<PAGE>
 
                                   FORM 10-K                                2000

                                 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, 2000
                                      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                              8-3/4% Cumulative Monthly Income Preferred Shares,
   Common Stock, par value $1.00                  Series A (Liquidation Preference $25 per share)**/(a)/
USX-U. S. Steel Group                           6.75% Convertible Quarterly Income Preferred
   Common Stock, par value $1.00                  Securities (Initial Liquidation Amount $50 per
6.50% Cumulative Convertible Preferred            Security)***/(a)/
   (Liquidation Preference $50.00 per share)    7% Guaranteed Notes Due 2002 of Marathon Oil
                                                  Company/(a)/
========================================================================================================
</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,
2001: $10 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 308,269,864 shares of USX-Marathon Group Common Stock and 88,767,023
shares of USX-U. S. Steel Group Common Stock outstanding as of January 31, 2001.

Documents Incorporated By Reference:
  Proxy Statement dated March 12, 2001 is incorporated in Part III.
  Proxy Statement dated March 9, 1998 is incorporated in Part IV.

_______________
   *  These securities are listed on the New York Stock Exchange.  In addition,
      the Common Stocks are listed on The Chicago Stock Exchange and the Pacific
      Exchange.
  **  Issued by USX Capital LLC.
 ***  Issued by USX Capital Trust I.
/(a)/ Obligations of Marathon Oil Company, USX Capital LLC and USX Capital Trust
      I, all wholly owned subsidiaries of the registrant, have been guaranteed
      by the registrant.

<PAGE>
 
                                     INDEX


<TABLE> 
<S>                                                                      <C>

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

  Item 1.  BUSINESS                                                      
             USX CORPORATION...........................................     3
             MARATHON GROUP............................................     5
             U.S. STEEL GROUP..........................................    27

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

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

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

PART II                                                                  

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

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

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

  Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    
             USX CONSOLIDATED..........................................  U-60
             MARATHON GROUP............................................  M-37
             U. S. STEEL GROUP.........................................  S-38

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

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

PART III                                                                 

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

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

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

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

PART IV                                                                  

  Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS          
             ON FORM 8-K...............................................    56
                                                                             
SIGNATURE..............................................................    60
                                                                             
GLOSSARY OF CERTAIN DEFINED TERMS......................................    61
                                                                             
SUPPLEMENTARY DATA                                                           
                                                                             
  SUMMARIZED FINANCIAL INFORMATION OF MARATHON OIL COMPANY.............    63
  DISCLOSURES ABOUT FORWARD-LOOKING STATEMENTS.........................    64
</TABLE>



<PAGE>
 
NOTE ON PRESENTATION

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

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

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

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

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

         For a Glossary of Certain Defined Terms used in this document, see page
61.

Forward-Looking Statements

         Certain sections of USX's Form 10-K, particularly Item 1. Business,

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

                                       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.

Groups

         For consolidated reporting purposes, USX consists of the Marathon Group
and the U. S. Steel Group. The businesses of the Marathon Group and the U. S.
Steel Group, are as follows:

         .    The Marathon Group includes Marathon Oil Company ("Marathon") and
              certain other subsidiaries of USX, which are engaged in worldwide
              exploration and production of crude oil and natural gas; domestic
              refining, marketing and transportation of petroleum products
              primarily through Marathon Ashland Petroleum LLC ("MAP"), owned 62
              percent by Marathon; and other energy related businesses. Marathon
              Group revenues as a percentage of total USX consolidated revenues
              were 85 percent in 2000, 81 percent in 1999 and 77 percent in
              1998.

         .    The U. S. Steel Group is engaged in the production and sale of
              steel mill products, coke and taconite pellets; the management of
              mineral resources; coal mining; real estate development; and
              engineering and consulting services. Certain business activities
              are conducted through joint ventures and partially-owned
              companies, such as USS-POSCO Industries, PRO-TEC Coating Company,
              Transtar, Inc., Clairton 1314B Partnership, and Republic
              Technologies International, LLC. On November 24, 2000, