oil wells) produced from wells from which it purchases gas and, if its
sales volumes exceed available amounts of such high-priority gas, thereafter to
take gas well gas from wells from which it purchases gas on a ratable basis, by
categories, to the extent of demand. Under other RRC regulations, large
industrial customers are subject to curtailment or service interruption during
periods of peak demand. Certain Delhi customers in Texas and Oklahoma may also
be subject to state ratable take rules.

                                       40

<PAGE>
 
     Delhi generally does not engage in the type of sales or transportation
transactions that would subject it to cost of service regulation in the states
where it does business.

FERC Regulation

     As a gas gatherer and an operator of intrastate pipelines, Delhi is
generally exempt from regulation under the Natural Gas Act of 1938 ("NGA"). In
the second quarter of 1995, Delhi sold its 25% partnership interest in Ozark,
which was subject to FERC regulations under the NGA and the Natural Gas Policy
Act of 1978 ("NGPA"). The FERC exercises jurisdiction over transportation
services provided by Delhi under Section 311 of the NGPA. This jurisdiction is
limited to a review of the rates, terms and conditions of such services. In
addition, Delhi is able to make sales for resale in interstate commerce at
market-based rates pursuant to blanket authority issued by the FERC under Order
No. 547.

Environmental Matters

     The Delhi Group maintains a comprehensive environmental policy overseen by
the Public Policy Committee of the USX Board of Directors. The Environmental
Affairs and Safety organization has the responsibility to ensure that the Delhi
Group's operating organizations maintain environmental compliance systems that
are in accordance with applicable laws and regulations.

     The businesses of the Delhi 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 ("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 with respect to releases
and remediation of hazardous substances. In addition, the states where the Delhi
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 1990 Amendments to the CAA, could result in increased capital,
operating and compliance costs. For a discussion of environmental expenditures,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management's Discussion and Analysis of Environmental Matters,
Litigation and Contingencies" for the Delhi Group on page D-24.

     The Delhi Group has incurred and will continue to incur capital and
operating and maintenance expenditures as a result of environmental laws and
regulations, although such expenditures have historically not been material. To
the extent these expenditures, as with all costs, are not ultimately reflected
in the prices of the Delhi Group's products and services, operating results will
be adversely affected. The Delhi 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 and its
production processes.

Air

     The 1990 Amendments to the CAA impose more stringent limits on air
emissions, establish a federally mandated operating permit program and allow for
enhanced civil and criminal enforcement sanctions. The principal impact of the
1990 Amendments to the CAA on the Delhi Group is on its compressor stations and
its processing plants. The amendments establish attainment deadlines and control
requirements based on the severity of air pollution in a geographical area.
Under various timetables, all

                                       41

<PAGE>
 
facilities that are major sources as defined by the CAA will require Title V
permits. Delhi anticipates that such permits will ultimately be required at
approximately 22 locations in Oklahoma and Texas.

Water

     The Delhi 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.

Solid Waste

     The Delhi 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 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

     Minor remediation projects are done on a routine basis and related
expenditures have not been material.

Capital Expenditures


     For information concerning capital expenditures for environmental controls
in 1994, 1995 and 1996 and estimated capital expenditures for such purposes in
1997 and 1998, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Management's Discussion and Analysis of
Environmental Matters, Litigation and Contingencies" for the Delhi Group on
page D-24.

                                       42

<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-21.

     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, 1996.


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, the
U. S. Steel Group and the Delhi 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, 1996, 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

                                       43

<PAGE>
 
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 may be affected by these factors.

     At December 31, 1996, USX had been identified as a PRP at a total of 16
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 13 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 69 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 36 of these sites will be under $100,000 per site, another 26
sites have potential costs between $100,000 and $1 million per site and 6 sites
may involve remediation costs between $1 million and $5 million per site.

     There is one location that involves a remediation program in cooperation
with the Michigan Department of Natural Resources 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.  Anticipated expenditures for 1997 are $250,000.

     In addition to the sites described above, the Marathon Group is involved
with a voluntary corrective action program at its Robinson, Ill. refinery to
remediate five Solid Waste Management Units at a total estimated cost of $7.7
million.  As of December 31, 1996, $300,000 of this amount remains to be spent.
This program is expected to be completed during 1997.

     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 Clean Air Act ("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 Marathon Group contends that it is
currently in compliance with these 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.  A tentative settlement has been reached with the U.S.
Environmental Protection Agency ("EPA"), Region 5 (Chicago) and U.S. DOJ for a
penalty of less than $100,000 and the Marathon Group has agreed to perform a
Supplemental Environmental Project ("SEP").  Negotiations continue as to the
type and cost of the SEP.  In addition, as a result of a "stack test" taken in
August 1996, U.S. EPA, Region 5 issued, in October 1996, a Notice of Violation
("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.

     In October 1996, U.S. EPA Region 5 issued a Finding of Violation ("FOV")
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 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.

     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

                                       44

<PAGE>
 
April 1993, and has recommended a civil penalty of $228,000. In October 1995,
the Marathon Group notified the AG's Office that a compatibility study of the
sewer system has been performed indicating that the system is compatible for the
types of material which are discharged into it. In February 1996, the Marathon
Group submitted its settlement offer whereby it would agree to implement a Sewer
Inspection, Repair and Remediation Program. This Program has been implemented
and negotiations continue with the AG's office regarding this matter.

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 underpayment of crude
oil royalty interests and severance taxes on the basis of posted prices.
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.  The Marathon Group intends to
vigorously defend such cases and its crude oil valuation and royalty and
severance tax payment practices.

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, Inc. ("Transtar") in
which USX has a 46% equity interest.  USX is obligated to reimburse Transtar for
judgments against the B&LE in these matters.

Fairfield Agreement Litigation

     A civil action (Cox, et al. v. USX et al.) was commenced in December 1988
against USX and the United Steelworkers of America ("USWA") in the District
Court in the Northern District of Alabama, and arose out of the negotiation of a
local labor agreement entered in 1983 at USX's Fairfield, (Ala.) Works.  In the
complaint, the plaintiffs alleged that the labor concessions contained in the
1983 Fairfield Works Agreement were obtained only as a result of a promise by
USX to grant pensions to the USWA negotiators.  The plaintiffs' Complaint
asserted five causes of action arising out of this alleged conduct, including
claims asserted under the Racketeer Influenced and Corrupt Organization Act and
the Employee Retirement Income Security Act.  In August 1990, the District Court
ruled that the damage claims could be maintained as a class action.

     In October 1996, a jury returned a verdict in favor of USX and co-defendant
USWA on all counts, and all damage claims asserted in the case were dismissed.
Plaintiffs expressed their intent to appeal the jury verdicts.

     In December 1996, the parties tentatively agreed to settle all matters in
the litigation with a payment by USX of $2 million, with all parties to bear
their own costs.  The Court preliminarily approved the class settlement and
directed that notice be given to class members.  In addition, a fairness hearing
was set for April 4, 1997, to consider final approval of the Settlement
Agreement.

Aloha Stadium Litigation

                                       45

<PAGE>
 
     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 plaintiffs' 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.

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 which is expected to hold hearings in March 1997.

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, 1996, 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.  PRP's 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 may be affected by
these factors.

     At December 31, 1996, USX had been identified as a PRP at a total of 24
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 nine of
these sites will be between $100,000 and $1 million per site and eight will be
under $100,000.

     At one site, USX's former Duluth, Minn. Works, USX has spent $6.4 million
and currently estimates that it will spend another $5.7 million.  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.  USX signed a Response Order by Consent with the MPCA in
1985

                                       46

<PAGE>
 
under which USX agreed to perform a Remedial Investigation and Feasibility
Study ("RI/FS") for a portion of Duluth Works, primarily focusing on the coke
plant area.  After completion of the RI/FS, the Response Order by Consent
required USX to conduct the selected response action.  The RI/FS was completed
in 1988, and the response actions for various operable units of the Duluth Works
site were selected in the MPCA's 1989 Record of Decision ("ROD").  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 has agreed to consider 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.

     At the remaining six 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. 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.

  2. 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.

  3. 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
     estimated to cost approximately $20 million. In December 1996, U.S. EPA
     proposed the issuance of an administrative order to study the proposed
     remedy.
    
     In February 1996, USX and other Berks Site PRPs were sued by the
     Pennsylvania Department of Environmental Protection ("PaDER") for $6
     million in past costs.

  4. 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.

                                       47

<PAGE>
 
     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.

  5. 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 $3
     million, of which USX paid $2.5 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 RI/FS which is continuing.
     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 approximately 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.

  6. 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 October 1996, the EPA issued a revised ROD with a remedial action
     estimated to cost $6.1 million.  USX has contributed $630,000 through 1996
     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
     PRP's to undertake the proposed remedial action and to reimburse
     approximately $5 million to de minimus PRP's who had earlier settled with
     the EPA on the basis of a substantially greater remedial cost estimate.

     In addition, there are 17 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 41 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 seven of these sites will
be under $100,000 per site, another six sites have potential costs between
$100,000 and $1 million per site, and nine sites may involve remediation costs
between $1 million and $5 million.  Another of the 41 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 18
sites are not presently determinable.

                                       48

<PAGE>
 
     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 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.

     On November 16, 1994, USX received a NOV from the Indiana Department of
Environmental Management ("IDEM") alleging violations of regulations concerning
the management of hazardous wastes at USX's Gary Works.  With the NOV, IDEM
included a proposed settlement agreement which would require Gary Works to
initiate certain remediation and study programs and pay a civil penalty of $1.8
million.  USX submitted a detailed response in rebuttal of the allegations.

     The IDEM has issued Notices of Violation to USX's Gary Works alleging
violations of air pollution requirements, including allegations that one source
was not in compliance from 1982 to 1994.  USX and IDEM have been involved in
negotiations since the fall of 1994 in an attempt to resolve these matters.  At
a meeting between USX and IDEM in November 1994, the IDEM representatives orally
conveyed an initial penalty demand of $52 million which reflects their
calculation of the economic benefit that IDEM alleges USX received by not
complying with the statutory requirements.  In March 1996, USX signed an
agreement with the IDEM to pay a $6 million penalty and to install additional
pollution control equipment and programs costing approximately $100 million over
a period of several years.  The $6 million penalty was paid in April 1996.

     In July 1996, USX agreed with the EPA to pay $178,500 for penalties for
failure to report the use of several chemicals at Gary Works in 1991 to 1993
pursuant to the Emergency Planning and Community Right-to-Know law.

     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 has agreed to continue paying the
prior $2,500 monthly penalty until February 1997; to clean up and close a former
coke plant waste disposal site over a period of 15 years; 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.

                                       49

<PAGE>
 
     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.  During 1993, USX commenced
the RFI/CMS which will require over three years to complete at an approximate
cost of $3 million.  The Phase I RFI report is to be submitted during the third
quarter of 1997.  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 U.S. DOJ with respect to alleged RCRA violations at Fairfield Works.  Under
the agreement, USX will pay a civil penalty of $1 million, design and implement
two SEPs costing not less than $1.5 million in the aggregate as well as
implementing RCRA corrective action at the facility.  In January 1997, the U.S.
DOJ informed USX that one of the proposed SEPs was not acceptable.  Negotiations
are underway to determine an alternative SEP.

Delhi Group

Environmental Regulation

     Delhi is subject to federal, state and local laws and regulations relating
to the environment.  Based on procedures currently in place, including routine
reviews of existing and proposed environmental laws and regulations and
unannounced environmental inspections performed periodically at company
facilities, and the associated expenditures for environmental controls, Delhi
believes that its facilities and operations are in general compliance with
environmental laws and regulations.  However, because some of these requirements
presently are not fixed, Delhi is unable to accurately predict the eventual cost
of compliance.


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

   Not applicable.

                                       50

<PAGE>
 

                                    PART II


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

   The principal market on which Marathon Stock, Steel Stock and Delhi 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, 1997, there were 91,398 registered holders of Marathon
Stock, 70,479 registered holders of Steel Stock and 129 registered holders of
Delhi Stock.

   The Board of Directors intends to declare and pay dividends on Marathon
Stock, Steel Stock and Delhi Stock based on the financial condition and results
of operations of the Marathon Group, the U. S. Steel Group and the Delhi Group,
respectively, although it has no obligation under Delaware law to do so.  In
determining its dividend policy with respect to Marathon Stock, Steel Stock and
Delhi Stock, the Board will rely on the separate financial statements of the
Marathon Group, the U. S. Steel Group and the Delhi Group, respectively.  The
method of calculating earnings per share for Marathon Stock, Steel Stock and
Delhi Stock reflects the Board's intent that separately reported earnings and
the surplus of the Marathon Group, the U. S. Steel Group and the Delhi Group, as
determined consistent with the 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, Steel Stock and Delhi 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 three
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 the Delhi Group and distributions
on Marathon Stock, Delhi Stock and on any preferred stock attributed to the
Marathon Group or the Delhi 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.

   Dividends on Delhi Stock are further limited to the Available Delhi Dividend
Amount.  Net losses of the Marathon Group and the U. S. Steel Group and
distributions on Marathon Stock, Steel Stock and on any preferred stock
attributed to the Marathon Group or the U. S. Steel Group will not reduce the
funds available for declaration and payment of dividends on Delhi Stock unless
the legally available funds of USX are less than the Available Delhi Dividend
Amount.  See "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - 22. Dividends" on page U-24.

   The Board has adopted certain policies with respect to the Marathon Group,
the U. S. Steel Group and the Delhi 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 any of the Marathon Group,
the U. S. Steel Group and the Delhi Group only on an arm's-length basis and
(iii) treat funds generated by sales of Marathon Stock, Steel Stock or Delhi
Stock and securities convertible into such stock as assets of the Marathon
Group, the U. S. Steel Group, or the Delhi Group, as the case may be, and apply
such funds to acquire assets or reduce liabilities of the

                                       51

<PAGE>
 
Marathon Group, the U. S. Steel Group or the Delhi 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 three classes
of USX common stock, although the Board has no present intention to do so.

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 or of
Delhi Stock for Marathon Stock or Steel Stock at the 10% premium or 15% premium,
as the case may be, the determination of the record date of any such exchange or
for the redemption of any Steel Stock or Delhi Stock; the establishing of the
date for public announcement of the liquidation of USX and the commitment of
capital among the Marathon Group, the U. S. Steel Group and the Delhi 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.  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.

                                       52

<PAGE>
 

Item 6.  SELECTED FINANCIAL DATA
         USX - Consolidated



<TABLE>
<CAPTION>
                                                                      Dollars in millions (except per share data)
                                                                      -------------------------------------------
                                                          1996        1995            1994          1993               1992
                                                          ----        ----            ----          ----               ----
<S>                                                      <C>       <C>             <C>            <C>             <C>
Statement of Operations Data:                                                                                                      
  Revenues...................................            $23,844   $20,964/(a)/    $19,530/(a)/   $18,290/(a)/    $17,849/(a)/      

  Operating income...........................              1,625       631/(a)/      1,044/(a)/       273/(a)/         91/(a)/      

  Operating income includes:                                                                                                       
   Inventory market valuation                                                                                                      
   charges (credits).........................               (209)      (70)           (160)           241             (62)
   Restructuring charges (credits)...........                  -        (6)             37             42             125       
   Impairment of long-lived assets...........                  -       675               -              -               -
  Income (loss) before extraordinary                                                                                               
   loss and cumulative effect of                                                                                                   
   changes in accounting principles..........                952       221              501            (167)            (160)
  Net income (loss)..........................            $   943   $   214          $   501         $  (259)         $(1,826)      
  Dividends on preferred stock...............                (22)      (28)             (31)            (27)              (9)      
                                                         -------   -------          -------         -------          -------       
  Net income (loss) applicable to                                                                                                  
   common stocks.............................            $   921   $   186          $   470         $  (286)         $(1,835)       

</TABLE>

- -----------------
(a) Reclassified to conform to 1996 classifications.


<TABLE>
<CAPTION>

<S>                                                      <C>       <C>              <C>             <C>              <C>
Common Share Data
Marathon Stock:
 Income (loss) before extraordinary
   loss and cumulative effect of
   changes in accounting principles
   applicable to Marathon Stock..............            $  671    $  (87)          $  315          $  (12)          $   103
 Per share-primary...........................              2.33      (.31)            1.10            (.04)              .37
     -fully diluted..........................              2.31      (.31)            1.10            (.04)              .37
 
 Net income (loss) applicable to
    Marathon Stock...........................               664       (92)             315             (35)             (228)
 Per share-primary...........................              2.31      (.33)            1.10            (.12)             (.80)
    -fully diluted...........................              2.29      (.33)            1.10            (.12)             (.80)
 
 Dividends paid..............................               .70       .68              .68             .68              1.22
 Book value..................................             11.62      9.99            11.01           10.58             11.37
 
Steel Stock:
 Income (loss) before extraordinary
   loss and cumulative effect of
   changes in accounting principles
   applicable to Steel Stock.................            $  253    $  279           $  176          $ (190)          $  (274)
 Per share-primary...........................              3.00      3.53             2.35           (2.96)            (4.92)
   -fully diluted............................              2.97      3.43             2.33           (2.96)            (4.92)
 
 Net income (loss) applicable to
   Steel Stock...............................               251       277              176            (259)           (1,609)
 Per share-primary...........................              2.98      3.51             2.35           (4.04)           (28.85)
   -fully diluted............................              2.95      3.41             2.33           (4.04)           (28.85)
 
 Dividends paid..............................              1.00      1.00             1.00            1.00              1.00
 Book value..................................             18.37     16.10            12.01            8.32              3.72
</TABLE>


                                       53

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



<TABLE> 
<CAPTION> 

 
                                                                        Dollars in millions (except per share data)
                                                                        -------------------------------------------
                                                            1996          1995           1994              1993             1992
                                                            ----          ----           ----              ----             ----
<S>                                                       <C>            <C>            <C>               <C>              <C>
Delhi Stock Outstanding Since
October 2, 1992:
 Net income (loss) applicable to
  outstanding Delhi Stock...................              $     6        $     1        $   (21)          $     8          $     2
 Per common share-primary and
  fully diluted.............................                  .62            .12          (2.22)              .86               .22
 
 Dividends paid..............................                 .20            .20            .20               .20               .05
 Book value..................................               12.30          11.88          12.09             14.50             13.83
 
- ------------------------------------------------------------------------------------------------------------------------------------


Balance Sheet Data-December 31:
 Capital expenditures-for year...............             $ 1,168       $ 1,016         $ 1,033           $ 1,151           $ 1,505
 Total assets................................              16,980        16,743          17,517            17,414            17,252
 Capitalization:
  Notes payable..............................             $    81       $    40         $     1           $     1           $    47
  Total long-term debt.......................               4,212         4,937           5,599             5,970             6,302
  Minority interest including
   preferred stock of subsidiary.............                 250           250             250                 5                16
  Preferred stock............................                   7             7             112               112               105
  Common stockholders' equity................               5,015         4,321           4,190             3,752             3,604
                                                          -------       -------         -------           -------           -------
  Total capitalization.......................             $ 9,565       $ 9,555         $10,152           $ 9,840           $10,074
                                                          =======       =======         =======           =======           =======
 
 Ratio of earnings to fixed charges..........                3.81          1.63            2.08             /(a)/             /(a)/
 
 Ratio of earnings to combined fixed
  charges and preferred stock
  dividends..................................                3.55          1.50            1.92             /(b)/             /(b)/
</TABLE>

- --------------------------
(a) Earnings did not cover fixed charges by $281 million in 1993 and $197
    million in 1992.
(b) Earnings did not cover combined fixed charges and preferred stock dividends
    by $325 million in 1993 and $211 million in 1992.

                                       54

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


<TABLE>
<CAPTION>

                                                                      Dollars in millions (except per share data)
                                                                      -------------------------------------------
                                                          1996        1995            1994           1993            1992
                                                          ----        ----            ----           ----            ---- 
<S>                                                      <C>       <C>             <C>             <C>             <C>
Statement of Operations Data:
 Revenues....................................            $16,332   $13,879/(a)/    $12,928/(a)/    $11,993/(a)/    $12,783/(a)/
 Operating income............................              1,234       113/(a)/        755/(a)/        200/(a)/        305/(a)/
 Operating income includes:
  Inventory market valuation
   charges (credits).........................               (209)      (70)           (160)            241             (62)
  Restructuring charges......................                  -         -               -               -             115
  Refund of prior years
   production taxes..........................                  -         -               -               -            (119)
  Impairment of long-lived assets............                  -       659               -               -               -
 Total income (loss) before extraordinary
  loss and cumulative effect of
  changes in accounting principles...........                671       (83)            321              (6)            109
 Net income (loss)...........................            $   664   $   (88)        $   321         $   (29)        $  (222)
 
 Dividends on preferred stock................                  -        (4)             (6)             (6)             (6)
                                                         -------   -------         -------         -------         -------
 Net income (loss) applicable to
  Marathon Stock.............................            $   664   $   (92)         $   315        $   (35)        $  (228)
 
- -----------------------------------------------------------------------------------------------------------------------------------
Per Common Share Data
 
 Total income (loss) before extraordinary
  loss and cumulative effect of
  changes in accounting principles...........
  - primary..................................            $  2.33   $  (.31)         $  1.10        $  (.04)        $   .37
  - fully diluted............................               2.31      (.31)            1.10           (.04)            .37
 Net income (loss)-primary...................               2.31      (.33)            1.10           (.12)           (.80)
  - fully diluted............................               2.29      (.33)            1.10           (.12)           (.80)
 Dividends paid..............................                .70       .68              .68            .68             1.22
 Book value..................................              11.62      9.99            11.01          10.58            11.37
- ---------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data-December 31:
 Capital expenditures-for year...............            $   751   $   642           $  753        $   910           $1,193
 Total assets................................             10,151    10,109           10,951         10,822           11,141
 
 Capitalization:
  Notes payable..............................            $    59   $    31          $     1         $    1          $    31
  Total long-term debt.......................              2,906     3,720            4,038          4,297            3,945
  Preferred stock of subsidiary..............                182       182              182              -                -
  Preferred stock............................                  -         -               78             78               78
  Common stockholders' equity................              3,340     2,872            3,163          3,032            3,257
                                                          ------    ------          -------         ------           ------
    Total capitalization                                 $ 6,487    $6,805           $7,462         $7,408           $7,311
                                                         =======    ======           ======         ======           ======
</TABLE>


- ---------
(a) Reclassified in 1996 to include gains and losses on disposal of operating
    assets.  Prior to reclassification, gains and losses on operating assets
    were included in other income.

                                       55

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


<TABLE>
<CAPTION>

                                                                Dollars in millions (except per share data)
                                                                -------------------------------------------
                                                          1996       1995         1994         1993         1992
                                                          ----       ----         ----         ----         ----
<S>                                                      <C>       <C>          <C>          <C>          <C>
Statement of Operations  Data:
     Revenues..................................            $6,547    $6,475/(a)/  $6,077/(a)/  $5,797/(a)/  $ 4,939/(a)/
     Operating income (loss)...................               360       500/(a)/     324/(a)/      36/(a)/     (221)/(a)/
     Operating income includes:
      Restructuring charges....................                 -         -            -           42            10
      Impairment of long-lived assets..........                 -        16            -            -             -
     Total income (loss) before extraordinary
      loss and cumulative effect of
      changes in accounting principles.........               275       303          201         (169)         (271)
     Net income (loss).........................            $  273    $  301       $  201       $ (238)      $(1,606)
     Dividends on preferred stock..............               (22)      (24)         (25)         (21)           (3)
                                                           ------    ------       ------       ------       -------
 
     Net income (loss) applicable to
      Steel Stock.............................             $  251    $  277       $  176       $ (259)      $(1,609)
 
- ----------------------------------------------------------------------------------------------------------------------------
Per Common Share Data
 
 Total income (loss) before extraordinary
  loss and cumulative effect of
  changes in accounting principles
  -primary.....................................            $ 3.00    $ 3.53       $ 2.35       $(2.96)      $ (4.92)
  -fully diluted...............................              2.97      3.43         2.33        (2.96)        (4.92)
 Net income (loss)-primary.....................              2.98      3.51         2.35        (4.04)       (28.85)
  -fully diluted...............................              2.95      3.41         2.33        (4.04)       (28.85)
 Dividends paid................................              1.00      1.00         1.00         1.00          1.00
 Book value....................................             18.37     16.10        12.01         8.32          3.72

- ------------------------------------------------------------------------------------------------------------------------------ 
Balance Sheet Data-December 31:

 Capital expenditures-for year.................            $  337    $  324       $  248       $  198       $   298
 Total assets..................................             6,580     6,521        6,480        6,629         6,251
 
 Capitalization:
  Notes payable................................            $   18    $    8       $    -       $    -       $    15
  Total long-term debt.........................             1,087     1,016        1,453        1,562         2,259
  Minority interest including
   preferred stock of subsidiary...............               64         64           64            5            16
  Preferred stock..............................                7          7           32           32            25
  Common stockholders' equity..................            1,559      1,337          913          585           222
                                                          ------     ------       ------       ------       -------
    Total capitalization.......................           $2,735     $2,432       $2,462       $2,184       $ 2,537
                                                          ======     ======       ======       ======       =======
</TABLE>

- ---------
(a) Reclassified in 1996 to include gains and losses on disposal of operating
    assets.  Prior to reclassification, gains and losses on operating assets
    were included in other income.

                                       56

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



<TABLE>
<CAPTION>
                                                                  Dollars in millions (except per share data)
                                                                  -------------------------------------------
                                                           1996        1995          1994         1993         1992
                                                           ----        ----          ----         ----         ----
<S>                                                      <C>          <C>          <C>          <C>          <C>
Statement of Operations Data:
 Revenues (b)..................................          $1,061.3     $670.5/(c)/  $585.1/(c)/  $551.7/(c)/  $472.6/(c)/
 Operating income (loss).......................              30.4       18.8/(c)/   (35.0)/(c)/   36.9/(c)/    32.6/(c)/
 Operating income includes:
  Restructuring charges (credits)..............                 -       (6.2)        37.4            -            -
 Total income (loss) before extraordinary
  loss and cumulative effect
  of changes in accounting principle...........               6.4        4.0        (30.9)        12.2         18.6
 Net income (loss).............................          $    5.9     $  3.7       $(30.9)      $ 12.2       $ 36.5
 
 Dividends on preferred stock..................                 -        (.2)         (.1)         (.1)
 Net (income) loss applicable to the
  Retained Interest (d)........................                 -       (2.4)        10.1         (4.3)
                                                         --------     ------       ------       ------
 Net income (loss) applicable to
  Delhi Stock..................................          $    5.9     $  1.1       $(20.9)      $  7.8
 
- ---------------------------------------------------------------------------------------------------------------------------------
Per Common Share Data Since October 2, 1992

 Net income (loss)-primary and
  fully diluted................................          $    .62     $  .12       $(2.22)      $  .86       $  .22
 Dividends paid................................               .20        .20          .20          .20          .05
 Book value....................................             12.30      11.88        12.09        14.50        13.83
 
- ------------------------------------------------------------------------------------------------------------------------------------

Balance Sheet Data-December 31:
 Capital expenditures-for year.................          $   80.6     $ 50.0       $ 32.1       $ 42.6       $ 26.6
 Total assets..................................             714.6      624.3        521.2        583.4        564.5
 
 Capitalization:
  Notes payable................................          $    4.3     $  1.6       $    -       $    -       $   .7
  Total long-term debt.........................             219.2      200.8         107.5       110.5         97.6
  Preferred stock of subsidiary................               3.8        3.8           3.8           -            -
  Preferred stock..............................                 -          -           2.5         2.5          2.5
  Common stockholders' equity..................             116.2      112.2         169.3       203.0        193.6
                                                         --------     ------        ------      ------       ------
    Total capitalization.......................          $  343.5     $318.4        $283.1      $316.0       $294.4
                                                         ========     ======        ======      ======       ======
</TABLE>


- --------------------
(a) The Delhi Group was established on October 2, 1992.  The financial data for
    the periods prior to that date include the businesses of the Delhi Group,
    which were included in the Marathon Group.
(b) Prior to 1996, the Delhi Group reported natural gas treating, dehydration,
    compression and other service fees as a reduction to cost of sales.
    Beginning with 1996, these fees are reported as revenue; accordingly,
    amounts for prior years have been reclassified.
(c) Reclassified in 1996 to include gains and losses on disposal of operating
    assets.  Prior to reclassification, gains and losses on operating assets
    were included in other income.
(d) On June 15, 1995, USX eliminated the Marathon Group Retained Interest in the
    Delhi Group (equivalent to 4,564,814 shares of USX-Delhi Group Common
    Stock).

                                       57

<PAGE>
 

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

     Indexes to Financial Statements, Supplementary Data and Management's
Discussion and Analysis of USX Consolidated, the Marathon Group, the U. S. Steel
Group and the Delhi Group, are presented on pages U-1, M-1, S-1 and D-1,
respectively.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Indexes to Financial Statements, Supplementary Data and Management's
Discussion and Analysis for USX Consolidated, the Marathon Group, the U. S.
Steel Group and the Delhi Group, are presented on pages U-1, M-1, S-1 and D-1,
respectively.


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

         Not applicable.

                                       58

<PAGE>
 
  USX
             Index to Consolidated Financial Statements, Supplementary
             Data and Management's Discussion and Analysis

<TABLE>
<CAPTION>
 
 
                                                                 Page
                                                                 ----
<S>                                                              <C>
             Explanatory Note Regarding Financial Information..  U-2
             Management's Report...............................  U-3
             Audited Consolidated Financial Statements:
              Report of Independent Accountants................  U-3
              Consolidated Statement of Operations.............  U-4
              Consolidated Balance Sheet.......................  U-6
              Consolidated Statement of Cash Flows.............  U-7
              Consolidated Statement of Stockholders' Equity...  U-8
              Notes to Consolidated Financial Statements.......  U-10
             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-36
             Five-Year Operating Summary -- Delhi Group........  U-37
             Management's Discussion and Analysis..............  U-38
 
</TABLE>


                                      U-1

<PAGE>
 
  USX


             Explanatory Note Regarding Financial Information


             Although the financial statements of the Marathon Group, the U. S.
             Steel Group and the Delhi 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, the U. S. Steel
             Group and the Delhi 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 USX-
             Marathon Group Common Stock, USX-U. S. Steel Group Common Stock and
             USX-Delhi Group Common 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 other 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 all classes of Common Stock.

                                      U-2

<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.

 
 
             Thomas J. Usher            Robert M. Hernandez   Kenneth L. Matheny
             Chairman, Board of         Vice Chairman         Vice President
             Directors &                & Chief               & Comptroller
             Chief Executive Officer    Financial Officer
 
 

             Report of Independent Accountants

             To the Stockholders of USX Corporation:

             In our opinion, the accompanying consolidated financial statements
             appearing on pages U-4 through U-28 present
             fairly, in all material respects, the financial position of USX
             Corporation and its subsidiaries at December 31, 1996 and 1995, and
             the results of their operations and their cash flows for each of
             the three years in the period ended December 31, 1996, 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 4, page U-12, 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 11, 1997


                                      U-3

<PAGE>
 
             Consolidated Statement of Operations

<TABLE>
<CAPTION>
 
(Dollars in millions)                                                             1996      1995      1994
- ----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>       <C>       <C>
 
             Revenues (Note 2,  page U-11)                                      $23,844   $20,964   $19,530
             Operating costs:
              Cost of sales (excludes items shown below)                         17,877    15,118    14,203
              Inventory market valuation credits (Note 19,  page U-22)             (209)      (70)     (160)
              Selling, general and administrative expenses                          183       187       221
              Depreciation, depletion and amortization                            1,012     1,160     1,065
              Taxes other than income taxes                                       3,210     3,120     2,963
              Exploration expenses                                                  146       149       157
              Restructuring charges (credits) (Note 3,  page U-12)                    -        (6)       37
              Impairment of long-lived assets (Note 4,  page U-12)                    -       675         -
                                                                                -------   -------   -------
                 Total operating costs                                           22,219    20,333    18,486
                                                                                -------   -------   -------
             Operating income                                                     1,625       631     1,044
             Gain on affiliate stock offering (Note 5,  page U-12)                   53         -         -
             Other income (Note 6,  page U-12)                                      111       101        78
             Interest and other financial income (Note 6,  page U-12)                28        38        24
             Interest and other financial costs (Note 6,  page U-12)               (449)     (501)     (461)
                                                                                -------   -------   -------
             Income before income taxes and extraordinary loss                    1,368       269       685
             Less provision for estimated income taxes (Note 11,  page U-17)        416        48       184
                                                                                -------   -------   -------
             Income before extraordinary loss                                       952       221       501
             Extraordinary loss (Note 7,  page U-13)                                 (9)       (7)        -
                                                                                -------   -------   -------
             Net income                                                             943       214       501
             Dividends on preferred stock                                           (22)      (28)      (31)
                                                                                -------   -------   -------
             Net income applicable to common stocks                             $   921   $   186   $   470
- ----------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      U-4

<PAGE>
 
Income Per Common Share
 

<TABLE>
<CAPTION>
             (Dollars in millions, except per share data)        1996        1995       1994
- --------------------------------------------------------------------------------------------
<S>                                                          <C>        <C>         <C>
 
             Applicable to Marathon Stock:
              Income (loss) before extraordinary loss        $    671    $    (87)  $    315
              Extraordinary loss                                   (7)         (5)         -
                                                             --------    --------   --------
              Net income (loss)                              $    664    $    (92)  $    315
              Primary per share:
              Income (loss) before extraordinary loss        $   2.33    $   (.31)  $   1.10
              Extraordinary loss                                 (.02)       (.02)         -
                                                             --------    --------   --------
              Net income (loss)                              $   2.31    $   (.33)  $   1.10
              Fully diluted per share:
              Income (loss) before extraordinary loss        $   2.31    $   (.31)  $   1.10
              Extraordinary loss                                 (.02)       (.02)         -
                                                             --------    --------   --------
              Net income (loss)                              $   2.29    $   (.33)  $   1.10
              Weighted average shares, in thousands
                       - primary                              287,595     287,271    286,722
                       - fully diluted                        296,430     287,271    286,725
             ------------------------------------------------------------------------------- 
             Applicable to Steel Stock:
              Income before extraordinary loss               $    253    $    279   $    176
              Extraordinary loss                                   (2)         (2)         -
                                                             --------    --------   --------
              Net income                                     $    251    $    277   $    176
              Primary per share:
              Income before extraordinary loss               $   3.00    $   3.53   $   2.35
              Extraordinary loss                                 (.02)       (.02)         -
                                                             --------    --------   --------
              Net income                                     $   2.98    $   3.51   $   2.35
              Fully diluted per share:
              Income before extraordinary loss               $   2.97    $   3.43   $   2.33
              Extraordinary loss                                 (.02)       (.02)         -
                                                             --------    --------   --------
              Net income                                     $   2.95    $   3.41   $   2.33
              Weighted average shares, in thousands
                       - primary                               84,037      79,088     75,184
                       - fully diluted                         85,933      89,438     78,624
             ------------------------------------------------------------------------------- 
             Applicable to Outstanding Delhi Stock:
              Income (loss) before extraordinary loss        $    6.4    $    1.4   $  (20.9)
              Extraordinary loss                                  (.5)        (.3)         -
                                                             --------    --------   --------
              Net income (loss)                              $    5.9    $    1.1   $  (20.9)
              Primary and fully diluted per share:
              Income (loss) before extraordinary loss        $    .68    $    .15   $  (2.22)
              Extraordinary loss                                 (.06)       (.03)         -
                                                             --------    --------   --------
              Net income (loss)                              $    .62    $    .12   $  (2.22)
              Weighted average shares, in thousands
                       - primary                                9,451       9,442      9,407
                       - fully diluted                          9,453       9,442      9,407
             ------------------------------------------------------------------------------- 
</TABLE>

             See Note 23, page U-24, for a description of net income per common
             share.
             The accompanying notes are an integral part of these consolidated
             financial statements.

                                      U-5

<PAGE>
 
Consolidated Balance Sheet

<TABLE>
<CAPTION>
 
             (Dollars in millions)                                                  December 31       1996      1995
             -------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>          <C>         <C>
 
             Assets
             Current assets:
               Cash and cash equivalents                                                           $    55   $   131
               Receivables, less allowance for doubtful accounts of
                $26 and $22 (Note 12,  page U-18)                                                    1,270     1,203
               Inventories (Note 19,  page U-22)                                                     1,939     1,764
               Deferred income tax benefits (Note 11,  page U-17)                                       57        76
               Other current assets                                                                     81        66
                                                                                                   -------   -------
                  Total current assets                                                               3,402     3,240
             Investments and long-term receivables, less reserves
               of $17 and $23 (Note 13,  page U-19)                                                    854       836
             Property, plant and equipment - net (Note 17,  page U-21)                              10,404    10,535
             Prepaid pensions (Note 9,  page U-15)                                                   2,014     1,820
             Other noncurrent assets                                                                   306       312
                                                                                                   -------   -------
                  Total assets                                                                     $16,980   $16,743
             -------------------------------------------------------------------------------------------------------
             Liabilities
             Current liabilities:
               Notes payable                                                                       $    81   $    40

               Accounts payable                                                                      2,204     2,157
               Payroll and benefits payable                                                            475       473
               Accrued taxes                                                                           304       263
               Accrued interest                                                                        102       122
               Long-term debt due within one year (Note 16,  page U-20)                                353       465
                                                                                                   -------   -------
                  Total current liabilities                                                          3,519     3,520
             Long-term debt (Note 16,  page U-20)                                                    3,859     4,472
             Long-term deferred income taxes (Note 11,  page U-17)                                   1,097       898
             Employee benefits (Note 10,  page U-16)                                                 2,797     2,772
             Deferred credits and other liabilities                                                    436       503
             Preferred stock of subsidiary (Note 26,  page U-25)                                       250       250
                                                                                                   -------   -------
                  Total liabilities                                                                 11,958    12,415
                                                                                                   -------   -------
             Stockholders' Equity (Details on pages U-8 and U-9)
             Preferred stock (Note 15,  page U-19) -
               6.50% Cumulative Convertible issued - 6,900,000 shares
                ($345 liquidation preference)                                                            7         7
             Common stocks:
               Marathon Stock issued - 287,525,213 shares and 287,398,342 shares
                (par value $1 per share, authorized 550,000,000 shares)                                288       287
               Steel Stock issued - 84,885,473 shares and 83,042,305 shares
                (par value $1 per share, authorized 200,000,000 shares)                                 85        83
               Delhi Stock issued - 9,448,269 shares and 9,446,769 shares
                (par value $1 per share, authorized 50,000,000 shares)                                   9         9
             Additional paid-in capital                                                              4,150     4,094
             Retained earnings (deficit)                                                               517      (116)
             Other equity adjustments                                                                  (34)      (36)
                                                                                                   -------   -------
                  Total stockholders' equity                                                         5,022     4,328
                                                                                                   -------   -------
                  Total liabilities and stockholders' equity                                       $16,980   $16,743
             -------------------------------------------------------------------------------------------------------

</TABLE>

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

                                      U-6

<PAGE>
 
             Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
 

(Dollars in millions)                                                                                 1996      1995      1994
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C>       <C>       <C>
 
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income                                                                                          $   943   $   214   $   501
Adjustments to reconcile to net cash provided
 from operating activities:
  Extraordinary loss                                                                                      9         7         -
  Depreciation, depletion and amortization                                                            1,012     1,160     1,065
  Exploratory dry well costs                                                                             54        64        68
  Inventory market valuation credits                                                                   (209)      (70)     (160)
  Pensions                                                                                             (187)     (338)     (132)
  Postretirement benefits other than pensions                                                            36        12        76
  Deferred income taxes                                                                                 257       (68)      188
  Gain on disposal of assets                                                                            (71)      (30)     (188)
  Gain on affiliate stock offering                                                                      (53)        -         -
  Payment of amortized discount on zero coupon debentures                                                 -      (129)        -
  Restructuring charges (credits)                                                                         -        (6)       37
  Impairment of long-lived assets                                                                         -       675         -
  Changes in: Current receivables - sold                                                                  -       (10)       10
                                  - operating turnover                                                 (170)      (74)     (207)
              Inventories                                                                                27        40       (26)
              Current accounts payable and accrued expenses                                              83       195      (508)
  All other - net                                                                                       (82)      (10)       93 
                                                                                                    -------   -------   -------
   Net cash provided from operating activities                                                        1,649     1,632       817
                                                                                                    -------   -------   -------
Investing activities:
Capital expenditures                                                                                 (1,168)   (1,016)   (1,033)
Disposal of assets                                                                                      443       157       293
Deposit in property exchange trust                                                                      (98)        -         -
All other - net                                                                                          24         4       (14)
                                                                                                    -------   -------   -------
   Net cash used in investing activities                                                               (799)     (855)     (754)
                                                                                                    -------   -------   -------
Financing activities:
Commercial paper and revolving credit arrangements - net                                               (153)     (117)     (151)
Other debt - borrowings                                                                                 191        52       513
           - repayments                                                                                (711)     (446)     (821)
Issuance of preferred stock of subsidiary                                                                 -         -       242
Issuance of common stock of subsidiary                                                                    -         -        11
Preferred stock redeemed                                                                                  -      (105)        -
Common stock - issued                                                                                    53       218       223
             - repurchased                                                                                -        (1)        -
Dividends paid                                                                                         (307)     (295)     (301)
                                                                                                    -------   -------   -------
   Net cash used in financing activities                                                               (927)     (694)     (284)
                                                                                                    -------   -------   -------
Effect of exchange rate changes on cash                                                                   1         -         1
                                                                                                    -------   -------   -------
Net increase (decrease) in cash and cash equivalents                                                    (76)       83      (220)
Cash and cash equivalents at beginning of year                                                          131        48       268
                                                                                                    -------   -------   -------
Cash and cash equivalents at end of year                                                            $    55   $   131   $    48
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Note 20, page U-22, for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial
statements.

                                      U-7

<PAGE>
 
             Consolidated Statement of Stockholders' Equity

             USX has three classes of common stock:  USX - Marathon Group Common
             Stock (Marathon Stock), USX - U. S. Steel Group Common Stock (Steel
             Stock), and USX - Delhi Group Common Stock (Delhi Stock), which are
             intended to reflect the performance of the Marathon Group, the U.
             S. Steel Group, and the Delhi Group, respectively. (See Note 8,
             page U-13, for a description of the three groups.)

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

<TABLE>
<CAPTION>
                                                                   Shares in thousands                    Dollars in millions
                                                         ---------------------------------------     -------------------------------
                                                            1996         1995           1994          1996         1995      1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>         <C>            <C>            <C>            <C>      <C>
             Preferred stocks (Note 15,  page U-19):
              Adjustable Rate Cumulative:
               Outstanding at beginning of year                   -         2,100          2,100      $   -        $ 105       $ 105
               Redeemed                                           -        (2,100)             -          -         (105)          -
                                                            -------       -------        -------      -----       ------   ---------
               Outstanding at end of year                         -             -          2,100      $   -        $   -       $ 105
- ------------------------------------------------------------------------------------------------------------------------------------
              6.50% Cumulative Convertible -
               Outstanding at beginning
                and end of year                               6,900         6,900          6,900      $   7        $   7       $   7
- ------------------------------------------------------------------------------------------------------------------------------------
             Common stocks:
              Marathon Stock:
               Outstanding at beginning of year             287,398       287,186        286,613      $ 287        $ 287       $ 287
               Issued for:
                Acquisition of assets                             -             -            573          -            -           -
                Employee stock plans                            127           212              -          1            -           -
                                                            -------       -------        -------      -----       ------   ---------
               Outstanding at end of year                   287,525       287,398        287,186      $ 288        $ 287       $ 287
- ------------------------------------------------------------------------------------------------------------------------------------
              Steel Stock:
               Outstanding at beginning of year              83,042        75,970         70,329      $  83        $  76       $  70
               Issued in public offering                          -         5,000          5,000          -            5           5
               Issued for:
                Employee stock plans                          1,649         1,681            562          2            2           1
                Dividend Reinvestment Plan                      194           391             79          -            -           -
                                                            -------       -------        -------      -----       ------   ---------
               Outstanding at end of year                    84,885        83,042         75,970      $  85        $  83       $  76
- ------------------------------------------------------------------------------------------------------------------------------------
              Delhi Stock:
               Outstanding at beginning of year               9,447         9,438          9,283      $   9        $   9       $   9
               Issued for employee stock plans                    1             9            155          -            -           -
                                                            -------       -------        -------      -----       ------   ---------
               Outstanding at end of year                     9,448         9,447          9,438      $   9        $   9       $   9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                            (Table continued on next page)

                                      U-8

<PAGE>
 

<TABLE>
<CAPTION>
                                                        Shares in thousands                             Dollars in millions
                                                ------------------------------------           -----------------------------------
                                                   1996          1995           1994             1996           1995          1994
           -----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>            <C>            <C>           <C>           <C>   
 
           Treasury common stocks, at cost:
           Marathon Stock:
            Balance at beginning of year                 -              -            (31)    $       -   $         -         $  (1)
            Repurchased                                 (7)           (40)           (16)            -            (1)            -
            Reissued for:
             Acquisition of assets                       -              -             46             -             -             1
             Employee stock plans                        7             40              1             -             1             -
                                                      ----          -----           ----       -------         -----         -----
            Balance at end of year                       -              -              -     $       -   $         -   $         -
           -----------------------------------------------------------------------------------------------------------------------
           Steel Stock:
            Balance at beginning of year                 -              -              -     $       -   $         -   $         -
            Repurchased                                 (7)           (15)             -             -             -             -
            Reissued for employee stock plans            7             15              -             -             -             -
                                                      ----          -----           ----       -------         -----         -----
            Balance at end of year                       -              -              -     $       -   $         -   $         -
           -----------------------------------------------------------------------------------------------------------------------
           Delhi Stock:
            Balance at beginning of year                 -              -              -     $       -   $         -   $         -
            Repurchased                                 (1)            (2)             -             -             -             -
            Reissued for employee stock plans            1              2              -             -             -             -
                                                      ----          -----           ----       -------         -----         -----
            Balance at end of year                       -              -              -     $       -   $         -   $         -
           -----------------------------------------------------------------------------------------------------------------------
           Additional paid-in capital:
            Balance at beginning of year                                                        $4,094   $     4,168   $     4,240
            Marathon Stock issued                                                                    3             4            10
            Steel Stock issued                                                                      53           227           219
            Delhi Stock issued                                                                       -             -             2
            Dividends on preferred stock                                                             -           (28)          (31)
            Dividends on Marathon Stock (per
             share $.68)                                                                             -          (195)         (195)
            Dividends on Steel Stock  (per
             share $1.00)                                                                            -           (80)          (75)
            Dividends on Delhi Stock (per
             share $.20)                                                                             -            (2)           (2)
                                                                                               -------         -----         -----
            Balance at end of year                                                              $4,150   $     4,094   $     4,168
           -----------------------------------------------------------------------------------------------------------------------
           Retained earnings (deficit):
            Balance at beginning of year                                                        $ (116)        $(330)        $(831)
            Net income                                                                             943           214           501
            Dividends on preferred stock                                                           (22)            -             -
            Dividends on Marathon Stock (per
             share $.70)                                                                          (201)            -             -
            Dividends on Steel Stock  (per
             share $1.00)                                                                          (85)            -             -
            Dividends on Delhi Stock (per
             share $.20)                                                                            (2)            -             -
                                                                                               -------         -----         -----
            Balance at end of year                                                              $  517         $(116)        $(330)
           -----------------------------------------------------------------------------------------------------------------------
           Other equity adjustments:
               Foreign currency adjustments (Note 24,
                page U-25)                                                                       $  (8)          $(8)          $(9)
               Deferred compensation adjustments (Note
                21,  page U-22)                                                                     (4)           (5)            -
               Minimum pension liability adjustments
                (Note 9,  page U-15)                                                               (22)          (23)          (11)
                                                                                               -------         -----         -----
           Total other equity adjustments                                                       $  (34)        $ (36)        $ (20)
           -----------------------------------------------------------------------------------------------------------------------
           Total stockholders' equity                                                           $5,022   $     4,328   $     4,302
           -----------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      U-9

<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 accounted for 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 investments is
             included in other income. Gains or losses from a change in
             ownership interest of an affiliate stock are recognized in income
             in the period of change. Investments in companies whose stock has
             no readily determinable fair value are carried at cost. Income from
             these investments is recognized when dividends are received and is
             included in other financial income.

             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 27, page U-26).
             Management is authorized to manage exposure to price fluctuations
             related to the purchase, production or sale of crude oil, natural
             gas, natural gas liquids, refined products and nonferrous metals
             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 operating income.
             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. OTC swaps in general
             are off-balance-sheet instruments. The effect of changes in the
             market indices related to OTC swaps are recorded and recognized in
             income with the underlying transaction. 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. 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.

                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.

             Gas balancing - USX follows the sales method of accounting for gas
             production imbalances.

                                      U-10

<PAGE>
 
                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 value analysis.

             Environmental remediation - 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. 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.

             New accounting standard - 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, page U-22.

             Reclassifications - Certain reclassifications of prior years' data
             have been made to conform to 1996 classifications.
 
- --------------------------------------------------------------------------------
2. Revenues
 
             The items below are included in revenues and operating costs,
             with no effect on income.

<TABLE>
<CAPTION>
 
             (In millions)                                                                                1996    1995    1994
             -----------------------------------------------------------------------------------------------------------------
<S>                                                                                                     <C>     <C>     <C>
             Matching crude oil and refined product
              buy/sell transactions settled in cash                                                     $2,912  $2,067  $2,071
             Consumer excise taxes on petroleum products
              and merchandise                                                                            2,768   2,708   2,542
             -----------------------------------------------------------------------------------------------------------------
</TABLE>


                Revenues in 1994 included gains of $183 million, primarily from
             asset sales of a retail propane marketing subsidiary and certain
             domestic oil and gas production properties.

                                      U-11

<PAGE>
 
- --------------------------------------------------------------------------------
3. Restructuring Charges (Credits)

             In 1994, the planned disposition of certain nonstrategic gas
             gathering and processing assets and other investments resulted in a
             $37 million charge to operating income and a $3 million charge to
             other income for the write-downs of assets to their estimated net
             realizable value. Disposition of these assets was completed in 1995
             at higher than anticipated sales proceeds, resulting in a $6
             million credit to operating income and a $5 million credit to other
             income.


- --------------------------------------------------------------------------------
4. 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 operating costs 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 value analysis.

                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.

- --------------------------------------------------------------------------------
5. 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.
 
- --------------------------------------------------------------------------------
 
6. Other Items

<TABLE>
<CAPTION>
 
             (In millions)                                        1996         1995             1994
             ----------------------------------------------------------------------------------------
<S>                                                               <C>         <C>               <C>    
             Other income:                                                              
              Income from affiliates - equity method              $  85         $  89           $  64
              Gain on sale of investments                            21             3               5
              Other income                                            5             9               9
                                                                  -----         -----           -----
                 Total                                            $ 111         $ 101           $  78
             ----------------------------------------------------------------------------------------
             Interest and other financial income:                           
              Interest income                                     $  15         $  23           $  18
              Other                                                  13            15               6
                                                                  -----         -----           -----
                 Total                                               28            38              24
                                                                  -----         -----           -----
             Interest and other financial costs:                            
              Interest incurred                                    (361)         (406)           (428)
              Less interest capitalized                              11            13              58
                                                                  -----         -----           -----
                 Net interest                                      (350)         (393)           (370)
              Interest on tax issues                                (14)           (6)  /(a)/      12   /(b)/
              Financial costs on preferred stock of subsidiary      (22)          (22)            (18)
              Amortization of discounts                             (10)          (28)            (44)
              Expenses on sales of accounts receivable              (43)          (48)            (35)
              Adjustment to settlement value of indexed debt         (6)            -               -
              Other                                                  (4)           (4)             (6)
                                                                  -----         -----           -----
                 Total                                             (449)         (501)           (461)
                                                                  -----         -----           -----
             Net interest and other financial costs               $(421)        $(463)          $(437)
             ----------------------------------------------------------------------------------------
</TABLE>

             /(a)/  Includes a $20 million benefit related to refundable
               federal income taxes paid in prior years.
             /(b)/  Includes a $35 million benefit related to the settlement of
               various state tax issues.

                                      U-12

<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 an 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. Operations and Segment Information

             USX has three classes of common stock: Marathon Stock, Steel Stock
             and Delhi Stock, which are intended to reflect the performance of
             the Marathon Group, the U. S. Steel Group and the Delhi 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; and domestic refining, marketing and
                  transportation of petroleum products. Marathon Group revenues
                  as a percentage of total consolidated USX revenues were 68% in
                  1996 and 66% in 1995 and 1994. 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 and technology licensing. 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 28% in 1996 and 31% in
                  1995 and 1994. See five-year operating data on page U-36.

                  Delhi Group - The Delhi Group is engaged in the purchasing,
                  gathering, processing, treating, transporting and marketing of
                  natural gas. Delhi Group revenues as a percentage of total USX
                  consolidated revenues were 4% in 1996 and 3% in 1995 and 1994.
                  See five-year operating data on page U-37.

<TABLE>
<CAPTION>
Industry Segment:
                                                                                             
                                                   Revenues                        (b)                Depreciation,
                                    ----------------------------------------     Operating              Depletion
                                       Unaffiliated   Between                     Income                   and          Capital
       (In millions)          Year       Customers    Groups/(a)/     Total       (Loss)     Assets    Amortization    Expenditures
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>    <C>               <C>          <C>          <C>       <C>         <C>              <C>
Marathon Group:               1996        $16,245       $ 87         $16,332      $1,234     $10,151      $  693        $  751
                              1995         13,825         54          13,879         113      10,109         817           642
                              1994         12,873         55          12,928         755      10,951         721           753
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group:            1996          6,547          -           6,547         360       6,580         292           337
                              1995          6,475          -           6,475         500       6,521         318           324
                              1994          6,076          1           6,077         324       6,480         314           248
- ------------------------------------------------------------------------------------------------------------------------------------
Delhi Group:                  1996          1,052          9           1,061          31         715          27            80
                              1995            664          6             670          18         624          25            50
                              1994            581          4             585         (35)        521          30            32
- ------------------------------------------------------------------------------------------------------------------------------------
Eliminations:                 1996              -        (96)            (96)          -        (466)          -             -
                              1995              -        (60)            (60)          -        (511)          -             -
                              1994              -        (60)            (60)          -        (435)          -             -
- ------------------------------------------------------------------------------------------------------------------------------------
Total USX Corporation:        1996        $23,844       $  -         $23,844      $1,625     $16,980      $1,012        $1,168
                              1995         20,964          -          20,964         631      16,743       1,160         1,016
                              1994         19,530          -          19,530       1,044      17,517       1,065         1,033
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

/(a)/ Intergroup sales and transfers were conducted on an arm's-length basis.
/(b)/ Operating income (loss) includes the following: restructuring charges
 (credits) of $(6) million and $37 million in 1995 and 1994, respectively, for
 the Delhi Group (Note 3, page U-12); inventory market valuation credits for the
 Marathon Group of $(209) million, $(70) million and $(160) million in 1996,
 1995 and 1994, respectively (Note 19, page U-22); 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 4, page U-12).

                                      U-13

<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 and
the Delhi Group were not material.

<TABLE>
<CAPTION>
(In millions)                                                                                             1996      1995       1994
- ------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                                       <C>       <C>        <C>
Far East                                                                                                  $  58     $ 338      $  52

Europe                                                                                                      103       142        107

Other                                                                                                       232       224        195

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

   Total export sales                                                                                     $ 393     $ 704      $ 354

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

</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                              1996     $15,460    $          -   $15,460         $  866       $ 6,604
                                              1995      13,136               -    13,136            129         6,791
                                              1994      12,441               -    12,441            696         7,533
   Europe                                     1996         848               -       848            399         2,230
                                              1995         718              12       730            109         2,372
                                              1994         456              74       530             96         2,646
   Other International                        1996          24              43        67            (31)        1,317
                                              1995          25              85       110           (125)          946
                                              1994          31              58        89            (37)          772
   Eliminations                               1996           -             (43)      (43)             -             -
                                              1995           -             (97)      (97)             -             -
                                              1994           -            (132)     (132)             -             -
   Total Marathon Group                       1996     $16,332    $          -   $16,332         $1,234       $10,151
                                              1995      13,879               -    13,879            113        10,109
                                              1994      12,928               -    12,928            755        10,951
- ----------------------------------------------------------------------------------------------------------------------
U. S. Steel Group:                                                                                       
   United States                              1996     $ 6,519    $          -   $ 6,519         $  363       $ 6,552
                                              1995       6,456               4     6,460            501         6,492
                                              1994       6,000               -     6,000            322         6,435
   International                              1996          28               -        28             (3)           28
                                              1995          19               -        19             (1)           29
                                              1994          77               -        77              2            45
   Eliminations                               1996           -               -         -              -             -
                                              1995           -              (4)       (4)             -             -
                                              1994           -               -         -              -             -
   Total U. S. Steel Group                    1996     $ 6,547    $          -   $ 6,547         $  360       $ 6,580
                                              1995       6,475               -     6,475            500         6,521
                                              1994       6,077               -     6,077            324         6,480
- ----------------------------------------------------------------------------------------------------------------------
Delhi Group:                                                                                             
   United States                              1996     $ 1,061    $          -   $ 1,061         $   31       $   715
                                              1995         670               -       670             18           624
                                              1994         585               -       585            (35)          521
- ----------------------------------------------------------------------------------------------------------------------
USX Corporation:                                                                                         
   Intergroup Eliminations                    1996     $   (96)   $          -   $   (96)  $          -       $  (466)
                                              1995         (60)              -       (60)             -          (511)
                                              1994         (60)              -       (60)             -          (435)
   Total USX Corporation                      1996     $23,844    $          -   $23,844         $1,625       $16,980
                                              1995      20,964               -    20,964            631        16,743
                                              1994      19,530               -    19,530          1,044        17,517
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      U-14

<PAGE>
 
- --------------------------------------------------------------------------------
9. 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 for major plans
             for 1996, 1995 and 1994 was determined assuming an expected long-
             term rate of return on plan assets of 10%, 10% and 9%,
             respectively, and was as follows:

<TABLE>
<CAPTION>
 (In millions)                                                                            1996      1995     1994
- -----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>       <C>       <C>
             USX major plans:
              Cost of benefits earned during the period                                 $   106   $    85   $ 103
              Interest cost on projected benefit obligation
               (7% for 1996; 8% for 1995; and 6.5% for 1994)                                571       607     575
              Return on assets - actual loss (return)                                    (1,280)   (2,047)     10
                               - deferred gain (loss)                                       424     1,205    (818)
              Net amortization of unrecognized losses                                         7         -       4
                                                                                        -------   -------   -----
                 Total major plans                                                         (172)     (150)   (126)
              Multiemployer and other USX plans                                               6         6       6
                                                                                        -------   -------   -----
                 Total periodic pension credit                                             (166)     (144)   (120)
              Curtailment, settlement and termination costs                                   6         2       4
                                                                                        -------   -------   -----
                 Total pension credit                                                   $  (160)  $  (142)  $(116)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>


             Funds' status - The assumed discount rate used to measure the
             benefit obligations of major plans was 7.5% at December 31, 1996,
             and 7% at December 31, 1995. 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          1996      1995
             --------------------------------------------------------------------------------------------------
<S>                                                                                           <C>       <C>
             Reconciliation of funds' status to reported amounts:
             Projected benefit obligation (PBO)/(a)/                                          $(7,924)  $(8,536)
             Plan assets at fair market value/(b)/                                              9,883     9,523
                                                                                              -------   -------
                  Assets in excess of PBO/(c)/                                                  1,959       987
              Unrecognized net gain from transition                                              (300)     (400)
              Unrecognized prior service cost                                                     640       739
              Unrecognized net loss (gain)                                                       (311)      474
              Additional minimum liability/(d)/                                                   (77)      (90)
                                                                                              -------   -------
                  Net pension asset included in balance sheet                                  $1,911   $ 1,710
             --------------------------------------------------------------------------------------------------
             /(a)/PBO includes:
                  Accumulated benefit obligation (ABO)                                        $ 7,394   $ 7,934
                  Vested benefit obligation                                                     6,931     7,422
             /(b)/Types of assets held:
                  USX stocks                                                                      -  %        1%
                  Stocks of other corporations                                                     56%       55%
                  U.S. Government securities                                                       18%       19%
                  Corporate debt instruments and other                                             26%       25%
             /(c)/Includes several small plans that have ABOs in excess of plan assets:
                    PBO                                                                         $(135)    $(139)
                    Plan assets                                                                    18        13
                                                                                                -----     -----
                      PBO in excess of plan assets                                              $(117)    $(126)
             /(d)/Additional minimum liability recorded was offset by the following:
                    Intangible asset                                                              $42       $54
                    Stockholders' equity adjustment - net of deferred income tax                   22        23
             --------------------------------------------------------------------------------------------------
</TABLE>


                                      U-15

<PAGE>
 
- --------------------------------------------------------------------------------
10. 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. In 1994, USX agreed to establish a Voluntary Employee
             Beneficiary Association Trust to prefund a portion of health care
             and life insurance benefits for retirees covered under the United
             Steelworkers of America union agreement. In 1995, USX funded the
             initial $25 million contribution and an additional $10 million,
             which is the minimum requirement in each succeeding contract year.
             In 1996, the $10 million minimum requirement was funded.

             Postretirement benefit cost - Postretirement benefit cost for
             defined benefit plans for 1996, 1995 and 1994 was determined
             assuming discount rates of 7%, 8% and 6.5%, respectively, and an
             expected return on plan assets of 10% for 1996 and 1995 and 9% for
             1994:

<TABLE>
<CAPTION>
             (In millions)                                                           1996      1995    1994
             ----------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>     <C>
 
             Cost of benefits earned during the period                                $  26   $  26   $  37
             Interest on accumulated postretirement benefit obligation (APBO)           183     198     199
             Return on assets - actual return                                           (12)    (11)     (8)
                              - deferred gain (loss)                                      1      (1)     (2)
             Amortization of unrecognized (gains) losses                                  2      (1)     16
                                                                                      -----   -----   -----
                 Total defined benefit plans                                            200     211     242
             Multiemployer plans/(a)/                                                    15      15      21
                                                                                      -----   -----   -----
                 Total periodic postretirement benefit cost                             215     226     263
             Curtailment gain                                                             -       -      (4)
                                                                                      -----   -----   -----
                 Total postretirement benefit cost                                    $ 215   $ 226   $ 259
             ----------------------------------------------------------------------------------------------
</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 $115 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     1996      1995
             ---------------------------------------------------------------------------------------
<S>                                                                                <C>       <C>
 
             Reconciliation of funds' status to reported amounts:
             Fair value of plan assets                                             $   111   $   116
                                                                                   -------   -------
             APBO attributable to:
              Retirees                                                              (1,784)   (1,938)
              Fully eligible plan participants                                        (233)     (260)
              Other active plan participants                                          (393)     (481)
                                                                                   -------   -------
                  Total APBO                                                        (2,410)   (2,679)
                                                                                   -------   -------
                  APBO in excess of plan assets                                     (2,299)   (2,563)
              Unrecognized net (gain) loss                                            (260)       44
              Unamortized prior service                                                 (6)       (6)
                                                                                   -------   -------
                  Accrued liability included in balance sheet                      $(2,565)  $(2,525)
             ---------------------------------------------------------------------------------------
</TABLE>


                The assumed discount rate used to measure the APBO was 7.5% and
             7% at December 31, 1996, and December 31, 1995, 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
             1997 is approximately 8%, declining to an ultimate rate in 2003 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 1996 net periodic postretirement benefit cost by $26 million
             and would have increased the APBO as of December 31, 1996, by $224
             million.

                                      U-16

<PAGE>
 
- --------------------------------------------------------------------------------
11. Income Taxes
             Provisions (credits) for estimated income taxes were:

<TABLE>
<CAPTION>
                                              1996                              1995                              1994
                                   ----------------------------     ----------------------------     ----------------------------
(In millions)                      Current   Deferred     Total      Current   Deferred    Total      Current   Deferred     Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>          <C>        <C>       <C>         <C>        <C>       <C>          <C>
             Federal                 $143      $ 154       $297        $ 81     $ (68)      $ 13        $(16)     $ 186       $170
             State and local           13         21         34          20       (31)       (11)          -         (9)        (9)
             Foreign                    3         82         85          15        31         46          12         11         23
                                     ----      -----       ----        ----     -----       ----        ----      -----       ----
                Total                $159      $ 257       $416        $116     $ (68)      $ 48        $ (4)     $ 188       $184
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                In 1996 and 1995, the extraordinary loss on extinguishment of
             debt included a tax benefit of $5 million and $4 million,
             respectively (Note 7, page U-13).
 
               A reconciliation of federal statutory tax rate (35%) to total
             provisions follows:

<TABLE>
<CAPTION>
             (In millions)                                                            1996       1995        1994
             ----------------------------------------------------------------------------------------------------
<S>                                                                                   <C>       <C>         <C>
             Statutory rate applied to income before taxes                            $479      $  94       $ 240
             Credits other than foreign tax credits                                    (48)        (1)          -
             State and local income taxes after federal income tax effects              22         (7)         (5)
             Effects of foreign operations, including foreign tax credits              (16)       (35)/(a)/     9
             Effects of partially-owned companies                                      (16)       (14)        (37)
             Dispositions of subsidiary investments                                     (8)        (5)          -
             Excess percentage depletion                                                (7)        (8)         (7)
             Nondeductible business and amortization expenses                            5         17           8
             Adjustment of prior years' income taxes                                     3          1          (1)
             Adjustment of valuation allowances                                          -          6         (24)
             Other                                                                       2          -           1
                                                                                      ----      -----        ----
                 Total provisions                                                     $416      $  48       $ 184
             ----------------------------------------------------------------------------------------------------
</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      1996          1995
- ------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>           <C>
Deferred tax assets:
 Minimum tax credit carryforwards                                                                   $  436        $  396
 Foreign tax credit carryforwards                                                                        -            85
 General business credit carryforwards (expiring in 1997 through 2011)                                  24            26
 State tax loss carryforwards (expiring in 1997 through 2011)                                          141           138
 Foreign tax loss carryforwards (portion of which expire in 2000 through 2011)                         519           556
 Employee benefits                                                                                   1,025         1,098
 Receivables, payables and debt                                                                         79            80
 Expected federal benefit for:
  Crediting certain foreign deferred income taxes                                                      216           169
  Deducting state and other foreign deferred income taxes                                               41            33
 Contingency and other accruals                                                                        167           165
 Other                                                                                                 155           134
 Valuation allowances                                                                                 (396)         (424)
                                                                                                    ------   -----------
    Total deferred tax assets                                                                        2,407         2,456
                                                                                                    ------   -----------
Deferred tax liabilities:
 Property, plant and equipment                                                                       2,180         2,177
 Prepaid pensions                                                                                      721           650
 Inventory                                                                                             319           238
 Other                                                                                                 228           173
                                                                                                      ----   -----------
    Total deferred tax liabilities                                                                   3,448         3,238
                                                                                                    ------   -----------
    Net deferred tax liabilities                                                                    $1,041        $  782
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>


                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 (loss) included $339 million, $(50) million and
             $14 million attributable to foreign sources in 1996, 1995 and 1994,
             respectively.

                Undistributed earnings of consolidated foreign subsidiaries at
             December 31, 1996, amounted to $64 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 $23 million would have been required.

                                      U-17

<PAGE>
 
- --------------------------------------------------------------------------------
12. Sales of Receivables

             USX has agreements (the programs) to sell an undivided interest in
             certain accounts receivable subject to limited recourse. 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, 1996, the amount sold under the
             programs that had not been collected was $740 million, which will
             be forwarded to the buyers at the end of the agreements in 1997, 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 programs will be reduced
             accordingly. The amounts sold under the programs averaged $740
             million, $744 million and $737 million for years 1996, 1995 and
             1994, respectively. The buyers have rights to a pool of receivables
             that must be maintained at a level of 110% to 115% of the programs'
             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, as defined in
             one of the agreements, USX may be required to forward to the
             buyers, payments collected on sold accounts receivable of $350
             million.

                Prior to 1993, USX Credit, a division of USX, sold certain of
             its loans receivable subject to limited recourse under an agreement
             that expires in 1997. USX Credit continues to collect payments from
             the loans and transfer to the buyers principal collected plus yield
             based on defined short-term market rates. In 1996, 1995 and 1994,
             USX Credit net repurchases of loans receivable totaled none, $5
             million and $38 million, respectively. At December 31, 1996, the
             balance of sold loans receivable subject to recourse was $36
             million. Estimated credit losses under the recourse provisions for
             loans receivable were recognized when the receivables were sold
             consistent with bad debt experience. USX Credit is not actively
             seeking new loans at this time, but is subject to market risk
             through fluctuations in short-term market rates on sold loans which
             pay fixed interest rates. USX Credit significantly reduced credit
             risk through a credit policy, which required that loans be secured
             by the real property or equipment financed, often with additional
             security such as letters of credit, personal guarantees and
             committed long-term financing takeouts. Also, USX Credit
             diversified its portfolio as to types and terms of loans,
             borrowers, loan sizes, sources of business and types and locations
             of collateral. In the event of a change in control of USX, as
             defined in the agreement, USX may be required to provide cash
             collateral in the amount of the uncollected loans receivable to
             assure compliance with the limited recourse provisions.

                As of December 31, 1996, and December 31, 1995, the total
             balance of USX Credit real estate and equipment loans subject to
             impairment was $57 million and $88 million, prior to recognizing
             allowance for credit losses of $27 million and $32 million,
             respectively. During 1996, 1995 and 1994, USX Credit recognized
             additional credit losses of $1 million, $15 million and $11
             million, respectively, which are included in operating costs.

                                      U-18

<PAGE>
 
- --------------------------------------------------------------------------------
13.  Investments and Long-Term Receivables
 

<TABLE>
<CAPTION>
             (In millions)                                                                               December 31   1996    1995
             -----------------------------------------------------------------------------------------------------------------------

<S>                                                                                                                   <C>     <C>
 
             Equity method investments                                                                                $  549  $  581

             Cost method investments                                                                                      33      33

             Deposit in property exchange trust                                                                           98       -

             Receivables due after one year                                                                               67      76

             Forward currency contracts                                                                                   16      28

             Other                                                                                                        91     118

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

                  Total                                                                                               $  854  $  836

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

</TABLE>


             Summarized financial information of affiliates accounted for by
             the equity method of accounting follows:


<TABLE>
<CAPTION>
             (In millions)                                                                                      1996    1995    1994

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

<S>                                                                                                          <C>      <C>     <C>
             Income data - year:
              Revenues                                                                                        $3,274  $3,531  $3,237

              Operating income                                                                                   318     339     333

              Net income                                                                                         193     187     156

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

             Balance sheet data - December 31:
              Current assets                                                                                  $  925  $1,068
              Noncurrent assets                                                                                2,728   2,631
              Current liabilities                                                                                781     784
              Noncurrent liabilities                                                                           1,582   1,745
             -----------------------------------------------------------------------------------------------------------------------

</TABLE>


                Dividends and partnership distributions received from equity
             affiliates were $49 million in 1996, $85 million in 1995 and $44
             million in 1994.

                USX purchases from equity affiliates totaled $509 million, $458
             million and $431 million in 1996, 1995 and 1994, respectively. USX
             sales to equity affiliates totaled $830 million, $769 million and
             $681 million in 1996, 1995 and 1994, respectively.

- --------------------------------------------------------------------------------
14. Short-Term Credit Agreements

             USX had short-term credit agreements totaling $175 million at
             December 31, 1996. These agreements are with two banks, with
             interest based on their prime rate or London Interbank Offered Rate
             (LIBOR), and carry a facility fee of .15%. Certain other banks
             provide short-term lines of credit totaling $200 million which
             generally require maintenance of compensating balances of 3%. At
             December 31, 1996, $41 million was borrowed, leaving $159 million
             available in short-term lines of credit.


- --------------------------------------------------------------------------------
15. 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% Convertible
             Preferred Stock) - As of December 31, 1996, 6,900,000 shares
             (stated value of $1.00 per share; liquidation preference of $50.00
             per share) were outstanding. The 6.50% Convertible 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 $52.275 per
             share through March 31, 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.

                                      U-19

<PAGE>
 
16. Long-Term Debt
 

<TABLE>
<CAPTION>
                                                                        Interest                              December 31
             (In millions)                                              Rates - %         Maturity          1996       1995
             ---------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>               <C>         <C>
             USX Corporation:
              Revolving credit/(a)/                                                         2001          $  -        $   60
              Commercial paper/(a)/                                   6.22                                   -           133
              Senior Notes                                            9 7/20                                 -           100
              Notes payable                                           6 3/8 - 9 4/5     1997 - 2023        2,398       2,548
              Foreign currency obligations/(b)/                       5 3/4                 1998              75         261
              Zero Coupon Convertible Senior Debentures/(c)/          7 7/8                 2005              41          37
              Convertible Subordinated Debentures/(d)/                5 3/4             1998 - 2001          180         200
              Convertible Subordinated Debentures/(e)/                7                 1998 - 2017          227         227
              Obligations relating to Industrial Development and                                                
               Environmental Improvement Bonds and Notes/(f)/         3 11/20 - 6 7/8   1997 - 2030          473         483
              Indexed debt/(g)/                                       6 3/4                 2000             123         -
              All other obligations, including sale-leaseback                                                   
               financing and capital leases                                             1997 - 2012          104         110
             Consolidated subsidiaries:                                                                         
              Guaranteed Notes                                        7                     2002             135         135
              Guaranteed Notes                                        9 3/4                                  -           161    
              Guaranteed Loan/(h)/                                    9 1/20            1997 - 2006          283         300
              Notes payable                                           5 1/8 - 8 5/8     1997 - 2002            9          11
              Sinking Fund Debentures                                 8 1/2                 1997             120         140
              All other obligations, including capital leases                           1997 - 2009           73          78
                                                                                                          ------      ------
                 Total /(i)(j)/                                                                            4,241       4,984
             Less unamortized discount                                                                        29          47
             Less amount due within one year                                                                 353         465
                                                                                                           -----      -------
                 Long-term debt due after one year                                                        $3,859      $4,472
             ----------------------------------------------------------------------------------------------------------------
</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, 1996. The commercial paper is supported by the
               $2,350 million in unused and available credit and, accordingly,
               is classified as long-term debt.
        /(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,
               1996, and interest in U.S. dollars, thereby eliminating currency
               exchange risks (Note 27, page U-26).
        /(c)/  The outstanding debentures have a principal at maturity of
               $79 million. The original issue discount is being amortized
               recognizing a yield to maturity of 7-7/8% per annum. The
               carrying value represents the principal at maturity less the
               unamortized discount. Each debenture of $1,000 principal at
               maturity is convertible into a unit consisting of 8.207 shares of
               Marathon Stock and 1.6414 shares of Steel Stock, subject to
               adjustment, or at the election of USX, cash equal to the market
               value of the unit. At the option of the holders, USX will
               purchase debentures at the carrying value of $54 million on
               August 9, 2000; USX may elect to pay the purchase price in cash,
               shares of Marathon and Steel stocks or notes. USX may call the
               debentures for redemption at the issue price plus amortized
               discount.
        /(d)/  The debentures are convertible into one share of Marathon Stock
               and one-fifth of a share of Steel Stock for $56.28, subject to
               adjustment, and are redeemable at USX's option.
        /(e)/  The debentures are convertible into one share of Marathon
               Stock and one-fifth of a share of Steel Stock for $34.22, subject
               to adjustment, and may be redeemed by USX.
        /(f)/  At December 31, 1996, 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.
        /(g)/  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
               interest and other financial costs.
        /(h)/  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.
        /(i)/  Required payments of long-term debt for the years 1998-2001
               are $506 million, $101 million, $202 million and $418 million,
               respectively.
        /(j)/  In the event of a change in control of USX, as defined in
               the related agreements, debt obligations totaling
               $3,222 million may be declared immediately due and payable. The
               principal obligations subject to such a provision are Notes
               payable -$2,398 million; and Guaranteed Loan - $283 million. In
               such event, USX may also be required to either repurchase the
               leased Fairfield slab caster for $112 million or provide a letter
               of credit to secure the remaining obligation.

                                      U-20

<PAGE>
 
- --------------------------------------------------------------------------------
17. Property, Plant and Equipment
 

<TABLE>
<CAPTION>
(In millions)                                                             December 31   1996      1995
- ---------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>      <C>
 
             Marathon Group                                                            $16,329    $16,411
             U. S. Steel Group                                                           8,347      8,421
             Delhi Group                                                                 1,008        936
                                                                                       -------  ---------
                  Total                                                                 25,684     25,768
             Less accumulated depreciation, depletion and amortization                  15,280     15,233
                                                                                       -------  ---------
                  Net                                                                  $10,404    $10,535
- ---------------------------------------------------------------------------------------------------------
</TABLE>


                Property, plant and equipment includes gross assets acquired
             under capital leases (including sale-leasebacks accounted for as
             financings) of $141 million at December 31, 1996, and $154 million
             at December 31, 1995; related amounts in accumulated depreciation,
             depletion and amortization were $91 million and $90 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>
 
             1997                                                                $   14       $ 207
             1998                                                                    14         189
             1999                                                                    14         141
             2000                                                                    13         181
             2001                                                                    13         120
             Later years                                                            156         279
             Sublease rentals                                                        -          (29)
                                                                                    -----    ------
                  Total minimum lease payments                                        224    $1,088
                                                                                             ======
             Less imputed interest costs                                               95
                                                                                   ------
                  Present value of net minimum lease payments
                  included in long-term debt                                       $  129
             --------------------------------------------------------------------------------------
</TABLE>

                Operating lease rental expense:

<TABLE>
<CAPTION>
              (In millions)                                              1996     1995        1994   
              -------------------------------------------------------------------------------------
<S>           <C>                                                       <C>      <C>          <C>
              Minimum rental                                            $ 231    $  223       $ 240
              Contingent rental                                            16        20          23
              Sublease rentals                                             (8)       (8)         (7)
                                                                        -----    ------   ---------
                  Net rental expense                                    $ 239    $  235       $ 256
              -------------------------------------------------------------------------------------
</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.
             Contingent rental includes payments based on facility production
             and operating expense escalation on building space. 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 $144 million may be declared immediately due
             and payable.

                                      U-21

<PAGE>
 
- --------------------------------------------------------------------------------
19. Inventories


<TABLE>
<CAPTION>
(In millions)                                           December 31   1996    1995
- -----------------------------------------------------------------------------------
<S>                                                                  <C>     <C>
 
             Raw materials                                           $  594  $  609
             Semi-finished products                                     309     300
             Finished products                                          908     901
             Supplies and sundry items                                  128     163
                                                                     ------  ------
                  Total (at cost)                                     1,939   1,973
             Less inventory market valuation reserve                      -     209
                                                                     ------  ------
                  Net inventory carrying value                       $1,939  $1,764
- -----------------------------------------------------------------------------------
</TABLE>


                At December 31, 1996, and December 31, 1995, the LIFO method
             accounted for 93% and 90%, respectively, of total inventory value.
             Current acquisition costs were estimated to exceed the above
             inventory values at December 31 by approximately $340 million and
             $320 million in 1996 and 1995, respectively.

                The inventory market valuation reserve reflects the extent that
             the recorded cost 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 charges or credits to operating income.

                Cost of sales was reduced and operating income was increased $13
             million in 1994, as a result of a liquidation of LIFO inventories
             (immaterial in 1996 and 1995).

- --------------------------------------------------------------------------------
20. Supplemental Cash Flow Information

<TABLE>
<CAPTION>
 
             (In millions)                                                                 1996       1995      1994
            ---------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>        <C>       <C>
                                                                      
             Cash provided from (used in) operating activities        
              included:                                               
              Interest and other financial costs paid                 
               (net of amount capitalized)                                               $   (488)  $  (605)  $  (577)
              Income taxes (paid) refunded                                                   (127)     (170)       16
            ---------------------------------------------------------------------------------------------------------
             Commercial paper and revolving credit arrangements -     
              net:                                                    
              Commercial paper - issued                                                  $  1,422   $ 2,434   $ 1,515
                               - repayments                                                (1,555)   (2,651)   (1,166)
              Credit agreements - borrowings                                               10,356     4,719     4,545
                                - repayments                                              (10,340)   (4,659)   (5,045)
              Other credit arrangements - net                                                 (36)       40         -
                                                                                         --------   -------   -------
                 Total                                                                   $   (153)  $  (117)  $  (151)
            ---------------------------------------------------------------------------------------------------------
             Noncash investing and financing activities:              
              Common stock issued for dividend reinvestment           
               and employee stock plans                                                  $      6   $    21   $     4
              Contribution of assets to an equity affiliate                                     -         -        26
              Acquisition of assets - stock issued                                              -         -        11
                                    - debt issued                                               2         -        58
              Disposal of assets - notes and common stock received                             12         9         3
                                 - liabilities assumed by buyers                               25         -         -
              Decrease in debt resulting from the adoption of
               equity method accounting for RMI                                                 -         -        41
              Debt exchanged for debt                                                           -         -        58
            ---------------------------------------------------------------------------------------------------------
</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 each of the outstanding Steel Stock and Delhi 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, 1996, 6,432,382 Marathon Stock shares, 2,044,580
             Steel Stock shares and 82,642 Delhi Stock shares were available for
             grants in 1997.

                Restricted stock represents stock granted for no cash
             consideration or for such other consideration 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-22

<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
                     -----------------------------  ----------------------------  --------------------------
                       1996       1995      1994      1996      1995      1994     1996     1995       1994
- ------------------------------------------------------------------------------------------------------------
<S>                 <C>        <C>       <C>       <C>       <C>       <C>       <C>     <C>        <C>
 
Number of shares
 granted               11,495   232,828     9,998     5,605   146,054    10,457       -     10,000       500
Weighted-average
 grant-date fair
 value per share      $ 22.38  $  19.50    $17.00    $31.94  $  33.81   $ 34.44   $   -    $ 10.25    $15.44
- ------------------------------------------------------------------------------------------------------------
</TABLE>


                Stock options represent the right to purchase shares of Marathon
             Stock, Steel Stock or Delhi Stock at not less than 100 percent of
             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 a share of common stock, as
             determined in accordance with the plan, over the fair market value
             of a share on the date the right was granted for a specified number
             of shares. Stock options expire in 10 years from the date they are
             granted and vest over a six-month 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, 1993    4,908,604        $25.31      405,556       $38.96      119,000       $18.89
             Granted                        551,550         17.00      353,550        34.44       76,800        15.44
             Exercised                            -             -      (26,479)       23.67            -            -
             Canceled                      (281,804)        24.94      (12,327)       40.64       (3,000)       20.00
                                          ---------                  ---------                   -------             
             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
             ----------------------------------------------------------------------------------------------------------
</TABLE>

           /(a)/  Weighted-average exercise price.
 
             The following table represents stock options at December 31, 1996:
 

<TABLE>
<CAPTION>
                                                 Options Outstanding and Exercisable
                                 --------------------------------------------------------------------
                                                      Number
                                                    of Shares     Weighted-Average
                                     Range of      Under Option      Remaining       Weighted-Average
                                 Exercise Prices   at 12/31/96    Contractual Life    Exercise Price
             ----------------------------------------------------------------------------------------
<S>                              <C>               <C>            <C>               <C>
             Marathon Stock        $17.00-23.44     2,721,395         7.5 years            $20.21
                                    25.38-26.88     1,403,675               1.6             26.18
                                    29.08-29.88     1,105,500               2.9             29.51
                                                    ---------                                     
                                          Total     5,230,570
                                                    ---------
             Steel Stock           $21.88-25.44        54,195         3.9 years            $24.42
                                    31.69-34.44     1,005,225               8.5             32.75
                                          44.19       286,175               6.4             44.19
                                                    --------- 
                                          Total     1,345,595
                                                    ---------
             Delhi Stock           $10.25-13.63       143,150         8.9 years            $13.17
                                    15.44-20.00       183,800               6.7             17.50
                                                    ---------                                    
                                          Total       326,950
             ----------------------------------------------------------------------------------------
</TABLE>

                During 1996, USX adopted SFAS No. 123, Accounting for Stock-
             Based Compensation, as discussed in Note 1, page U-11, and elected
             to continue to follow the accounting provisions of APB No. 25.
             Actual stock-based compensation expense was $8 million in 1996 and
             $3 million in 1995 and 1994. Incremental compensation expense, as
             determined under SFAS No. 123, was not material. Therefore, pro
             forma net income and earnings per share data have been omitted.

                                      U-23

<PAGE>
 
- --------------------------------------------------------------------------------
22. Dividends

                In accordance with the USX Certificate of Incorporation,
             dividends on the Marathon Stock, Steel Stock and Delhi 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, Steel Stock and
             Delhi 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, Steel Stock and Delhi 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 and Delhi Stock are further
             limited to the Available Steel Dividend Amount and the Available
             Delhi Dividend Amount, respectively. At December 31, 1996, the
             Available Steel Dividend Amount was at least $2,808 million, and
             the Available Delhi Dividend Amount was at least $106 million. The
             Available Steel Dividend Amount and Available Delhi Dividend
             Amount, respectively, will be increased or decreased, as
             appropriate, to reflect the respective group's separately reported
             net income, dividends, repurchases or issuances with respect to the
             related class of common stock and preferred stock attributed to the
             respective groups and certain other items.

- --------------------------------------------------------------------------------
23. Net Income Per Common Share

                The method of calculating net income (loss) per share for the
             Marathon Stock, Steel Stock and 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.

                       Primary net income (loss) per share is calculated by
             adjusting net income (loss) for dividend requirements of preferred
             stock and, in the case of Delhi Stock, for the income (loss)
             applicable to the Retained Interest prior to June 15, 1995; and is
             based on the weighted average number of common shares outstanding
             plus common stock equivalents, provided they are not antidilutive.
             Common stock equivalents result from assumed exercise of stock
             options, where applicable.

                       Fully 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-24

<PAGE>
 
- --------------------------------------------------------------------------------
24. Foreign Currency Translation

                Exchange adjustments resulting from foreign currency
             transactions generally are recognized in income, whereas
             adjustments resulting from translation of financial statements are
             reflected as a separate component of stockholders' equity. For
             1996, 1995 and 1994, respectively, the aggregate foreign currency
             transaction gains (losses) included in determining net income were
             $(24) million, $3 million and $(6) million. An analysis of changes
             in cumulative foreign currency translation adjustments follows:

<TABLE>
<CAPTION>
             (In millions)                             1996    1995    1994
             ---------------------------------------------------------------
<S>                                                   <C>     <C>     <C>
 
             Cumulative adjustments at January 1      $  (8)  $  (9)  $  (7)
             Aggregate adjustments for the year           -       1      (2)
                                                      -----   -----   -----
             Cumulative adjustments at December 31    $  (8)  $  (8)  $  (9)
             ---------------------------------------------------------------
 
</TABLE>

 
- -------------------------------------------------------------------------------
25. 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, Steel Stock and Delhi 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 percent 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 percent or more of the total voting power of the Voting Stock,
             Marathon Stock, Steel Stock or Delhi 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.

- --------------------------------------------------------------------------------
26. 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 interest and other financial costs.

                                      U-25

<PAGE>
 
- --------------------------------------------------------------------------------
27. 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, natural gas liquids,
             refined products and nonferrous metals. 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, 1996:
              Exchange-traded commodity futures         $     -          $      -         $ (2)         $ 49
              Exchange-traded commodity options              (1)  /(c)/        (1)          (2)          254
              OTC commodity swaps/(d)/                       (1)  /(e)/        (2)           -            88
              OTC commodity options                          (6)  /(f)/        (6)           -            84
                                                           ----               ---         ----     ---------
                Total commodities                          $ (8)              $(9)        $ (4)         $475
                                                           ----               ---         ----     ---------
              Forward currency contract/(g)/:
                  - receivable                             $ 19               $ 16        $  -          $ 59
                  - payable                                  (1)               (1)          (1)           10
                                                           ----               ---         ----     ---------
                Total currencies                           $ 18               $15         $ (1)         $ 69
             --------------------------------------------------------------------------------------------------
             December 31, 1995:
              Exchange-traded commodity futures         $     -          $      -         $ (5)         $ 79
              Exchange-traded commodity options               -                 -            -             8
              OTC commodity swaps                             3   /(e)/        (1)          (4)          184
              OTC commodity options                           -                 -            -             6
                                                           ----               ---         ----     ---------
                Total commodities                          $  3               $(1)        $ (9)         $277
                                                           ----               ---         ----     ---------
              Forward currency contracts:
                  - receivable                             $105              $101         $  -          $184
             --------------------------------------------------------------------------------------------------
</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 value for assets of $1 million and for
               liabilities of $(2) million.
        /(d)/  The OTC swap arrangements vary in duration with certain
               contracts extending into early 1998.
        /(e)/  Includes fair values as of December 31, 1996 and 1995, for
               assets of $3 million and $10 million and for liabilities of $(4)
               million and $(7) million, respectively.
        /(f)/  Includes fair value for assets of $1 million and for
               liabilities of $(7) million.
        /(g)/  The forward currency contract matures in 1998.

                                      U-26

<PAGE>
 
- --------------------------------------------------------------------------------
28. 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 27, page U-26, by individual balance
             sheet account:

<TABLE>
<CAPTION>
                                                                              1996             1995
                                                                        ----------------  ----------------
                                                                         Fair   Carrying   Fair   Carrying
             (In millions)                              December 31     Value    Amount   Value    Amount
             ---------------------------------------------------------------------------------------------
<S>                                                                     <C>     <C>       <C>     <C>
 
             Financial assets:
              Cash and cash equivalents                                 $   55    $   55  $  131    $  131
              Receivables                                                1,270     1,270   1,131     1,131
              Investments and long-term receivables                        252       211     154       118
                                                                        ------    ------  ------  --------
                Total financial assets                                  $1,577    $1,536  $1,416    $1,380
             --------------------------------------------------------------------------------------------- 
             Financial liabilities:
              Notes payable                                             $   81    $   81  $   40    $   40
              Accounts payable                                           2,204     2,204   2,157     2,157
              Accrued interest                                             102       102     122       122
              Long-term debt (including amounts due within one year)     4,332     4,083   5,179     4,803
                                                                        ------    ------  ------  --------
                Total financial liabilities                             $6,719    $6,470  $7,498    $7,122
             --------------------------------------------------------------------------------------------- 
</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 long-term debt
             instruments was based on market prices where available or current
             borrowing rates available for financings with similar terms and
             maturities.

                       In addition to certain derivative financial instruments,
             USX's unrecognized financial instruments consist of receivables
             sold subject to limited recourse 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 12, page U-18, and for
             details relating to financial guarantees see Note 29, page U-28.

- --------------------------------------------------------------------------------
29. 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, 1996, and December 31, 1995, accrued liabilities
             for remediation totaled $144 million and $153 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 $23 million at December 31, 1996, and $22 million at
             December 31, 1995.

                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 1996 and 1995, such
             capital expenditures totaled $165 million and $111 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, 1996, and December 31, 1995, accrued liabilities
             for platform abandonment and dismantlement totaled $118 million and
             $128 million, respectively.

                                      U-27

<PAGE>
 
             Guarantees -

                Guarantees by USX of the liabilities of affiliated entities
             totaled $80 million at December 31, 1996, and $68 million at
             December 31, 1995. 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, 1996, the largest guarantee
             for a single affiliate was $39 million.

                At December 31, 1996, and December 31, 1995, USX's pro rata
             share of obligations of LOOP LLC and various pipeline affiliates
             secured by throughput and deficiency agreements totaled $176
             million and $187 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, 1996, and December 31, 1995, contract
             commitments for capital expenditures for property, plant and
             equipment totaled $526 million and $299 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 $23 million in 1996 and $24
             million in 1995. If USX elects to terminate the contract early, a
             maximum termination payment of $118 million, which declines over
             the duration of the agreement, may be required.

                USX is a party to a transportation agreement with Transtar, Inc.
             (Transtar) for Great Lakes shipments of raw materials required by
             steel operations. The agreement cannot be canceled until 1999 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 $72 million in 1996 and 1995, including fixed costs
             of $20 million in 1996 and $21 million in 1995. The fixed costs are
             expected to continue at approximately the same level over the
             duration of the agreement.

                                      U-28

<PAGE>
 
Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                        1996                                             1995
                                    --------------------------------------------    ----------------------------------------------
(In millions, except per             4th          3rd          2nd         1st        4th           3rd         2nd         1st
 share data)                         Qtr.         Qtr.         Qtr.        Qtr.       Qtr.          Qtr.        Qtr.        Qtr. 
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>         <C>         <C>         <C>          <C>         <C>         <C>
Revenues                            $6,497      $6,028/(a)/ $5,846/(a)/ $5,473/(a)/ $5,377 /(a)/ $5,253/(a)/ $5,289/(a)/ $5,045/(a)/

Operating income (loss)                496         424         239         466        (432)/(a)/    315/(a)/    390/(a)/    358/(a)/

  Operating costs include:
    Inventory market valuation
     charges (credits)                 (30)        (96)         72        (155)        (35)          51           2         (88)
    Restructuring credits                -           -           -           -           -            -          (6)          -
    Impairment of long-lived
     assets                              -           -           -           -         675            -           -           -
Income (loss) before                                                                         
 extraordinary loss                    300         233         154         265        (302)         179         190         154
Net income (loss)                      291         233         154         265        (304)         174         190         154
- ------------------------------------------------------------------------------------------------------------------------------------

 
Marathon Stock data:
- --------------------
Income (loss) before
 extraordinary loss
 applicable to
 Marathon Stock                     $  167      $  164      $  124      $  216      $ (365)      $   96      $  107      $   75
 - Per share:  primary                 .58         .57         .43         .75       (1.27)         .33         .37         .26
               fully diluted           .57         .57         .43         .74       (1.27)         .33         .37         .26
Dividends paid per share               .19         .17         .17         .17         .17          .17         .17         .17
Price range of Marathon                                                                       
 Stock/(b)/:                                                                                  
    - Low                               21-1/8      20          19-1/8      17-1/4      17-1/2       19-1/4      17-1/8      15-3/4
    - High                              25-1/2      22-1/8      22-7/8      20-1/2      20-1/8       21-1/2      20-1/4      17-5/8
- ------------------------------------------------------------------------------------------------------------------------------------

 
Steel Stock data:
- -----------------
Income before
 extraordinary loss
 applicable to Steel Stock          $  122      $   64      $   27      $   40      $   57       $   80      $   74      $   68
 - Per share:  primary                1.43         .76         .32         .49         .68          .99         .99         .89
               fully diluted          1.36         .75         .32         .48         .68          .95         .95         .86
Dividends paid per share               .25         .25         .25         .25         .25          .25         .25         .25
Price range of Steel
 Stock/(b)/:
    - Low                               26-1/2      24-1/8      27-3/4      30          29-1/8       30-5/8      29-1/4      30
    - High                              32          29-5/8      35-7/8      37-7/8      33-5/8       39          34-3/4      39-1/8
- ------------------------------------------------------------------------------------------------------------------------------------

 
Delhi Stock data:
- -----------------
Income (loss) before
 extraordinary loss
 applicable to Delhi Stock          $    6      $   (1)     $   (1)     $    2      $    1       $   (4)     $    1      $    3
 - Per share:  primary and                                                                    
               fully diluted           .68        (.14)       (.12)        .25         .17         (.44)        .12         .30
Dividends paid per share               .05         .05         .05         .05         .05          .05         .05         .05
Price range of Delhi                                                                          
 Stock/(b)/:                                                                                  
    - Low                               12-1/8      11-1/2      11-3/8      10           8-5/8        9-3/4       9-1/4       8
    - High                              16-5/8      14-3/4      14-5/8      12-3/8      10-5/8       11-7/8      13-1/8      10-1/8
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

 
/(a)/ Reclassified to conform to current classifications.
/(b)/ Composite tape.

                                      U-29

<PAGE>
 
Principal Unconsolidated Affiliates (Unaudited)


<TABLE>
<CAPTION>
                                                           December 31, 1996
                Company                        Country         Ownership             Activity
- ------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>                 <C>
CLAM Petroleum Company                       Netherlands          50%          Oil & Gas Production
Double Eagle Steel Coating Company           United States        50%          Steel Processing
Kenai LNG Corporation                        United States        30%          Natural Gas Liquification
Laredo-Nueces Pipeline Company               United States        50%          Natural Gas Transmission
LOCAP, Inc.                                  United States        37%          Pipeline & Storage Facilities
LOOP LLC                                     United States        32%          Offshore Oil Port
PRO-TEC Coating Company                      United States        50%          Steel Processing
RMI Titanium Company                         United States        27%          Titanium Metal Products
Sakhalin Energy Investment Company Ltd.      Russia               30%          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)                1996        1995       1994            1996      1995     1994
- ---------------------------------------------------------------------------------------------
<S>                           <C>         <C>        <C>             <C>       <C>      <C>
Iron/(b)/                     716.3       730.9      746.4           15.1      15.5     16.0
Coal/(c)/                     859.5       862.8      928.1            7.1       7.5      7.5
- ---------------------------------------------------------------------------------------------
</TABLE>

/(a)/ Commercially recoverable reserves include demonstrated (measured and
      indicated) quantities which are expressed in recoverable net product tons.
/(b)/ In 1996, iron ore reserves increased .5 million tons due to changes in
      estimates of recoverable amounts.
/(c)/ In 1996, coal reserves increased 3.8 million tons after exploration and
      lease activity. In addition to production of reserves in 1995, coal
      reserves were reduced by an additional 57.8 million tons consisting of 3.1
      million tons due to changes in estimate of recoverable amounts; 33.1
      million tons due to sales to other parties; and 21.6 million tons as a
      result of lease activity and other changes.
 
 
Supplementary Information on Oil and Gas Producing Activities (Unaudited)/(a)/
Capitalized Costs and Accumulated Depreciation, Depletion and Amortization
 

<TABLE>
<CAPTION>
                                  United              Other      Consolidated    Equity
(In millions)   December 31       States  Europe  International     Total      Affiliates  Worldwide
- ----------------------------------------------------------------------------------------------------
<S>                               <C>     <C>     <C>            <C>           <C>         <C>
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
- ----------------------------------------------------------------------------------------------------
1995
  Capitalized costs:
   Proved properties              $7,714  $4,354       $355        $12,423        $185       $12,608
   Unproved properties               267      68         94            429          39           468
                                  ------  ------       ----        -------        ----      --------
     Total                         7,981   4,422        449         12,852         224        13,076
                                  ------  ------       ----        -------        ----      --------
  Accumulated depreciation,                                                            
   depletion and amortization:                                                         
   Proved properties               4,681   2,227        235          7,143         110         7,253
   Unproved properties                85       2         34            121           -           121
                                  ------  ------       ----        -------        ----      --------
     Total                         4,766   2,229        269          7,264         110         7,374
                                  ------  ------       ----        -------        ----      --------
  Net capitalized costs           $3,215  $2,193       $180        $ 5,588        $114       $ 5,702
- ----------------------------------------------------------------------------------------------------
</TABLE>

 
/(a)/ The attached oil and gas production disclosures (pages U-30-U-34) were
      revised in 1996 to present USX's share of equity affiliates' operations
      in worldwide results.

                                      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       Consolidated     Equity
(In millions)                                 States    Europe   International      Total       Affiliates   Worldwide
- ----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>       <C>      <C>             <C>            <C>          <C>
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/(c)/                      (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/(d)/                                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/(d)/                               -       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
- ----------------------------------------------------------------------------------------------------------------------
1994: Revenues:
     Sales/(b)/                              $  432    $ 411           $  30        $   873         $ 33     $   906
     Transfers                                  545       65              57            667            -         667
                                             ------    -----           -----        -------         ----     -------
      Total revenues                            977      476              87          1,540           33       1,573
    Expenses:                           
     Production costs                          (304)    (207)            (25)          (536)          (7)       (543)
     Exploration expenses                       (82)     (28)            (44)          (154)          (1)       (155)
     Depreciation, depletion            
      and amortization                         (335)    (152)            (30)          (517)         (11)       (528)
     Other expenses                             (41)      (8)             (7)           (56)           -         (56)
                                             ------    -----           -----        -------         ----     -------
      Total expenses                           (762)    (395)           (106)        (1,263)         (19)     (1,282)
    Other production-related            
      earnings/(d)/                               -       20               -             20            -          20
                                             ------    -----           -----        -------         ----     -------
    Results before income taxes                 215      101             (19)           297           14         311
    Income taxes (credits)                       80       41              (2)           119            8         127
                                             ------    -----           -----        -------         ----     -------
    Results of operations                    $  135    $  60           $ (17)       $   178         $  6     $   184
- ----------------------------------------------------------------------------------------------------------------------
 </TABLE>

 
/(a)/ Includes the results of hedging gains and losses.
/(b)/ Includes net gains and (losses) on asset dispositions, as of December 31,
      1996, 1995 and 1994, of $25 million, $(2) million and $20 million,
      respectively.
/(c)/ Includes domestic production tax charges of $11 million relating to prior
      periods.
/(d)/ 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.
/(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       Consolidated     Equity
(In millions)                                 States    Europe   International      Total       Affiliates   Worldwide
- -----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>       <C>      <C>             <C>            <C>          <C>
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
- -----------------------------------------------------------------------------------------------------------------------
1994: Property acquisition:                                                                          
     Proved                                   $  2      $    -       $    1        $    3         $    -       $    3
     Unproved                                   11           -            4            15             28           43
    Exploration                                108          35           39           182              1          183
    Development                                276         115           31           422             10          432
- -----------------------------------------------------------------------------------------------------------------------
</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       Consolidated     Equity
(Millions of barrels)                            States   Europe     International       Total      Affiliates  Worldwide
- -------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>      <C>        <C>             <C>            <C>         <C>
Liquid Hydrocarbons
 Proved developed and undeveloped reserves:
  Beginning of year - 1994                        573      230              39            842            -        842
  Purchase of reserves in place                     3        -               -              3            -          3
  Revisions of previous estimates                  (1)      (2)             (3)            (6)           -         (6)
  Improved recovery                                 6        -               -              6            -          6
  Extensions, discoveries and
   other additions                                 13        -               -             13            -         13
  Production                                      (40)     (17)             (5)           (62)           -        (62)
  Sales of reserves in place                       (1)       -               -             (1)           -         (1)
                                                  ---      ---             ---            ---          ---        ---
  End of year - 1994                              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
- -------------------------------------------------------------------------------------------------------------------------
 Proved developed reserves:
  Beginning of year - 1994                        494      221              29            744            -        744
  End of year - 1994                              493      202              22            717            -        717
  End of year - 1995                              470      182              21            673            -        673
  End of year - 1996                              443      163              11            617            -        617
- -------------------------------------------------------------------------------------------------------------------------
</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       Consolidated     Equity
(Billions of cubic feet)                      States   Europe   International      Total       Affiliates   Worldwide
- ----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>      <C>      <C>             <C>            <C>          <C>
Natural Gas
 Proved developed and undeveloped reserves:
  Beginning of year - 1994                     2,044    1,619              85          3,748          153       3,901
  Purchase of reserves in place                    9        -               -              9            -           9
  Revisions of previous estimates                 11       (7)            (11)            (7)          10           3
  Extensions, discoveries and
   other additions                               303        -               -            303            4         307
  Production                                    (210)    (128)             (7)          (345)         (14)       (359)
  Sales of reserves in place                     (30)       -             (24)           (54)           -         (54)
                                               -----    -----             ---          -----          ---       -----
  End of year - 1994                           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
- ----------------------------------------------------------------------------------------------------------------------
 Proved developed reserves:
  Beginning of year - 1994                     1,391    1,566              83          3,040           95       3,135
  End of year - 1994                           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
- ----------------------------------------------------------------------------------------------------------------------
</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       Consolidated      Equity
(In millions)                            States    Europe    International      Total        Affiliates     Worldwide
<S>                                      <C>       <C>       <C>             <C>             <C>            <C>
- --------------------------------------------------------------------------------------------------------------------- 
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
- --------------------------------------------------------------------------------------------------------------------- 
December 31, 1994:
 Future cash inflows                      $11,473   $ 7,965     $ 572          $20,010          $   375      $20,385
 Future production costs                   (4,656)   (2,971)     (185)          (7,812)            (153)      (7,965)
 Future development costs                    (506)     (162)      (40)            (708)             (20)        (728)
 Future income tax expenses                (1,620)   (1,717)     (110)          (3,447)             (74)      (3,521)
                                          -------   -------     -----          -------          -------    ---------
 Future net cash flows                      4,691     3,115       237            8,043              128        8,171
 10% annual discount for                                                                                  
  estimated timing of cash flows           (2,233)   (1,171)      (63)          (3,467)             (42)      (3,509)
                                          -------   -------     -----          -------          -------    ---------
 Standardized measure of                          
  discounted future net cash                      
  flows relating to proved oil                    
  and gas reserves                        $ 2,458   $ 1,944     $ 174          $ 4,576          $    86      $ 4,662
- --------------------------------------------------------------------------------------------------------------------- 
</TABLE>

 
Summary of Changes in Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
 

<TABLE>
<CAPTION>
                                      Consolidated Total           Equity Affiliates                Worldwide
                                 ---------------------------   -------------------------   ---------------------------
(In millions)                      1996      1995      1994     1996     1995     1994      1996      1995      1994
- ----------------------------------------------------------------------------------------------------------------------
<S>                              <C>       <C>       <C>       <C>       <C>     <C>       <C>       <C>       <C>
Sales and transfers of
 oil and gas produced,
 net of production costs         $(1,558)  $(1,285)  $(1,003)  $   (31)  $ (26)  $   (25)  $(1,589)  $(1,311)  $(1,028)
Net changes in prices and
 production costs related
 to future production              3,651        97     1,407        37       5         9     3,688       102     1,416
Extensions, discoveries and
 improved recovery, less
 related costs                     1,572       852       316         9       -         6     1,581       852       322
Development costs incurred
 during the period                   314       304       422         3       8        10       317       312       432
Changes in estimated future
 development costs                  (316)      (56)     (265)      (10)     (8)       (6)     (326)      (64)     (271)
Revisions of previous
 quantity estimates                   15      (117)      (50)        9      (5)        8        24      (122)      (42)
Net changes in purchases
 and sales of minerals
 in place                            (58)      (39)      (26)        -       -         -       (58)      (39)      (26)
Accretion of discount                658       624       497        11      19        14       669       643       511
Net change in income taxes        (1,342)      186      (300)      (11)     (2)       (1)   (1,353)      184      (301)
Other                               (365)     (180)     (141)       (8)     (2)       (3)     (373)     (182)     (144)
- ----------------------------------------------------------------------------------------------------------------------
Net change for the year            2,571       386       857         9     (11)       12     2,580       375       869
Beginning of year                  4,962     4,576     3,719        75      86        74     5,037     4,662     3,793
- ----------------------------------------------------------------------------------------------------------------------
End of year                      $ 7,533   $ 4,962   $ 4,576   $    84   $  75   $    86   $ 7,617   $ 5,037   $ 4,662
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      U-34

<PAGE>
 
Five-Year Operating Summary - Marathon Group
 

<TABLE>
<CAPTION>
                                                                1996        1995      1994      1993      1992
- ---------------------------------------------------------------------------------------------------------------
<S>                                                            <C>         <C>       <C>       <C>       <C>
Net Liquid Hydrocarbon Production
 (thousands of barrels per day)
 United States                                                    122        132       110       111       118
 International- Europe                                             51         56        48        26        36
              - Other                                               8         17        14        19        20
                                                               ------------------------------------------------
              Total Worldwide                                     181        205       172       156       174
- ---------------------------------------------------------------------------------------------------------------
Net Natural Gas Production
 (millions of cubic feet per day)
 United States                                                    676        634        574       529      593
 International - Europe                                           518/(a)/   483/(a)/   382       356      326
               - Other                                             13         15         18        17       12
                                                               ------------------------------------------------
  Total Consolidated                                            1,207      1,132        974       902      931
 Equity production - CLAM Petroleum Co.                            45         44         40        35       41
                                                               ------------------------------------------------
               Total Worldwide                                  1,252      1,176      1,014       937      972
- ---------------------------------------------------------------------------------------------------------------
Average Sales Prices
 Liquid Hydrocarbons (dollars per barrel)/(b)/
  United States                                                $18.58     $14.59     $13.53    $14.54   $16.47
  International                                                 20.34      16.66      15.61     16.22    18.95
 Natural Gas (dollars per thousand cubic feet)/(b)/                                                    
  United States                                                $ 2.09     $ 1.63     $ 1.94    $ 1.94   $ 1.60
  International                                                  1.97       1.80       1.58      1.52     1.77
- ---------------------------------------------------------------------------------------------------------------
Net Proved Reserves - year-end
 Liquid Hydrocarbons (millions of barrels)
  Beginning of year                                               764        795        842       848      868
  Extensions, discoveries and other additions                      82         70         13        21       27
  Improved recovery                                                19          4          6        24       12
  Revisions of previous estimates                                   5        (18)        (6)        4        5
  Net purchase (sale) of reserves in place                        (12)       (13)         2         2       (3)
  Production                                                      (66)       (74)       (62)      (57)     (61)
                                                               ------------------------------------------------
     Total                                                        792        764        795       842      848
- ---------------------------------------------------------------------------------------------------------------
 Natural Gas (billions of cubic feet)/(c)/
  Beginning of year                                             3,720      3,807      3,901     4,030    4,258
  Extensions, discoveries and other additions                     323        339        307       248      148
  Improved recovery                                                10          1          -        33        6
  Revisions of previous estimates                                  (6)       (39)         3       (21)      54
  Net purchase (sale) of reserves in place                        (43)        17        (45)      (59)     (84)
  Production                                                     (434)      (405)      (359)     (330)    (352)
                                                               ------------------------------------------------
     Total                                                      3,570      3,720      3,807     3,901    4,030
- ---------------------------------------------------------------------------------------------------------------
U.S. Refinery Operations (thousands of barrels per day)
 In-use crude oil capacity - year-end/(d)/                        570        570        570       570      620
 Refinery runs - crude oil refined                                511        503        491       549      546
               - other charge and blend stocks                     96         94        107       102       79
 In-use capacity utilization rate                                  90%        88%        86%       90%      88%
- ---------------------------------------------------------------------------------------------------------------
U.S. Refined Product Sales (thousands of barrels per day)
 Gasoline                                                         468        445        443       420      404
 Distillates                                                      192        180        183       179      169
 Other products                                                   115        122        117       127      134
                                                               ------------------------------------------------
     Total                                                        775        747        743       726      707
 Matching buy/sell volumes included in above                       71         47         73        47       56
- ---------------------------------------------------------------------------------------------------------------
U.S. Refined Product Marketing Outlets - year-end
 Marathon operated terminals                                       51         51         51        51       52
 Retail - Marathon Brand                                        2,392      2,380      2,356     2,331    2,290
        - Emro Marketing Company                                1,592      1,627      1,659     1,571    1,549
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

 
/(a)/ Includes gas acquired for injection and subsequent resale of 32 million
      cubic feet per day in 1996 and 35 million cubic feet per day in 1995.
/(b)/ Prices exclude gains/losses from hedging activities.
/(c)/ Includes Marathon's interest in equity affiliate reserves.
/(d)/ The 50,000 barrel per day Indianapolis Refinery was temporarily idled in
      October 1993.

                                      U-35

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

<TABLE>
<CAPTION>
 
(Thousands of net tons, unless otherwise noted)   1996    1995    1994    1993    1992
- ----------------------------------------------------------------------------------------
<S>                                               <C>     <C>     <C>     <C>     <C>
Raw Steel Production
 Gary, IN                                         6,840   7,163   6,768   6,624   5,969
 Mon Valley, PA                                   2,746   2,740   2,669   2,507   2,276
 Fairfield, AL                                    1,862   2,260   2,240   2,203   2,146
 All other plants/(a)/                                -       -       -       -      44
                                                 --------------------------------------
    Total Raw Steel Production                   11,448  12,163  11,677  11,334  10,435
    Total Cast Production                        11,407  12,120  11,606  11,295   8,695
    Continuous cast as % of total production       99.6    99.6    99.4    99.7    83.3
- ----------------------------------------------------------------------------------------
Raw Steel Capability (average)
 Continuous cast                                 12,800  12,500  11,990  11,850   9,904
 Ingots                                               -       -       -       -   2,240
                                                 --------------------------------------
    Total                                        12,800  12,500  11,990  11,850  12,144
    Total production as % of total capability      89.4    97.3    97.4    95.6    85.9
    Continuous cast as % of total capability      100.0   100.0   100.0   100.0    81.6
- ----------------------------------------------------------------------------------------
Hot Metal Production                              9,716  10,521  10,328   9,972   9,270
- ----------------------------------------------------------------------------------------
Coke Production                                   6,777   6,770   6,777   6,425   5,917
- ----------------------------------------------------------------------------------------
Iron Ore Pellets - Minntac, MN
 Production as % of capacity                         85      86      90      90      83
 Shipments                                       14,962  15,218  16,174  15,911  14,822
- ----------------------------------------------------------------------------------------
Coal Production
 Metallurgical coal/(b)/                          7,283   7,509   7,424   8,142   7,311
 Steam coal/(b)(c)/                                   -       -       -   2,444   5,239
                                                 --------------------------------------
    Total                                         7,283   7,509   7,424  10,586  12,550
    Total production as % of capacity              90.5    93.3    93.7    95.6    93.6
- ----------------------------------------------------------------------------------------
Coal Shipments/(b)(c)/                            7,117   7,502   7,698  10,980  12,164
- ----------------------------------------------------------------------------------------
Steel Shipments by Product
 Sheet and tin mill products                      9,541   9,267   8,728   8,364   7,514
 Plate, tubular, structural and other
  steel mill products/(a)/                        1,831   2,111   1,840   1,605   1,340
                                                 --------------------------------------
    Total                                        11,372  11,378  10,568   9,969   8,854
    Total as % of domestic steel industry          11.3    11.7    11.1    11.3    10.8
- ----------------------------------------------------------------------------------------
Steel Shipments by Market
 Steel service centers                            2,831   2,564   2,780   2,831   2,676
 Transportation                                   1,721   1,636   1,952   1,771   1,553
 Further conversion:
  Joint ventures                                  1,542   1,332   1,308   1,074     449
  Trade customers                                 1,227   1,084   1,058   1,150   1,104
 Containers                                         874     857     962     835     715
 Construction                                       865     671     722     667     598
 Oil, gas and petrochemicals                        746     748     367     342     255
 Export                                             493   1,515     355     327     584
 All other                                        1,073     971   1,064     972     920
                                                 --------------------------------------
    Total                                        11,372  11,378  10,568   9,969   8,854
- ----------------------------------------------------------------------------------------
</TABLE>

 
/(a)/ In April 1992, U. S. Steel closed South (IL) Works and ceased production
      of structural products.
/(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 4.0
      million net tons in 1992 and 1.6 million net tons in 1993 prior to the
      sale.

                                      U-36

<PAGE>
 
Five-Year Operating Summary - Delhi Group
 

<TABLE>
<CAPTION>
                                                                1996       1995       1994      1993     1992
- --------------------------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>        <C>        <C>      <C>
 
Sales Volumes
 Natural gas throughput (millions of cubic feet per day)
  Gas sales                                                      543.5      567.0      624.5    556.7    546.4
  Transportation                                                 454.5      300.5      271.4    322.1    282.6
                                                              ------------------------------------------------
    Total systems throughput                                     998.0      867.5      895.9    878.8    829.0
  Trading sales                                                  559.1      423.9       94.7        -        -
  Partnerships - equity share/(a)(b)/                                -        5.2       19.6     17.9     27.8
                                                              ------------------------------------------------
    Total sales volumes                                        1,557.1    1,296.6    1,010.2    896.7    856.8
 NGLs sales
  Thousands of gallons per day                                   790.7      792.5      755.7    772.5    714.2
- --------------------------------------------------------------------------------------------------------------
Gross Unit Margin ($/mcf)/(c)/                                $   0.24   $   0.23   $   0.31   $ 0.46   $ 0.48
- --------------------------------------------------------------------------------------------------------------
Pipeline Mileage (including partnerships)
 Arkansas/(a)/                                                      -          -        349      362      377
 Colorado/(d)/                                                       -          -          -        -       91
 Kansas/(e)/                                                         -          -          -      164      164
 Louisiana/(e)/                                                      -          -          -      141      141
 Oklahoma/(a)(e)/                                                2,916      2,820      2,990    2,908    2,795
 Texas/(b)(e)/                                                   4,444      4,110      4,060    4,544    4,811
                                                              ------------------------------------------------
    Total                                                        7,360      6,930      7,399    8,119    8,379
- --------------------------------------------------------------------------------------------------------------
Plants - operating at year-end
 Gas processing                                                     16         15         15       15       14
 Sulfur                                                              6          6          6        3        3
- --------------------------------------------------------------------------------------------------------------
Dedicated Gas Reserves - year-end (billions of cubic feet)
 Beginning of year                                               1,743      1,650      1,663    1,652    1,643
 Additions                                                         611        455        431      382      273
 Production                                                       (365)      (317)      (334)    (328)    (307)
 Revisions/Asset Sales                                               -        (45)      (110)     (43)      43
                                                              ------------------------------------------------
    Total                                                        1,989      1,743      1,650    1,663    1,652
- --------------------------------------------------------------------------------------------------------------
</TABLE>

 
/(a)/ In 1995, the Delhi Group sold its 25% interest in Ozark Gas Transmission
      System.
/(b)/ In 1993, the Delhi Group sold its 25% interest in Red River Pipeline.
/(c)/ Amounts have been reclassified to conform to 1996 classifications.
/(d)/ In 1993, the Delhi Group sold its pipeline systems located in Colorado.
/(e)/ In 1994, the Delhi Group sold certain pipeline systems associated with
      the planned disposition of nonstrategic assets.

                                      U-37

<PAGE>
 
 
            Management's Discussion and Analysis

                USX Corporation ("USX") is a diversified company engaged
             primarily in the energy business through its Marathon Group, in the
             steel business through its U. S. Steel Group and in the gas
             gathering and processing business through its Delhi Group.
             Accordingly, Management's Discussion and Analysis of USX provides
             certain information about each of the Groups, particularly in

             Management's Discussion and Analysis of Operations by Industry
             Segment. More expansive information is provided in Management's
             Discussion and Analysis of the Marathon Group, U. S. Steel Group
             and Delhi Group, which are included in Form 10-K. Management's
             Discussion and Analysis should be read in conjunction with the
             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.

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)                                                   1996      1995      1994
             -------------------------------------------------------------------------------------------------
             <S>                                                                   <C>       <C>       <C>
             Revenues/(a)/
              Marathon Group                                                       $16,332   $13,879   $12,928
              U. S. Steel Group                                                      6,547     6,475     6,077
              Delhi Group/(b)/                                                       1,061       670       585
              Eliminations                                                             (96)      (60)      (60)
                                                                                   -------   -------   -------
                 Total USX Corporation revenues                                     23,844    20,964    19,530
             Less:
              Matching crude oil and refined product buy/sell transactions/(c)/      2,912     2,067     2,071
              Consumer excise taxes on petroleum products and merchandise/(c)/       2,768     2,708     2,542
                                                                                   -------   -------   -------
                 Revenues adjusted to exclude above items                          $18,164   $16,189   $14,917
             -------------------------------------------------------------------------------------------------
</TABLE>

              /(a)/  Amounts in 1995 and 1994 were reclassified in 1996 to
               include gains and losses on disposal of operating assets. Prior
               to reclassification, these gains and losses were included in
               other income.
              /(b)/  Prior to 1996, the Delhi Group reported natural gas
               treating, dehydration, compression and other service fees as a
               reduction to cost of sales. Beginning with 1996, these fees are
               reported as revenue; accordingly, amounts for prior years have
               been reclassified.
              /(c)/  Included in both revenues and operating costs for the
               Marathon Group and USX Consolidated.

                Adjusted revenues increased by $1,975 million, or 12%, in 1996
             as compared with 1995, reflecting increases of 17% for the Marathon
             Group, 1% for the U. S. Steel Group and 58% for the Delhi Group.
             Adjusted revenues increased by $1,272 million, or 8%, in 1995 as
             compared with 1994, reflecting increases of 9% for the Marathon
             Group, 7% for the U. S. Steel Group and 15% for the Delhi Group.

                                      U-38

<PAGE>
 
             Management's Discussion and Analysis   continued


          Operating income and certain items included in operating income for
each of the last three years are summarized in the following table:


<TABLE>
<CAPTION>
              (Dollars in millions)                                    1996     1995     1994
             ---------------------------------------------------------------------------------
             <S>                                                      <C>      <C>      <C>
             Operating income/(a)/                                    $1,625   $  631   $1,044
             Less: Certain favorable (unfavorable) items
              Inventory market valuation adjustment/(b)/                209       70      160
              Net gains on certain asset sales                           16        -      166
              Certain Gary Works blast furnace repairs/(c)/             (39)     (34)       -
              Charges for withdrawal from MPA/(d)/                      (10)       -        -
              Certain state tax adjustments/(e)/                        (11)       -       12
              Employee reorganization charges/(f)/                      (13)       -      (44)
              Impairment of long-lived assets/(g)/                        -     (675)       -
              Adjustments for certain employee-related costs              -       18        -
              Effects of restructuring                                    -        6      (37)
              Expected environmental remediation recoveries/(h)/          -       15        -
              Certain legal accruals                                      -      (44)       -
              Sale of coal seam methane gas royalty interests             -        -       13
              Certain weather-related and other effects/(i)/              -        -      (44)
                                                                     ------   ------   ------
                 Subtotal                                               152     (644)     226
                                                                     ------   ------   ------
                 Operating income adjusted to exclude above items    $1,473   $1,275   $  818
              -------------------------------------------------------------------------------
</TABLE>

              /(a)/  Amounts in 1995 and 1994 were reclassified in 1996 to
               include gains and losses on disposal of operating assets. Prior
               to reclassification, these gains and losses were included in
               other income.
              /(b)/  The inventory market valuation reserve reflects the extent
               to which the recorded costs of crude oil and refined products
               inventories exceed net realizable value. The reserve was adjusted
               to $0 in December 1996.
              /(c)/  Amounts in 1996 and 1995 reflect repair of damages incurred
               during a refractory 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.
              /(d)/  Marine Preservation Association ("MPA") is a non-profit oil
               spill response group.
              /(e)/  The 1996 amount reflected domestic production tax accruals
               for prior years; the 1994 amount related to various settlements.
              /(f)/  Primarily related to employee costs associated with work
               force reduction programs.
              /(g)/  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").
              /(h)/  For expected recoveries from state governments of
               expenditures related to underground storage tanks at retail
               marketing outlets.
              /(i)/  Included charges related to utility curtailments and other
               severe winter weather complications, a caster fire at the Mon
               Valley Works and planned outages for the modernization of the
               Gary Works' hot strip mill and pickle line.

                Adjusted operating income increased by $198 million in 1996 as
             compared with 1995, reflecting increases of $343 million for the
             Marathon Group and $19 million for the Delhi Group, partially
             offset by a decline of $164 million for the U. S. Steel Group.
             Adjusted operating income increased by $457 million in 1995 as
             compared with 1994, reflecting increases of $228 million, $221
             million and $8 million for the Marathon Group, U. S. Steel Group
             and Delhi Group, respectively. For further discussion, see
             Management's Discussion and Analysis of Operations by Industry
             Segment.

                Net pension credits included in operating income totaled $160
             million in 1996, compared with $142 million in 1995 and $116
             million in 1994. The increase in 1996 from 1995 mainly reflected a
             decrease in the assumed discount rate and an increase in the
             market-related value of plan assets. The increase in 1995 from 1994
             reflected an increase in the expected long-term rate of return on
             plan assets, partially offset by an increase in the assumed
             discount rate and a decline in the market-related value of plan
             assets. For further discussion, see Note 9 to the Consolidated
             Financial Statements.

                Other income for each of the last three years is summarized in
             the following table:

<TABLE>
<CAPTION>
(Dollars in millions)                                  1996   1995   1994
- ----------------------------------------------------------------------------
<S>                                                    <C>    <C>    <C>
 
             Income from affiliates - equity method    $  85  $  89  $  64
             Gain on sale of investments/(a)/             21      3      5
             Other income/(b)/                             5      9      9
                                                       -----  -----  -----
                 Total other income/(c)/               $ 111  $ 101  $  78
- ----------------------------------------------------------------------------
</TABLE>

              /(a)/  Amount in 1996 primarily reflected sale of the Marathon
               Group's equity interest in a domestic pipeline company.
              /(b)/  Amount in 1995 included a $5 million favorable effect
               related to a Delhi Group restructuring program.
              /(c)/  Amounts in 1995 and 1994 were reclassified in 1996 to
               exclude gains and losses on disposal of operating assets. These
               gains and losses are now included in revenues.

                                      U-39

<PAGE>
 
             Management's Discussion and Analysis   continued


                Increases in income from affiliates in 1995 were primarily for
             the U. S. Steel Group.

                Gain on affiliate stock offering totaled $53 million in 1996.
             For further details see Note 5 to the Consolidated Financial
             Statements.

                Interest and other financial costs in 1996 included an $8
             million favorable effect related to interest provided for potential
             income tax deficiencies. Interest and other financial costs in 1995
             included a $20 million favorable effect of interest on refundable
             federal income taxes paid in prior years. Interest and other
             financial costs in 1994 included a $35 million favorable effect
             resulting from settlement of various state tax issues. Excluding
             these items, interest and other financial costs decreased by $64
             million in 1996 as compared with 1995, due primarily to lower
             average debt levels, and increased by $25 million in 1995 as
             compared with 1994, due primarily to reduced capitalized interest
             for the Marathon Group.

                The provision for estimated income taxes in 1996 included a $48
             million benefit, primarily from nonconventional fuel source
             credits. 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. The provision in 1994 included a $32 million deferred
             tax benefit related to an excess of tax over book basis in an
             equity affiliate, and a $24 million credit for the reversal of a
             deferred tax valuation allowance. For further discussion, see Note
             11 to the Consolidated Financial Statements.

                Extraordinary loss reflected the unfavorable aftertax effects of
             the 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.

                Net income was $943 million in 1996, $214 million in 1995 and
             $501 million in 1994. Excluding the $430 million unfavorable
             aftertax effect of adoption of SFAS No. 121 in 1995, net income
             increased by $299 million in 1996 as compared with 1995, and by
             $143 million in 1995 as compared with 1994, primarily reflecting
             the factors discussed above.

Management's Discussion and Analysis of Financial Condition, Cash Flows and
Liquidity

                Current assets increased by $162 million from year-end 1995,
             primarily reflecting increased inventory and receivable balances,
             partially offset by a decline in cash and cash equivalents. The
             increase in inventories primarily reflected higher year-end refined
             product prices resulting in the reduction to zero of the inventory
             market valuation reserve, and increased iron ore and steel products
             inventories. The increase in receivables primarily reflected
             increased trade receivables, partially offset by a decrease in
             foreign currency exchange receivables (reflecting retirement of
             foreign currency debt obligations related to Swiss Franc Bonds
             retired in 1996) and a decrease in notes receivable. The decline in
             cash and cash equivalents primarily reflected cash used for capital
             expenditures and dividend payments and other financial activities
             (including repayment of long-term debt) in excess of cash provided
             from operating activities and disposal of assets.

                Net property, plant and equipment decreased by $131 million from
             year-end 1995, primarily reflecting depreciation, depletion and
             amortization ("DD&A") expense, asset dispositions and dry well
             write-offs, partially offset by property additions. Asset
             dispositions included interests in oil producing properties in
             Alaska and certain production properties in Indonesia, the U.K.
             North Sea and Tunisia.

                Total long-term debt and notes payable decreased by $684 million
             from year-end 1995, mainly reflecting cash flows provided from
             operating activities and asset sales, in excess of cash used for
             capital expenditures and dividend payments. At December 31, 1996,
             USX had no outstanding borrowings against its $2,350 million long-
             term revolving credit agreement. At December 31, 1996, USX had
             short-term credit agreements totaling $175 million. These
             agreements are with two banks, with interest based on their prime
             rate or London Interbank Offered Rate ("LIBOR"), and carry a
             facility fee of .15%. Certain other banks provide short-term lines
             of credit totaling $200 million which generally require maintenance
             of compensating balances of 3%. At December 31, 1996, USX had $41
             million borrowed, leaving $159 million available in short-term
             lines of credit.

                Stockholders' equity increased by $694 million from year-end
             1995 mainly reflecting 1996 net income and the issuance of
             additional common equity (mainly USX - U. S. Steel Group Common
             Stock), partially offset by dividend payments.

                                      U-40

<PAGE>
 
             Management's Discussion and Analysis   continued


                At December 31, 1996, USX's ratio of debt and preferred stock of
             subsidiary to total capitalization was 48%, compared with 55% at
             December 31, 1995.

                Net cash provided from operating activities  for each of the
             last three years is summarized in the following table:

<TABLE>
<CAPTION>
             (Dollars in millions)                                            1996     1995     1994
             ----------------------------------------------------------------------------------------
             <S>                                                             <C>      <C>      <C>
             Net cash provided from operating activities                     $1,649   $1,632   $  817
             Less: Effects of certain payments
              To the Internal Revenue Service/(a)/                              (59)       -        -
              Related to certain state tax issues                               (39)       -     (124)
              For settlement of Pickering v. USX litigation                     (28)     (20)       -
              Related to the B&LE litigation                                      -        -     (367)
              Of amortized discount on zero coupon debentures                     -     (129)       -
              To fund the U. S. Steel Group's principal pension plan/(b)/         -     (169)       -
                                                                             ------   ------   ------
                 Subtotal                                                      (126)    (318)    (491)
                                                                             ------   ------   ------
                 Net cash provided from operating activities
                  adjusted to exclude above items                            $1,775   $1,950   $1,308
             ----------------------------------------------------------------------------------------
</TABLE>

              /(a)  / For certain agreed and unagreed adjustments relating to
               the 1990 tax year.
              /(b)  / Reflects proceeds from the public offering of 5,000,000
               shares of USX - U. S. Steel Group Common Stock.

                Adjusted cash provided from operating activities decreased by
             $175 million in 1996 as compared with 1995, due primarily to
             unfavorable working capital changes. Adjusted cash provided from
             operating activities increased by $642 million in 1995 as compared
             with 1994, due primarily to improved profitability and favorable
             working capital changes.

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

<TABLE>
<CAPTION>
             (Dollars in millions)                                       1996    1995    1994
             --------------------------------------------------------------------------------
             <S>                                                       <C>     <C>     <C>
             Marathon Group
              Exploration and production ("upstream")
               United States                                           $  424  $  322  $  351
               International                                               80     141     185
              Refining, marketing and transportation ("downstream")       234     170     209
              Other                                                        13       9       8
                                                                       ------  ------  ------
                 Subtotal Marathon Group                                  751     642     753
             U. S. Steel Group                                            337     324     248
             Delhi Group                                                   80      50      32
                                                                       ------  ------  ------
                 Total USX Corporation capital expenditures            $1,168  $1,016  $1,033
             --------------------------------------------------------------------------------
</TABLE>


                Marathon Group capital expenditures in 1996 included projects
             for development and exploitation of oil and gas properties;
             acquisition of producing properties, primarily in Texas, Wyoming
             and Alaska; upgrading and expanding Emro Marketing Company's
             network of retail outlets and modification of refinery facilities.
             U. S. Steel Group expenditures included a blast furnace reline and
             construction of a new galvanizing line at Fairfield Works,
             additional environmental expenditures, primarily at Gary Works, and
             spending related to the No. 13 blast furnace refractory break-out.
             Delhi Group expenditures included expansion of treating, gathering,
             and transmission facilities in east Texas to service the Cotton
             Valley Pinnacle Reef gas play, expansion of gathering systems in
             Oklahoma, primarily to service the Carter Knox field area, and
             acquisition of pipeline and processing assets in west Texas.

                Capital expenditures in 1997 are expected to be $1.4 billion.
             Expenditures for the Marathon Group are expected to be
             approximately $1 billion. Domestic upstream projects planned for
             1997 include development of the Green Canyon 244 (Troika), Viosca
             Knoll 786 (Petronius) and Ewing Bank 963 (Arnold) fields in the
             Gulf of Mexico. International upstream projects include development
             of the West Brae field in the U.K. North Sea and the Tchatamba
             field, 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 are expected to
             be approximately $290 million in 1997. Planned projects include 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.

                Capital expenditures for the Delhi Group are expected to be
             approximately $75 million in 1997, primarily to add new dedicated
             natural gas reserves, expand and improve existing facilities and
             acquire new facilities as opportunities arise in its core operating
             areas of Texas and Oklahoma.

                                      U-41

<PAGE>
 
             Management's Discussion and Analysis   continued


                Other investing activities in 1997 are expected to include
             approximately $150 million for planned capital projects of equity
             affiliates and for final settlement of the USX Credit Division
             receivable facility. Planned capital projects include the Nautilus
             natural gas pipeline project in the Gulf of Mexico, the Sakhalin II
             project in the Russian Far East Region and the addition of a second
             galvanizing line at the PRO-TEC Coating Company joint venture in
             northwest Ohio.

                Future capital expenditures and investments can be affected by
             industry supply and demand factors, levels of cash flow from
             operations for each of the Groups, and by unforeseen hazards such
             as weather conditions, explosions or fires, or by delays in
             obtaining government or partner approval, which could affect the
             timing of completion of particular capital projects. In addition,
             levels of investments may be affected by the ability of equity
             affiliates to obtain external financing.

                Contract commitments for capital expenditures were $526 million
             at year-end 1996, compared with $299 million at year-end 1995. The
             increase mainly reflects Marathon Group domestic and international
             exploration, exploitation and development projects, including those
             described above.

                Cash from disposal of assets was $443 million in 1996, compared
             with $157 million in 1995 and $293 million in 1994. 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 Titanium
             Company ("RMI") common stock; disposal of the Marathon Group's
             interests in Alaskan oil properties and certain oil and gas
             properties in Indonesia, U. K. North Sea and Tunisia; 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. Proceeds in 1994 primarily reflected
             sales of the assets of a retail propane marketing subsidiary and
             certain domestic oil and gas production properties.

                Deposit in property exchange trust of $98 million in 1996
             reflects the deposit of a large portion of proceeds from disposal
             of oil production properties in Alaska into an interest-bearing
             escrow account for use in future property acquisitions.

                Financial obligations decreased by $673 million in 1996 compared
             with decreases of $511 million in 1995 and $217 million in 1994.
             These amounts represent financial activities involving commercial
             paper, revolving credit agreements, lines of credit, other debt and
             preferred stock of a subsidiary. The decreases in 1996 and 1995
             mainly reflected cash flows provided from operating activities and
             asset sales, in excess of cash used for capital expenditures and
             dividend payments. The decrease in financial obligations in 1994
             mainly reflected a reduction in cash and cash equivalent balances.

                In 1996, USX redeemed, prior to maturity, $161 million of
             Marathon Oil Company 9-3/4% Guaranteed Notes Due 1999. Also in
             1996, USX irrevocably called for redemption on January 30, 1997, 8-
             1/2% Sinking Fund Debentures Due 2006, which will be extinguished
             during 1997. 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 $105 million, or 2,099,970 shares, of its
             Adjustable Rate Cumulative Preferred Stock for $50 per share.

                Issuance of debt and preferred stock of a subsidiary for each of
             the last three years is summarized in the following table:

<TABLE>
<CAPTION>
             (Dollars in millions)                                               1996      1995      1994
             --------------------------------------------------------------------------------------------
             <S>                                                                <C>    <C>       <C>
             Aggregate principal amounts of:
              6-3/4% Notes Due February 1, 2000                                 $ 117  $      -  $      -
              Environmental Improvement Revenue Refunding Bonds/(a)/               78        53        64
              7-2/10% Notes Due 2004                                                -         -       300
              LIBOR-based Floating Rate Notes Due 1996                              -         -       150
              7% Monthly Interest Guaranteed Notes Due 2002/(b)/                    -         -        57
              8-3/4% Cumulative Monthly Income Preferred Stock ("MIPS")/(c)/        -         -       250
                                                                                -----     -----     -----
                 Total                                                          $ 195     $  53     $ 821
             --------------------------------------------------------------------------------------------
</TABLE>

              /(a)  /Issued to refinance certain environmental improvement
               bonds. Bonds issued in 1996, and 1994, at rates ranging from 5-
               3/10% to 6-7/10%, are due 2014, 2018, 2020, 2022 and 2030, and
               1996, 2020 and 2024, respectively; bonds issued in 1995 at
               variable rates are due 2015 and 2017.
              /(b)  /Issued in exchange for an equivalent principal amount of
               its 9-1/2% Guaranteed Notes Due 1994. The $642 million balance of
               Marathon Oil Company 9-1/2% Notes was paid in March 1994.
              /(c)  /Reflected sale of 10,000,000 shares of MIPS of USX Capital
               LLC, a wholly owned subsidiary of USX. MIPS is classified in the
               liability section of the consolidated balance sheet, and
               associated financial costs are included in interest and other
               financial costs on the consolidated statement of operations.

                                      U-42

<PAGE>
 
             Management's Discussion and Analysis   continued


                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
             6-3/4% Notes Due February 1, 2000 ("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. The carrying value was adjusted to $123 million at
             December 31, 1996. At issuance of the indexed debt, 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 $3.8 billion at year-end 1996 may be declared
             immediately due and payable or required to be collateralized. See
             Notes 12, 16 and 18 to the Consolidated Financial Statements.

                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
             an increase of two cents per share in the quarterly USX-Marathon
             Group Common Stock dividend rate declared October 29, 1996.
             Dividends paid decreased by $6 million in 1995 as compared with
             1994, due primarily to the third quarter redemption of the
             Adjustable Rate Cumulative Preferred Stock, partially offset by
             effects of the sale of 5,000,000 shares of Steel Stock to the
             public in 1995.

             Pension Plan Activity

                In accordance with USX's long-term funding practice, which is
             designed to maintain an appropriate funded status, USX expects to
             contribute approximately $45 million in 1997 to fund the U. S.
             Steel Group's principal pension plan for the 1996 plan year. This
             amount, which is based on a recently completed long-term funding
             study, is less than the previously disclosed funding projections of
             approximately $100 million annually. 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.

             Debt and Preferred Stock Ratings

                Standard & Poor's Corp. currently rates USX's and Marathon's Oil
             Company's ("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

                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, natural gas liquids ("NGLs"),
             refined products and certain metals. USX uses commodity-based
             derivative instruments such as exchange-traded futures contracts
             and options, and over-the-counter ("OTC") commodity swaps and
             options to manage exposure to market risk. USX's exchange-traded
             derivative activities are conducted primarily on the New York
             Mercantile Exchange ("NYMEX"). USX's strategic approach is to limit
             the use of these instruments principally to hedging activities.
             Accordingly, gains and losses on futures contracts and swaps
             generally offset the effects of price changes in the underlying
             commodity. However, certain derivative instruments have the effect
             of converting fixed price equity natural gas production volumes to
             variable market-based pricing. These instruments are used as part
             of USX's overall risk management programs.

                While commodity-based derivative 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 $38
             million of pretax hedging losses in 1996, compared with net gains
             of $10 million in 1995. Marathon's downstream operations generally
             use derivative instruments to protect margins on fixed price sales
             of refined products, to protect carrying values of inventories and
             to lock-in benefits from certain raw material purchases. In total,
             downstream operations recorded pretax hedging losses of $22 million
             in 1996, $4 million in 1995 and $14 million in 1994. Essentially,
             all such losses and gains were offset by changes in the realized
             prices of the underlying hedged commodities,

                                      U-43

<PAGE>
 
             Management's Discussion and Analysis   continued

             with the net effect approximating the targeted results of the
             hedging strategies. For quantitative information relating to
             derivative instruments, including aggregate contract values and
             fair values, where appropriate, see Note 27 to the Consolidated
             Financial Statements.

                USX is subject to basis risk, caused by factors that affect the
             relationship between commodity futures prices reflected in
             derivative 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, 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 futures
             prices. To the extent that commodity price changes in one region
             are not reflected in other regions, derivative 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 also subject to currency risk, or 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
             uses forward currency contracts to manage exposure to currency
             price fluctuations relating to Swiss Franc debt obligations. These
             contracts effectively fix the principal and interest payments in
             U.S. dollars at the time of maturity. While derivative instruments
             are generally used to reduce risks from unfavorable currency rate
             movements, they also may limit the opportunity to benefit from
             favorable movements. For quantitative information relating to
             forward currency contracts, see Note 27 to the Consolidated
             Financial Statements.

                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.

                USX is exposed to the credit risk of nonperformance by
             counterparties in derivative transactions. Internal controls used
             to manage credit risk include ongoing reviews of credit worthiness
             of counterparties and the use of master netting agreements, to the
             extent practicable, and full performance is anticipated.

                Based on a strategic approach of limiting its use of derivative
             instruments principally to hedging activities, combined with risk
             assessment procedures and internal controls in place, management
             believes that its use of derivative instruments does not expose USX
             to material risk. While such use could materially affect USX's
             results of operations in particular quarterly or annual periods,
             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.

             Liquidity

                USX management believes that its short-term and long-term
             liquidity is adequate to satisfy its obligations as of December 31,
             1996, 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
             1997, 1998 and 1999, and any amounts that may ultimately be paid in
             connection with contingencies (which are discussed in Note 29 to
             the Consolidated Financial Statements), are expected to be financed
             by a combination of internally generated funds, borrowings and
             other external financing sources, and proceeds from the sale of
             stock.

                USX's ability to avail itself in the future of the above
             mentioned financing options is affected by the performance of each
             of its Groups (as measured by various factors including cash
             provided from operating activities), the state of the debt and
             equity markets, investor perceptions and expectations of past and
             future performance and actions, the overall U.S. financial climate,
             and, in particular, with respect to borrowings, by levels of USX's
             outstanding debt and credit ratings by investor services. For a
             summary of long-term debt, see Note 16 to the Consolidated
             Financial Statements.

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 integrated domestic
             competitors of the U. S. Steel Group and substantially all the
             competitors of the Marathon Group and the Delhi Group are subject
             to similar environmental laws and regulations. However, the
             specific

                                      U-44

<PAGE>
 
             Management's Discussion and Analysis   continued


             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)                 1996   1995   1994
             --------------------------------------------------------
             <S>                                  <C>    <C>    <C>
             Capital
              Marathon Group                      $  66  $  50  $  70
              U. S. Steel Group                      90     55     57
              Delhi Group                             9      6      5
                                                  -----  -----  -----
                 Total capital                    $ 165  $ 111  $ 132
             --------------------------------------------------------
             Compliance
              Operating & maintenance
               Marathon Group                     $  75  $ 102  $ 106
               U. S. Steel Group                    199    195    202
               Delhi Group                            4      4      6
                                                  -----  -----  -----
                 Total operating & maintenance      278    301    314
              Remediation/(b)/
               Marathon Group                        26     37     25
               U. S. Steel Group                     33     35     32
                                                  -----  -----  -----
                 Total remediation                   59     72     57
                 Total compliance                 $ 337  $ 373  $ 371
             --------------------------------------------------------
</TABLE>

              /(a)  /Estimates for the Marathon Group and Delhi Group are based
               on American Petroleum Institute survey guidelines; estimates for
               the U. S. Steel Group for the years 1995 and 1994 are based on
               U.S. Department of Commerce survey guidelines.
              /(b)/  These amounts do not include noncash provisions recorded
               for environmental remediation, but include spending charged
               against such reserves, net of recoveries.

                USX's environmental capital expenditures accounted for 14%, 11%
             and 13% of total consolidated capital expenditures in 1996, 1995
             and 1994, respectively.

                USX's environmental compliance expenditures averaged 2% of total
             consolidated operating costs in each of 1996, 1995 and 1994.
             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
             dismantlement and restoration activities at former and present
             operating locations.

                USX continues to seek methods to minimize the generation of
             hazardous wastes in its operations. 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. Since the Environmental
             Protection Agency has not yet promulgated implementing regulations
             relating to past disposal or handling operations, 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 cannot be appraised until their
             implementation becomes more accurately defined.

                A significant portion of USX's currently identified
             environmental remediation projects relate to the dismantlement and
             restoration of former and present operating locations. These
             projects include continuing remediation at an in situ uranium
             mining operation, the dismantling 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 40 waste sites under the Comprehensive Environmental
             Response, Compensation and Liability Act ("CERCLA") as of December
             31, 1996. In addition, there are 30 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 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

                                      U-45

<PAGE>
 
             Management's Discussion and Analysis   continued

             remediation matters proceed toward ultimate resolution or as
             additional remediation obligations arise, charges in excess of
             those previously accrued may be required. See Note 29 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 1997. USX
             expects environmental capital expenditures in 1997 to be
             approximately $126 million, or approximately 9% of total estimated
             consolidated capital expenditures. Predictions beyond 1997 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 1998 will total
             approximately $119 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.

                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.

                In 1997, USX will adopt American Institute of Certified Public
             Accountants Statement of Position No. 96-1 - "Environmental
             Remediation Liabilities", which recommends that companies include
             direct costs in accruals for remediation liabilities. These costs
             include external legal fees applicable to the remediation effort
             and internal administrative costs for attorneys and staff, among
             others. Adoption could result in remeasurement of certain
             remediation accruals and a corresponding charge to operating
             income. USX is conducting a review of its remediation liabilities
             and, at this time, is unable to project the effect, if any, of
             adoption.

Management's Discussion and Analysis of Operations by Industry Segment

             The Marathon Group

                The Marathon Group consists 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; and domestic refining, marketing and
             transportation of petroleum products.

                Excluding matching buy/sell transactions and excise taxes which
             are included in both revenues and operating costs, revenues
             increased in 1996 from 1995 due primarily to higher average prices
             for refined products, worldwide liquid hydrocarbons and natural
             gas, partially offset by decreased volumes for worldwide liquid
             hydrocarbons. The increase in 1995 was mainly due to increased
             volumes and higher average prices for domestic refined products,
             international natural gas and worldwide liquid hydrocarbons, and
             increased volumes for domestic natural gas, partially offset by a
             decrease in net gains on operating asset disposals and lower
             average prices for domestic natural gas.

                                      U-46

<PAGE>
 
             Management's Discussion and Analysis   continued


          Marathon Group operating income and certain items included in
operating income for each of the last three years are summarized in the
following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                    1996     1995    1994
             ------------------------------------------------------------------------------
             <S>                                                    <C>      <C>     <C>
             Operating income/(a)/                                   $1,234   $ 113   $ 755
             Less: Certain favorable (unfavorable) items
              Inventory market valuation adjustment/(b)/                209      70     160
              Net gains on certain asset sales                           16       -     166
              Charges for withdrawal from MPA/(c)/                      (10)      -       -
              Certain state tax adjustments/(d)/                        (11)      -      12
              Impairment of long-lived assets/(e)/                        -    (659)      -
              Expected environmental remediation recoveries/(f)/          -      15       -
              Employee reorganization charges/(g)/                        -       -     (42)
                                                                     ------   -----   -----
                 Subtotal                                               204    (574)    296
                                                                     ------   -----   -----
                 Operating income adjusted to exclude above items    $1,030   $ 687   $ 459
             ------------------------------------------------------------------------------
</TABLE>

              /(a)/  Amounts in 1995 and 1994 were reclassified in 1996, to
               include gains and losses on disposal of operating assets. Prior
               to reclassification, these gains and losses were included in
               other income.
              /(b)/  The inventory market valuation reserve reflects the extent
               to which the recorded costs of crude oil and refined products
               inventories exceed net realizable value. The reserve was adjusted
               to $0 in December 1996.
              /(c)/  Marine Preservation Association ("MPA") is a non-profit oil
               spill response group.
              /(d)/  The 1996 amount reflected domestic production tax accruals
               for prior years; the 1994 amount related to various settlements.
              /(e)/  Related to adoption of SFAS No. 121.
              /(f)/  For expected recoveries from state governments of
               expenditures related to underground storage tanks at retail
               marketing outlets.
              /(g)/  Related to employee costs associated with work force
               reduction programs.

                Adjusted operating income increased by $343 million in 1996 from
             1995, due primarily to higher average prices for worldwide liquid
             hydrocarbons and natural gas, reduced 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 decreased
             worldwide liquid hydrocarbon volumes, net losses on hedging
             activities (primarily occurring in the fourth quarter of 1996) and
             lower refined product margins. Adjusted operating income increased
             by $228 million in 1995 from 1994, due primarily to increased
             volumes of worldwide liquid hydrocarbons and natural gas, and
             higher average prices for worldwide liquid hydrocarbons and
             international natural gas, partially offset by lower average prices
             for domestic natural gas.

             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.

                For the oil and gas industry in general, world oil demand growth
             is expected to be slightly more than two percent during 1997 with
             growth in the U. S. accounting for just over one half of this
             demand increase. On the supply side, worldwide crude oil supplies
             have been boosted by the United Nations supervised humanitarian
             sale of Iraqi crude, as well as by the start-up of new fields in
             the North Sea. In addition, crude oil supplies are forecast to rise
             throughout 1997 as a number of new fields come on stream throughout
             the world, primarily in non-OPEC areas. Natural gas markets are
             expected to continue modest growth in 1997, primarily in the
             utility and industrial sectors. Supply capabilities from domestic
             fields are projected to increase since drilling activity has
             remained robust.

                With respect to Marathon's upstream operations, worldwide liquid
             hydrocarbon volumes are expected to decline by seven percent in
             1997, primarily reflecting natural production declines of mature
             fields and the disposal of Alaskan oil properties, partially offset
             by projected new production from the Green Canyon 244 field in the
             Gulf of Mexico, onshore properties in Texas and the West Brae field
             in the U.K. North Sea. Marathon's worldwide natural gas volumes in
             1997 are expected to remain consistent with 1996 levels, in the
             range of 1.2 to 1.3 billion cubic feet per day, as natural declines
             in mature international fields will be offset by anticipated
             increases in domestic production. These

                                      U-47

<PAGE>
 
             Management's Discussion and Analysis   continued


             projections are based on known discoveries and do not include any
             additions from acquisitions or future exploratory drilling.

                With respect to Marathon's downstream business, major
             maintenance shutdowns ("turnarounds") are planned for the Texas
             City (TX) and Robinson (IL) refineries during the first half of
             1997. Each turnaround is expected to last about one month. A major
             turnaround is also scheduled for the Garyville (LA) refinery in the
             first quarter of 1998. Marathon's 1997 refined product sales
             volumes are expected to remain consistent with 1996 levels at
             approximately 776,000 barrels per day.

                The above discussions of projects, expected production and sales
             levels, reserves 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. To the extent these
             assumptions prove inaccurate, actual results could be materially
             different than present expectations.

             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, engineering
             and consulting services and technology licensing. 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 $6.5 billion in each of 1996 and
             1995 and $6.1 billion in 1994. Revenues in 1996 versus 1995
             reflected improved product mix, partially offset by lower average
             steel product prices. Steel shipment volumes in 1996 remained at
             1995 levels. Revenues increased in 1995 from 1994, due primarily to
             increased steel shipment volumes and higher average steel product
             prices, partially offset by decreased revenues from engineering and
             consulting services. In addition, revenues in 1994 included
             revenues from a consolidated entity for which the equity method of
             accounting was subsequently adopted.

                U. S. Steel Group operating income and certain items included in
             operating income for each of the last three years are summarized in
             the following table:

<TABLE>
<CAPTION>
             (Dollars in millions)                                    1996    1995    1994
             -----------------------------------------------------------------------------
             <S>                                                     <C>     <C>     <C>
             Operating income/(a)/                                   $ 360   $ 500   $ 324
             Less: Certain favorable (unfavorable) items
              Certain Gary Works blast furnace repairs/(b)/            (39)    (34)      -
              Employee reorganization charges/(c)/                     (13)      -       -
              Impairment of long-lived assets/(d)/                       -     (16)      -
              Adjustments for certain employee-related costs             -      18       -
              Certain legal accruals                                     -     (44)      -
              Sale of coal seam methane gas royalty interests            -       -      13
              Certain weather-related and other effects/(e)/             -       -     (44)
                                                                     -----   -----   -----
              Subtotal                                                 (52)    (76)    (31)
                                                                     -----   -----   -----
                 Operating income adjusted to exclude above items    $ 412   $ 576   $ 355
             -----------------------------------------------------------------------------
</TABLE>

              /(a)/  Amounts in 1995 and 1994 were reclassified in 1996, to
               include gains and losses on disposal of operating assets. Prior
               to reclassification, these gains and losses were included in
               other income.
              /(b)  Amounts in 1996 and 1995 reflect repair of damages incurred
               during a refractory 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.
              /(c)/  Related to employee costs associated with work force
               reduction programs.
              /(d)/  Related to adoption of SFAS No. 121.
              /(e)/  Included charges related to utility curtailments and other
               severe winter weather complications, a caster fire at the Mon
               Valley Works and planned outages for the modernization of the
               Gary Works' hot strip mill and pickle line.

                Adjusted operating income decreased by $164 million in 1996 from
             1995, due primarily to lower average prices for steel products,
             cost inefficiencies related to planned and unplanned blast furnace
             outages and lost sales from the unplanned outage of the No. 13
             blast furnace at Gary Works. These factors were partially offset by
             improved product mix, decreased accruals for profit sharing plans,
             increased net periodic pension credits and higher income from USX
             Credit. Adjusted operating income increased by $221 million in 1995
             from 1994, due primarily to higher steel prices and shipments,
             partially offset by a less favorable product mix which included
             increased exports of lower value-added products, higher raw
             material costs and increased profit sharing accruals.

                                      U-48

<PAGE>
 
             Management's Discussion and Analysis   continued


             Outlook - U. S. Steel Group

                The U. S. Steel Group anticipates that steel demand will remain
             relatively strong in 1997 as long as the domestic economy continues
             its pattern of modest growth and the favorable pattern of demand
             for capital goods and consumer durables continues. However, the U.
             S. Steel Group believes supply will increase in 1997 due to higher
             imports, increased production capability for flat-rolled products
             at existing mills, new mini-mill capacity and fewer outages within
             the industry. To reduce the impact of supply increases, the U. S.
             Steel Group will attempt to further increase shipments of higher
             value-added products.

                The world steel industry is characterized by excess production
             capacity which has restricted price increases during periods of
             economic growth and led to price decreases during economic
             contractions. Within the next year, the anticipated availability of
             flat-rolled steel could have an adverse effect on U. S. Steel
             shipment levels as companies attempt to gain or retain market
             share.

                Steel imports to the United States accounted for an estimated
             23%, 21% and 25% of the domestic steel market in 1996, 1995 and
             1994, respectively. Steel imports increased sharply in the second
             half of 1996. In November and December, steel imports accounted for
             an estimated 29% and 25%, respectively, of the domestic market. 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 1997 are
             expected to be lower than in the fourth quarter of 1996 due to a
             seasonal industry decline in first quarter shipments. During the
             second and third quarters of 1997, raw steel production is expected
             to be reduced by an 86 day planned blast furnace reline at the Mon
             Valley Works.

                In February, 1997, the U. S. Steel Group and Kobe Steel, Ltd.,
             of Japan signed a memorandum of understanding to construct a second
             hot-dip galvanized sheet product line at the PRO-TEC Coating
             Company in Leipsic, Ohio, a 50/50 joint venture between USX and
             Kobe Steel. Construction is anticipated to begin in the first
             quarter of 1997 with start-up of operations projected for the third
             quarter of 1998. The new line would add 400,000 tons of annual
             capacity to the venture, bringing the total annual capacity to one
             million tons.

                In addition, U. S. Steel Group and Olympic Steel, Inc. recently
             announced that they will form a 50/50 joint venture to process
             laser welded sheet steel blanks. The joint venture, which will
             conduct business as Olympic Laser Processing, LLC, plans to
             construct a new facility and purchase two laser welding lines in
             1997, 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.

             The Delhi Group

                The Delhi Group ("Delhi") consists of Delhi Gas Pipeline
             Corporation and certain other subsidiaries of USX which are engaged
             in the purchasing, gathering, processing, treating, transporting
             and marketing of natural gas.

                Delhi Group revenues were $1.1 billion in 1996, compared with
             $670 million in 1995 and $585 million in 1994. The increase in 1996
             from 1995 was due primarily to higher average prices for natural
             gas and NGLs and increased transportation volumes. The increase in
             1995 from 1994 primarily reflected increased volumes for trading
             sales, partly offset by lower average prices for natural gas.

                Delhi Group operating income and certain items included in
             operating income for each of the last three years are summarized in
             the following table:

<TABLE>
<CAPTION>
             (Dollars in millions)                                    1996   1995    1994
             ----------------------------------------------------------------------------
             <S>                                                     <C>    <C>    <C>
             Operating income (loss)/(a)/                            $  31  $  18  $ (35)
             Less: Certain favorable (unfavorable) items
              Effects of restructuring/(b)/                              -      6    (37)
              Employee reorganization charges/(c)/                       -      -     (2)
              Settlement of take-or-pay claims                           -      -      2
              Other employment-related costs                             -      -     (2)
                                                                     -----  -----  -----
                 Subtotal                                                -      6    (39)
                                                                     -----  -----  -----
                 Operating income adjusted to exclude above items    $  31  $  12  $   4
             ----------------------------------------------------------------------------
</TABLE>

              /(a)/  Amounts in 1995 and 1994 were reclassified in 1996, to
               include gains and losses on disposal of operating assets. Prior
               to reclassification, these gains and losses were included in
               other income.
              /(b)/  Related to the planned disposition of certain nonstrategic
               gas gathering and processing assets.
              /(c)/  Primarily related to employee costs associated with a work
               force reduction program.

                                      U-49

<PAGE>
 
             Management's Discussion and Analysis   continued


                Adjusted operating income increased by $19 million in 1996 from
             1995, due primarily to higher unit margins for both gas sales and
             gas processing, and increased gathering service fees and
             transportation throughput volumes. These factors were partially
             offset by decreased gas sales volumes and increased selling,
             general and administrative and DD&A expenses. Adjusted operating
             income increased by $8 million in 1995 from 1994, due primarily to
             reduced operating expenses, and improved gas processing operations,
             partially offset by a lower gas sales and trading margin. The
             reduction in operating expenses primarily reflected effects of a
             1994 asset disposition plan and work force reduction program.

                The Delhi Group conducts business with the USX - Marathon Group
             on an arm's-length basis. The majority of this business is
             transportation and gathering services covered by long-term
             agreements, most of which are subject to periodic price
             adjustments. These services primarily relate to the Marathon
             Group's production activities in the Cotton Valley Pinnacle Reef
             area of east Texas. Delhi expects the level of intergroup business
             to increase, to the extent the Marathon Group continues to be
             successful in its drilling and production activities in this area.

             Outlook - Delhi Group

                The Delhi Group intends to continue its strategy of focusing
             primarily on the expansion and increased utilization of facilities
             in its core operating areas of Texas and Oklahoma, developing
             downstream natural gas markets, and marketing and trading electric
             power.

                Delhi is in the process of a major expansion in the Cotton
             Valley Pinnacle Reef gas play in east Texas. Delhi is currently the
             largest gatherer of volumes in this area, with extensive pipelines
             and sour gas treating facilities. Pinnacle Reef volumes purchased
             or transported by Delhi increased by more than 150% from December
             1995 levels, to an average monthly volume of approximately 133
             million cubic feet per day ("mmcfd") in December 1996. If the
             producers in this area, including the USX - Marathon Group,
             maintain the current level of successful drilling activity,
             management anticipates that Delhi's average monthly volumes could
             double by year-end 1997. Delhi continues to evaluate its east Texas
             treating and processing facilities for potential capacity increases
             as the production in this area increases. In west Texas, Delhi has
             expanded its systems through the acquisition of third-party
             treating, gathering and processing facilities. Delhi plans to
             continue to increase its west Texas system capacity through
             expansions and upgrades to the acquired facilities. Delhi's west
             Texas volumes increased by more than 35%, to an average of
             approximately 190 mmcfd, in 1996 from 1995 levels. As these
             expansions and upgrades are completed, management expects that
             these volumes could ultimately increase by as much as 100 mmcfd.
             Delhi's expansion in Oklahoma has been focused primarily on the
             Carter Knox field. Delhi's volumes in December 1996 were up over
             150% from December 1995, to an average of approximately 33 mmcfd,
             and average monthly volumes are expected to increase by as much as
             50% by year-end 1997.

                The Delhi Group's ability to complete anticipated expansions,
             upgrades or acquisitions, and to realize the projected increases in
             volumes and their related profitability, could be materially
             impacted by many factors that could change the economic feasibility
             of such projects. These factors include, but are not limited to,
             changes in price and demand for natural gas and NGLs, the success
             and level of drilling activity by producers in Delhi's primary
             operating areas, the increased presence of other gatherers and
             processors in these areas, the availability of capital funds,
             changes in environmental or regulatory requirements, and other
             unforeseen operating difficulties.

                To pursue downstream natural gas markets, those end-users behind
             local distribution companies, the Delhi Group opened a marketing
             office in Chicago in 1995 and another in Pittsburgh in 1996. These
             offices serve industrial and commercial end-users in the midwest
             and northeast, where unit margins generally exceed those on the
             spot market. In 1996, these offices produced revenues of
             approximately $8.2 million, which are included in gas sales and
             trading revenues. Delhi's ability to further penetrate these
             markets could be limited by changes in demand for natural gas,
             levels of competition and regulatory requirements.

                In June 1995, the Delhi Group received Federal Energy Regulatory
             Commission approval to market wholesale electric power and began
             limited trading in December 1995. Management believes that the
             electric power business is a natural extension of and a complement
             to its existing energy services. This added service should
             eventually enable the Delhi Group to offer both gas and electric
             services to those industrial and commercial customers who can
             readily switch energy sources. In 1996, the marketing and trading
             of electric power generated revenues of $5.1 million, on sales of
             approximately 230 million megawatt hours of electricity. Future
             changes in market conditions, primarily those related to supply,
             demand and price, could affect Delhi's ability to increase revenues
             and volumes. The Delhi Group may also pursue cogeneration
             opportunities to convert its gas into electricity to capture summer
             peaking premiums.

                                      U-50

<PAGE>
 
      Marathon Group



             Index to Financial Statements, Supplementary Data and
             Management's Discussion and Analysis

<TABLE>
<CAPTION>
 
 
                                                                               Page
                                                                               ----  
             <S>                                                               <C>
             Explanatory Note Regarding Financial Information................  M-2
             Management's Report.............................................  M-3
             Audited Financial Statements:
              Report of Independent Accountants..............................  M-3
              Statement of Operations........................................  M-4
              Balance Sheet..................................................  M-5
              Statement of Cash Flows........................................  M-6
              Notes to Financial Statements..................................  M-7
             Selected Quarterly Financial Data..............................  M-21
             Principal Unconsolidated Affiliates............................  M-21
             Supplementary Information......................................  M-21
             Five-Year Operating Summary....................................  M-22
             Management's Discussion and Analysis...........................  M-23
 
</TABLE>


                                      M-1

<PAGE>
 
      Marathon Group



             Explanatory Note Regarding Financial Information


             Although the financial statements of the Marathon Group, the U. S.
             Steel Group and the Delhi 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, the U. S. Steel
             Group and the Delhi 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 USX-
             Marathon Group Common Stock, USX-U. S. Steel Group Common Stock and
             USX-Delhi Group Common 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 other 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 all classes of Common Stock.
             Accordingly, the USX consolidated financial information should be
             read in connection with the Marathon Group financial information.

                                      M-2

<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>
<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 financial statements appearing on
             pages M-4 through M-20 present fairly, in all material respects,
             the financial position of the Marathon Group at December 31, 1996
             and 1995, and the results of its operations and its cash flows for
             each of the three years in the period ended December 31, 1996, 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 6, page M-10, 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-7); 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 11, 1997


                                      M-3

<PAGE>
 

<TABLE>
<CAPTION>
 
 
              Statement of Operations
 
             (Dollars in millions)                                                           1996       1995       1994
             -----------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>        <C>        <C>
             Revenues (Note 4,  page M-10)                                               $ 16,332   $ 13,879   $ 12,928
             Operating costs:
              Cost of sales (excludes items shown below)                                   11,178      9,011      8,405
              Inventory market valuation credits (Note 20,  page M-17)                       (209)       (70)      (160)
              Selling, general and administrative expenses                                    319        297        313
              Depreciation, depletion and amortization                                        693        817        721
              Taxes other than income taxes                                                 2,971      2,903      2,737
              Exploration expenses                                                            146        149        157
              Impairment of long-lived assets (Note 6,  page M-10)                              -        659          -
                                                                                         --------   --------   --------
                 Total operating costs                                                     15,098     13,766     12,173
                                                                                         --------   --------   --------
             Operating income                                                               1,234        113        755
             Other income (Note 5,  page M-10)                                                 41         15          6
             Interest and other financial income (Note 5,  page M-10)                          24         31         15
             Interest and other financial costs (Note 5,  page M-10)                         (308)      (349)      (300)
                                                                                         --------   --------   --------
             Income (loss) before income taxes and extraordinary loss                         991       (190)       476
             Less provision (credit) for estimated income taxes (Note 17,  page M-15)         320       (107)       155
                                                                                         --------   --------   --------
             Income (loss) before extraordinary loss                                          671        (83)       321
             Extraordinary loss (Note 7,  page M-10)                                           (7)        (5)         -
                                                                                         --------   --------   --------
             Net income (loss)                                                                664        (88)       321
             Dividends on preferred stock                                                       -         (4)        (6)
                                                                                         --------   --------   --------
             Net income (loss) applicable to Marathon Stock                              $    664   $    (92)  $    315
             -------------------------------------------------------------------------------------------------------------
 
 
             Income Per Common Share of Marathon Stock
                                                                                             1996       1995       1994
             -------------------------------------------------------------------------------------------------------------
             Primary:
             Income (loss) before extraordinary loss applicable to
              Marathon Stock                                                             $   2.33   $   (.31)  $   1.10
             Extraordinary loss                                                              (.02)      (.02)         -
                                                                                         --------   --------   --------
             Net income (loss) applicable to Marathon Stock                              $   2.31   $   (.33)  $   1.10
             Fully Diluted:
             Income (loss) before extraordinary loss applicable to
              Marathon Stock                                                             $   2.31   $   (.31)  $   1.10
             Extraordinary loss                                                              (.02)      (.02)         -
                                                                                         --------   --------   --------
             Net income (loss) applicable to Marathon Stock                              $   2.29   $   (.33)  $   1.10
             Weighted average shares, in thousands
                       - primary                                                          287,595    287,271    286,722
                       - fully diluted                                                    296,430    287,271    286,725
             ------------------------------------------------------------------------------------------------------------
</TABLE>

             See Note 23, page M-18, for a description of net income per common
             share.
             The accompanying notes are an integral part of these financial
             statements.

                                      M-4

<PAGE>
 
             Balance Sheet                                     
             
<TABLE> 
             <CAPTION>  
             (Dollars in millions)                                           December 31           1996         1995 
             ---------------------------------------------------------------------------------------------------------
             <S>                                                                                 <C>         <C>         
             Assets                                                                                                  
             Current assets:                                                                                         
              Cash and cash equivalents                                                         $    32      $    77 
              Receivables, less allowance for doubtful accounts                                                      
               of $2 and $3 (Note 21,  page M-17)                                                   613          552 
              Inventories (Note 20,  page M-17)                                                   1,282        1,152 
              Other current assets                                                                  119          107 
                                                                                                -------      ------- 
                Total current assets                                                              2,046        1,888              
                                                                                                                     
             Investments and long-term receivables (Note 18,  page M-16)                            311          215 
             Property, plant and equipment - net (Note 16,  page M-14)                            7,298        7,521 
             Prepaid pensions (Note 14,  page M-13)                                                 280          274 
             Other noncurrent assets                                                                216          211 
                                                                                                -------      ------- 
                Total assets                                                                    $10,151      $10,109 
             ---------------------------------------------------------------------------------------------------------
             Liabilities                                                                                             
             Current liabilities:                                                                                    
              Notes payable                                                                     $    59      $    31 

              Accounts payable                                                                    1,385        1,245 
              Payroll and benefits payable                                                          106           80 
              Accrued taxes                                                                          98           68 
              Deferred income taxes (Note 17,  page M-15)                                           155          154 
              Accrued interest                                                                       75           94 
              Long-term debt due within one year (Note 11,  page M-12)                              264          353 
                                                                                                -------      ------- 
                Total current liabilities                                                         2,142        2,025              
             Long-term debt (Note 11,  page M-12)                                                 2,642        3,367 
             Long-term deferred income taxes (Note 17,  page M-15)                                1,178        1,072 
             Employee benefits (Note 15,  page M-14)                                                356          338 
             Deferred credits and other liabilities                                                 311          253 
             Preferred stock of subsidiary (Note 8,  page M-11)                                     182          182 
                                                                                                -------      ------- 
                Total liabilities                                                                 6,811        7,237              
             Stockholders' Equity (Note 22,  page M-17)                                           3,340        2,872 
                                                                                                -------      ------- 
                Total liabilities and stockholders' equity                                      $10,151      $10,109               
             ---------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      M-5

<PAGE>
 
Statement of Cash Flows


<TABLE>
<CAPTION>
         

             (Dollars in millions)                                                                1996         1995         1994
             --------------------------------------------------------------------------------------------------------------------
             <S>                                                                                <C>          <C>          <C>
             Increase (decrease) in cash and cash equivalents
             Operating activities:
             Net income (loss)                                                                  $  664       $  (88)       $ 321
             Adjustments to reconcile to net cash provided
              from operating activities:
               Extraordinary loss                                                                    7            5            -
               Depreciation, depletion and amortization                                            693          817          721
               Exploratory dry well costs                                                           54           64           68
               Inventory market valuation credits                                                 (209)         (70)        (160)
               Pensions                                                                             (3)         (16)           1
               Postretirement benefits other than pensions                                          15           12           10
               Deferred income taxes                                                               104         (204)         116
               Gain on disposal of assets                                                          (55)          (8)        (175)
               Payment of amortized discount on zero coupon debentures                               -          (96)           -
               Impairment of long-lived assets                                                       -          659            -
               Changes in: Current receivables-sold                                                  -            8            -
                                              -operating turnover                                 (119)        (120)        (105)
                       Inventories                                                                  72           55            3
                       Current accounts payable and accrued expenses                               211          (27)        (122)
               All other - net                                                                      69           53           42
                                                                                                ------       ------       ------
                 Net cash provided from operating activities                                     1,503        1,044          720
                                                                                                ------       ------       ------
             Investing activities:
             Capital expenditures                                                                 (751)        (642)        (753)
             Disposal of assets                                                                    282           77          263
             Elimination of Retained Interest in Delhi Group                                         -           58            -
             Deposit in property exchange trust                                                    (98)           -            -
             All other - net                                                                       (13)          (4)           9
                                                                                                ------       ------       ------
                 Net cash used in investing activities                                            (580)        (511)        (481)
                                                                                                ------       ------       ------
             Financing activities (Note 3,  page M-9):
             Decrease in Marathon Group's share of
              USX consolidated debt                                                               (769)        (204)        (371)
             Specifically attributed debt - repayments                                              (1)          (2)          (1)
             Preferred stock redeemed                                                                -          (78)           -
             Marathon Stock repurchased                                                              -           (1)           -
             Attributed preferred stock of subsidiary                                                -            -          176
             Common stock issued                                                                     2            -            -
             Dividends paid                                                                       (201)        (199)        (201)
                                                                                                ------       ------       ------
                 Net cash used in financing activities                                            (969)        (484)        (397)
                                                                                                ------       ------       ------
             Effect of exchange rate changes on cash                                                 1            -            1
                                                                                                ------       ------       ------
             Net increase (decrease) in cash and cash equivalents                                  (45)          49         (157)
             Cash and cash equivalents at beginning of year                                         77           28          185
                                                                                                ------       ------       ------
             Cash and cash equivalents at end of year                                           $   32       $   77        $  28
             ---------------------------------------------------------------------------------------------------------------------
</TABLE>

             See Note 12, page M-12, for supplemental cash flow information.
             The accompanying notes are an integral part of these financial
             statements.

                                      M-6

<PAGE>
 
             Notes to Financial Statements

1. Basis of Presentation

             USX Corporation (USX) has three classes of common stock: USX -
             Marathon Group Common Stock (Marathon Stock), USX - U. S. Steel
             Group Common Stock (Steel Stock) and USX - Delhi Group Common Stock
             (Delhi Stock), which are intended to reflect the performance of the
             Marathon Group, the U. S. Steel Group and the Delhi 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; and domestic refining, marketing and
             transportation of petroleum products. 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, the U.
             S. Steel Group and the Delhi 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, the U. S. Steel
             Group and the Delhi 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, Steel Stock and Delhi 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 other 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 all 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, the U. S. Steel Group and the Delhi
             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 accounted for 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 investments is included in other income. Investments in
             companies whose stock has no readily determinable fair value are
             carried at cost. Income from these investments is recognized when
             dividends are received and is included in other financial income.

                The proportionate share of income (loss) represented by the
             Retained Interest (Note 3, page M-9) in the Delhi Group prior to
             June 15, 1995, is included in other income (Note 5, page M-10).

             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 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,
             page M-18). Management is authorized to manage exposure to price
             fluctuations related to the purchase, production or sale of crude
             oil, natural gas and refined products through the use of a variety
             of derivative financial and nonfinancial instruments. Derivative
             financial instruments

                                      M-7

<PAGE>
 
             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 operating income. 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. OTC swaps in general are off-balance-sheet
             instruments. The effect of changes in the market indices related to
             OTC swaps are recorded and recognized in income with the underlying
             transaction. 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. 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.
             
                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 value analysis.

             Environmental remediation - 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. 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 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 1996 classifications.

                                      M-8

<PAGE>
 
- --------------------------------------------------------------------------------
3. 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 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 three groups. See Note 8, page M-11,
             for the Marathon Group's portion of USX's financial activities
             attributed to all three 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 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 $30 million in 1996 and 1995, and $29 million in 1994, 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 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.

             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 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
             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 three
             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 three 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.

                                      M-9

<PAGE>
 
- --------------------------------------------------------------------------------
4. Revenues

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


<TABLE>
<CAPTION>

             (In millions)                                                        1996      1995    1994
             ---------------------------------------------------------------------------------------------
<S>                                                                             <C>        <C>     <C>
 
             Matching crude oil and refined product
               buy/sell transactions settled in cash                               $2,912  $2,067  $2,071
             Consumer excise taxes on petroleum products and merchandise            2,768   2,708   2,542
             ----------------------------------------------------------------------------------------------
</TABLE>


                Revenues in 1994 included gains of $171 million resulting from
             asset sales of a retail propane marketing subsidiary and certain
             domestic oil and gas production properties.

 
- --------------------------------------------------------------------------------
5. Other Items


<TABLE>
<CAPTION>

             (In millions)                                                       1996    1995         1994
             ------------------------------------------------------------------------------------------------
<S>                                                                             <C>     <C>          <C>
             Other income:
              Gain on sale of investments                                       $  20   $   -        $   4
              Income from affiliates - equity method                               19       9            4
              Income (loss) from Retained Interest in the Delhi Group               -       2/(a)/     (10)/(b)/
              Other income                                                          2       4            8
                                                                                -----   -----        -----
                 Total                                                          $  41   $  15        $   6
             ------------------------------------------------------------------------------------------------
             Interest and other financial income/(c)/:
              Interest income                                                   $  11   $  16        $  10
              Other                                                                13      15            5
                                                                                -----   -----         -----
                 Total                                                             24      31           15
                                                                                -----   -----        -----
             Interest and other financial costs/(c)/:
              Interest incurred                                                  (260)   (297)        (305)
              Less interest capitalized                                             3       8           50
                                                                                -----   -----        -----
                 Net interest                                                    (257)   (289)        (255)
              Interest on tax issues                                               (4)      5/(d)/      24/(e)/
              Financial costs on preferred stock of subsidiary                    (16)    (16)         (13)
              Amortization of discounts                                            (7)    (21)         (32)
              Expenses on sales of accounts receivable (Note 21,  page M-17)      (20)    (24)         (19)
              Other                                                                (4)     (4)          (5)
                                                                                -----   -----         -----
                 Total                                                           (308)   (349)        (300)
                                                                                -----   -----         -----
             Net interest and other financial costs/(c)/                        $(284)  $(318)       $(285)
             ------------------------------------------------------------------------------------------------
</TABLE>

             /(a)/ Retained Interest in the Delhi Group was eliminated on June
                   15, 1995.
             /(b)/ Delhi Group's loss included restructuring charges.
             /(c)/ See Note 3, page M-9, for discussion of USX net interest
                   and other financial costs attributable to the Marathon Group.
             /(d)/ Includes a $17 million benefit related to refundable
                   federal income taxes paid in prior years.
             /(e)/ Includes a $34 million benefit related to the settlement of
                   various state tax issues.

- --------------------------------------------------------------------------------
6. 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 operating costs 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 value analysis.

- --------------------------------------------------------------------------------
7. Extraordinary Loss

             On December 30, 1996, USX irrevocably called for redemption on
             January 30, 1997, $120 million of debt, resulting in an
             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.

                                      M-10

<PAGE>
 
- --------------------------------------------------------------------------------
8. Financial Activities Attributed to All Three Groups

             The following is Marathon Group's portion of USX's financial
             activities attributed to all groups based on their respective cash
             flows as described in Note 3, page M-9. These amounts exclude debt
             amounts specifically attributed to a group as disclosed in Note 11,
             page M-12.

<TABLE>
<CAPTION>
                                                                                     Marathon Group          Consolidated USX/(a)/
                                                                                   -----------------       -------------------------

            (In millions)                 December 31                               1996       1995             1996       1995
            ------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>         <C>           <C>          <C>
 
             Cash and cash equivalents                                            $    6       $   36          $    8       $   47
             Receivables/(b)/                                                          -           56               -           73
             Long-term receivables/(b)/                                               12           22              16           29
             Other noncurrent assets/(b)/                                              5            6               8            8
                                                                                  ------       ------          ------       ------
                 Total assets                                                     $   23       $  120          $   32       $  157
            ----------------------------------------------------------------------------------------------------------------------- 

             Notes payable                                                        $   58       $   31          $   80       $   40
             Accounts payable                                                          2           35               2           46
             Accrued interest                                                         71           91              98          119
             Long-term debt due within one year (Note 11,
              page M-12)                                                             224          352             309          460
             Long-term debt (Note 11,  page M-12)                                  2,618        3,303           3,615        4,303
             Preferred stock of subsidiary                                           182          182             250          250
                                                                                  ------       ------           -----       ------
                 Total liabilities                                                $3,155       $3,994          $4,354       $5,218
            -----------------------------------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION> 
                                                                                  Marathon Group/(c)/           Consolidated USX
                                                                                ----------------------       ----------------------
             (In millions)                                                      1996      1995    1994       1996     1995    1994
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                               <C>       <C>     <C>        <C>      <C>     <C>
             Net interest and other financial costs (Note 5, page M-10)        $(277)    $(329)  $(346)     $(376)   $(439)   $(471)
             -----------------------------------------------------------------------------------------------------------------------

</TABLE>

             /(a)/ For details of USX long-term debt and preferred stock of
                   subsidiary, see Notes 16, page U-20; and 26, page U-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 three groups.

- --------------------------------------------------------------------------------
9. 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>
             1997                                                   $   1         $  85
             1998                                                       2            76
             1999                                                       2            46
             2000                                                       2           125
             2001                                                       2            29
             Later years                                               30           158
             Sublease rentals                                           -           (27)
                                                                    -----         -----
                    Total minimum lease payments                       39         $ 492
                                                                                  ===== 
             Less imputed interest costs                               15
                                                                    -----
                    Present value of net minimum lease payments
                      included in long-term debt                    $  24
              ----------------------------------------------------------------------------
</TABLE>
 


<TABLE> 
<CAPTION> 

             Operating lease rental expense:
             (In millions)                                            1996        1995     1994
             ------------------------------------------------------------------------------------ 
             <S>                                                     <C>         <C>      <C>
             Minimum rental                                          $  96       $  97    $ 105
             Contingent rental                                          10          10       10
             Sublease rentals                                           (6)         (5)      (5)
                                                                     -----       -----   ------
                 Net rental expense                                  $ 100       $ 102    $ 110
             ------------------------------------------------------------------------------------ 
</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 $110 million
             may be declared immediately due and payable.

- -------------------------------------------------------------------------------
10. Dividends

             In accordance with the USX Certificate of Incorporation, dividends
             on the Marathon Stock, Steel Stock and Delhi 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 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.

                                      M-11

<PAGE>
 
- -------------------------------------------------------------------------------
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                      1996         1995        1996        1995
             -----------------------------------------------------------------------------------------------------------
             <S>                                                             <C>          <C>         <C>         <C>         
 
             Specifically attributed debt/(b)/:
              Sale-leaseback financing and capital leases                     $   24      $   24      $  129      $  133
              Indexed debt less unamortized discount                               -           -         119           -
              Seller-provided financing                                           40          41          40          41
                                                                              ------      ------      ------      ------
                 Total                                                            64          65         288         174
              Less amount due within one year                                     40           1          44           5
                                                                              ------      ------      ------      ------
                 Total specifically attributed long-term debt                 $   24      $   64      $  244      $  169
             -----------------------------------------------------------------------------------------------------------
             Debt attributed to all three groups/(c)/                         $2,860      $3,691      $3,949      $4,810
              Less unamortized discount                                           18          36          25          47
              Less amount due within one year                                    224         352         309         460
                                                                              ------      ------      ------      ------
                 Total long-term debt attributed to all three groups          $2,618      $3,303      $3,615      $4,303
             -----------------------------------------------------------------------------------------------------------
             Total long-term debt due within one year                         $  264      $  353      $  353      $  465
             Total long-term debt due after one year                           2,642       3,367       3,859       4,472
             -----------------------------------------------------------------------------------------------------------
</TABLE>

             /(a)/ See Note 16, page U-20, to the USX consolidated financial
                   statements for details of interest rates, maturities and
                   other terms of long-term debt.
             /(b)/ As described in Note 3, page M-9, certain financial
                   activities are specifically attributed only to the Marathon
                   Group, the U. S. Steel Group or the Delhi Group.
             /(c)/ Most long-term debt activities of USX Corporation and its
                   wholly owned subsidiaries are attributed to all three
                   groups (in total, but not with respect to specific debt
                   issues) based on their respective cash flows (Notes 3, page
                   M-9; 8, page M-11; and 12, page M-12).

- ------------------------------------------------------------------------------- 
12. Supplemental Cash Flow Information

<TABLE>
<CAPTION>

             (In millions)                                                                 1996      1995       1994
             ---------------------------------------------------------------------------------------------------------
             <S>                                                                       <C>        <C>         <C>       
 
             Cash used in operating activities included:
              Interest and other financial costs paid (net of amount capitalized)      $   (339)  $  (431)    $  (380)
              Income taxes paid, including settlements with other groups                    (74)     (163)        (31)
             ---------------------------------------------------------------------------------------------------------
             USX debt attributed to all three groups - net:
              Commercial paper:
               Issued                                                                  $  1,422   $ 2,434     $ 1,515
               Repayments                                                                (1,555)   (2,651)     (1,166)
              Credit agreements:
               Borrowings                                                                10,356     4,719       4,545
               Repayments                                                               (10,340)   (4,659)     (5,045)
              Other credit arrangements - net                                               (36)       40           -
              Other debt:
               Borrowings                                                                    78        52         509
               Repayments                                                                  (705)     (440)       (791)
                                                                                        -------    ------      ------
                 Total                                                                  $  (780)   $ (505)     $ (433)
             ---------------------------------------------------------------------------------------------------------
              Marathon Group activity                                                  $   (769)  $  (204)     $ (371)
              U. S. Steel Group activity                                                    (31)     (399)        (57)
              Delhi Group activity                                                           20        98          (5)
                                                                                        -------    ------      ------
                 Total                                                                  $  (780)   $ (505)     $ (433)
             ---------------------------------------------------------------------------------------------------------
             Noncash investing and financing activities:
              Marathon Stock issued for employee stock plans                            $     2    $    5      $    -
              Contribution of assets to an equity affiliate                                   -         -          26
              Disposal of assets - common stock received                                      -         5           -
                                 - liabilities assumed by buyers                             25         -           -
              Acquisition of assets-stock issued                                              -         -          11
                                   - debt issued                                              -         -          58
              --------------------------------------------------------------------------------------------------------
</TABLE>


- --------------------------------------------------------------------------------
13. Stock-Based Compensation Plans and Stockholder Rights Plan

             USX Stock-Based Compensation Plans and Stockholder Rights Plan are
             discussed in Note 21, page U-22, and Note 25, page U-25,
             respectively, to the USX consolidated financial statements.

                During 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 1, page U-11, to the
             USX consolidated financial statements. The Marathon Group's actual
             stock-based compensation expense was $6 million in 1996 and $2
             million in 1995 and 1994. Incremental compensation expense, as
             determined under SFAS No. 123, was not material. Therefore, pro
             forma net income and earnings per share data have been omitted.

                                      M-12

<PAGE>
 
- --------------------------------------------------------------------------------
14. 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 1996, 1995 and 1994 was determined assuming an expected long-
             term rate of return on plan assets of 10%, 10% and 9%,
             respectively, and was as follows:

<TABLE>
<CAPTION>
             (In millions)                                                                  1996     1995    1994
             -------------------------------------------------------------------------------------------------------
             <S>                                                                          <C>      <C>     <C>
 
             Major plans:
              Cost of benefits earned during the period                                     $  35   $  26   $  36
              Interest cost on projected benefit obligation
               (7% for 1996; 8% for 1995; and 6.5% for 1994)                                   45      41      45
              Return on assets-actual return                                                 (139)   (197)     (1)
                              -deferred gain (loss)                                            55     116     (81)
              Net amortization of unrecognized gains                                           (3)     (4)     (5)
                                                                                            -----   -----   -----
                 Total major plans                                                             (7)    (18)     (6)
             Other plans                                                                        4       4       4
                                                                                            -----   -----   -----
                 Total periodic pension credit                                                 (3)    (14)     (2)
             Curtailment losses                                                                 -       2       4
                                                                                            -----   -----   -----
                 Total pension cost (credit)                                                $  (3)  $ (12)  $   2
             --------------------------------------------------------------------------------------------------------
</TABLE>


             Funds' status - The assumed discount rate used to measure the
             benefit obligations of major plans was 7.5% at December 31, 1996,
             and 7% at December 31, 1995. 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                                1996          1995
             ------------------------------------------------------------------------------------------------------------
             <S>                                                                                   <C>           <C>
             Reconciliation of funds' status to reported amounts:                                                        
             Projected benefit obligation (PBO)/(a)/                                                $(627)        $(664)
             Plan assets at fair market value/(b)/                                                    989           904 
                                                                                                    -----         -----  
               Assets in excess of PBO/(c)/                                                           362           240 
              Unrecognized net gain from transition                                                   (45)          (50)
              Unrecognized prior service cost                                                           8            8 
              Unrecognized net loss (gain)                                                            (65)           58 
              Additional minimum liability/(d)/                                                       (11)          (13)
                                                                                                    -----         -----  
               Net pension asset included in balance sheet                                          $ 249         $ 243

             ------------------------------------------------------------------------------------------------------------
                                                                                                                        
              /(a)/PBO includes:                                    
                Accumulated benefit obligation (ABO)                                                $ 479         $ 492 
                Vested benefit obligation                                                             424           434 
              /(b)/Types of assets held:                            
                Stocks of other corporations                                                           70%           66%
                U.S. Government securities                                                             10%           11%
                Corporate debt instruments and other                                                   20%           23% 
              /(c)/Includes several small plans that have ABOs in excess of plan assets:
                     PBO                                                                            $ (68)        $ (63)
                     Plan assets                                                                       18            13
                                                                                                    -----         -----
                     PBO in excess of plan assets                                                   $ (50)        $ (50)
              /(d)/ Additional minimum liability recorded was offset by the following:
                     Intangible asset                                                               $   3         $   4
                     Stockholders' equity adjustment - net of deferred income tax                       5             6
              -------------------------------------------------------------------------------------------------------------
</TABLE>


                                      M-13

<PAGE>
 
- --------------------------------------------------------------------------------
15. 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 1996, 1995 and 1994 was determined
             assuming discount rates of 7%, 8% and 6.5%, respectively, and was
             as follows:
   
             
<TABLE>
             <CAPTION>
             (In millions)                                                        1996    1995    1994
             ------------------------------------------------------------------------------------------
             <S>                                                                 <C>     <C>     <C>  
                                                                                                      
             Cost of benefits earned during the period                           $   8   $   7   $  10
             Interest on accumulated postretirement benefit obligation (APBO)       23      22      20
             Amortization of unrecognized gains                                     (3)     (3)     (3)
                                                                                 -----   -----   -----
                  Total periodic postretirement benefit cost                        28      26      27
             Curtailment gain                                                        -       -      (4)
                                                                                 -----   -----   -----
                  Total postretirement benefit cost                              $  28   $  26   $  23 
             ------------------------------------------------------------------------------------------
             </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                      1996          1995
             ------------------------------------------------------------------------------------------
             <S>                                                                   <C>           <C>          
             Reconciliation of APBO to reported amounts:
             APBO attributable to:
              Retirees                                                              $(162)        $(169)
              Fully eligible plan participants                                        (53)          (51)
              Other active plan participants                                          (84)         (101)
                                                                                    -----        ------
                 Total APBO                                                          (299)         (321)
              Unrecognized net loss                                                     4            44
              Unamortized prior service                                               (21)          (25)
                                                                                    -----        ------
                 Accrued liability included in balance sheet                        $(316)        $(302)
             ------------------------------------------------------------------------------------------
</TABLE>


                The assumed discount rate used to measure the APBO was 7.5% and
             7% at December 31, 1996, and December 31, 1995, 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
             1997 is approximately 8%, gradually declining to an ultimate rate
             in 2003 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 1996 net periodic postretirement benefit cost by
             $6 million and would have increased the APBO as of December 31,
             1996, by $41 million.
 
- --------------------------------------------------------------------------------
16. Property, Plant and Equipment

             
<TABLE> 
             <CAPTION> 

             (In millions)                         December 31                                1996          1995    
             ------------------------------------------------------------------------------------------------------ 
             <S>                                                                             <C>           <C>        
                                                                                                                  
              Production                                                                      $12,605      $12,830
              Refining                                                                          1,633        1,555
              Marketing                                                                         1,350        1,258
              Transportation                                                                      515          491
              Other                                                                               226          277
                                                                                              -------      -------
                   Total                                                                       16,329       16,411
              Less accumulated depreciation, depletion and amortization                         9,031        8,890
                                                                                              -------      -------
                   Net                                                                        $ 7,298      $ 7,521 
             ------------------------------------------------------------------------------------------------------ 
</TABLE>


                Property, plant and equipment includes gross assets acquired
             under capital leases of $24 million at December 31, 1996, and $37
             million at December 31, 1995; the related amounts for the years
             1996 and 1995 in accumulated depreciation, depletion and
             amortization were $24 million and $33 million, respectively.

                                      M-14

<PAGE>
 
- --------------------------------------------------------------------------------
17. 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 3, page M-9).

                Provisions (credits) for estimated income taxes were:
            
<TABLE>
           <CAPTION>
                                               1996                           1995                           1994
                                  ----------------------------    ---------------------------    ----------------------------
             (In millions)         Current    Deferred   Total     Current   Deferred   Total     Current    Deferred   Total
             ----------------------------------------------------------------------------------------------------------------- 
             <S>                  <C>         <C>        <C>       <C>       <C>        <C>      <C>         <C>        <C>
 
             Federal                 $193       $  13     $206       $72      $(221)    $(149)       $29       $106      $135
             State and local           12           9       21        10        (14)       (4)        (2)        (1)       (3)
             Foreign                   11          82       93        15         31        46         12         11        23
                                     ----       -----     ----       ---      -----     -----        ---      -----      ----
                 Total               $216       $ 104     $320       $97      $(204)    $(107)       $39       $116      $155
             ----------------------------------------------------------------------------------------------------------------- 
</TABLE>

                In 1996 and 1995, the extraordinary loss on extinguishment of
             debt included a tax benefit of $4 million and $3 million,
             respectively (Note 7, page M-10).
                A reconciliation of federal statutory tax rate (35%) to total
             provisions (credits) follows:

             
<TABLE>
             <CAPTION>
             (In millions)                                                            1996       1995           1994
             ---------------------------------------------------------------------------------------------------------
             <S>                                                                   <C>       <C>              <C>
 
             Statutory rate applied to income (loss) before taxes                  $   347    $    (67)       $   166
             State and local income taxes after federal income tax effects              14          (3)            (2)
             Effects of foreign operations, including foreign tax credits              (14)        (36)/(a)/       13
             Effects of partially-owned companies                                      (10)         (7)            (5)
             Dispositions of subsidiary investments                                     (8)         (6)             -
             Credits other than foreign tax credits                                     (8)         (1)             -
             Nondeductible business and amortization expenses                            3          10              3
             Effect of Retained Interest                                                 -          (1)             4
             Adjustment of prior years' income taxes                                    (6)         (1)             -
             Adjustment of valuation allowances                                          -           4            (24)
             Other                                                                       2           1              -
                                                                                   -------    --------        -------
                 Total provisions (credits)                                        $   320    $   (107)       $   155
             ----------------------------------------------------------------------------------------------------------
</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                1996           1995
             --------------------------------------------------------------------------------------------------------------- 
            <S>                                                                                      <C>           <C>
              Deferred tax assets:
              Minimum tax credit carryforwards                                                        $  110        $   93
              Foreign tax credit carryforwards                                                             -            81
              State tax loss carryforwards (expiring in 1997 through 2011)                                40            34
              Foreign tax loss carryforwards (portion of which expire in 2000 through 2011)              519           556
              Employee benefits                                                                          158           148
              Expected federal benefit for:
               Crediting certain foreign deferred income taxes                                           216           169
               Deducting state and other foreign deferred income taxes                                    51            48
              Contingency and other accruals                                                             116            95
              Other                                                                                       56            76
              Valuation allowances                                                                      (325)         (344)
                                                                                                      ------        ------
                 Total deferred tax assets                                                               941           956
                                                                                                      ------        ------
             Deferred tax liabilities:
              Property, plant and equipment                                                            1,685         1,676
              Inventory                                                                                  306           226
              Prepaid pensions                                                                           121           116
              Other                                                                                      118           120
                                                                                                      ------        ------
                 Total deferred tax liabilities                                                        2,230         2,138
                                                                                                      ------        ------
                 Net deferred tax liabilities                                                         $1,289        $1,182
             ---------------------------------------------------------------------------------------------------------------
</TABLE>


                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 $341 million, $(50) million and
             $14 million attributable to foreign sources in 1996, 1995 and 1994,
             respectively.

                Undistributed earnings of consolidated foreign subsidiaries at
             December 31, 1996, amounted to $64 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 $23 million would have been required.

                                      M-15

<PAGE>
 
- --------------------------------------------------------------------------------
18. Investments and Long-Term Receivables



<TABLE>
<CAPTION>

             (In millions)                            December 31      1996          1995
             ------------------------------------------------------------------------------
<S>                                                                    <C>           <C>
 
             Equity method investments                                  $ 135        $ 111
             Cost method investments                                       31           30
             Deposit in property exchange trust                            98            -
             Receivables due after one year                                34           32
             Forward currency contracts                                    12           22
             Other                                                          1           20
                                                                        -----        -----
                 Total                                                  $ 311        $ 215
             -------------------------------------------------------------------------------
</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)                          1996   1995   1994
             -----------------------------------------------------------
             <S>                                  <C>     <C>    <C>
              Income data - year:
               Revenues                           $  405  $ 255  $ 277
               Operating income                       95     77    105
               Net income                             53     24     35
              -----------------------------------------------------------
              Balance sheet data - December 31:
               Current assets                     $  146  $  86
               Noncurrent assets                   1,150    957
               Current liabilities                   198    116
               Noncurrent liabilities                737    703
             -----------------------------------------------------------
</TABLE>


                Dividends and partnership distributions received from equity
             affiliates were $24 million in 1996, $14 million in 1995 and $10
             million in 1994.
                Marathon Group purchases from equity affiliates totaled $49
             million, $52 million and $71 million in 1996, 1995 and 1994,
             respectively. Marathon Group sales to equity affiliates were $6
             million in 1996 and immaterial in 1995 and 1994.
                Summarized financial information of the Delhi Group, which was
             accounted for by the equity method of accounting follows:


<TABLE>
<CAPTION>

             (In millions)                             1995/(a)/      1994
             ------------------------------------------------------------------
             <S>                                       <C>         <C>
             Income data - year:
              Revenues                                 $ 276       $ 567
              Operating income (loss)                    14          (36)
              Net income (loss)                           7          (31)/(b)/
             ------------------------------------------------------------------
</TABLE>

             /(a)/ Retained Interest in the Delhi Group was eliminated on June
                   15, 1995.
             /(b)/ Delhi Group's loss includes restructuring charges of $40
                   million.

- --------------------------------------------------------------------------------
19. Intergroup Transactions

             Sales and purchases - Marathon Group sales to other groups totaled
             $87 million, $54 million and $55 million in 1996, 1995 and 1994,
             respectively. Marathon Group purchases from the Delhi Group totaled
             $9 million in 1996, $6 million in 1995 and $4 million in 1994. At
             December 31, 1996 and 1995, Marathon Group trade receivables
             included $19 million and $7 million, respectively, related to
             transactions with other groups. Marathon Group trade payables
             included $2 million at December 31, 1996, and $1 million at
             December 31, 1995, related to transactions with the Delhi Group.
             These transactions were conducted on an arm's-length basis.

             Income taxes receivable from/payable to other groups - At December
             31, 1996 and 1995, amounts receivable from/payable to other groups
             for income taxes were included in the balance sheet as follows:

<TABLE>
<CAPTION>
             (In millions)                   December 31             1996   1995
             ---------------------------------------------------------------------
             <S>                                                     <C>    <C>
 
             Current:
              Receivables                                            $   1  $  11
              Accounts payable                                          30     35
             Noncurrent:
              Deferred credits and other liabilities                    83      -
             ---------------------------------------------------------------------
</TABLE>


                These amounts have been determined in accordance with the tax
             allocation policy described in Note 3, page M-9. 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.

                                      M-16

<PAGE>
 
- --------------------------------------------------------------------------------
20. Inventories



<TABLE>
<CAPTION>
             (In millions)                                  December 31      1996          1995
             -----------------------------------------------------------------------------------
             <S>                                                            <C>          <C>
 
             Crude oil and natural gas liquids                              $  463       $  510
             Refined products and merchandise                                  746          758
             Supplies and sundry items                                          73           93
                                                                           -------       ------
                 Total (at cost)                                             1,282        1,361
             Less inventory market valuation reserve                             -          209
                                                                           -------       ------
                 Net inventory carrying value                               $1,282       $1,152
             -----------------------------------------------------------------------------------
</TABLE>


                Inventories of crude oil and refined products are valued by the
             LIFO method. The LIFO method accounted for 94% and 91% of total
             inventory value at December 31, 1996, and December 31, 1995,
             respectively.
                The inventory market valuation reserve reflects the extent that
             the recorded cost 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 charges or credits to operating income.

- --------------------------------------------------------------------------------
21. Sales of Receivables

             The Marathon Group participates in an agreement (the program) to
             sell an undivided interest in certain accounts receivable subject
             to limited recourse. 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, 1996,
             the amount sold under the program that had not been collected was
             $340 million, which will be forwarded to the buyers at the end of
             the agreement in 1997, or in the event of earlier contract
             termination. If the Marathon 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 $340 million in 1996 and
             $361 million in 1995. Prior to entering into the new program in
             1995, sales of the Marathon Group accounts receivable, which
             averaged $400 million in 1994, included accounts receivable
             purchased from the Delhi Group. The buyers have rights to a pool of
             receivables that must be maintained at a level of at least 110% of
             the program size. The Marathon 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.

- ------------------------------------------------------------------------------- 
22. Stockholders' Equity


<TABLE>
<CAPTION>
             -------------------------------------------------------------------------------------------------------------      
             (In millions, except per share data)                                      1996           1995         1994
             <S>                                                                     <C>           <C>           <C>
 
             Preferred stock:
              Balance at beginning of year                                           $      -       $     78     $     78
              Redeemed                                                                      -            (78)           -
                                                                                     --------       --------     -------- 
              Balance at end of year                                                 $      -       $      -     $     78
             -------------------------------------------------------------------------------------------------------------      
             Common stockholders' equity (Note 3,  page M-9):
              Balance at beginning of year                                           $  2,872       $  3,163     $  3,032
              Net income (loss)                                                           664            (88)         321
              Marathon Stock issued                                                         4              5           11
              Marathon Stock repurchased                                                    -             (1)           -
              Dividends on preferred stock                                                  -             (4)          (6)
              Dividends on Marathon Stock
               (per share: $.70 in 1996 and $.68 in 1995 and 1994)                       (201)          (195)        (195)
              Foreign currency translation adjustments (Note 24,  page M-18)                -              1            -
              Deferred compensation adjustments                                             -             (3)           1
              Minimum pension liability adjustment (Note 14,  page M-13)                    1             (6)           -
              Other                                                                         -              -           (1)
                                                                                     --------       --------     -------- 
              Balance at end of year                                                 $  3,340       $  2,872     $  3,163
              -------------------------------------------------------------------------------------------------------------      
             Total stockholders' equity                                              $  3,340       $  2,872     $  3,241
             -------------------------------------------------------------------------------------------------------------      
</TABLE>


                                      M-17

<PAGE>
 
- --------------------------------------------------------------------------------
23. Net Income Per Common Share

             The method of calculating net income (loss) per share for the
             Marathon Stock, Steel Stock and 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.
                Primary 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 plus common stock equivalents, provided they are not
             antidilutive. Common stock equivalents result from assumed exercise
             of stock options, where applicable.
                Fully 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.

- --------------------------------------------------------------------------------
24. Foreign Currency Translation

             Exchange adjustments resulting from foreign currency transactions
             generally are recognized in income, whereas adjustments resulting
             from translation of financial statements are reflected as a
             separate component of stockholders' equity. For 1996, 1995 and
             1994, respectively, the aggregate foreign currency transaction
             gains (losses) included in determining net income were $(24)
             million, $3 million and $(7) million. An analysis of changes in
             cumulative foreign currency translation adjustments follows:


<TABLE>
<CAPTION>
             (In millions)                             1996    1995    1994
             ---------------------------------------------------------------
             <S>                                      <C>     <C>     <C>
 
             Cumulative adjustments at January 1      $  (5)  $  (6)  $  (6)
             Aggregate adjustments for the year           -       1       -
                                                      -----   -----   -----
             Cumulative adjustments at December 31    $  (5)  $  (5)  $  (6)
             ----------------------------------------------------------------
</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 and
             refined products. 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-18

<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, 1996:
              Exchange-traded commodity futures                $    -            $  -         $  (2)       $   38
              Exchange-traded commodity options                    (1)/(c)/          (1)         (2)          251
              OTC commodity swaps/(d)/                             (3)/(e)/          (2)          -            32
              OTC commodity options                                (7)               (7)         (1)           80
                                                               ------            ------       -----        ------
                Total commodities                              $  (11)           $  (10)      $  (5)       $  401
                                                               ------            ------       -----        ------
              Forward currency contract/(f)/:
                  - receivable                                 $   14            $   12       $   -        $   43
                  - payable                                        (1)               (1)         (1)            7
                                                               ------            ------       -----        ------
                Total currencies                               $   13            $   11       $  (1)       $   50
             -------------------------------------------------------------------------------------------------------
             December 31, 1995:
              Exchange-traded commodity futures                $    -            $    -       $  (3)       $  75
              Exchange-traded commodity options                     -                 -           -            8
              OTC commodity swaps                                  (3)/(e)/          (1)         (4)         125
              OTC commodity options                                 -                 -           -            6
                                                               ------            ------       -----       ------
                Total commodities                              $   (3)           $   (1)      $  (7)      $  214
                                                               ------            ------       -----       ------
              Forward currency contracts:
                  - receivable                                 $   81            $   78       $   -       $  141
            -------------------------------------------------------------------------------------------------------
</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 value for assets of $1 million and for
                    liabilities of $(2) million.
             /(d)/  The OTC swap arrangements vary in duration with certain
                    contracts extending into early 1998.
             /(e)/  Includes fair values as of December 31, 1996 and 1995, for
                    assets of $1 million and $4 million and liabilities of  $(4)
                    million and $(7) 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, page M-18, by individual balance
             sheet account. As described in Note 3, page M-9, 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>
                                                                                 1996               1995
                                                                         -------------------  -----------------
                                                                           Fair     Carrying    Fair   Carrying
             (In millions)                        December 31             Value      Amount    Value    Amount
             ---------------------------------------------------------------------------------------------------
             <S>                                                         <C>        <C>       <C>      <C> 
 
             Financial assets:
              Cash and cash equivalents                                   $   32     $   32   $   77    $   77
              Receivables                                                    613        613      552       552
              Investments and long-term receivables                          204        163       98        62
                                                                          ------     ------   ------    ------
                  Total financial assets                                  $  849     $  808   $  727    $  691
             ---------------------------------------------------------------------------------------------------
 
             Financial liabilities:
              Notes payable                                               $   59     $   59   $   31    $   31
              Accounts payable                                             1,385      1,385    1,245     1,245
              Accrued interest                                                75         75       94        94
              Long-term debt (including amounts due within one year)       3,062      2,882    3,985     3,696
                                                                          ------     ------   ------  --------
                  Total financial liabilities                             $4,581     $4,401   $5,355    $5,066
             ---------------------------------------------------------------------------------------------------
</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 long-term debt
             instruments was based on market prices where available or current
             borrowing rates available for financings with similar terms and
             maturities.
                In addition to certain derivative financial instruments
             disclosed in Note 25, page M-18, the Marathon Group's unrecognized
             financial instruments consist of accounts receivables sold subject
             to limited recourse 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 21, page M-17, and for details
             relating to financial guarantees see Note 27, page M-20.

                                      M-19

<PAGE>
 
- --------------------------------------------------------------------------------
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, 1996, and December 31,
             1995, accrued liabilities for remediation totaled $37 million. 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 $23
             million at December 31, 1996, and $22 million at December 31, 1995.
                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 1996 and 1995,
             such capital expenditures totaled $66 million and $50 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, 1996, and December 31, 1995, accrued liabilities
             for platform abandonment and dismantlement totaled $118 million and
             $128 million, respectively.

             Guarantees -
                Guarantees by USX of the liabilities of affiliated entities of
             the Marathon Group totaled $46 million and $18 million at December
             31, 1996, and December 31, 1995, respectively. As of December 31,
             1996, the largest guarantee for a single affiliate was $39 million.
                At December 31, 1996, and December 31, 1995, the Marathon
             Group's pro rata share of obligations of LOOP LLC and various
             pipeline affiliates secured by throughput and deficiency agreements
             totaled $176 million and $187 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, 1996, and December 31, 1995, contract
             commitments for the Marathon Group's capital expenditures for
             property, plant and equipment totaled $388 million and $112
             million, respectively.

                                      M-20

<PAGE>
 
Selected Quarterly Financial Data (Unaudited)



<TABLE>
<CAPTION>
 
                                                1996                                 1995
                             -------------------------------------   ------------------------------------------------------
(In millions, except per
 share data)                 4th Qtr.   3rd Qtr.   2nd Qtr.    1st Qtr.   4th Qtr.       3rd Qtr.     2nd Qtr.    1st Qtr.
- ---------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>        <C>         <C>        <C>           <C>          <C>          <C>
Revenues                      $4,439     $4,195     $4,071     $3,627     $3,517/(a)/   $3,494/(a)/  $3,530/(a)/  $3,338/(a)/
Operating income (loss)          305        318        234        377       (523)/(a)/     173/(a)/     251/(a)/     212/(a)/
 Operating costs include:
   Inventory market
    valuation
    charges (credits)            (30)       (96)        72       (155)       (35)           51            2          (88)
   Impairment of
    long-lived assets              -          -          -         -         659            -             -           -
Income (loss) before
 extraordinary loss              167        164        124        216       (365)           97           108          77
Net income (loss)                160        164        124        216       (366)           93           108          77
- ---------------------------------------------------------------------------------------------------------------------------
Marathon Stock data:
- --------------------
Income (loss) before extraordinary
 loss applicable to
 Marathon Stock               $  167     $  164     $  124     $  216     $ (365)       $   96        $  107      $   75
 - Per share: primary            .58        .57        .43        .75      (1.27)          .33           .37         .26
              fully diluted      .57        .57        .43        .74      (1.27)          .33           .37         .26
Dividends paid per share         .19        .17        .17        .17        .17           .17           .17         .17
Price range of Marathon
 Stock/(b)/:
 - Low                            21-1/8     20         19-1/8     17-1/4     17-1/2        19-1/4        17-1/8      15-3/4
 - High                           25-1/2     22-1/8     22-7/8     20-1/2     20-1/8        21-1/2        20-1/4      17-5/8
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>



/(a)/ Reclassified to conform to 1996 classifications.
/(b)/ Composite tape.
 
Principal Unconsolidated Affiliates (Unaudited)


<TABLE>
<CAPTION>
 
                                                                      December 31, 1996
                 Company                                Country           Ownership          Activity
- ----------------------------------------------------------------------------------------------------------------------- 
<S>                                                   <C>                   <C>       <C>
CLAM Petroleum Company                                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
Sakhalin Energy Investment Company Ltd.               Russia                30%        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-31
through U-34.

                                      M-21

<PAGE>
 
Five-Year Operating Summary



<TABLE>
<CAPTION>

 
                                                                         1996     1995      1994    1993     1992
- ----------------------------------------------------------------------------------------------------------------- 
<S>                                                                      <C>      <C>       <C>     <C>      <C>
 Net Liquid Hydrocarbon Production (thousands of barrels
  per day)
  United States                                                            122      132      110      111     118
  International- Europe                                                     51       56       48       26      36
               - Other                                                       8       17       14       19      20
                                                                        ------------------------------------------
     Total Worldwide                                                       181      205      172      156     174
 ----------------------------------------------------------------------------------------------------------------- 
 Net Natural Gas Production (millions of cubic feet per day)
  United States                                                            676      634      574      529     593
  International- Europe                                                    518/(a)/ 483/(a)/ 382      356     326
               - Other                                                      13       15       18       17      12
                                                                        ------------------------------------------
   Total Consolidated                                                    1,207    1,132      974      902     931
  Equity production - CLAM Petroleum Co.                                    45       44       40       35      41
                                                                        ------------------------------------------
     Total Worldwide                                                     1,252    1,176    1,014      937     972
 ----------------------------------------------------------------------------------------------------------------- 
 Average Sales Prices
  Liquid Hydrocarbons (dollars per barrel)/(b)/
   United States                                                        $18.58   $14.59   $13.53   $14.54  $16.47
   International                                                         20.34    16.66    15.61    16.22   18.95
  Natural Gas (dollars per thousand cubic feet)/(b)/
   United States                                                        $ 2.09   $ 1.63   $ 1.94   $ 1.94  $ 1.60
   International                                                          1.97     1.80     1.58     1.52    1.77
 ----------------------------------------------------------------------------------------------------------------- 
 Net Proved Reserves - year-end
  Liquid Hydrocarbons (millions of barrels)
   Beginning of year                                                       764      795      842      848     868
   Extensions, discoveries and other additions                              82       70       13       21      27
   Improved recovery                                                        19        4        6       24      12
   Revisions of previous estimates                                           5      (18)      (6)       4       5
   Net purchase (sale) of reserves in place                                (12)     (13)       2        2      (3)
   Production                                                              (66)     (74)     (62)     (57)    (61)
                                                                        ------------------------------------------
     Total                                                                 792      764      795      842     848
 ----------------------------------------------------------------------------------------------------------------- 
  Natural Gas (billions of cubic feet)/(c)/
   Beginning of year                                                     3,720    3,807    3,901    4,030   4,258
   Extensions, discoveries and other additions                             323      339      307      248     148
   Improved recovery                                                        10        1        -       33       6
   Revisions of previous estimates                                          (6)     (39)       3      (21)     54
   Net purchase (sale) of reserves in place                                (43)      17      (45)     (59)    (84)
   Production                                                             (434)    (405)    (359)    (330)   (352)
                                                                        ------------------------------------------
     Total                                                               3,570    3,720    3,807    3,901   4,030
 ----------------------------------------------------------------------------------------------------------------- 
 U.S. Refinery Operations (thousands of barrels per day)
  In-use crude oil capacity - year-end/(d)/                                570      570      570      570     620
  Refinery runs - crude oil refined                                        511      503      491      549     546
                - other charge and blend stocks                             96       94      107      102      79
  In-use capacity utilization rate                                          90%      88%      86%      90%     88%
 ----------------------------------------------------------------------------------------------------------------- 
 U.S. Refined Product Sales (thousands of barrels per day)
  Gasoline                                                                 468      445      443      420     404
  Distillates                                                              192      180      183      179     169
  Other products                                                           115      122      117      127     134
                                                                        ------------------------------------------
     Total                                                                 775      747      743      726     707
  Matching buy/sell volumes included in above                               71       47       73       47      56
 ----------------------------------------------------------------------------------------------------------------- 
 U.S. Refined Product Marketing Outlets - year-end
  Marathon operated terminals                                               51       51       51       51      52
  Retail - Marathon Brand                                                2,392    2,380    2,356    2,331   2,290
         - Emro Marketing Company                                        1,592    1,627    1,659    1,571   1,549
 ----------------------------------------------------------------------------------------------------------------- 
</TABLE>

/(a)/  Includes gas acquired for injection and subsequent resale
       of 32 million cubic feet per day in 1996 and 35 million cubic
       feet per day in 1995.
/(b)/  Prices exclude gains/losses from hedging activities.
/(c)/  Includes Marathon's interest in equity affiliate reserves.
/(d)/  The 50,000 barrel per day Indianapolis Refinery was temporarily idled
       in October 1993.

                                      M-22

<PAGE>
 
             The Marathon Group
 
            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; and domestic refining,
             marketing and transportation of petroleum products. Management's
             Discussion and Analysis should be read in conjunction with the
             Marathon Group's Financial Statements and Notes to Financial
             Statements.

                During 1996, the Marathon Group's financial performance was
             significantly better than 1995 primarily due to higher worldwide
             liquid hydrocarbon and natural gas prices. Favorable results also
             helped the Marathon Group to strengthen its balance sheet and
             reduce debt by $786 million.

                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.


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)                   1996     1995     1994  
             -----------------------------------------------------------------
             <S>                                    <C>      <C>      <C>    
                                                                             
             Refined products                       $ 7,132  $ 6,127  $ 5,622
             Liquid hydrocarbons                      1,111      881      800
             Natural gas/(a)/                         1,194      950      670
             Merchandise                              1,000      941      869
             Transportation and other/(b)/              215      205      354
                                                    -------  -------  -------
             Subtotal                                10,652    9,104    8,315
                                                    -------  -------  -------
             Matching buy/sell transactions/(c)/      2,912    2,067    2,071
             Excise taxes/(c)/                        2,768    2,708    2,542
                                                    -------  -------  -------
              Total revenues/(d)/                   $16,332  $13,879  $12,928 
             -----------------------------------------------------------------
</TABLE>

             /(a)/ Natural gas revenues in 1996 and 1995 included $181 million
                   and $130 million, respectively, for domestic natural gas
                   purchased for resale ("trading sales") for which costs of
                   purchased gas are reflected in operating costs. Trading
                   sales in 1994 were reflected in revenues on a margin basis
                   and were not significant.
             /(b)/ Includes gains and losses from disposal of operating
                   assets.
             /(c)/ Included in both revenues and operating costs, resulting in
                   no effect on income.
             /(d)/ Amounts in 1995 and 1994 were reclassified in 1996 to
                   include gains and losses on disposal of operating assets.
                   Prior to reclassification, these gains and losses were
                   included in other income.

                Revenues (excluding matching buy/sell transactions and excise
             taxes) increased by $1,548 million, or 17%, in 1996 from 1995 and
             by $789 million, or 9%, in 1995 from 1994. 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. The increase in 1995
             was mainly due to increased volumes and higher average prices for
             domestic refined products, international natural gas and worldwide
             liquid hydrocarbons, and increased volumes for domestic natural
             gas, partially offset by a decrease in net gains on operating asset
             disposals and lower average prices for domestic natural gas.

                                      M-23

<PAGE>
 
             Management's Discussion and Analysis continued

                Operating income and certain items included in operating
             income for each of the last three years are summarized in the
             following table:


<TABLE>
<CAPTION>
             (Dollars in millions)                                   1996     1995    1994
             -------------------------------------------------------------------------------
<S>                                                                  <C>      <C>     <C>
 
             Operating income/(a)/                                   $1,234   $ 113   $ 755
             Less: Certain favorable (unfavorable) items
              Inventory market valuation adjustment/(b)/                209      70     160
              Net gains on certain asset sales                           16       -     166
              Charges for withdrawal from MPA/(c)/                      (10)      -       -
              Certain state tax adjustments/(d)/                        (11)      -      12
              Impairment of long-lived assets/(e)/                        -    (659)      -
              Expected environmental remediation recoveries/(f)/          -      15       -
              Employee reorganization charges/(g)/                        -       -     (42)
                                                                     ------   -----   -----
                 Subtotal                                               204    (574)    296
                                                                     ------   -----   -----
                 Operating income adjusted to exclude above items    $1,030   $ 687   $ 459
              ------------------------------------------------------------------------------
</TABLE>

             /(a)/ Amounts in 1995 and 1994 were reclassified in 1996 to
                   include gains and losses on disposal of operating assets.
                   Prior to reclassification, these gains and losses were
                   included in other income.
             /(b)/ The inventory market valuation reserve reflects the extent
                   to which the recorded costs of crude oil and refined products
                   inventories exceed net realizable value. The balance was
                   zero at December 31, 1996.
             /(c)/ Marine Preservation Association ("MPA") is a non-profit oil
                   spill response group.
             /(d)/ The 1996 amount reflected domestic production tax accruals
                   for prior years; the amount in 1994 related to various
                   settlements.
             /(e)/ 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").
             /(f)/ For expected recoveries from state governments of
                   expenditures related to underground storage tanks at retail
                   marketing outlets.
             /(g)/ Primarily related to employee costs associated with work
                   force reduction programs.

                Adjusted operating income improved by $343 million in 1996 from
             1995, 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 hedging activities (primarily occurring in
             the fourth quarter of 1996) and lower refined product margins.
             Adjusted operating income increased by $228 million in 1995 from
             1994, mainly due to increased volumes of worldwide liquid
             hydrocarbons and natural gas, and higher average prices for
             worldwide liquid hydrocarbons and international natural gas,
             partially offset by lower average prices for domestic natural gas.
             For additional details, see Management's Discussion and Analysis of
             Financial Condition, Cash Flows and Liquidity and Management's
             Discussion and Analysis of Operations.

                Other income increased by $26 million in 1996 from 1995,
             following an increase of $9 million in 1995 from 1994. The increase
             in 1996 was mainly due to a gain on the sale of an equity interest
             in a domestic pipeline company. Other income in 1994 included a $10
             million unfavorable effect applicable to the Marathon Group's 33%
             Retained Interest in the USX-Delhi Group. The Retained Interest was
             eliminated in June 1995.

                Interest and other financial costs decreased by $41 million in
             1996 from 1995, following an increase of $49 million in 1995 from
             1994. The decrease in 1996 was mainly due to lower average debt
             levels, while the increase in 1995 from 1994 was due primarily to a
             reduction in capitalized interest following the completion during
             1994 of projects in the United Kingdom ("U.K.") sector of the North
             Sea. In addition, interest and other financial costs in 1995
             included a $17 million favorable effect for interest on refundable
             federal income taxes paid in prior years, while 1994 included a $34
             million favorable effect resulting from settlement of various state
             tax issues.

                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. The 1994 income tax provision
             included a $24 million credit for the reversal of a valuation
             allowance related to deferred tax assets. For reconciliation of the
             federal statutory tax rate to total provisions (credits), see Note
             17 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 7 to the Marathon Group
             Financial Statements.

                Net income increased by $752 million in 1996 from 1995,
             following a $409 million decrease in 1995 from 1994. The changes in
             net income and loss between years primarily reflect the factors
             discussed above.

                                      M-24

<PAGE>
 
             Management's Discussion and Analysis continued

Management's Discussion and Analysis of Financial Condition, Cash Flows and
Liquidity

                Current assets and current liabilities increased by $158 million
             and $117 million, respectively, from year-end 1995. The increase in
             current assets mainly reflected increased inventory values, as
             higher year-end refined product prices resulted in the reduction of
             the inventory market valuation reserve to zero, and increased trade
             receivables, mainly due to higher liquid hydrocarbon and natural
             gas prices. The increase in current liabilities primarily reflected
             increased trade payables, also due to higher commodity prices.

                Net property, plant and equipment decreased by $223 million from
             year-end 1995, primarily reflecting DD&A, asset dispositions and
             dry well write-offs, partially offset by property additions. Asset
             disposals included interests in oil producing properties in Alaska
             and certain production properties in Indonesia, the U.K. North Sea
             and Tunisia.

                Total long-term debt and notes payable at December 31, 1996 was
             $3.0 billion, a $786 million decrease from year-end 1995, mainly
             reflecting that cash provided from operating activities and the
             disposal of assets exceeded amounts required for capital
             expenditures and dividends. Virtually all of the debt is a direct
             obligation of, or is guaranteed by, USX.

                Net cash provided from operating activities totaled $1,503
             million in 1996, compared with $1,044 million in 1995 and $720
             million in 1994. Cash provided from operating activities included
             payments of $39 million and $123 million in 1996 and 1994,
             respectively, related to certain state tax issues, while 1995
             included payments of $96 million 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 $402 million in 1996 from 1995, compared
             with an increase of $297 million in 1995 from 1994. The increase in
             1996 was mainly due to favorable working capital changes and
             improved profitability, while the increase in 1995 primarily
             reflected increased profitability.

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

<TABLE>
<CAPTION>
             (Dollars in millions)                                    1996   1995   1994
             ----------------------------------------------------------------------------
             <S>                                                      <C>    <C>    <C>
 
             Exploration and production ("Upstream")
              United States                                           $ 424  $ 322  $ 351
              International                                              80    141    185
                                                                      -----  -----  -----
                 Total exploration and production                       504    463    536
             Refining, marketing and transportation ("Downstream")      234    170    209
             Other                                                       13      9      8
                                                                      -----  -----  -----
                 Total                                                $ 751  $ 642  $ 753
             -----------------------------------------------------------------------------
</TABLE>


                During 1996, upstream capital spending focused on low-cost, low-
             risk development and exploitation projects, including initial
             expenditures to develop exploration successes in the Gulf of
             Mexico. In addition, approximately $36 million was spent acquiring
             producing properties in and around core areas of operations in
             Texas, Wyoming and Alaska, resulting in reserve additions of 28
             million barrels of oil equivalent ("BOE"). Downstream spending in
             1996 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
             1996 were $388 million, compared with $112 million at year-end
             1995.

                Capital expenditures in 1997 are expected to increase to
             approximately $1 billion, with actual spending dependent upon
             market conditions and available business opportunities. Domestic
             upstream projects planned for 1997 include development of the Green
             Canyon 244 (Troika), Viosca Knoll 786 (Petronius) and Ewing Bank
             963 (Arnold) fields in the Gulf of Mexico, while international
             upstream projects include development of the West Brae field in the
             U.K. North Sea and the Tchatamba field, offshore Gabon. Downstream
             spending will primarily consist of retail marketing upgrading and
             expansion projects and refinery modifications.

                Also in 1997, other investing activities are anticipated to
             include approximately $100 million for capital projects of equity
             affiliates, including the Nautilus natural gas pipeline project in
             the Gulf of Mexico and the Sakhalin II project in the Russian Far
             East Region.

                Future capital expenditures and investments can be affected by
             industry supply and demand factors, levels of cash flow from
             operations, unforeseen hazards such as weather conditions, and/or
             by delays in obtaining government or partner approval, which could
             affect the timing of completion of particular capital projects. In
             addition, levels of investments may be affected by the ability of
             equity affiliates to obtain external financing.

                Cash from disposal of assets was $282 million in 1996, compared
             with $77 million in 1995 and $263 million in 1994. Proceeds in 1996
             primarily reflected the disposal of Alaskan oil properties, sales
             of interests in certain oil and gas production properties in
             Indonesia, U.K. North Sea and Tunisia, and the sale of an equity
             interest in a domestic pipeline company. Proceeds in 1995 were
             mainly from

                                      M-25

<PAGE>
 
             Management's Discussion and Analysis continued

             the sales of certain domestic production properties, mainly in the
             Illinois Basin, the stock of FWA Drilling Company, Inc., and
             certain downstream assets. Proceeds in 1994 mainly reflected sales
             of the assets of a retail propane marketing subsidiary and certain
             domestic oil and gas production properties.

                Deposit in property exchange trust of $98 million in 1996
             represents the deposit of a large portion of the proceeds from the
             disposal of oil production properties in Alaska into an interest-
             bearing escrow account for use in future property acquisitions.

                Financial obligations decreased by $770 million in 1996 as net
             cash provided from operating activities and asset sales
             significantly exceeded cash used for capital expenditures and
             dividend payments. Financial obligations consist of the Marathon
             Group's portion of USX debt and preferred stock of a subsidiary
             attributed to all three groups, as well as debt specifically
             attributed to the Marathon Group. For discussion of USX financing
             activities attributed to all three groups, see USX Consolidated
             Management's Discussion and Analysis of Financial Condition, Cash
             Flows and Liquidity.

                Dividends paid in 1996 increased from 1995, mainly due to an
             increase of two cents per share in the quarterly USX-Marathon Group
             Common Stock dividend rate declared October 29, 1996.

             Derivative Instruments

                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. The Marathon Group uses commodity-based derivative
             instruments such as exchange-traded futures contracts and options,
             and over-the-counter ("OTC") commodity swaps and options to manage
             exposure to market risk. Marathon's exchange-traded derivative
             activities are conducted primarily on the New York Mercantile
             Exchange ("NYMEX"). The Marathon Group's strategic approach is to
             limit the use of these instruments principally to hedging
             activities. Accordingly, gains and losses on futures contracts and
             swaps generally offset the effects of price changes in the
             underlying commodity. However, certain derivative instruments have
             the effect of converting fixed price equity natural gas production
             to variable market-based prices. These instruments are used as part
             of Marathon's overall risk management programs.

                While commodity-based derivative 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 $38
             million of pretax hedging losses in 1996, compared with net gains
             of $10 million in 1995. Marathon's downstream operations generally
             use derivative instruments to protect margins on fixed price sales
             of refined products, to protect carrying values of inventories and
             to lock-in benefits from certain raw material purchases. In total,
             downstream operations recorded pretax hedging losses of $22 million
             in 1996, $4 million in 1995 and $14 million in 1994. Essentially,
             all such losses and gains were offset by changes in the realized
             prices of the underlying hedged commodities, with the net effect
             approximating the targeted results of the hedging strategies. For
             additional information relating to derivative 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 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, 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 futures prices. To the extent that commodity price
             changes in one region are not reflected in other regions,
             derivative 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 also subject to currency risk, or 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. For
             quantitative information relating to forward currency contracts,
             see Note 25 to the Marathon Group Financial Statements.

                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.

                                      M-26

<PAGE>
 
             Management's Discussion and Analysis continued

                The Marathon Group is exposed to the credit risk of
             nonperformance by counterparties in derivative transactions.
             Internal controls used to manage credit risk include ongoing
             reviews of credit worthiness of counter-parties and the use of
             master netting agreements, to the extent practicable, and full
             performance is anticipated.

                Based on a strategic approach of limiting its use of derivative
             instruments principally to hedging activities, combined with risk
             assessment procedures and internal controls in place, management
             believes that its use of derivative instruments does not expose the
             Marathon Group to material risk. While such use could materially
             affect the Marathon Group's results of operations in particular
             quarterly or annual periods, 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.

             Liquidity
                For discussion of USX's liquidity and capital resources, see USX
             Consolidated Management's Discussion and Analysis of 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 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)       1996   1995   1994 
              -----------------------------------------------
             <S>                         <C>    <C>    <C>  
                                                            
             Capital                     $  66  $  50  $  70
             Compliance                                     
              Operating & maintenance       75    102    106
              Remediation/(b)/              26     37     25
                                         -----  -----  -----
               Total                     $ 167  $ 189  $ 201 
              ------------------------------------------------
</TABLE>

             /(a)/ Estimates 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.

                The Marathon Group's environmental capital expenditures
             accounted for 9% of total capital expenditures in 1996 and 1994,
             and 8% in 1995.

                During 1994 through 1996, compliance expenditures represented 1%
             of the Marathon Group's total operating costs. Remediation spending
             during this period was primarily related to retail 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 16 waste sites related to the Marathon Group under the
             Comprehensive Environmental Response, Compensation and Liability
             Act ("CERCLA") as of December 31, 1996. In addition, there are 13
             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 69
             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.

                In 1997, USX will adopt American Institute of Certified Public
             Accountants Statement of Position No. 96-1 - "Environmental
             Remediation Liabilities", which recommends that companies include
             direct costs in accruals for remediation liabilities. These costs
             include external

                                      M-27

<PAGE>
 
             Management's Discussion and Analysis continued

             legal fees applicable to the remediation effort and internal
             administrative costs for attorneys and staff, among others.
             Adoption could result in remeasurement of certain remediation
             accruals and a corresponding charge to operating income. USX is
             conducting a review of its remediation liabilities and, at this
             time, is unable to project the effect, if any, of adoption.

                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 1997. The
             Marathon Group's capital expenditures for environmental controls
             are expected to be approximately $55 million in 1997. Predictions
             beyond 1997 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 $60 million in 1998; 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 USX Consolidated Management's Discussion and Analysis of
             Financial Condition, Cash Flows and Liquidity.

Management's Discussion and Analysis of Operations

                The Marathon Group's operating income and average volumes and
             selling prices for each of the last three years were as follows:

             
                         Operating Income (Loss) /(a)/
             
             
<TABLE>
             <CAPTION>
             (Dollars in millions)                                   1996     1995    1994
             ------------------------------------------------------------------------------
             <S>                                                    <C>      <C>     <C>  
                                                                                          
             Exploration and production (Upstream)                                        
              Domestic                                              $  534   $ 309   $ 173
              International                                            368     174      59
                                                                    ------   -----   -----
               Total exploration and production                        902     483     232
             Refining, marketing and transportation (Downstream)       268     304     435
             Gas gathering and processing                                5       2       -
             Administrative/(b)/                                      (150)    (87)    (72)
                                                                    ------   -----   -----
                                                                     1,025     702     595
             Impairment of long-lived assets/(c)/                        -    (659)      -
             Inventory market valuation reserve adjustment             209      70     160
                                                                    ------   -----   -----
             Total                                                  $1,234   $ 113   $ 755 
             ------------------------------------------------------------------------------
</TABLE>

             /(a)/ Amounts in 1995 and 1994 were reclassified in 1996 to
                   include gains and losses on disposal of operating assets.
                   Prior to reclassification, these gains and losses were
                   included in other income.
             /(b)/ 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.
             /(c)/ 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.

                                      M-28

<PAGE>
 
             Management's Discussion and Analysis continued


<TABLE>
<CAPTION>


                                                 Average Volumes and Selling Prices
                                                                                      1996    1995    1994
             -----------------------------------------------------------------------------------------------
<S>                                                                                  <C>     <C>     <C>
 
             (thousands of barrels per day)
             Net liquids production/(a)/ - U.S.                                         122     132     110
                                         - International/(b)/                            59      73      62
                                                                                     ------  ------  ------
                                         - Total Consolidated                           181     205     172
             (millions of cubic feet per day)
             Net natural gas production- U.S.                                           676     634     574
                                       - International - equity                         499     463     400
                                       - International - other/(c)/                      32      35       -
                                                                                     ------  ------  ------
                                       - Total Consolidated                           1,207   1,132     974
             ------------------------------------------------------------------------------------------------
             (dollars per barrel)
             Liquid hydrocarbons/(a)(d)/- U.S.                                       $18.58  $14.59  $13.53
                                        - International                               20.34   16.66   15.61
             (dollars per mcf)
             Natural gas/(d)/           - U.S.                                       $ 2.09  $ 1.63  $ 1.94
                                        - International - equity                       1.97    1.80    1.58
             ------------------------------------------------------------------------------------------------
</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.

                Domestic upstream operating income increased by $225 million in
             1996 from 1995, following an increase of $136 million in 1995 from
             1994. The improvement in 1996 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. The increase in natural gas volumes of
             42 million cubic feet per day ("mmcfd") was mainly due to Alaskan
             demand and production increases from the Indian Basin field in New
             Mexico and the Cotton Valley Reef area in east Texas. The decrease
             in liquid hydrocarbon volumes of 10,000 barrels per day ("bpd") was
             primarily due to lower production from Ewing Bank Block 873 and
             other mature properties and from the 1995 sale of Illinois Basin
             production operations.

                The increase in 1995 from 1994 mainly reflected increased
             volumes for liquid hydrocarbons and natural gas, higher average
             prices for liquid hydrocarbons, reduced DD&A expense following the
             adoption of SFAS No. 121 and the absence of $18 million of employee
             reorganization charges, which were recorded in 1994. These
             favorable factors were partially offset by lower average prices for
             natural gas and the absence of net gains recorded in 1994 on the
             disposal of certain oil and gas properties.

                International upstream operating income increased by $194
             million in 1996 from 1995, following an increase of $115 million in
             1995 from 1994. The improvement in 1996 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 volumes.
             Operating income in 1996 also included a gain on the sale of
             certain production properties in the U.K. North Sea. The increase
             in natural gas volumes of 33 mmcfd was mainly due to increased
             demand in the United Kingdom, while the 14,000 bpd decrease in
             liquid hydrocarbon volumes resulted primarily from the sale of
             production properties in Indonesia and Tunisia and lower production
             from the U.K. North Sea. The decrease in U.K. North Sea liquid
             recoveries mainly reflects the continued reservoir complexity
             issues which have tempered East Brae production and normal declines
             from the mature Brae-area properties.

                The increase in 1995 from 1994 was due mainly to increased
             volumes and higher average prices for liquid hydrocarbons and
             natural gas and reduced DD&A expense following the adoption of SFAS
             No. 121. In addition, operating income in 1994 included employee
             reorganization charges of $9 million.

                Downstream operating income decreased by $36 million in 1996,
             following a decrease of $131 million in 1995. The decrease in 1996
             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.

                                      M-29

<PAGE>
 
             Management's Discussion and Analysis continued

                The decrease in 1995 from 1994 was primarily due to the
             absence of a gain recorded in 1994 on the sale of the assets of a
             retail propane marketing subsidiary and lower refined product
             margins, partially offset by lower maintenance expense for refinery
             turnaround activity and the $15 million favorable adjustment for
             expected environmental remediation recoveries. In addition,
             downstream operating income in 1994 included employee
             reorganization charges of $14 million, partially offset by $11
             million of operating income from a retail propane marketing
             subsidiary, the assets of which were sold in September 1994.

                Administrative expense increased by $63 million in 1996 from
             1995, following an increase of $15 million in 1995 from 1994.
             Effective with the first quarter of 1996, Marathon revised the
             method of distributing costs of certain administrative services to
             the operating components in order to optimize the utilization of
             these services. Under the new approach, upstream and downstream
             operating components are billed for direct services; unbilled
             services are included in "Administrative." As a result, 1996
             administrative expenses included an estimated $49 million of costs
             that were allocated to other operating components in 1995, with
             approximately 50% of these costs previously distributed to upstream
             components and 50% to the downstream component. Excluding this
             effect, the increase in administrative expenses was mainly due to
             accruals for a new variable pay plan for certain employees that was
             initiated in 1996, which makes a portion of employee total
             compensation contingent upon the successful achievement of several
             company-wide operational and financial performance objectives.

                The increase in administrative expense in 1995 from 1994
             primarily reflected the 1995 partial funding of the USX Foundation,
             a 1994 curtailment gain related to postretirement benefits other
             than pensions, and lower 1995 general administrative expense
             allocations to the upstream and downstream operating components.

             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.

                For the oil and gas industry in general, world oil demand growth
             is expected to be slightly more than two percent during 1997 with
             growth in the U.S. accounting for just over one half of this demand
             increase. On the supply side, worldwide crude oil supplies have
             been boosted by the United Nations supervised humanitarian sale of
             Iraqi crude, as well as by the start-up of new fields in the North
             Sea. In addition, crude oil supplies are forecast to rise
             throughout 1997 as a number of new fields come on stream throughout
             the world, primarily in non-OPEC areas. Natural gas markets are
             expected to continue modest growth in 1997, primarily in the
             utility and industrial sectors. Supply capabilities from domestic
             fields are projected to increase since drilling activity has
             remained robust.

                With respect to Marathon's upstream operations, worldwide liquid
             hydrocarbon volumes are expected to decline by seven percent in
             1997, primarily reflecting natural production declines of mature
             fields and the disposal of Alaskan oil properties, partially offset
             by projected new production from the Green Canyon 244 field in the
             Gulf of Mexico, onshore Texas properties and the West Brae field in
             the U.K. North Sea. Marathon's worldwide natural gas volumes in
             1997 are expected to remain consistent with 1996 volumes, in the
             range of 1.2 to 1.3 billion cubic feet per day, as natural declines
             in mature international fields will be offset by anticipated
             increases in domestic production. These projections are based on
             known discoveries and do not include any additions from
             acquisitions or future exploratory drilling. Some of the major
             upstream projects currently underway or under evaluation, which are
             expected to add reserves and improve future income streams, are
             briefly described below.

                Marathon and its co-venturer are moving ahead with design and
             construction of "Petronius," a $430 million deepwater Gulf of
             Mexico drilling and production project on Viosca Knoll Block 786.
             Marathon has a 50% interest in this project. Production is expected
             to begin in early 1999 from this discovery, which has estimated
             reserves of 90-100 million gross BOE.

                In 1996, Marathon announced a discovery on Ewing Bank Block 963,
             135 miles south of New Orleans, Louisiana, in 1,740 feet of water.
             A second well confirmed commercial hydrocarbon reserves of
             approximately 30 million gross BOE. A third well was drilled in
             1997 and temporarily abandoned, pending further evaluation. It is
             expected three wells will be completed subsea and tied back to the
             Marathon-operated Ewing Bank 873 platform, which is located eight
             miles to the northwest. First production is expected in the first
             quarter of 1998. Marathon owns a 62.5% working interest in this
             discovery.

                                      M-30

<PAGE>
 
             Management's Discussion and Analysis continued

                In late 1996, Marathon announced a discovery on Ewing Bank
             Block 917. This well is also expected to be completed subsea and
             tied back to the Ewing Bank 873 platform, which is located three
             miles to the north. This single-well development is expected to
             recover about 10 million gross BOE, with first production projected
             for early 1998. Marathon owns a 66.67% working interest in this
             discovery.

                Continued success is expected in the Cotton Valley Reef trend in
             east Texas, with five additional wells planned for drilling in
             1997. Three new wells were brought on production during 1996, and
             two additional wells were completed in early 1997 from the 1996
             drilling program with one well awaiting completion. Marathon has
             also secured drilling rights on an additional 50,000 net acres in
             the trend area, bringing its total leasehold position to nearly
             90,000 net acres.

                In 1996, U.K. government approval was given to Marathon and its
             co-venturers for development of the West Brae field in the U.K.
             North Sea. West Brae will be a subsea development tied back to the
             nearby Marathon-operated Brae 'A' platform. Early in 1997, an
             agreement was reached to develop the field jointly with the
             Sedgwick field, which is owned by a separate consortium. Production
             is anticipated to begin in late 1997, and the two fields are
             expected to produce at a combined peak rate of 27,000 gross bpd in
             1998. Marathon will operate the joint development with a 28.1%
             interest. Combined reserves of the two fields are estimated to be
             44 million gross barrels of oil.

                In 1996, Marathon and its partner drilled a successful
             delineation well on the Tchatamba discovery, offshore Gabon. Oil
             production is expected to start in early 1998 and peak at 15,000
             gross bpd at this field, where Marathon is the operator with a 75%
             interest in the Kowe Permit Production Sharing Contract.

                The Marathon Group holds a 30% interest in Sakhalin Energy
             Investment Company Ltd. ("Sakhalin Energy"), an incorporated joint
             venture company responsible for the overall management of the
             Sakhalin II Project. The Sakhalin II Production Sharing Contract
             ("PSC") was signed in June 1994 for the development of the Piltun-
             Astokhskoye ("PA") oil field and the Lunskoye gas field located
             offshore Sakhalin Island in the Russian Far East Region. During
             1995, the Russian government enacted a production sharing law.
             Licenses were granted to Sakhalin Energy for the two fields in
             1996. On June 15, 1996, Commencement Date was effective under the
             PSC, at which time appraisal activities commenced. Sakhalin Energy
             is currently seeking approval for the first phase of a development
             of the PA field, which develops the Astokh feature utilizing an
             arctic-class mobile drilling vessel. In anticipation of Russian
             approval, Sakhalin Energy has taken steps to commence the first
             phase by awarding construction and equipment contracts. Subject to
             timely approval, first production from the PA field could be
             realized as early as mid-1999, with sales forecast to average
             45,000 gross bpd annually as early as 2000. This 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. Further
             development remains subject to passage of legislation or equivalent
             measures that enables implementation of the terms of the PSC. As
             recently approved by the Russian State Reserve Committee, the PA
             and Lunskoye fields are estimated to contain combined reserves of
             one billion barrels of liquid hydrocarbons and 14 trillion cubic
             feet of natural gas.

                With respect to Marathon's downstream business, major
             maintenance shutdowns ("turnarounds") are planned for the Texas
             City (TX) and Robinson (IL) refineries during the first half of
             1997. Each turnaround is expected to last about one month. A major
             turnaround is also scheduled for the Garyville (LA) refinery in the
             first quarter of 1998. Marathon's 1997 refined product sales
             volumes are expected to remain consistent with 1996 levels at
             approximately 776,000 bpd.

                In January 1997, Marathon and its co-venturer announced plans to
             develop polymer grade propylene and polypropylene facilities at
             Marathon's Garyville refinery. Marathon's part of the project
             includes construction of purification facilities to produce 800
             million pounds per year of polymer grade propylene from the current
             refinery feedstock stream. The co-venturer will construct and
             market output from an 800 million pounds-per-year polypropylene
             facility. Plant start-up is slated for 1999.

                The above discussions of projects, expected production and sales
             levels, reserves 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,
             development plans need to be finalized prior to final commitment by
             the shareholders of Sakhalin Energy. In addition, 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.

                                      M-31

<PAGE>
 
     U.S. Steel Group


             Index to Financial Statements, Supplementary Data and
             Management's Discussion and Analysis

<TABLE>
<CAPTION>
                                                     Page
                                                     ----
<S>                                                 <C>
Explanatory Note Regarding Financial Information...  S-2

Management's Report................................  S-3

Audited Financial Statements:

  Report of Independent Accountants................  S-3
  Statement of Operations..........................  S-4
  Balance Sheet....................................  S-5
  Statement of Cash Flows..........................  S-6
  Notes to Financial Statements....................  S-7

Selected Quarterly Financial Data................  S-21

Principal Unconsolidated Affiliates..............  S-22

Supplementary Information........................  S-22

Five-Year Operating Summary......................  S-23

Management's Discussion and Analysis.............  S-24
 
</TABLE>


                                      S-1

<PAGE>
 
  U. S. Steel Group



             Explanatory Note Regarding Financial Information


             Although the financial statements of the U. S. Steel Group, the
             Marathon Group and the Delhi 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, the Marathon
             Group and the Delhi 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 USX-U. S.
             Steel Group Common Stock, USX-Marathon Group Common Stock and USX-
             Delhi Group Common 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 other 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 all classes of Common Stock.
             Accordingly, the USX consolidated financial information should be
             read in connection with the U. S. Steel Group financial
             information.

                                      S-2

<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-4 through S-20 present fairly, in all material respects,
             the financial position of the U. S. Steel Group at December 31,
             1996 and 1995, and the results of its operations and its cash flows
             for each of the three years in the period ended December 31, 1996,
             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 4, page S-9, 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-7); 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 11, 1997


                                      S-3

<PAGE>
 
Statement of Operations


<TABLE>
<CAPTION>
             (Dollars in millions)                                                            1996          1995          1994
             ------------------------------------------------------------------------------------------------------------------
             <S>                                                                          <C>            <C>           <C>
             Revenues                                                                      $ 6,547       $ 6,475       $ 6,077
             Operating costs:
              Cost of sales (excludes items shown below)                                     5,829         5,565         5,342
              Selling, general and administrative expenses (Note 11,  page S-12)              (165)         (134)         (121)
              Depreciation, depletion and amortization                                         292           318           314
              Taxes other than income taxes                                                    231           210           218
              Impairment of long-lived assets (Note 4, page S-9)                                 -            16             -
                                                                                           -------       -------   -----------
                 Total operating costs                                                       6,187         5,975         5,753
                                                                                           -------       -------   -----------
             Operating income                                                                  360           500           324
             Gain on affiliate stock offering (Note 5,  page S-9)                               53             -             -
             Other income (Note 7,  page S-10)                                                  70            82            64
             Interest and other financial income (Note 7,  page S-10)                            4             8            12
             Interest and other financial costs (Note 7,  page S-10)                          (120)         (137)         (152)
                                                                                           -------       -------   -----------
             Income before income taxes and extraordinary loss                                 367           453           248
             Less provision for estimated income taxes (Note 13,  page S-14)                    92           150            47
                                                                                           -------       -------   -----------
             Income before extraordinary loss                                                  275           303           201
             Extraordinary loss (Note 6,  page S-9)                                             (2)           (2)            -
                                                                                           -------       -------   -----------
             Net income                                                                        273           301           201
             Dividends on preferred stock                                                      (22)          (24)          (25)
                                                                                           -------       -------   -----------
             Net income applicable to Steel Stock                                          $   251       $   277   $       176
             ------------------------------------------------------------------------------------------------------------------
 
             Income Per Common Share of Steel Stock
                                                                                              1996          1995          1994
             ------------------------------------------------------------------------------------------------------------------
             Primary:
             Income before extraordinary loss
              applicable to Steel Stock                                                    $  3.00       $  3.53    $     2.35
             Extraordinary loss                                                               (.02)         (.02)            -
                                                                                           -------       -------    ----------
             Net income applicable to Steel Stock                                          $  2.98       $  3.51    $     2.35
             Fully Diluted:
             Income before extraordinary loss
              applicable to Steel Stock                                                    $  2.97       $  3.43    $     2.33
             Extraordinary loss                                                               (.02)         (.02)            -
                                                                                           -------       -------    ----------
             Net income applicable to Steel Stock                                          $  2.95       $  3.41    $     2.33
             Weighted average shares, in thousands
                       - primary                                                            84,037        79,088        75,184
                       - fully diluted                                                      85,933        89,438        78,624
             ------------------------------------------------------------------------------------------------------------------
</TABLE>

             See Note 22, page S-18, for a description of net income per common
               share.
             The accompanying notes are an integral part of these financial
               statements.

                                      S-4

<PAGE>
 
Balance Sheet


<TABLE>
<CAPTION>
             (Dollars in millions)                                           December 31           1996         1995
             ------------------------------------------------------------------------------------------------------------------
             <S>                                                                                 <C>          <C>
             Assets
             Current assets:
              Cash and cash equivalents                                                          $   23       $   52
              Receivables, less allowance for doubtful accounts
               of $23 and $18 (Note 19,  page S-16)                                                 580          614
              Inventories (Note 16,  page S-15)                                                     648          601
              Deferred income tax benefits (Note 13,  page S-14)                                    177          177
                                                                                                 ------       ------
                 Total current assets                                                             1,428        1,444
             Investments and long-term receivables,
              less reserves of $17 and $23 (Note 15,  page S-15)                                    621          613
             Property, plant and equipment - net (Note 18,  page S-16)                            2,551        2,512
             Long-term deferred income tax benefits (Note 13,  page S-14)                           217          362
             Prepaid pensions (Note 11,  page S-12)                                               1,734        1,546
             Other noncurrent assets                                                                 29           44
                                                                                                 ------       ------
                 Total assets                                                                    $6,580       $6,521
             ------------------------------------------------------------------------------------------------------------------
             Liabilities
             Current liabilities:
              Notes payable                                                                      $   18       $    8

              Accounts payable                                                                      667          826
              Payroll and benefits payable                                                          365          389
              Accrued taxes                                                                         154          180
              Accrued interest                                                                       22           23
              Long-term debt due within one year (Note 9,  page S-11)                                73           93
                                                                                                 ------       ------
                 Total current liabilities                                                        1,299        1,519
             Long-term debt (Note 9,  page S-11)                                                  1,014          923
             Employee benefits (Note 12,  page S-13)                                              2,430        2,424
             Deferred credits and other liabilities                                                 207          247
             Preferred stock of subsidiary (Note 8,  page S-10)                                      64           64
                                                                                                 ------       ------
                 Total liabilities                                                                5,014        5,177
                                                                                                 ------       ------
             Stockholders' Equity (Note 20,  page S-17)
             Preferred stock                                                                          7            7
             Common stockholders' equity                                                          1,559        1,337
                                                                                                 ------       ------
                 Total stockholders' equity                                                       1,566        1,344
                                                                                                 ------       ------
                 Total liabilities and stockholders' equity                                      $6,580       $6,521
             ------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      S-5

<PAGE>
 
Statement of Cash Flows


<TABLE>
<CAPTION>
             (Dollars in millions)                                                             1996          1995          1994
             ------------------------------------------------------------------------------------------------------------------
             <S>                                                                             <C>           <C>           <C>
             Increase (decrease) in cash and cash equivalents
             Operating activities:
             Net income                                                                       $ 273         $ 301         $ 201
             Adjustments to reconcile to net cash provided
              from operating activities:
               Extraordinary loss                                                                 2             2             -
               Depreciation, depletion and amortization                                         292           318           314
               Pensions                                                                        (185)         (323)         (136)
               Postretirement benefits other than pensions                                       21             -            66
               Deferred income taxes                                                            150           133            93
               Gain on disposal of assets                                                       (16)          (21)          (12)
               Gain on affiliate stock offering                                                 (53)            -             -
               Payment of amortized discount on zero coupon debentures                            -           (28)            -
               Impairment of long-lived assets                                                    -            16             -
               Changes in: Current receivables  - sold                                            -             -            10
                                                - operating turnover                            (10)          107          (145)
                       Inventories                                                              (47)          (14)          (29)
                       Current accounts payable and accrued expenses                           (193)          160          (344)
               All other - net                                                                 (148)          (64)           60
                                                                                               ----         -----         -----
                 Net cash provided from operating activities                                     86           587            78
                                                                                               ----         -----         -----
             Investing activities:
             Capital expenditures                                                              (337)         (324)         (248)
             Disposal of assets                                                                 161            67            19
             All other - net                                                                     37             5           (22)
                                                                                              -----         -----         -----
                 Net cash used in investing activities                                         (139)         (252)         (251)
                                                                                              -----         -----         -----
             Financing activities (Note 3,  page S-8):
             Decrease in U. S. Steel Group's share of
              USX consolidated debt                                                             (31)         (399)          (57)
             Specifically attributed debt:
               Borrowings                                                                       113             -             4
               Repayments                                                                        (5)           (4)          (29)
             Attributed preferred stock of subsidiary                                             -             -            62
             Issuance of common stock of subsidiary                                               -             -            11
             Preferred stock redeemed                                                             -           (25)            -
             Steel Stock issued                                                                  51           218           221
             Dividends paid                                                                    (104)          (93)          (98)
                                                                                              -----         -----         -----
                 Net cash provided from (used in) financing activities                           24          (303)          114
                                                                                              -----         -----         -----
             Net increase (decrease) in cash and cash equivalents                               (29)           32           (59)
             Cash and cash equivalents at beginning of year                                      52            20            79
                                                                                              -----         -----         -----
             Cash and cash equivalents at end of year                                         $  23         $  52         $  20
             ------------------------------------------------------------------------------------------------------------------

</TABLE>

             See Note 10, page S-11, for supplemental cash flow information.
             The accompanying notes are an integral part of these financial
               statements.

                                      S-6

<PAGE>
 
             Notes to Financial Statements

1. Basis of Presentation

             USX Corporation (USX) has three classes of common stock: USX - 
             U. S. Steel Group Common Stock (Steel Stock), USX - Marathon Group
             Common Stock (Marathon Stock) and USX - Delhi Group Common Stock
             (Delhi Stock), which are intended to reflect the performance of the
             U. S. Steel Group, the Marathon Group and the Delhi 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 or the Delhi 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 and technology licensing.
             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, the
             Marathon Group and the Delhi 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, the Marathon
             Group and the Delhi 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, Marathon Stock and Delhi 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 other 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 all 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, the Marathon Group and the Delhi 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 investments is included in other income. Gains or losses
             from a change in ownership interest of an affiliate stock are
             recognized in income in the period of change. Investments in
             companies whose stock has no readily determinable fair value are
             carried at cost. Income from these investments is recognized when
             dividends are received and is included in other financial income.

             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 24, page S-18).
             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 instruments. Derivative financial instruments require
             settlement in cash and include

                                      S-7

<PAGE>
 
             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. OTC swaps are off-balance-sheet
             instruments. The effect of changes in the market indices related to
             OTC swaps are recorded and recognized in income with the underlying
             transaction. 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. 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.

                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 value analysis.

             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.

             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 1996 classifications.

- --------------------------------------------------------------------------------
3. 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 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

                                      S-8

<PAGE>
 
             and reflected in the financial statements of all three groups. See
             Note 8, page S-10, for the U. S. Steel Group's portion of USX's
             financial activities attributed to all three 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 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 $29 million in 1996, $30 million in 1995 and $28 million in
             1994, and primarily consist of employment costs including pension
             effects, professional services, facilities and other related costs
             associated with corporate activities. Allocations in 1995 and 1994
             have been adjusted to reflect comparable charges paid directly by
             the U. S. Steel Group commencing in 1996.

             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 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, the Marathon Group and
             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 three
             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 three 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.

- --------------------------------------------------------------------------------
4. 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
             operating costs for these assets was $16 million.

- --------------------------------------------------------------------------------
5. 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.


- --------------------------------------------------------------------------------
6. Extraordinary Loss

             On December 30, 1996, USX irrevocably called for redemption on
             January 30, 1997, $120 million of debt, resulting in an
             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.

                                      S-9

<PAGE>
 
- --------------------------------------------------------------------------------
7. Other Items



<TABLE>
<CAPTION>
             (In millions)                                                       1996    1995    1994
             -----------------------------------------------------------------------------------------
            <S>                                                                <C>     <C>     <C>
             Other income:
              Income from affiliates - equity method                            $  66   $  80   $  59
              Gain on sale of investments                                           1       2       1
              Other income                                                          3       -       4
                                                                                -----   -----   -----
                 Total                                                          $  70   $  82   $  64
             -----------------------------------------------------------------------------------------
             Interest and other financial income/(a)/:
              Interest income                                                   $   4   $   8   $  11
              Other                                                                 -       -       1
                                                                                -----   -----   -----
                 Total                                                              4       8      12
                                                                                -----   -----   -----
             Interest and other financial costs/(a)/:
              Interest incurred                                                   (85)    (98)   (115)
              Less interest capitalized                                             8       5       8
                                                                                -----   -----   -----
               Net interest                                                       (77)    (93)   (107)
              Interest on tax issues                                              (10)    (11)    (12)
              Financial costs on preferred stock of subsidiary                     (5)     (5)     (5)
              Amortization of discounts                                            (2)     (6)    (11)
              Expenses on sales of accounts receivable (Note 19,  page S-16)      (20)    (22)    (16)
              Adjustment to settlement value of indexed debt                       (6)      -       -
              Other                                                                 -       -      (1)
                                                                                -----   -----   -----
                 Total                                                           (120)   (137)   (152)
                                                                                -----   -----   -----
             Net interest and other financial costs/(a)/                        $(116)  $(129)  $(140)
             -----------------------------------------------------------------------------------------
</TABLE>

              /(a)/  See Note 3, page S-8, for discussion of USX net interest
               and other financial costs attributable to the U. S. Steel Group.

- --------------------------------------------------------------------------------
8. Financial Activities Attributed to All Three Groups

             The following is U. S. Steel Group's portion of USX's financial
             activities attributed to all groups based on their respective cash
             flows as described in Note 3, page S-8. These amounts exclude debt
             amounts specifically attributed to a group as described in Note 9,
             page S-11.


<TABLE>
<CAPTION>
                                                                            U. S. Steel Group                Consolidated USX/(a)/
                                                                            -----------------                --------------------
             (In millions)                          December 31                1996     1995                    1996         1995
             --------------------------------------------------------------------------------------------------------------------
            <S>                                                               <C>      <C>                   <C>           <C>
             Cash and cash equivalents                                         $   2   $    9                 $    8        $   47
             Receivables/(b)/                                                      -       14                      -            73
             Long-term receivables/(b)/                                            3        6                     16            29
             Other noncurrent assets/(b)/                                          2        2                      8             8
                                                                               -----   ------                 ------        ------
               Total assets                                                    $   7   $   31                 $   32        $  157
             --------------------------------------------------------------------------------------------------------------------
             Notes payable                                                     $  18   $    8                 $   80        $   40
             Accounts payable                                                      -        9                      2            46
             Accrued interest                                                     22       23                     98           119
             Long-term debt due within one year (Note
              9,  page  S-11)                                                     69       89                    309           460
             Long-term debt (Note 9,  page S-11)                                 794      818                  3,615         4,303
             Preferred stock of subsidiary                                        64       64                    250           250
                                                                               -----   ------                 ------        ------
               Total liabilities                                                $967   $1,011                 $4,354        $5,218
             ---------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                                   U. S. Steel Group/(c)/                 Consolidated USX
                                                                -----------------------------    ---------------------------------
             (In millions)                                        1996       1995     1994       1996          1995         1994
              --------------------------------------------------------------------------------------------------------------------
            <S>                                                  <C>        <C>      <C>        <C>           <C>          <C>
             Net interest and other financial costs
              (Note 7,  page S-10)                               $ (81)     $ (98)   $(117)     $(376)        $(439)       $(471)
             --------------------------------------------------------------------------------------------------------------------
 </TABLE>

              /(a)/  For details of USX long-term debt and preferred stock of
               subsidiary, see Notes 16, page U-20; and 26, page U-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 three groups.

                                      S-10

<PAGE>
 
- --------------------------------------------------------------------------------
9. 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        1996       1995        1996       1995
             ------------------------------------------------------------------------------------------------------------
             <S>                                                           <C>          <C>         <C>        <C> 
             Specifically attributed debt/(b)/:
              Sale-leaseback financing and capital leases                     $  105      $ 109      $  129     $  133
              Indexed debt less unamortized discount                             119          -         119          -
              Seller-provided financing                                            -          -          40         41
                                                                              ------      -----      ------     ------
               Total                                                             224        109         288        174
              Less amount due within one year                                      4          4          44          5
                                                                              ------      -----      ------     ------
               Total specifically attributed long-term debt                   $  220      $ 105      $  244     $  169
             ------------------------------------------------------------------------------------------------------------
             Debt attributed to all three groups/(c)/                         $  869      $ 916      $3,949     $4,810
              Less unamortized discount                                            6          9          25         47
              Less amount due within one year                                     69         89         309        460
                                                                              ------      -----      ------     ------
               Total long-term debt attributed to all three groups            $  794      $ 818      $3,615     $4,303
             ------------------------------------------------------------------------------------------------------------
             Total long-term debt due within one year                         $   73      $  93      $  353     $  465
             Total long-term debt due after one year                           1,014        923       3,859      4,472
             ------------------------------------------------------------------------------------------------------------
</TABLE>

              /(a)/  See Note 16, page U-20, to the USX consolidated financial
               statements for details of interest rates, maturities and other
               terms of long-term debt.
              /(b)/  As described in Note 3, page S-8, certain financial
               activities are specifically attributed only to the U. S. Steel
               Group, the Marathon Group or the Delhi Group.
              /(c)/  Most long-term debt activities of USX Corporation and its
               wholly owned subsidiaries are attributed to all three groups (in
               total, but not with respect to specific debt issues) based on
               their respective cash flows (Notes 3, page S-8; 8, page S-10; and
               10, page S-11)
 
- --------------------------------------------------------------------------------
10. Supplemental Cash Flow Information


<TABLE>
<CAPTION>
             (In millions)                                                                      1996           1995          1994
             ----------------------------------------------------------------------------------------------------------------------
             <S>                                                                              <C>           <C>           <C>
             Cash provided from (used in) operating activities
              included:
              Interest and other financial costs paid (net of amount capitalized)             $   (129)      $  (159)      $  (189)
              Income taxes (paid) refunded, including settlements
               with other groups                                                                   (53)           (4)           48
             ----------------------------------------------------------------------------------------------------------------------
             USX debt attributed to all three groups - net:
              Commercial paper:
               Issued                                                                         $  1,422       $ 2,434       $ 1,515
               Repayments                                                                       (1,555)       (2,651)       (1,166)
              Credit agreements:
               Borrowings                                                                       10,356         4,719         4,545
               Repayments                                                                      (10,340)       (4,659)       (5,045)
              Other credit arrangements - net                                                      (36)           40             -
              Other debt:
               Borrowings                                                                           78            52           509
               Repayments                                                                         (705)         (440)         (791)
                                                                                              --------       -------       -------
                 Total                                                                        $   (780)      $  (505)      $  (433)
             ----------------------------------------------------------------------------------------------------------------------
              U. S. Steel Group activity                                                      $    (31)      $  (399)      $   (57)
              Marathon Group activity                                                             (769)         (204)         (371)
              Delhi Group activity                                                                  20            98            (5)
                                                                                              --------       -------       -------
                 Total                                                                        $   (780)      $  (505)      $  (433)
             ----------------------------------------------------------------------------------------------------------------------
             Noncash investing and financing activities:
              Steel Stock issued for Dividend Reinvestment Plan and
               employee stock plans                                                           $      4       $    16       $     4
              Disposal of assets - notes received                                                   12             4             3
              Decrease in debt resulting from the adoption of equity
               method accounting for RMI                                                             -             -            41
             ----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-11

<PAGE>
 
- --------------------------------------------------------------------------------
11. 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 three groups (Note 3, page S-9).

                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 1996, 1995 and 1994 was determined assuming an expected long-
             term rate of return on plan assets of 10%, 10% and 9%,
             respectively. The total pension credit is primarily included in
             selling, general and administrative expenses.

<TABLE>
<CAPTION>
             (In millions)                                                                  1996          1995          1994
             -------------------------------------------------------------------------------------------------------------------
            <S>                                                                            <C>           <C>           <C>
             Major plans:
              Cost of benefits earned during the period                                     $    69       $    57         $  65
              Interest cost on projected benefit obligation
               (7% for 1996; 8% for 1995; and 6.5% for 1994)                                    523           563           527
              Return on assets - actual loss (return)                                        (1,136)       (1,842)           11
                               - deferred gain (loss)                                           367         1,084          (734)
              Net amortization of unrecognized losses                                            10             4             9
                                                                                            -------       -------   -----------
                 Total major plans                                                             (167)         (134)         (122)
             Multiemployer and other plans                                                        2             2             2
                                                                                            -------       -------   -----------
                 Total periodic pension credit                                                 (165)         (132)         (120)
             Settlement and termination costs                                                     6             -             -
                                                                                            -------       -------   -----------
                 Total pension credit                                                       $  (159)      $  (132)        $(120)
             -------------------------------------------------------------------------------------------------------------------
</TABLE>


             Funds' status - The assumed discount rate used to measure the
             benefit obligations of major plans was 7.5% at December 31, 1996,
             and 7% at December 31, 1995. 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               1996         1995
             -----------------------------------------------------------------------------------------------------------
             <S>                                                                                  <C>           <C>
             Reconciliation of funds' status to reported amounts:
             Projected benefit obligation (PBO)/(a)/                                               $(7,258)      $(7,828)
             Plan assets at fair market value/(b)/                                                   8,860         8,588
                                                                                                   -------       -------
                 Assets in excess of PBO/(c)/                                                        1,602           760
              Unrecognized net gain from transition                                                   (253)         (347)
              Unrecognized prior service cost                                                          631           728
              Unrecognized net loss (gain)                                                            (244)          411
              Additional minimum liability/(d)/                                                        (65)          (77)
                                                                                                   -------       -------
                 Net pension asset included in balance sheet                                        $1,671       $ 1,475
             -----------------------------------------------------------------------------------------------------------
             /(a)/  PBO includes:
                     Accumulated benefit obligation (ABO)                                          $ 6,884       $ 7,408
                     Vested benefit obligation                                                       6,477         6,955
            /(b)/  Types of assets held:
                    USX stocks                                                                           1%            1%
                    Stocks of other corporations                                                        54%           54%
                    U.S. Government securities                                                          19%           19%
                    Corporate debt instruments and other                                                26%           26%
            /(c)/  Includes several small plans that have ABOs in excess of
                   plan assets:
                    PBO                                                                               $(67)         $(75)
                    Plan assets                                                                         -             -
                                                                                                   -------       -------
                       PBO in excess of plan assets                                                   $(67)         $(75)
            /(d)/  Additional minimum liability recorded was offset by the
                   following:
                    Intangible asset                                                                   $39           $50
                    Stockholders' equity adjustment - net of deferred income tax                        17            17
             -----------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-12

<PAGE>
 
- --------------------------------------------------------------------------------
12. 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 three groups (Note 3, page
             S-9). 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. In 1994, the U. S. Steel Group agreed to establish
             a Voluntary Employee Beneficiary Association Trust to prefund a
             portion of health care and life insurance benefits for retirees
             covered under the United Steelworkers of America union agreement.
             In 1995, USX funded the initial $25 million contribution and an
             additional $10 million, which is the minimum requirement in each
             succeeding contract year. In 1996, the $10 million minimum
             requirement was funded.

             Postretirement benefit cost - Postretirement benefit cost for
             defined benefit plans for 1996, 1995 and 1994 was determined
             assuming discount rates of 7%, 8% and 6.5%, respectively, and an
             expected return on plan assets of 10% for 1996 and 1995 and 9% in
             1994:

<TABLE>
<CAPTION>
             (In millions)                                                               1996          1995          1994
             -------------------------------------------------------------------------------------------------------------
            <S>                                                                         <C>           <C>           <C>
 
             Cost of benefits earned during the period                                  $  18         $  19         $  27
             Interest on accumulated postretirement benefit obligation (APBO)             160           176           179
             Return on assets  - actual return                                            (12)          (11)           (8)
                               - deferred gain (loss)                                       1            (1)           (2)
             Amortization of unrecognized losses                                            5             2            19
                                                                                        -----         -----         -----
                 Total defined benefit plans                                              172           185           215
             Multiemployer plans/(a)/                                                      15            15            21
                                                                                        -----         -----         -----
                 Total postretirement benefit cost                                      $ 187         $ 200         $ 236
             -------------------------------------------------------------------------------------------------------------
</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 $115
               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        1996          1995
             -----------------------------------------------------------------------------------------------
             <S>                                                                      <C>           <C>
             Reconciliation of funds' status to reported amounts:
             Fair value of plan assets                                                 $   111       $   116
                                                                                       -------       -------
             APBO attributable to:
              Retirees                                                                  (1,622)       (1,769)
              Fully eligible plan participants                                            (180)         (209)
              Other active plan participants                                              (309)         (380)
                                                                                       -------       -------
                 Total APBO                                                             (2,111)       (2,358)
                                                                                       -------       -------
                 APBO in excess of plan assets                                          (2,000)       (2,242)
              Unrecognized net gain                                                       (264)            -
              Unamortized prior service                                                     15            19
                                                                                       -------       -------
                 Accrued liability included in balance sheet                           $(2,249)      $(2,223)
              ----------------------------------------------------------------------------------------------
</TABLE>

                The assumed discount rate used to measure the APBO was 7.5% and
             7% at December 31, 1996, and December 31, 1995, 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
             1997 is approximately 8%, declining to an ultimate rate in 2003 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 1996 net periodic postretirement benefit cost by $20 million
             and would have increased the APBO as of December 31, 1996, by $183
             million.

                                      S-13

<PAGE>
 
- --------------------------------------------------------------------------------
13. 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 3, page S-9).

                Provisions (credits) for estimated income taxes were:

<TABLE>
<CAPTION>
                                             1996                           1995                             1994
                                   ---------------------------    ----------------------------     ---------------------------
             (In millions)         Current   Deferred    Total    Current   Deferred     Total     Current   Deferred    Total
             ------------------------------------------------------------------------------------------------------------------
             <S>                   <C>       <C>        <C>       <C>       <C>         <C>        <C>       <C>         <C>
              Federal               $(51)     $ 138       $87        $ 8     $ 150       $158       $(48)     $  98       $50
             State and local           -         12        12          9       (17)        (8)         2         (5)       (3)
             Foreign                  (7)         -        (7)         -         -          -          -          -         -
                                    ----      -----       ---        ---     -----       ----       ----      -----       ---
               Total                $(58)     $ 150       $92        $17     $ 133       $150       $(46)     $  93       $47
            ------------------------------------------------------------------------------------------------------------------
 </TABLE>


                In 1996 and 1995, the extraordinary loss on extinguishment of
             debt included a tax benefit of $1 million in each year (Note 6,
             page S-9).
                A reconciliation of federal statutory tax rate (35%) to total
             provisions follows:

<TABLE>
<CAPTION>
             (In millions)                                                                   1996         1995          1994
             -----------------------------------------------------------------------------------------------------------------
            <S>                                                                           <C>            <C>           <C>
             Statutory rate applied to income before taxes                                  $ 129        $  159        $   87
             Credits other than foreign tax credits                                           (40)            -             -
             State and local income taxes after federal income tax effects                      8            (5)           (1)
             Excess percentage depletion                                                       (7)           (8)           (7)
             Effects of partially-owned companies                                              (6)           (8)          (32)
             Effects of foreign operations, including foreign tax credits                      (2)            1            (4)
             Adjustment of prior years' income taxes                                            9             3            (2)
             Adjustment of valuation allowances                                                 -             2             -
             Other                                                                              1             6             6
                                                                                            -----        ------        ------
                 Total provisions                                                           $  92        $  150        $   47
             -----------------------------------------------------------------------------------------------------------------
</TABLE>

                Deferred tax assets and liabilities resulted from the following:

<TABLE>
<CAPTION>
             (In millions)                                                            December 31          1996          1995
             -----------------------------------------------------------------------------------------------------------------
             <S>                                                                                         <C>           <C>
             Deferred tax assets:
              Minimum tax credit carryforwards                                                           $  320        $  299
              Foreign tax credit carryforwards                                                                -             4
              General business credit carryforwards (expiring in 1997 through 2011)                          24            26
              State tax loss carryforwards (expiring in 1997 through 2011)                                  101           104
              Employee benefits                                                                             865           949
              Receivables, payables and debt                                                                 77            80
              Contingency and other accruals                                                                 50            70
              Other                                                                                          97            88
              Valuation allowances                                                                          (71)          (80)
                                                                                                         ------        ------
                 Total deferred tax assets                                                                1,463         1,540
                                                                                                         ------        ------
             Deferred tax liabilities:
              Property, plant and equipment                                                                 342           355
              Prepaid pensions                                                                              600           534
              Inventory                                                                                      13            12
              Federal effect of state deferred tax assets                                                    15            19
              Other                                                                                         106            84
                                                                                                         ------        ------
                 Total deferred tax liabilities                                                           1,076         1,004
                                                                                                         ------        ------
                 Net deferred tax assets                                                                 $  387        $  536
            ------------------------------------------------------------------------------------------------------------------
</TABLE>

                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.


- --------------------------------------------------------------------------------
14. Intergroup Transactions

             Purchases - U. S. Steel Group purchases from the Marathon Group
             totaled $21 million, $17 million and $13 million in 1996, 1995 and
             1994, respectively. At December 31, 1996 and 1995, U. S. Steel
             Group trade payables included $3 million and $1 million,
             respectively, related to transactions with the Marathon Group.
             These transactions were conducted on an arm's-length basis.

                                      S-14

<PAGE>
 
          Income taxes receivable from/payable to other groups - At December 31,
          1996 and 1995, amounts receivable from/payable to other groups for
          income taxes were included in the balance sheet as follows:


<TABLE>
<CAPTION>
             (In millions)                         December 31       1996   1995
             --------------------------------------------------------------------
             <S>                                                    <C>    <C>
             Current:
              Receivables                                           $  30  $  35
              Accounts payable                                          1     11
             Noncurrent:
              Investments and long-term receivables                    84      -
             --------------------------------------------------------------------
</TABLE>


                These amounts have been determined in accordance with the tax
             allocation policy described in Note 3, page S-9. 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.
 
- --------------------------------------------------------------------------------
15. Investments and Long-Term Receivables


<TABLE>
<CAPTION>
             (In millions)                                                                December 31             1996         1995
             -----------------------------------------------------------------------------------------------------------------------
             <S>                                                                                                 <C>          <C>
             Equity method investments                                                                           $  412       $  468

             Cost method investments                                                                                  2            3

             Receivables due after one year                                                                          30           39

             Income tax receivable from other groups (Note 14, page S-15)                                            84            -

             Forward currency contracts                                                                               3            5

             Other                                                                                                   90           98

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

                 Total                                                                                           $  621       $  613

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

 </TABLE>
 
                Summarized financial information of affiliates accounted for by
                 the equity method of accounting follows:

<TABLE> 
<CAPTION> 
             (In millions)                                                                           1996         1995         1994
             -----------------------------------------------------------------------------------------------------------------------

             <S>                                                                                   <C>          <C>          <C> 
             Income data - year:
              Revenues                                                                              $2,868       $3,268       $2,940

              Operating income                                                                         223          259          222

              Net income                                                                               140          161          117

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

             Balance sheet data - December 31:
              Current assets                                                                        $  779       $  981
              Noncurrent assets                                                                      1,574        1,670
              Current liabilities                                                                      583          668
              Noncurrent liabilities                                                                   845        1,042
             -----------------------------------------------------------------------------------------------------------------------

</TABLE>


                Dividends and partnership distributions received from equity
             affiliates were $25 million in 1996, $67 million in 1995 and $34
             million in 1994.

                U. S. Steel Group purchases of transportation services and semi-
             finished steel from equity affiliates totaled $460 million, $406
             million and $360 million in 1996, 1995 and 1994, respectively. At
             December 31, 1996 and 1995, U. S. Steel Group payables to these
             affiliates totaled $23 million and $20 million, respectively. U. S.
             Steel Group sales of steel and raw materials to equity affiliates
             totaled $824 million, $768 million and $680 million in 1996, 1995
             and 1994, respectively. At December 31, 1996 and 1995, U. S. Steel
             Group receivables from these affiliates were $149 million and $163
             million, respectively. Generally, these transactions were conducted
             under long-term, market-based contractual arrangements.

- --------------------------------------------------------------------------------
16. Inventories


<TABLE>
<CAPTION>
             (In millions)                    December 31     1996         1995
             -------------------------------------------------------------------
             <S>                                             <C>          <C>
             Raw materials                                   $ 124        $  89
             Semi-finished products                            309          300
             Finished products                                 162          143
             Supplies and sundry items                          53           69
                                                             -----        -----
                 Total                                       $ 648        $ 601
             -------------------------------------------------------------------
</TABLE>


                At December 31, 1996, and December 31, 1995, respectively, the
             LIFO method accounted for 92% and 89% of total inventory value.
             Current acquisition costs were estimated to exceed the above
             inventory values at December 31 by approximately $340 million and
             $320 million in 1996 and 1995, respectively.

                Cost of sales was reduced by $13 million in 1994 as a result of
             a liquidation of LIFO inventories (immaterial in 1996 and 1995).

                                      S-15

<PAGE>
 
- --------------------------------------------------------------------------------
17. 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>
             1997                                                                    $  13         $ 119
             1998                                                                       12           110
             1999                                                                       12            93
             2000                                                                       11            54
             2001                                                                       11            89
             Later years                                                               126           120
             Sublease rentals                                                            -            (2)
                                                                                     -----         -----
                 Total minimum lease payments                                          185         $ 583
                                                                                     -----         =====
             Less imputed interest costs                                                80
                                                                                     -----
                 Present value of net minimum lease payments
                  included in long-term debt                                         $ 105
             --------------------------------------------------------------------------------------------
</TABLE>
 
                Operating lease rental expense:

<TABLE>
<CAPTION>  
             (In millions)                                              1996          1995          1994
             --------------------------------------------------------------------------------------------
             <S>                                                       <C>           <C>           <C> 
             Minimum rental                                            $ 131         $ 121         $ 130
             Contingent rental                                             5             9            12
             Sublease rentals                                             (2)           (3)           (2)
                                                                       -----         -----         -----
                 Net rental expense                                    $ 134         $ 127         $ 140
             --------------------------------------------------------------------------------------------
</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. Contingent rental includes payments based on facility
             production and operating expense escalation on building space. 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 $34 million may be declared immediately due
             and payable.
 
- --------------------------------------------------------------------------------
18. Property, Plant and Equipment


<TABLE>
<CAPTION>
              (In millions)                                  December 31          1996   1995
              ---------------------------------------------------------------------------------
              <S>                                                               <C>      <C>
              Land and depletable property                                      $  155  $  151
              Buildings                                                            471     491
              Machinery and equipment                                            7,605   7,663
              Leased assets                                                        116     116
                                                                                ------  ------
               Total                                                             8,347   8,421
              Less accumulated depreciation, depletion and amortization          5,796   5,909
                                                                                ------  ------
               Net                                                              $2,551  $2,512
             ---------------------------------------------------------------------------------
</TABLE>


                Amounts in accumulated depreciation, depletion and amortization
             for assets acquired under capital leases (including sale-leasebacks
             accounted for as financings) were $67 million and $57 million at
             December 31, 1996, and December 31, 1995, respectively.


- --------------------------------------------------------------------------------
19. Sales of Receivables

             The U. S. Steel Group participates in an agreement (the program) to
             sell an undivided interest in certain accounts receivable subject
             to limited recourse. 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, 1996,
             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 1997, 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 1996 and
             1995 and $337 million in 1994. The buyers have rights to a pool of
             receivables that must be maintained at a level of at least 115% of
             the program size. Recognized liabilities for future recourse
             obligations of sold receivables were $3 million at December 31,
             1996 and 1995. 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-16

<PAGE>
 
                       Prior to 1993, USX Credit, a division of USX, sold
             certain of its loans receivable subject to limited recourse under
             an agreement that expires in 1997. USX Credit continues to collect
             payments from the loans and transfer to the buyers principal
             collected plus yield based on defined short-term market rates. In
             1996, 1995 and 1994, USX Credit net repurchases of loans receivable
             totaled none, $5 million and $38 million, respectively. At December
             31, 1996, the balance of sold loans receivable subject to recourse
             was $36 million. Estimated credit losses under the recourse
             provisions for loans receivable were recognized when the
             receivables were sold consistent with bad debt experience. USX
             Credit is not actively seeking new loans at this time, but is
             subject to market risk through fluctuations in short-term market
             rates on sold loans which pay fixed interest rates. USX Credit
             significantly reduced credit risk through a credit policy, which
             required that loans be secured by the real property or equipment
             financed, often with additional security such as letters of credit,
             personal guarantees and committed long-term financing takeouts.
             Also, USX Credit diversified its portfolio as to types and terms of
             loans, borrowers, loan sizes, sources of business and types and
             locations of collateral. In the event of a change in control of
             USX, as defined in the agreement, the U. S. Steel Group may be
             required to provide cash collateral in the amount of the
             uncollected loans receivable to assure compliance with the limited
             recourse provisions.

                As of December 31, 1996, and December 31, 1995, the total
             balance of USX Credit real estate and equipment loans subject to
             impairment was $57 million and $88 million, prior to recognizing
             allowance for credit losses of $27 million and $32 million,
             respectively. During 1996, 1995 and 1994, USX Credit recognized
             additional credit losses of $1 million, $15 million and $11
             million, respectively, which are included in operating costs.

- ------------------------------------------------------------------------------- 
20. Stockholders' Equity


<TABLE>
<CAPTION>
             (In millions, except per share data)                                      1996          1995          1994
             -----------------------------------------------------------------------------------------------------------
             <S>                                                                    <C>           <C>           <C>
             Preferred stock:
              Balance at beginning of year                                           $    7        $   32         $  32
              Redeemed                                                                    -           (25)            -
                                                                                     ------        ------         -----
              Balance at end of year                                                 $    7        $    7         $  32
             -----------------------------------------------------------------------------------------------------------
             Common stockholders' equity (Note 3,  page S-8):
              Balance at beginning of year                                           $1,337        $  913         $ 585
              Net income                                                                273           301           201
              Steel Stock issued                                                         55           234           225
              Dividends on preferred stock                                              (22)          (24)          (25)
              Dividends on Steel Stock (per share $1.00)                                (85)          (80)          (75)
              Foreign currency translation adjustments (Note 26,  page S-19)              -             -            (2)
              Deferred compensation adjustments                                           1            (2)            -
              Minimum pension liability adjustment (Note 11,  page S-12)                  -            (6)            3
              Other                                                                       -             1             1
                                                                                     ------        ------         -----
              Balance at end of year                                                 $1,559        $1,337         $ 913
             -----------------------------------------------------------------------------------------------------------
             Total stockholders' equity                                              $1,566        $1,344         $ 945
             -----------------------------------------------------------------------------------------------------------
</TABLE>


- ------------------------------------------------------------------------------- 
21. Dividends

             In accordance with the USX Certificate of Incorporation, dividends
             on the Steel Stock, Marathon Stock and Delhi 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 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, 1996, the
             Available Steel Dividend Amount was at least $2,808 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>
 
- ------------------------------------------------------------------------------- 
22. Net Income Per Common Share

             The method of calculating net income (loss) per share for the Steel
             Stock, Marathon Stock and 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.

                Primary net income per share is calculated by adjusting net
             income for dividend requirements of preferred stock and is based on
             the weighted average number of common shares outstanding plus
             common stock equivalents, provided they are not antidilutive.
             Common stock equivalents result from assumed exercise of stock
             options, where applicable.

                Fully 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.

- ------------------------------------------------------------------------------- 
23. Stock-Based Compensation Plans and Stockholder Rights Plan

             USX Stock-Based Compensation Plans and Stockholder Rights Plan are
             discussed in Note 21, page U-22, and Note 25, page U-25,
             respectively, to the USX consolidated financial statements.

                During 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 1, page U-11, to the
             USX consolidated financial statements. The U. S. Steel Group's
             actual stock-based compensation expense was $2 million in 1996 and
             $1 million in 1995 and 1994. Incremental compensation expense, as
             determined under SFAS No. 123, was not material. Therefore, pro
             forma net income and earnings per share data have been omitted.

- ------------------------------------------------------------------------------- 
24. 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, 1996:
              OTC commodity swaps/(c)/                       $ 2                     $ -              $   -           $17
                                                             ---                     ---              -----           ---
              Forward currency contract/(d)/:                                
                  - receivable                               $ 4                     $ 3              $   -           $13
                  - payable                                    -                       -                  -             2
                                                             ---                     ---              -----           ---
                    Total currencies                         $ 4                     $ 3              $   -           $15
             -----------------------------------------------------------------------------------------------------------------
             December 31, 1995:                                              
              OTC commodity swaps                            $ 6                     $ -              $   -           $50
                                                             ---                     ---               ----           ---
              Forward currency contracts:                                    
                  - receivable                               $20                     $19              $   -           $36
             -----------------------------------------------------------------------------------------------------------------
</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 up to one year.
              /(d)/  The forward currency contract matures in 1998.

                                      S-18

<PAGE>
 
- --------------------------------------------------------------------------------
25. 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 24, page S-18, by individual balance
             sheet account. As described in Note 3, page S-8, 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>
                                                                              1996              1995
                                                                        ----------------  ----------------
                                                                         Fair   Carrying   Fair   Carrying
             (In millions)                               December 31    Value    Amount   Value    Amount
             ---------------------------------------------------------------------------------------------
             <S>                                                        <C>      <C>      <C>      <C>
             Financial assets:
              Cash and cash equivalents                                 $   23    $   23  $   52    $   52
              Receivables                                                  580       580     614       614
              Investments and long-term receivables                        132       132      56        56
                                                                        ------    ------  ------  --------
                  Total financial assets                                $  735    $  735  $  722    $  722
             ---------------------------------------------------------------------------------------------
             Financial liabilities:
              Notes payable                                             $   18    $   18  $    8    $    8
              Accounts payable                                             667       667     826       826
              Accrued interest                                              22        22      23        23
              Long-term debt (including amounts due within one year)     1,037       982     978       907
                                                                        ------    ------  ------  --------
                  Total financial liabilities                           $1,744    $1,689  $1,835    $1,764
             ---------------------------------------------------------------------------------------------
</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 long-term debt
             instruments was based on market prices where available or current
             borrowing rates available for financings with similar terms and
             maturities.

                In addition to certain derivative financial instruments
             disclosed in Note 24, page S-18, the U. S. Steel Group's
             unrecognized financial instruments consist of receivables sold
             subject to limited recourse 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, page S-16, and for details
             relating to financial guarantees see Note 27, page S-20.

- --------------------------------------------------------------------------------
26. Foreign Currency Translation

             Exchange adjustments resulting from foreign currency transactions
             generally are recognized in income, whereas adjustments resulting
             from translation of financial statements are reflected as a
             separate component of stockholders' equity. An analysis of changes
             in cumulative foreign currency translation adjustments follows:

<TABLE>
<CAPTION>
             (In millions)                                  1996         1995         1994
             ------------------------------------------------------------------------------
             <S>                                           <C>          <C>          <C>
             Cumulative adjustments at January 1           $  (3)       $  (3)       $  (1)
             Aggregate adjustments for the year                -            -           (2)
                                                           -----        -----        -----
             Cumulative adjustments at December 31         $  (3)       $  (3)       $  (3)
             ------------------------------------------------------------------------------
</TABLE>


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 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 $107 million and $116 million at December 31, 1996, and
             December 31, 1995, 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.

                                      S-19

<PAGE>
 
                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 1996
             and 1995, such capital expenditures totaled $90 million and $55
             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 $34 million at December 31, 1996, and
             $50 million at December 31, 1995. 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, 1996,
             the largest guarantee for a single affiliate was $17 million.

             Commitments -
                At December 31, 1996, and December 31, 1995, contract
             commitments for the U. S. Steel Group's capital expenditures for
             property, plant and equipment totaled $134 million and $178
             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 $23
             million in 1996 and $24 million in 1995. If USX elects to terminate
             the contract early, a maximum termination payment of $118 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 Transtar, Inc. (Transtar) for Great Lakes shipments of raw
             materials required by the U. S. Steel Group. The agreement cannot
             be canceled until 1999 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 $72 million in 1996
             and 1995, including fixed costs of $20 million in 1996 and $21
             million in 1995. 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>
                                              1996                                            1995
                              ------------------------------------    -------------------------------------------------------- 
(In millions, except per        4th       3rd       2nd       1st         4th          3rd            2nd             1st 
 share data)                    Qtr.      Qtr.      Qtr.      Qtr.        Qtr.         Qtr.           Qtr.            Qtr.
- ------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>       <C>       <C>       <C>           <C>            <C>            <C>     
Revenues                      $1,765    $1,611    $1,580    $1,591    $1,648/(a)/   $1,620/(a)/    $1,627/(a)/    $1,580/(a)/
Operating income                 175       103         1        81        85/(a)/      145/(a)/       133/(a)/       137/(a)/
Income before  
extraordinary loss               127        70        32        46        62            86             81             74
Net income                       125        70        32        46        61            85             81             74
- -------------------------------------------------------------------------------------------------------------------------------
Steel Stock data:
- ----------------
Income before
extraordinary loss
applicable to Steel Stock     $  122    $   64    $   27    $   40    $   57        $   80         $   74         $   68
- - Per share:  primary           1.43       .76       .32       .49       .68           .99            .99            .89
              fully diluted     1.36       .75       .32       .48       .68           .95            .95            .86
Dividends paid per share         .25       .25       .25       .25       .25           .25            .25            .25
Price range of Steel
 Stock/(b)/:
- - Low                             26 1/2    24 1/8    27 3/4    30        29 1/8        30 5/8         29 1/4         30
- - High                            32        29 5/8    35 7/8    37 7/8    33 5/8        39             34 3/4         39 1/8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

/(a)/ Reclassified to conform to 1996 classifications.
/(b)/ Composite tape.

                                      S-21

<PAGE>
 
Principal Unconsolidated Affiliates (Unaudited)


<TABLE>
<CAPTION>
                                                      December 31, 1996
            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)      1996    1995    1994    1993    1992
             ------------------------------------------------------------------------------------------ 
             <S>                                                <C>     <C>     <C>     <C>     <C>
             Raw Steel Production
              Gary, IN                                           6,840   7,163   6,768   6,624   5,969
              Mon Valley, PA                                     2,746   2,740   2,669   2,507   2,276
              Fairfield, AL                                      1,862   2,260   2,240   2,203   2,146
              All other plants/(a)/                                  -       -       -       -      44
                                                                --------------------------------------
                  Total Raw Steel Production                    11,448  12,163  11,677  11,334  10,435
                  Total Cast Production                         11,407  12,120  11,606  11,295   8,695
                  Continuous cast as % of total production        99.6    99.6    99.4    99.7    83.3
             ------------------------------------------------------------------------------------------ 
             Raw Steel Capability (average)
              Continuous cast                                   12,800  12,500  11,990  11,850   9,904
              Ingots                                                 -       -       -       -   2,240
                                                                --------------------------------------
                  Total                                         12,800  12,500  11,990  11,850  12,144
                  Total production as % of total capability       89.4    97.3    97.4    95.6    85.9
                  Continuous cast as % of total capability       100.0   100.0   100.0   100.0    81.6
             ------------------------------------------------------------------------------------------ 
             Hot Metal Production                                9,716  10,521  10,328   9,972   9,270
             ------------------------------------------------------------------------------------------ 
             Coke Production                                     6,777   6,770   6,777   6,425   5,917
             ------------------------------------------------------------------------------------------ 
             Iron Ore Pellets - Minntac, MN
              Production as % of capacity                           85      86      90      90      83
              Shipments                                         14,962  15,218  16,174  15,911  14,822
             ------------------------------------------------------------------------------------------ 
             Coal Production
              Metallurgical coal/(b)/                            7,283   7,509   7,424   8,142   7,311
              Steam coal/(b)(c)/                                     -       -       -   2,444   5,239
                                                                --------------------------------------
                  Total                                          7,283   7,509   7,424  10,586  12,550
                  Total production as % of capacity               90.5    93.3    93.7    95.6    93.6
             ------------------------------------------------------------------------------------------ 
             Coal Shipments/(b)(c)/                              7,117   7,502   7,698  10,980  12,164
             ------------------------------------------------------------------------------------------ 
             Steel Shipments by Product
              Sheet and tin mill products                        9,541   9,267   8,728   8,364   7,514
              Plate, tubular, structural and other
               steel mill products/(a)/                          1,831   2,111   1,840   1,605   1,340
                                                                --------------------------------------
                  Total                                         11,372  11,378  10,568   9,969   8,854
                  Total as % of domestic steel industry           11.3    11.7    11.1    11.3    10.8
             ------------------------------------------------------------------------------------------ 
             Steel Shipments by Market
              Steel service centers                              2,831   2,564   2,780   2,831   2,676
              Transportation                                     1,721   1,636   1,952   1,771   1,553
              Further conversion:
               Joint ventures                                    1,542   1,332   1,308   1,074     449
               Trade customers                                   1,227   1,084   1,058   1,150   1,104
              Containers                                           874     857     962     835     715
              Construction                                         865     671     722     667     598
              Oil, gas and petrochemicals                          746     748     367     342     255
              Export                                               493   1,515     355     327     584
              All other                                          1,073     971   1,064     972     920
                                                                --------------------------------------
                  Total                                         11,372  11,378  10,568   9,969   8,854
             ------------------------------------------------------------------------------------------ 
</TABLE>

             /(a)/  In April 1992, U. S. Steel closed South (IL) Works and
               ceased production of structural products.
             /(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 4.0 million net tons in 1992 and 1.6 million net tons in
               1993 prior to the sale.

                                      S-23

<PAGE>
 
             The U. S. Steel Group
 
            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, engineering
             and consulting services and technology licensing (together with U.
             S. Steel, the "Steel & Related Businesses"). 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 1996, U. S. Steel Group results from operations were
             negatively impacted by lower average steel product prices and by
             planned and unplanned blast furnace outages. The total impact of
             these items were partially offset by an improved product mix.

                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.



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)                              1996    1995    1994
- --------------------------------------------------------------------------------
<S>                                               <C>     <C>     <C>
 
             Steel & Related Businesses           $6,479  $6,400  $5,920
             Administrative & Other Businesses        68      75     157
                                                  ------  ------  ------
              Total revenues/(a)/                 $6,547  $6,475  $6,077
- --------------------------------------------------------------------------------
</TABLE>

             /(a)/  Amounts in 1995 and 1994 were reclassified in 1996 to
               include gains and losses on disposal of operating assets. Prior
               to reclassification, these gains and losses were included in
               other income.

                Total revenues increased by $72 million in 1996 from 1995. The
             increase in 1996 resulted primarily from an improved steel product
             mix and higher raw material selling prices, partially offset by
             lower average steel product prices. Steel shipments in 1996 were
             essentially unchanged compared with 1995. The increase in 1995
             resulted primarily from an increase in steel shipment volumes of
             approximately .8 million tons and higher average steel prices,
             partially offset by lower revenues from engineering and consulting
             services. In addition, sales in 1994 included revenues from a
             consolidated entity for which the equity method of accounting was
             subsequently adopted.

                The U. S. Steel Group's operating income for the last three
             years was:

<TABLE>
<CAPTION>
(Dollars in millions)                             1996    1995   1994
- --------------------------------------------------------------------------------
<S>                                               <C>    <C>     <C>
 
             Steel & Related Businesses           $ 166  $ 412   $ 241
             Administrative & Other Businesses      194    104      83
             Impairment of long-lived assets          -    (16)      -
                                                  -----  -----   -----
              Total operating income/(a)/         $ 360  $ 500   $ 324
- --------------------------------------------------------------------------------
</TABLE>

             /(a)/  Amounts in 1995 and 1994 were reclassified in 1996 to
               include gains and losses on disposal of operating assets. Prior
               to reclassification, these gains and losses were included in
               other income.

                Operating income for Steel & Related Businesses decreased $246
             million in 1996 from 1995. Results in 1996 included $39 million of
             charges related to repair of the Gary (Ind.) Works No. 13 blast
             furnace and $13 million of charges related to a voluntary workforce
             reduction at the Fairless (Pa.) Works. Results in 1995 included $34
             million of charges related to repairs of the Gary Works No. 8 blast
             furnace which was damaged by an explosion, $37 million of charges
             related to the settlement of the Pickering litigation and other
             litigation accrual adjustments, and an $18 million favorable
             accrual adjustment for certain employee-related costs. Excluding
             these items, operating income decreased $247 million in 1996
             compared to 1995. The decrease was mainly due to lower average
             steel product prices, cost inefficiencies related to planned and
             unplanned blast furnace outages and lost sales from the unplanned
             blast furnace outage, partially offset by improved product mix and
             decreased profit sharing accruals.

                                      S-24

<PAGE>
 
Management's Discussion and Analysis continued


                The Gary Works No. 13 blast furnace, which represents about half
             of Gary Works iron producing capacity and roughly one-fourth of U.
             S. Steel's iron capacity, was idled on April 2, 1996 due to a
             refractory break-out. In addition to direct repair costs, operating
             results were adversely affected by production inefficiencies at
             Gary, as well as other U. S. Steel plants, reduced shipments and
             higher costs for purchased iron and semifinished steel. The total
             effect of this unplanned outage on 1996 operating income has been
             estimated to be more than $100 million. USX maintained property
             damage and business interruption insurance coverages for the No. 13
             blast furnace refractory break-out and the 1995 Gary Works No. 8
             blast furnace explosion, subject to a $50 million deductible per
             occurrence for recoverable items. The insurance companies have
             agreed to issue a partial loss reimbursement of $15 million for the
             Gary Works No. 13 blast furnace loss. U. S. Steel anticipates
             receipt of this payment during the first quarter of 1997. An
             estimate of the amount or timing of additional insurance recoveries
             for the Gary Works No. 13 blast furnace loss cannot be made at this
             time. On October 4, 1996, USX filed litigation in Lake County,
             Indiana, Superior Court against its insurers related to the No. 8
             blast furnace explosion. The timing of the resolution of this
             litigation and the outcome cannot be predicted at this time.

                Steel & Related Businesses results in 1994 included charges of
             $44 million related to utility curtailments and other severe winter
             weather complications, a caster fire at the Mon Valley Works and
             planned outages for modernization of the Gary Works hot strip mill
             and pickle line. Results for 1994 also included a $13 million gain
             related to the sale of coal seam methane gas royalty interests.
             Excluding these items, operating income increased $193 million in
             1995 compared to 1994. The increase is primarily due to higher
             steel product prices and shipments in 1995, partially offset by a
             less favorable product mix which included increased exports of
             lower value products, higher raw material costs and increased
             profit sharing accruals.

                Administrative and Other Businesses includes the portion of
             pension credits, postretirement benefit costs and certain other
             expenses principally attributable to the former businesses of the
             U. S. Steel Group as well as USX corporate general and
             administrative costs allocated to the U. S. Steel Group. Operating
             income increased $90 million in 1996 from 1995 following an
             increase of $21 million in 1995 from 1994, mainly reflecting the
             effects of pension credits referred to below and higher income from
             USX Credit. Approximately $35 million of the increase in
             Administrative and Other Businesses operating income in 1996
             reflects pension credits. USX Credit recognized operating income of
             $6 million in 1996 compared to operating losses of $15 million in
             1995 and $11 million in 1994.

                The pension credits referred to in Administrative and Other
             Businesses, combined with pension costs for ongoing operating units
             of the U. S. Steel Group, resulted in net pension credits (which
             are primarily noncash) of $159 million, $132 million and $120
             million in 1996, 1995 and 1994, respectively. 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.
             The increase in 1995 from 1994 primarily reflected an increase in
             the expected long-term rate of return on plan assets, partially
             offset by an increase in the assumed discount rate and a decline in
             the market-related value of plan assets. In 1997, net pension
             credits are expected to be approximately $150 million. See Note 11
             to the U. S. Steel Group Financial Statements. To the extent that
             these credits decline in the future, operating income would be
             adversely affected.

                The U. S. Steel Group's operating income for 1995 included a $16
             million noncash charge related to the 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." See Note 4 to the U. S. Steel Group Financial
             Statements for further details.

                Gain on affiliate stock offering totaled $53 million in 1996.
             For further details, see Note 5 to the U. S. Steel Group Financial
             Statements.

                The U. S. Steel Group's Other Income for the last three years
             was:

<TABLE>
<CAPTION>
             (Dollars in millions)                   1996   1995   1994
             ------------------------------------------------------------
             <S>                                     <C>    <C>    <C>
 
             Income (loss) from equity affiliates    $  66  $  80  $  59
             Gain on sale of investments                 1      2      1
             Other income                                3      -      4
                                                     -----  -----  -----
             Total other income/(a)/                 $  70  $  82  $  64
             ------------------------------------------------------------
</TABLE>


             /(a)/ Amounts in 1995 and 1994 were reclassified in 1996 to
               exclude gains and losses on disposal of operating assets. Prior
               to reclassification, these gains and losses were included in
               other income.

                                      S-25

<PAGE>
 
Management's Discussion and Analysis continued


                Other income decreased $12 million in 1996 compared with 1995,
             following an increase of $18 million in 1995 compared with 1994.
             The decline in 1996 was primarily due to decreased income from
             equity affiliates. The improvement in 1995 was primarily due to
             increased income from equity affiliates.

                Interest and other financial costs were $120 million in 1996
             compared with $137 million in 1995 and $152 million in 1994. The
             decreases in 1996 and 1995 were mainly due to lower average debt
             levels.

                The provision for estimated income taxes for 1996 included $40
             million in nonconventional fuel source credits. The provision for
             1994 included a $32 million deferred tax benefit related to an
             excess of tax over book basis in an equity affiliate. See Note 13
             to the U. S. Steel Group Financial Statements.

                An extraordinary loss on extinguishment of debt of $2 million in
             1996 and 1995 represents the portion of the loss on early
             extinguishment of USX debt attributed to the U. S. Steel Group. For
             additional information, see Note 6 to the U. S. Steel Group
             Financial Statements.

                Net income was $273 million in 1996, compared with net income of
             $301 million in 1995 and net income of $201 million in 1994. Net
             income decreased $28 million in 1996 from 1995, compared with an
             increase of $100 million in 1995 from 1994. The changes in net
             income primarily reflect the factors discussed above.



Management's Discussion and Analysis of Financial Condition, Cash Flows and
Liquidity

                Current assets at year-end 1996 decreased $16 million from year-
             end 1995 primarily due to a decrease in cash and cash equivalents
             and receivables, partially offset by an increase in inventories.

                Current liabilities in 1996 decreased $220 million from 1995
             primarily due to a decrease in accounts payable, which reflects
             lower trade payables.

                Total long-term debt and notes payable at December 31, 1996 was
             $1,105 million. The $81 million increase from year-end 1995
             reflected the fact that the U. S. Steel Group required more cash
             for investing activities than it generated from operating
             activities. Virtually all of the debt is a direct obligation of, or
             is guaranteed by, USX.

                Net cash provided from operating activities in 1996 was $86
             million compared with $587 million in 1995. The 1996 period
             included a payment of $59 million to the Internal Revenue Service
             for certain agreed and unagreed adjustments relating to the tax
             year 1990 and a payment of $28 million related to settlement of the
             Pickering litigation. The 1995 period reflects payments of $169
             million to fund the U. S. Steel Group's principal pension plan, $35
             million to the Voluntary Employee Benefit Association Trust, $28
             million representing U. S. Steel's share of the amortized discount
             on USX's zero coupon debentures (see USX Consolidated Management's
             Discussion and Analysis of Cash Flows for further details) and $20
             million as partial settlement in the Pickering litigation.
             Excluding these items, net cash provided from operating activities
             declined by $666 million in 1996 due mainly to unfavorable working
             capital changes, decreased profitability and lower distributions
             from equity affiliates.

                The U. S. Steel Group's net cash provided from operating
             activities in 1994 was negatively affected by payments of $367
             million related to the B&LE litigation. Excluding this item for
             1994 and the previously mentioned items for 1995, net cash provided
             from operating activities improved by $394 million in 1995 due
             mainly to favorable working capital changes and increased
             profitability.

                Capital expenditures in 1996 included a blast furnace reline and
             new galvanizing line at Fairfield Works, additional environmental
             expenditures primarily at Gary Works, and certain spending related
             to the Gary No. 13 blast furnace refractory break-out. Increased
             capital expenditures in 1995 compared with 1994 included a degasser
             at Mon Valley Works, granulated coal injection facility at the
             Fairfield Works blast furnace, Gary Works No. 8 blast furnace, a
             new galvanizing line at Fairfield Works and emissions controls at
             the Gary Works steelmaking facilities. Contract commitments for
             capital expenditures at year-end 1996 were $134 million, compared
             with $178 million at year-end 1995.

                                      S-26

<PAGE>
 
Management's Discussion and Analysis continued


                Capital expenditures for 1997 are expected to be approximately
             $290 million including a blast furnace reline at Mon Valley Works,
             a new heat treat line for plates at Gary Works and additional
             environmental expenditures primarily at Gary Works.

                In 1997, other investing activities are expected to be
             approximately $50 million, for the anticipated construction of a
             second galvanizing line at the PRO-TEC Coating Company joint
             venture (see discussion of "Outlook" below for further details) and
             final settlement of the USX Credit division receivable facility.

                Future capital expenditures and investments can be affected by
             levels of cash flow from operations, by unforeseen hazards such as
             weather conditions, explosions or fires, and by delays in obtaining
             government or partner approval, which could delay the timing of
             completion of particular capital projects. In addition, levels of
             investments may be affected by the ability of equity affiliates to
             obtain external financing.

                Cash from disposal of assets totaled $161 million in 1996,
             compared with $67 million in 1995 and $19 million in 1994. The 1996
             proceeds reflected the sale of U. S. Steel Group's investment in
             National-Oilwell and a portion of its investment in RMI Titanium
             Company common stock ("RMI"). The 1995 proceeds mainly reflected
             property sales.

                In 1996, an aggregate of 6.9 million shares of RMI common stock
             was sold in a public offering. Included in the offering were 2.3
             million shares sold by USX for net proceeds of $40 million.
             Following this transaction, USX owns approximately 27% of the
             outstanding common stock of RMI. USX recognized a pretax gain in
             1996 of $53 million, a portion of which is attributed to a change
             in interest gain resulting from the shares sold by RMI. For
             additional information, see Note 5 to the U. S. Steel Group
             Financial Statements.

                Financial obligations increased by $77 million in 1996, compared
             with a decrease of $403 million in 1995 and a decrease of $20
             million in 1994. These obligations consist of the U. S. Steel
             Group's portion of USX debt and preferred stock of a subsidiary
             attributed to all three groups as well as debt and financing
             agreements specifically attributed to the U. S. Steel Group. The
             increase in 1996 primarily reflected the net effects of cash from
             operating, investing and other financing activities. For a
             discussion of USX financing activities attributed to all three
             groups, see USX Consolidated Management's Discussion and Analysis
             of Financial Condition, Cash Flows and Liquidity.

                In December 1996, USX issued 6 3/4% exchangeable notes due
             February 1, 2000 ("indexed debt") 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 indexed
             debt will be mandatorily exchangeable by USX into shares of RMI
             common stock (or for the equivalent amount of cash, at USX's
             option) at a defined exchange rate, which is based on the average
             market price of RMI common stock value in January 2000. The
             carrying value of the notes is adjusted quarterly to settlement
             value and any resulting adjustment will be charged or credited to
             income and included in interest and other financial costs. The
             carrying value was adjusted to $123 million at December 31, 1996.
             Net proceeds from the issuance of the notes totaled approximately
             $113 million. This amount was reflected in its entirety in the U.
             S. Steel Group financial statements. For additional information,
             See Note 16 to the USX Consolidated Financial Statements.

                Steel Stock issued totaled $51 million in 1996, $218 million in
             1995 and $221 million in 1994. This included public offerings of
             5,000,000 shares in 1995 for net proceeds of $169 million, and
             5,000,000 shares in 1994 for net proceeds of $201 million. These
             amounts were reflected in their entirety in the U. S. Steel Group
             financial statements.


             Pension Activity

                In accordance with USX's long-term funding practice, which is
             designed to maintain an appropriate funded status, USX expects to
             contribute approximately $45 million in 1997 to fund the U. S.
             Steel Group's principal pension plan for the 1996 plan year. This
             amount, which is based on a recently completed long-term funding
             study, is less than the previously disclosed funding projections of
             approximately $100 million annually. 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.

                                      S-27

<PAGE>
 
Management's Discussion and Analysis continued


             Derivative Instruments

                In the normal course of its business, the U. S. Steel Group is
             exposed to market risk, or price fluctuations related to the
             purchase of natural gas and certain metals used as raw materials.
             The U. S. Steel Group uses commodity-based derivative instruments
             (over-the-counter ("OTC") commodity swaps) to manage exposure to
             market risk related to the purchase of natural gas; however, its
             use of these instruments has not been significant in relation to
             the U. S. Steel Group's overall business activity. While these
             instruments are generally used to reduce risks from unfavorable
             commodity price movements, they also may limit the opportunity to
             benefit from favorable movements. For quantitative information
             relating to derivative instruments, including aggregate contract
             values and fair values, where appropriate, see Note 24 to the U. S.
             Steel Group Financial Statements.

                Based on a strategic approach of limiting its use of derivative
             instruments to hedging activities, combined with risk assessment
             procedures and internal controls in place, management believes that
             its use of derivative instruments does not expose the U. S. Steel
             Group to material risk. While such use could materially affect U.
             S. Steel Group's results of operations in particular quarterly or
             annual periods, 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 U. S. Steel Group
             Financial Statements.


             Liquidity

                For discussion of USX's liquidity and capital resources, see USX
             Consolidated Management's Discussion and Analysis of Financial
             Condition, Cash Flows and Liquidity.



Management's Discussion and Analysis of Environmental Matters, Litigation and
Contingencies

                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 Clean Air Act 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. The U. S. Steel Group
             believes that all of its domestic 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
             and production methods. To the extent that competitors are not
             required to undertake equivalent costs in their operations, the
             competitive position of the U. S. Steel Group could be adversely
             affected.

                The U. S. Steel Group's environmental expenditures for the last
             three years were:

<TABLE>
<CAPTION>
(Dollars in millions)                    1996   1995/(a)/  1994/(a)/
- --------------------------------------------------------------------
<S>                                      <C>    <C>        <C>
 
             Capital                     $  90       $ 55       $ 57
             Compliance
              Operating & Maintenance      199        195        202
              Remediation/(b)/              33         35         32
                                         -----       ----       ----
             Total U. S. Steel Group     $ 322       $285       $291
- --------------------------------------------------------------------
</TABLE>

             /(a)/  Based on U. S. Department of Commerce survey guidelines.
             /(b)/  These amounts do not include noncash provisions recorded
               for environmental remediation, but include spending charged
               against such reserves, net of recoveries.

                The U. S. Steel Group's environmental capital expenditures
             accounted for 27%, 17% and 23% of total capital expenditures in
             1996, 1995 and 1994, respectively.

                Compliance expenditures represented 4% of the U. S. Steel
             Group's total operating costs in 1996, 1995 and 1994. Remediation
             spending during 1994 to 1996 was mainly related to dismantlement
             and restoration activities at former and present operating
             locations.

                The U. S. Steel Group continues to seek methods to minimize the
             generation of hazardous wastes in its operations. 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. Since
             the EPA has not yet

                                      S-28

<PAGE>
 
Management's Discussion and Analysis continued

             promulgated implementing regulations relating to past disposal or
             handling operations, 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
             cannot be appraised until their implementation becomes more
             accurately defined.

                A significant portion of the U. S. Steel Group's currently
             identified environmental remediation projects relate to the
             dismantlement and restoration of former and present operating
             locations. These projects include continuing remediation at an in
             situ uranium mining operation, the dismantling of former coke-
             making facilities and the closure of permitted hazardous and non-
             hazardous waste landfills.

                USX has been notified that it is a potential responsible party
             ("PRP") at 24 waste sites related to the U. S. Steel Group under
             the Comprehensive Environmental Response, Compensation and
             Liability Act ("CERCLA") as of December 31, 1996. In addition,
             there are 17 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 or make
             any judgment as to the amount thereof. There are also 41 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. 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 U. S. Steel
             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 U. S.
             Steel Group Financial Statements.

                In 1997, USX will adopt American Institute of Certified Public
             Accountants Statement of Position No. 96-1 - "Environmental
             Remediation Liabilities", which recommends that companies include
             direct costs in accruals for the remediation liabilities. These
             costs include external legal fees applicable to the remediation
             effort and internal administrative costs for attorneys and staff,
             among others. Adoption could result in remeasurement of certain
             remediation accruals and a corresponding charge to operating
             income. USX is conducting a review of its remediation liabilities
             and, at this time, is unable to project the effect, if any, of
             adoption.

                New or expanded environmental requirements, which could increase
             the U. S. Steel 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 U. S. Steel Group does not anticipate
             that environmental compliance expenditures (including operating and
             maintenance and remediation) will materially increase in 1997. The
             U. S. Steel Group's capital expenditures for environmental controls
             are expected to be approximately $62 million in 1997 and are
             expected to be spent on projects primarily at Gary Works.
             Predictions beyond 1997 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 U. S. Steel Group anticipates that
             environmental capital expenditures will be approximately $53
             million in 1998; 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 a 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 which
             are discussed in Note 27 to the U. S. Steel Group Financial
             Statements. 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.

                                      S-29

<PAGE>
 
Management's Discussion and Analysis continued

Management's Discussion and Analysis of Operations

                Average realized steel prices were essentially unchanged in 1996
             versus 1995 as the impact of lower product prices was offset by
             improved product mix as the percentage of high value-added
             shipments increased. In 1995, average realized steel prices were
             1.5 percent higher than in 1994 as higher realized product prices
             were partially offset by less favorable product mix which reflected
             increased shipments of lower valued hot rolled steel.

                Steel shipments were 11.4 million tons in 1996 and 1995, and
             10.6 million tons in 1994. U. S. Steel Group shipments comprised
             approximately 11% of the domestic steel market in 1996. Exports
             accounted for approximately 4% of U. S. Steel Group shipments in
             1996, compared with 13% in 1995 and 3% in 1994.

                Raw steel production was 11.4 million tons in 1996, compared
             with 12.2 million tons in 1995 and 11.7 million tons in 1994. Raw
             steel produced was nearly 100% continuous cast in 1996, 1995 and
             1994. Raw steel production averaged 89% of capability in 1996,
             compared with 97% of capability in 1995 and 97% of capability in
             1994. As a result of improvements in operating efficiency, U. S.
             Steel increased its stated annual raw steel production capability
             by 0.3 million tons to 12.8 millions tons for 1996, following an
             increase of 0.5 million tons in 1995 to 12.5 million tons.

                Carbon cut-to-length plate products accounted for 9% of U. S.
             Steel Group shipments in 1996. 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 Russia, China, Ukraine, and South
             Africa have engaged in unfair trade practices with respect to the
             export of carbon cut-to-length plate to the United States. U. S.
             Steel Group supports these cases. In December 1996, the ITC
             announced a preliminary determination of injury to the domestic
             industry from these unfairly traded imports. In the next step,
             Commerce is required to make a preliminary determination sometime
             during the second quarter of 1997, whether or not carbon cut-to-
             length steel plate is being dumped in the United States from each
             of these four countries. Final determination of dumping, by
             Commerce, and of material injury, by the ITC, may occur sometime
             during the third quarter of 1997.

                Oil country tubular goods ("OCTG") accounted for 6% and 4% of U.
             S. Steel Group shipments in 1996 and 1995, respectively. On June
             30, 1994, in conjunction with six other domestic producers, USX
             filed antidumping and countervailing duty cases with Commerce and
             the ITC asserting that seven foreign nations have engaged in unfair
             trade practices with respect to the export of OCTG. In June 1995,
             Commerce issued its final affirmative determinations of the
             applicable margins of dumping and/or subsidies in the OCTG cases
             against producers in all seven countries. On July 24, 1995, the ITC
             rendered determinations that there had been material injury to
             domestic producers by reason of illegal dumping of imported
             products. Determinations favorable to domestic producers were
             rendered with respect to OCTG imports from Argentina, Italy, Japan,
             Korea and Mexico and with respect to imports of drill pipe from
             Argentina, Japan and Mexico.

                USX will 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. For
             additional information regarding levels of imported steel, see
             discussion of "Outlook" below.

                U. S. Steel entered into a five and one-half year contract with
             the United Steelworkers of America ("USWA"), effective February 1,
             1994, covering approximately 15,000 employees. The contract
             provided for reopener negotiations of specific payroll items with
             the contingency for binding interest arbitration if agreement
             concerning such items was not reached. The parties did not reach a
             settlement and U. S. Steel and the USWA submitted their final
             offers to arbitration. Both final offers follow the settlements
             reached by other major integrated producers through interest
             arbitration. The sole issue in dispute concerns the timing of a
             final lump-sum bonus payment in 1999. Following the interest
             arbitration, which will be held in February or March of 1997, the
             revised contract terms will become retroactively effective as of
             February 1, 1997.

                The U. S. Steel Group depreciates steel assets by modifying
             straight-line depreciation based on the level of production.
             Depreciation charges for 1996, 1995, and 1994 were 94%, 102%, and
             102%, respectively, of straight-line depreciation based on
             production levels for each of the years. In 1996, the modification
             factors used in the depreciation of steel assets reflect the
             increase in raw steel production capability discussed above. See
             Note 2 to the U. S. Steel Group Financial Statements.

                                      S-30

<PAGE>
 
Management's Discussion and Analysis continued

             Outlook for 1997

                The U. S. Steel Group anticipates that steel demand will remain
             relatively strong in 1997 as long as the domestic economy continues
             its pattern of modest growth and the favorable pattern of demand
             for capital goods and consumer durables continues. However, the U.
             S. Steel Group believes supply will increase in 1997 due to higher
             imports, increased production capability for flat-rolled products
             at existing mills, new mini-mill capacity and fewer outages within
             the industry. To reduce the impact of supply increases, the U. S.
             Steel Group will attempt to further increase shipments of higher
             value-added products.

                The world steel industry is characterized by excess production
             capacity which has restricted price increases during periods of
             economic growth and led to price decreases during economic
             contractions. Within the next year, the anticipated availability of
             flat-rolled steel could have an adverse effect on U. S. Steel
             shipment levels as companies attempt to gain or retain market
             share.

                Steel imports to the United States accounted for an estimated
             23%, 21% and 25% of the domestic steel market in 1996, 1995 and
             1994, respectively. Steel imports increased sharply in the second
             half of 1996. In November and December, steel imports accounted for
             an estimated 29% and 25%, respectively, of the domestic market. 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 1997 are
             expected to be lower than in the fourth quarter of 1996 due to a
             seasonal industry decline in first quarter shipments. During the
             second and third quarters of 1997, raw steel production is expected
             to be reduced by an 86 day planned blast furnace reline at the Mon
             Valley Works.

                In February, 1997, the U. S. Steel Group and Kobe Steel, Ltd.,
             of Japan signed a memorandum of understanding to construct a second
             hot-dip galvanized sheet product line at the PRO-TEC Coating
             Company in Leipsic, Ohio, a 50/50 joint venture between USX and
             Kobe Steel. Construction is anticipated to begin in the first
             quarter of 1997 with start-up of operations projected for the third
             quarter of 1998. The new line would add 400,000 tons of annual
             capacity to the venture, bringing the total annual capacity to one
             million tons.

                In addition, U. S. Steel Group and Olympic Steel, Inc. recently
             announced that they will form a 50/50 joint venture to process
             laser welded sheet steel blanks. The joint venture, which will
             conduct business as Olympic Laser Processing, LLC, plans to
             construct a new facility and purchase two laser welding lines in
             1997, 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.

                                      S-31

<PAGE>
 
  Delhi Group


             Index to Financial Statements, Supplementary Data and
             Management's Discussion and Analysis

<TABLE>
<CAPTION>
                                                    Page
                                                    ----
<S>                                                 <C>
Explanatory Note Regarding Financial Information...  D-2
Management's Report................................  D-3
Audited Financial Statements:
       Report of Independent Accountants...........  D-3
       Statement of Operations.....................  D-4
       Balance Sheet...............................  D-5
       Statement of Cash Flows.....................  D-6
       Notes to Financial Statements...............  D-7
Selected Quarterly Financial Data..................  D-18
Principal Unconsolidated Affiliate.................  D-18
Five-Year Operating Summary........................  D-19
Management's Discussion and Analysis...............  D-20
</TABLE>


                                      D-1

<PAGE>
 
  Delhi Group

             Explanatory Note Regarding Financial Information


             Although the financial statements of the Delhi Group, 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 Delhi Group, 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 USX-Delhi Group
             Common Stock, USX-Marathon Group Common Stock and USX-U. S. Steel
             Group Common 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 other 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 all classes of Common Stock.
             Accordingly, the USX consolidated financial information should be
             read in connection with the Delhi Group financial information.

                                      D-2

<PAGE>
 
             Management's Report

             The accompanying financial statements of the Delhi 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 Delhi 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.

Thomas J. Usher                 Robert M. Hernandez        Kenneth L. Matheny
Chairman, Board of Directors    Vice Chairman              Vice President
& Chief Executive Officer       & Chief Financial Officer  & Comptroller


             Report of Independent Accountants

             To the Stockholders of USX Corporation:

             In our opinion, the accompanying financial statements appearing on
             pages D-4 through D-17 present fairly, in all material respects,
             the financial position of the Delhi Group at December 31, 1996 and
             1995, and the results of its operations and its cash flows for each
             of the three years in the period ended December 31, 1996, 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.

                The Delhi Group is a business unit of USX Corporation (as
             described in Note 1, page D-7); accordingly, the financial
             statements of the Delhi 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 11, 1997


                                      D-3

<PAGE>
 
Statement of Operations

<TABLE>
<CAPTION>
             (Dollars in millions)                                                            1996          1995          1994
- ------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                      <C>           <C>           <C>
             Revenues (Note 1,  page D-7)                                                   $1,061.3        $670.5        $585.1
             Operating costs:
              Cost of sales (excludes items shown below) (Note 5,  page D-10)                  967.0         601.7         515.9
              Selling, general and administrative expenses                                      28.6          24.1          28.7
              Depreciation, depletion and amortization                                          27.5          24.8          30.1
              Taxes other than income taxes                                                      7.8           7.3           8.0
              Restructuring charges (credits) (Note 4,  page D-10)                                 -          (6.2)         37.4
                                                                                            --------        ------        ------
                 Total operating costs                                                       1,030.9         651.7         620.1
                                                                                            --------        ------        ------
             Operating income (loss)                                                            30.4          18.8         (35.0)
             Other income (loss) (Note 5,  page D-10)                                             .3           5.4          (1.7)
             Interest and other financial costs (Note 5,  page D-10)                           (20.7)        (15.7)        (11.8)
                                                                                            --------        ------        ------
             Income (loss) before income taxes and extraordinary loss                           10.0           8.5         (48.5)
             Less provision (credit) for estimated income taxes (Note 12,  page D-13)            3.6           4.5         (17.6)
                                                                                            --------        ------        ------
             Income (loss) before extraordinary loss                                             6.4           4.0         (30.9)
             Extraordinary loss (Note 6,  page D-10)                                             (.5)          (.3)            -
                                                                                            --------        ------        ------
             Net income (loss)                                                                   5.9           3.7         (30.9)
             Dividends on preferred stock                                                          -           (.2)          (.1)
             Net loss (income) applicable to Retained Interest (Note 1,  page D-7)                 -          (2.4)         10.1
                                                                                            --------        ------        ------
             Net income (loss) applicable to outstanding Delhi Stock                        $    5.9        $  1.1        $(20.9)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


             Income Per Common Share of Delhi Stock

<TABLE>
<CAPTION>
 
(Dollars in millions, except per share data)                                1996          1995          1994
- ----------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>           <C>
 
             Income (loss) before extraordinary loss applicable
              to outstanding Delhi Stock                                     $  6.4        $  1.4        $(20.9)
             Extraordinary loss                                                 (.5)          (.3)            -
                                                                             ------        ------        ------
             Net income (loss) applicable to outstanding Delhi Stock         $  5.9        $  1.1        $(20.9)
             Primary and fully diluted per share:
             Income (loss) before extraordinary loss applicable
              to outstanding Delhi Stock                                     $  .68        $  .15        $(2.22)
             Extraordinary loss                                                (.06)         (.03)            -
                                                                             ------        ------        ------
             Net income (loss) applicable to outstanding Delhi Stock         $  .62        $  .12        $(2.22)
             Weighted average shares, in thousands
                       - primary                                              9,451         9,442         9,407
                       - fully diluted                                        9,453         9,442         9,407
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

             See Note 1, page D-7, for basis of presentation and Note 20, page
             D-15, for a description of net income per common share.
             The accompanying notes are an integral part of these financial
               statements.

                                      D-4

<PAGE>
 
Balance Sheet

<TABLE>
<CAPTION>
(Dollars in millions)                                 December 31         1996         1995
- -------------------------------------------------------------------------------------------
<S>                                                                <C>          <C>
Assets
Current assets:
 Cash and cash equivalents                                              $   .4         $1.9
 Receivables, less allowance for doubtful accounts
  of $.8 and $.8 (Note 17,  page D-14)                                   131.3         93.5
 Inventories (Note 11,  page D-12)                                         8.6         10.7
 Other current assets                                                      5.4          3.2
                                                                        ------       ------
   Total current assets                                                  145.7        109.3
Long-term receivables and investments (Note 14,  page D-14)                5.8          8.3
Property, plant and equipment - net (Note 15,  page D-14)                555.3        502.3
Other noncurrent assets                                                    7.8          4.4
                                                                        ------       ------
   Total assets                                                         $714.6       $624.3
- ------------------------------------------------------------------------------------------- 
Liabilities
Current liabilities:
 Notes payable                                                          $  4.3         $1.6

 Accounts payable                                                        196.3        137.8
 Payroll and benefits payable                                              4.2          3.8
 Accrued taxes                                                             5.4          7.0
 Accrued interest                                                          5.3          4.9
 Long-term debt due within one year (Note 7,  page D-10)                  16.5         18.8
                                                                        ------       ------
   Total current liabilities                                             232.0        173.9
Long-term debt (Note 7,  page D-10)                                      202.7        182.0
Long-term deferred income taxes (Note 12,  page D-13)                    139.7        135.9
Deferred credits and other liabilities                                    20.2         16.5
Preferred stock of subsidiary (Note 8,  page D-11)                         3.8          3.8
                                                                        ------       ------
   Total liabilities                                                     598.4        512.1
Stockholders' Equity (Note 18,  page D-15)                               116.2        112.2
                                                                        ------       ------
   Total liabilities and stockholders' equity                           $714.6       $624.3
- -------------------------------------------------------------------------------------------
</TABLE>

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

                                      D-5

<PAGE>
 
Statement of Cash Flows


<TABLE>
<CAPTION>
(Dollars in millions)                                          1996          1995          1994
- ------------------------------------------------------------------------------------------------
<S>                                                          <C>      <C>           <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income (loss)                                            $  5.9        $  3.7        $(30.9)
Adjustments to reconcile to net cash provided from
 operating activities:
  Extraordinary loss                                             .5            .3             -
  Depreciation, depletion and amortization                     27.5          24.8          30.1
  Pensions                                                      1.3            .7           2.5
  Deferred income taxes                                         3.2           3.1         (20.9)
  Gain on disposal of assets                                    (.5)          (.5)          (.8)
  Payment of amortized discount on zero coupon debentures         -          (4.4)            -
  Restructuring charges (credits)                                 -          (6.2)         37.4
  Changes in: Current receivables - sold                          -         (18.3)         (5.4)
     - operating turnover                                     (40.7)        (62.5)         16.8
    Inventories                                                 2.1           (.8)          (.3)
    Current accounts payable and accrued expenses              59.6          64.8         (11.6)
  All other - net                                               1.8          (3.6)          3.4
                                                             ------        ------        ------
   Net cash provided from operating activities                 60.7           1.1          20.3
                                                             ------        ------        ------
Investing activities:
Capital expenditures                                          (80.6)        (50.0)        (32.1)
Disposal of assets                                               .6          12.7          11.8
All other - net                                                   -           3.6             -
                                                             ------        ------        ------
   Net cash used in investing activities                      (80.0)        (33.7)        (20.3)
                                                             ------        ------        ------
Financing activities (Note 3,  page D-9):
Increase (decrease)  in Delhi Group's share of
  USX consolidated debt                                        19.7          97.6          (4.5)
Elimination of Marathon Group Retained Interest                   -         (58.2)            -
Preferred stock redeemed                                          -          (2.5)            -
Attributed preferred stock of subsidiary                          -             -           3.7
Dividends paid                                                 (1.9)         (2.0)         (1.9)
Payment attributed to Retained Interest                           -           (.5)         (1.0)
                                                             ------        ------        ------
   Net cash provided from (used in) financing activities       17.8          34.4          (3.7)
                                                             ------        ------        ------
Net increase (decrease) in cash and cash equivalents           (1.5)          1.8          (3.7)
Cash and cash equivalents at beginning of year                  1.9            .1           3.8
                                                             ------        ------        ------
Cash and cash equivalents at end of year                     $   .4        $  1.9        $   .1
- ------------------------------------------------------------------------------------------------
</TABLE>

             See Note 9, page D-11, for supplemental cash flow information.
             The accompanying notes are an integral part of these financial
               statements.

                                      D-6

<PAGE>
 
             Notes to Financial Statements

1. Basis of Presentation

             USX Corporation (USX) has three classes of common stock: USX -
             Delhi Group Common Stock (Delhi 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
             Delhi Group, the Marathon Group and the U. S. Steel Group,
             respectively.

                The financial statements of the Delhi Group include the
             financial position, results of operations and cash flows for the
             businesses of the Delhi Gas Pipeline Corporation and certain other
             subsidiaries of USX. The Delhi Group is engaged in the purchasing,
             gathering, processing, treating, transporting and marketing of
             natural gas. The Delhi Group financial statements are prepared
             using the amounts included in the USX consolidated financial
             statements.

                The USX Board of Directors, prior to June 15, 1995, had
             designated 14,003,205 shares of Delhi Stock as the total number of
             shares of Delhi Stock which it deemed 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 Retained Interest
             in the earnings and equity of the Delhi Group of approximately 33%
             through June 14, 1995. The Retained Interest was subject to
             reduction as shares of Delhi Stock attributed to the Retained
             Interest were sold. (See Note 3, page D-9, for a description of
             common stock transactions.)

                USX eliminated the Marathon Group's Retained Interest in the
             Delhi Group (equivalent to 4,564,814 shares of Delhi Stock) on June
             15, 1995. This was accomplished through a reallocation of assets
             and a corresponding adjustment to debt and equity attributed to the
             Delhi and Marathon Groups. The reallocation was made at a price of
             $12.75 per equivalent share of Delhi Stock, or an aggregate of
             $58.2 million. Assuming the elimination had occurred as of January
             1, 1995, Delhi Group net income per share for the year 1995 would
             have been $.23 per share, compared to reported results of $.12 per
             share. The above unaudited supplemental per share data are not
             necessarily indicative of future results, which will be dependent
             upon future operating results relative to the cost of the
             incremental debt.

                Although the financial statements of the Delhi Group, 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 Delhi Group, 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 Delhi Stock, 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 other groups. In addition,
             net losses of any Group, as well as dividends and distributions on
             any class of USX Common Stock and 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. Accordingly, the USX consolidated
             financial information should be read in connection with the Delhi
             Group financial information.

                During 1996 and 1994, sales to one customer who accounted for 10
             percent or more of the Delhi Group's total revenues were $106.9
             million and $71.7 million, respectively. In addition, sales to
             several customers having a common parent aggregated $54.7 million
             during 1994.

                                      D-7

<PAGE>
 
- --------------------------------------------------------------------------------
2. Summary of Principal Accounting Policies

             Principles applied in consolidation - These financial statements
             include the accounts of the businesses comprising the Delhi Group.
             The Delhi 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 jointly-owned gas processing plants are accounted
             for on a pro rata basis.

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

             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 average cost or
             market.

             Derivative instruments - The Delhi Group engages in commodity risk
             management activities within the normal course of its business as
             an end-user of derivative instruments (Note 22, page D-16).
             Management is authorized to manage exposure to price fluctuations
             related to the purchase or sale of natural gas and natural gas
             liquids 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 Delhi 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 sales or cost of sales, in
             the same period as the underlying transaction. OTC swaps are off-
             balance-sheet instruments. The effect of changes in the market
             indices related to OTC swaps are recorded and recognized in income
             with the underlying transaction. 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. Premiums on all commodity-based option contracts are
             initially based on the amount paid or received; the options' market
             value is subsequently recorded as a receivable or payable, as
             appropriate.

                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
             flow 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 on a
             straight-line method based upon estimated lives of assets.

                When an entire pipeline system, 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 Delhi 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 value analysis.

             Insurance - The Delhi Group is insured for catastrophic casualty
             and certain property 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 1996 classifications.

                                      D-8

<PAGE>
 
- --------------------------------------------------------------------------------
3. 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 Delhi Group, the Marathon Group and the U. S.
             Steel 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 three groups. See Note 8, page D-11,
             for the Delhi Group's portion of USX's financial activities
             attributed to all three 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 Delhi Group, the Marathon
             Group and the U. S. Steel 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 Delhi Group were
             $2.0 million in 1996 and 1995, and $1.7 million in 1994, and
             primarily consist of employment costs including pension effects,
             professional services, facilities and other related costs
             associated with corporate activities.

             Common stock transactions - The proceeds from issuances of Delhi
             Stock representing shares attributable to the Retained Interest,
             prior to June 15, 1995, were reflected in the financial statements
             of the Marathon Group (Note 1, page D-7). All proceeds from
             issuances of additional shares of Delhi Stock not deemed to
             represent the Retained Interest will be reflected in their entirety
             in the financial statements of the Delhi Group. When a dividend or
             other distribution, prior to June 15, 1995, was paid or distributed
             in respect to the outstanding Delhi Stock, or any amount paid to
             repurchase shares of Delhi Stock generally, 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.

             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 will be reflected in the Delhi Group, the Marathon Group
             and the U. S. Steel 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 Delhi Group, the Marathon Group and the U.
             S. Steel Group, for 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 three
             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 three 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, allocated group
             amounts of taxes payable or refundable are not necessarily
             comparable to those that would have resulted if the groups had
             filed separate returns.

                                      D-9

<PAGE>
 
- --------------------------------------------------------------------------------
4. Restructuring Charges (Credits)

             In 1994, the planned disposition of certain nonstrategic gas
             gathering and processing assets and other investments resulted in a
             $37.4 million charge to operating income and a $2.5 million charge
             to other income for the write-down of assets to their estimated net
             realizable value. Disposition of these assets was completed in 1995
             at higher than anticipated sales proceeds, resulting in a $6.2
             million credit to operating income and a $5.0 million credit to
             other income.
 
5. Other Items


<TABLE> 
<CAPTION> 
(In millions)                                                        1996     1995     1994
- ---------------------------------------------------------------------------------------------
<S>                                                                 <C>      <C>      <C>
 Cost of sales included:
  Gas purchases                                                     $925.7   $561.7   $469.1
  Operating expenses                                                  41.3     40.0     46.8
                                                                    ------   ------   ------
   Total                                                            $967.0   $601.7   $515.9
- ---------------------------------------------------------------------------------------------
 Other income (loss):
  Income from affiliates - equity method                            $   .2   $   .4   $   .7
  Restructuring (charge) credit (Note 4,  page D-10)                     -      5.0     (2.5)
  Other                                                                 .1        -       .1
                                                                    ------   ------   ------
   Total                                                            $   .3   $  5.4   $ (1.7)
- ---------------------------------------------------------------------------------------------
 Interest and other financial costs/(a)/:
  Interest incurred                                                 $(16.1)  $(10.4)  $ (7.2)
  Financial costs on preferred stock of subsidiary                    (1.0)     (.6)     (.3)
  Expenses on sales of accounts receivable (Note 17,  page D-14)      (2.9)    (3.7)    (3.3)
  Amortization of discounts                                            (.5)     (.6)     (.8)
  Other                                                                (.2)     (.4)     (.2)
                                                                    ------   ------   ------
   Total                                                            $(20.7)  $(15.7)  $(11.8)
- ---------------------------------------------------------------------------------------------
</TABLE>

/(a)/  See Note 3, page D-9, for discussion of USX interest and
       other financial costs attributable to the Delhi Group.

- --------------------------------------------------------------------------------
6. Extraordinary Loss

             On December 30, 1996, USX irrevocably called for redemption on
             January 30, 1997, $120 million of debt, resulting in an
             extraordinary loss to the Delhi Group of $.5 million, net of a $.3
             million income tax benefit. In 1995, USX extinguished $553 million
             of debt prior to maturity, which resulted in an extraordinary loss
             to the Delhi Group of $.3 million, net of a $.1 million income tax
             benefit.


- --------------------------------------------------------------------------------
7. Long-Term Debt

             The Delhi Group's portion of USX's consolidated long-term debt is
             as follows:


<TABLE>
<CAPTION>
                                                                            Delhi Group        Consolidated USX/(a)/
                                                                      -----------------------  ---------------------
(In millions)                                            December 31     1996         1995       1996      1995
- --------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>          <C>         <C>         <C>
                                                                                                           
Debt attributed to all three groups/(b)/                               $220.6       $202.7      $3,949     $4,810
 Less unamortized discount                                                1.4          1.9          25         47
 Less amount due within one year                                         16.5         18.8         309        460
                                                                       ------       ------      ------     ------
  Total long-term debt attributed to all three groups                  $202.7       $182.0      $3,615     $4,303
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

/(a)/  See Note 16, page U-20, to the USX consolidated financial statements for
       details of interest rates, maturities and other terms of long-term debt.
/(b)/  Most long-term debt activities of USX Corporation and its wholly owned
       subsidiaries are attributed to all three groups (in total, but not with
       respect to specific debt issues) based on their respective cash flows
       (Notes 3, page D-9; 8, page D-11; and 9, page D-11).

                                      D-10

<PAGE>
 
- --------------------------------------------------------------------------------
8. Financial Activities Attributed to All Three Groups

             The following is Delhi Group's portion of USX's financial
             activities attributed to all groups based on their respective cash
             flows as described in Note 3, page D-9.

<TABLE>
<CAPTION>
                                                                     Delhi Group      Consolidated USX/(a)/
                                                                   ---------------    ---------------------
(In millions)                                    December 31         1996     1995      1996       1995
- -----------------------------------------------------------------------------------------------------------
<S>                                                                <C>      <C>       <C>        <C>
Cash and cash equivalents                                             $.4     $1.9    $    8     $   47
Receivables/(b)/                                                        -      3.0         -         73
Long-term receivables/(b)/                                             .9      1.2        16         29
Other noncurrent                                                                      
 assets/(b)/                                                           .4       .3         8          8
                                                                   ------   ------   -------   --------
  Total assets                                                       $1.7     $6.4    $   32     $  157
- -----------------------------------------------------------------------------------------------------------
Notes payable                                                        $4.3     $1.6    $   80     $   40
Accounts payable                                                        -      1.9         2         46
Accrued interest                                                      5.3      4.9        98        119
Long-term debt due within one year (Note 7,  page D-10)              16.5     18.7       309        460
Long-term debt (Note 7,                                                               
 page D-10)                                                         202.7    182.1     3,615      4,303
Preferred stock of                                                                    
 subsidiary                                                           3.8      3.8       250        250
                                                                   ------   ------   -------   --------
  Total liabilities                                                $232.6   $213.0    $4,354     $5,218
- -----------------------------------------------------------------------------------------------------------
<CAPTION> 
                                         Delhi Group/(c)/                          Consolidated USX
                                  ----------------------------------       --------------------------------
(In millions)                       1996         1995         1994           1996         1995         1994
- -----------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>          <C>            <C>          <C>          <C> 
Net interest and other                                                                        
 financial costs (Note 5,                                                                     
  page D-10)                      $(17.5)      $(11.6)      $(8.3)         $ (376)      $ (439)      $ (471)
- -----------------------------------------------------------------------------------------------------------
</TABLE>

/(a)/  For details of USX long-term debt and preferred stock of subsidiary, see
       Notes 16, page U-20; and 26, page U-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 Delhi Group's net interest and other financial costs reflect weighted
       average effects of all financial activities attributed to all three
       groups.

- --------------------------------------------------------------------------------
9. Supplemental Cash Flow Information


<TABLE>
<CAPTION>
(In millions)                                                     1996      1995    1994
- -----------------------------------------------------------------------------------------------------------
<S>                                                             <C>        <C>      <C>
 Cash used in operating activities included:
  Interest and other financial costs paid                       $  (19.7)  $ (17.2)    $ (11.2)
  Income taxes paid, including settlements with other groups         (.1)     (3.0)        (.5)
- ----------------------------------------------------------------------------------------------------------- 
 USX debt attributed to all three groups - net:
  Commercial paper:
   Issued                                                       $  1,422   $ 2,434     $ 1,515
   Repayments                                                     (1,555)   (2,651)     (1,166)
  Credit agreements:
   Borrowings                                                     10,356     4,719       4,545
   Repayments                                                    (10,340)   (4,659)     (5,045)
  Other credit arrangements - net                                    (36)       40           -
  Other debt:
   Borrowings                                                         78        52         509
   Repayments                                                       (705)     (440)       (791)
                                                                --------   -------      -------
    Total                                                       $   (780)  $  (505)    $  (433)
 -----------------------------------------------------------------------------------------------------------
  Delhi Group activity                                          $     20   $    98     $    (5)
  Marathon Group activity                                           (769)     (204)       (371)
  U. S. Steel Group activity                                         (31)     (399)        (57)
                                                                --------   -------     -------
    Total                                                       $   (780)  $  (505)    $  (433)
- ----------------------------------------------------------------------------------------------------------- 
 Noncash investing and financing activities:
  Acquisition of assets - debt issued                           $    1.8   $     -     $     -
- -----------------------------------------------------------------------------------------------------------
</TABLE>


                                      D-11

<PAGE>
 
- --------------------------------------------------------------------------------
10. Pensions

             The Delhi Group has a noncontributory defined benefit plan covering
             all employees over 21 years of age who have one or more years of
             continuous service. Benefits are based primarily on years of
             service and compensation during the later years of employment. The
             funding policy for the plan provides that payments to the pension
             trust 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 1996, 1995 and
             1994 was determined assuming an expected long-term rate of return
             on plan assets of 10%, 9.5% and 9%, respectively.

<TABLE>
<CAPTION>
(In millions)                                                              1996          1995          1994
- -------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>           <C>
Cost of benefits earned during the period                                  $ 1.9         $ 1.6         $ 1.9
Interest cost on projected benefit obligation
 (7% for 1996; 8% for 1995; and 6.5% for 1994)                               3.0           2.8           2.8
Return on assets - actual loss (return)                                     (4.9)         (7.5)           .2
                 - deferred gain (loss)                                      2.1           4.8          (2.9)
Net amortization of unrecognized losses                                       .3             -            .2
                                                                           -----         -----         -----
    Total periodic pension cost                                              2.4           1.7           2.2
Curtailment loss                                                               -             -            .2
                                                                           -----         -----         -----
    Total pension cost                                                      $2.4         $ 1.7         $ 2.4
- -------------------------------------------------------------------------------------------------------------
</TABLE>


             Funds' status - The assumed discount rate used to measure the
             benefit obligations was 7.5% at December 31, 1996, and 7% at
             December 31, 1995. The assumed rate of future increases in
             compensation levels was 4.5% at both year-ends. The following table
             sets forth the plans' funded status and the amounts reported in the
             Delhi Group's balance sheet:

<TABLE>
<CAPTION>
(In millions)                                                  December 31                  1996          1995
- ---------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>           <C>
 
 Reconciliation of funds' status to reported amounts:
 Projected benefit obligation (PBO)/(a)/                                                  $(39.7)       $(43.7)
 Plan assets at fair market value/(b)/                                                      33.1          30.5
                                                                                          ------        ------
    Assets less than PBO                                                                    (6.6)        (13.2)
  Unrecognized net gain from transition                                                     (2.4)         (2.7)
  Unrecognized prior service cost                                                            2.6           2.9
  Unrecognized net loss (gain)                                                              (2.3)          5.5
  Additional minimum liability                                                               (.3)          (.1)
                                                                                          ------        ------
    Net pension liability included in balance sheet                                       $ (9.0)       $ (7.6)
- ---------------------------------------------------------------------------------------------------------------
 /(a)/  PBO includes:
   Accumulated benefit obligation                                                         $ 30.8         $33.6
   Vested benefit obligation                                                                29.9          32.7
 /(b)/  Types of assets held:
   Stocks of other corporations                                                               69%           69%
   U.S. Government securities                                                                 16%           17%
   Corporate debt instruments and other                                                       15%           14%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
 

- --------------------------------------------------------------------------------
11. Inventories


<TABLE> 
<CAPTION> 
 (In millions)                                                       December 31            1996      1995
- -----------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>      <C> 
 Natural gas in storage                                                                   $  6.4   $   9.4
 Natural gas liquids in storage                                                               .1        .2
 Materials and supplies                                                                      2.1       1.1
                                                                                          ------   -------
    Total                                                                                 $  8.6   $  10.7
- ---------------------------------------------------------------------------------------------------------------
</TABLE>


                                      D-12

<PAGE>
 
- --------------------------------------------------------------------------------
12. Income Taxes

             Income tax provisions and related assets and liabilities attributed
             to the Delhi Group are determined in accordance with the USX group
             tax allocation policy (Note 3, page D-9).
                Provisions (credits) for estimated income taxes were:


<TABLE>
<CAPTION>
                                            1996                          1995                        1994
                                --------------------------   ---------------------------   -----------------------------
(In millions)                   Current   Deferred   Total   Current    Deferred   Total   Current   Deferred    Total
- ------------------------------------------------------------------------------------------------------------------------
<S>                             <C>       <C>        <C>     <C>        <C>        <C>     <C>       <C>         <C>
Federal                         $.1       $ 2.8      $2.9    $ .3       $ 3.3      $ 3.6   $2.7      $(17.3)     $(14.6)
State and local                  .3          .4        .7     1.1         (.2)        .9     .6        (3.6)       (3.0)
                                ---       -----      ----    ----       -----      -----   ----      ------      ------
    Total                       $.4       $ 3.2      $3.6    $1.4       $ 3.1      $ 4.5   $3.3      $(20.9)     $(17.6)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

    
                In 1996 and 1995, the extraordinary loss on extinguishment of
             debt included a tax benefit of $.3 million and $.1 million,
             respectively (Note 6, page D-10).
                A reconciliation of federal statutory tax rate (35%) to total
             provisions (credits) follows:


<TABLE>
<CAPTION>
(In millions)                                                            1996          1995          1994
- -----------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>           <C>
Statutory rate applied to income (loss) before taxes                     $ 3.5        $  3.0        $(17.0)
Dispositions of subsidiary investments                                       -           1.6             -
State and local income taxes after federal income tax effects               .5            .6          (2.0)
Officers' life insurance                                                   (.4)          (.3)          (.2)
Adjustment of prior years' income taxes                                    (.2)          (.5)          1.2
Other                                                                       .2            .1            .4
                                                                         -----        ------        ------
  Total provisions (credits)                                             $ 3.6        $  4.5        $(17.6)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
 
 
 Deferred tax assets and liabilities were:


<TABLE> 
<CAPTION> 
(In millions)                                                      December 31          1996          1995
- -----------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>           <C>
Deferred tax assets                                                                   $ 15.2        $ 12.5
Deferred tax liabilities (primarily relate to property, plant and equipment)           154.3         148.3
                                                                                      ------        ------
  Net deferred tax liabilities                                                        $139.1        $135.8
- -----------------------------------------------------------------------------------------------------------
</TABLE>


                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.


- --------------------------------------------------------------------------------
13. Leases

             Future minimum commitments for operating leases having remaining
             noncancelable lease terms in excess of one year are as follows:

<TABLE>
<CAPTION>
                                                            Operating
(In millions)                                                Leases
- --------------------------------------------------------------------------------
<S>                                                     <C>
 
1997                                                          $ 3.0
1998                                                            2.7
1999                                                            2.5
2000                                                            2.0
2001                                                            1.6
Later years                                                     1.6
                                                              -----
  Total minimum lease payments                                $13.4
- --------------------------------------------------------------------------------
</TABLE>
 
 
 Operating lease rental expense:


<TABLE> 
<CAPTION> 
(In millions)                              1996   1995    1994     
- --------------------------------------------------------------------------------
<S>                                       <C>    <C>     <C>       
                                                                  
Minimum rental                            $ 4.5  $ 4.6   $ 5.0     
Contingent rental                            .8    1.2     1.1     
                                          -----  -----   -----     
  Rental expense                          $ 5.3  $ 5.8   $ 6.1     
- --------------------------------------------------------------------------------
</TABLE>


                The Delhi Group leases a wide variety of facilities and
             equipment under operating leases, including building space, office
             equipment and production equipment. Contingent rental includes
             payments for the lease of a pipeline system owned by an affiliate;
             payments to the lessor are based on the volume of gas transported
             through the pipeline system less certain operating expenses. Most
             long-term leases include renewal options and, in certain leases,
             purchase options.

                                      D-13

<PAGE>
 
- --------------------------------------------------------------------------------
14. Long-Term Receivables and Investments


<TABLE> 
<CAPTION> 
(In millions)                      December 31     1996         1995
- --------------------------------------------------------------------------------
<S>                                                <C>          <C>
Receivables due after one year                     $ 2.8        $ 4.8
Forward currency contracts                            .9          1.2
Equity method investments                            2.0          2.2
Other                                                 .1           .1
                                                   -----        -----
    Total                                          $ 5.8        $ 8.3
- --------------------------------------------------------------------------------
</TABLE>
 
 
             Summarized financial information of affiliates accounted for by the
             equity method of accounting follows:


<TABLE> 
<CAPTION> 
(In millions)                                1996         1995         1994
- --------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C> 
Income data - year:                      
 Revenues                                    $  .8        $ 8.2        $20.4
 Operating income                               .4          2.8          6.3
 Net income                                     .4          2.1          3.6
- --------------------------------------------------------------------------------
Balance sheet data - December 31:        
 Current assets                              $  .3        $  .5
 Noncurrent assets                             3.6          3.9
- --------------------------------------------------------------------------------
</TABLE>


                Partnership distributions received from equity affiliates were
             $.4 million in 1996, $3.6 million in 1995 and $.4 million in 1994.

- --------------------------------------------------------------------------------
15. Property, Plant and Equipment


<TABLE>
<CAPTION>
(In millions)                               December 31        1996         1995
- --------------------------------------------------------------------------------
<S>                                                           <C>         <C>
                                                                         
 Gas gathering systems                                        $  864.5    $799.4
 Gas processing plants                                           123.3     119.0
 Other                                                            20.1      17.8
                                                              --------    ------
  Total                                                        1,007.9     936.2
 Less accumulated depreciation, depletion and amortization       452.6     433.9
                                                              --------    ------
  Net                                                         $  555.3    $502.3
- --------------------------------------------------------------------------------
</TABLE>


- --------------------------------------------------------------------------------
16. Intergroup Transactions

             Sales and purchases - Delhi Group sales to the Marathon Group
             totaled $9.2 million, $6.1 million and $4.1 million in 1996, 1995
             and 1994, respectively. Delhi Group purchases from the Marathon
             Group totaled $66.3 million, $37.0 million and $41.6 million in
             1996, 1995 and 1994, respectively. At December 31, 1996 and 1995,
             Delhi Group trade receivables included $1.8 million and $.9
             million, respectively, related to transactions with the Marathon
             Group. At December 31, 1996 and 1995, Delhi Group trade payables
             included $15.9 million and $6.0 million, respectively, 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, 1996 and 1995, amounts receivable from/payable to other groups
             for income taxes were included in the balance sheet as follows:

<TABLE>
<CAPTION>
(In millions)                               December 31  1996    1995
- --------------------------------------------------------------------------------
<S>                                                     <C>      <C>
Current:
 Receivables                                            $ 1.3    $.3
 Accounts payable                                         1.2     .1
Noncurrent:
 Deferred credits and other liabilities                   1.6      -
- --------------------------------------------------------------------------------
</TABLE>


                These amounts have been determined in accordance with the tax
             allocation policy described in Note 3, page D-9. 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.


- --------------------------------------------------------------------------------
17. Sales of Receivables

             The Delhi Group participates in an agreement (the program) to sell
             an undivided interest in certain accounts receivable subject to
             limited recourse. Payments are collected from the sold accounts
             receivable; the collections are reinvested in new accounts
             receivable for the buyers; and a yield, based on short-term market
             rates, is transferred to the buyers. At December 31, 1996, the
             amount sold under the program that had not been collected was $50.0
             million, which will be forwarded to the buyers at the end of the
             agreement in 1997, or in the event of earlier contract termination.
             If the Delhi Group does not have a sufficient quantity of eligible
             accounts receivable to reinvest in for the buyers, the size

                                      D-14

<PAGE>
 
             of the program will be reduced accordingly. The amount sold under
             the current and prior programs averaged $50.0 million, $56.5
             million and $72.5 million for the years 1996, 1995 and 1994,
             respectively. The buyers have rights to a pool of receivables that
             must be maintained at a level of at least 110% of the program size.
             A substantial portion of the Delhi Group's sales are to local
             distribution companies and electric utilities. This could impact
             the Delhi Group's overall exposure to credit risk inasmuch as these
             customers could be affected by similar economic or other
             conditions. The Delhi 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.

- --------------------------------------------------------------------------------
18. Stockholders' Equity


<TABLE>
<CAPTION>
(In millions, except per share data)                                        1996       1995     1994
- -----------------------------------------------------------------------------------------------------
<S>                                                                      <C>         <C>      <C>
 Preferred stock:                                                           
  Balance at beginning of year                                             $    -    $  2.5   $  2.5
  Redeemed                                                                      -      (2.5)       -
                                                                           ------    ------   ------
  Balance at end of year                                                   $    -    $    -   $  2.5
                                                                           
- -----------------------------------------------------------------------------------------------------
 Common stockholders' equity (Note 3,  page D-9):                          
  Balance at beginning of year                                             $112.2    $169.3   $203.0
  Net income (loss)                                                           5.9       3.7    (30.9)
  Elimination of Marathon Group Retained Interest (Note 1,  page D-7)           -     (58.2)       -
  Dividends on Delhi Stock (per share $.20)                                  (1.9)     (1.8)    (1.8)
  Dividends on preferred stock                                                  -       (.2)     (.1)
  Payment attributed to Retained Interest (Note 3,  page D-9)                   -       (.5)    (1.0)
  Deferred compensation adjustments                                             -       (.1)      .1
                                                                           ------    ------   ------
  Balance at end of year                                                   $116.2    $112.2   $169.3
- -----------------------------------------------------------------------------------------------------
 Total stockholders' equity                                                $116.2    $112.2   $171.8
- -----------------------------------------------------------------------------------------------------
</TABLE>


- --------------------------------------------------------------------------------
19. Dividends

             In accordance with the USX Certificate of Incorporation, dividends
             on the Delhi Stock, 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 Delhi Stock based on the financial
             condition and results of operations of the Delhi Group, although it
             has no obligation under Delaware law to do so. In making its
             dividend decisions with respect to Delhi Stock, the Board of
             Directors considers among other things, the long-term earnings and
             cash flow capabilities of the Delhi Group as well as the dividend
             policies of similar publicly traded companies.

                Dividends on the Delhi Stock are further limited to the
             Available Delhi Dividend Amount. At December 31, 1996, the
             Available Delhi Dividend Amount was at least $106.7 million. The
             Available Delhi Dividend Amount will be increased or decreased, as
             appropriate, to reflect Delhi net income, dividends, repurchases or
             issuances with respect to the Delhi Stock and preferred stock
             attributed to the Delhi Group and certain other items.

- --------------------------------------------------------------------------------
20. Net Income Per Common Share

             The method of calculating net income (loss) per share for the Delhi
             Stock, Marathon Stock and Steel Stock reflects the USX Board of
             Directors' intent that the separately reported earnings and surplus
             of the Delhi Group, the Marathon Group and the U. S. Steel 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.

                Primary net income (loss) per share is calculated by adjusting
             net income (loss) for dividend requirements of preferred stock and
             income (loss) that was applicable to the Retained Interest and is
             based on the weighted average number of common shares outstanding
             plus common stock equivalents, provided they are not antidilutive.
             Common stock equivalents result from assumed exercise of stock
             options, where applicable.

                Fully diluted net income (loss) per share assumes exercise of
             stock options, provided the effect is not antidilutive.

                                      D-15

<PAGE>
 
- --------------------------------------------------------------------------------
21. Stock-Based Compensation Plans and Stockholder Rights Plan

             USX Stock-Based Compensation Plans and Stockholder Rights Plan are
             discussed in Note 21, page U-22, and Note 25, page U-25,
             respectively, to the USX consolidated financial statements.

                During 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 1, page U-11, to the
             USX consolidated financial statements. The Delhi Group's actual
             stock-based compensation expense was $.3 million in 1996 and $.1
             million in 1995 and 1994. Incremental compensation expense, as
             determined under SFAS No. 123, was not material. Therefore, pro
             forma net income and earnings per share data have been omitted.

- --------------------------------------------------------------------------------
22. Derivative Instruments

             The Delhi Group uses commodity-based derivative instruments to
             manage exposure to price fluctuations related to the anticipated
             purchase and sale of natural gas and natural gas liquids. 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
             Delhi Group.

                The Delhi 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 Delhi 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, 1996:                                            
 Exchange-traded commodity futures             $    -               $      -         $ (.1)         $10.5
 Exchange-traded co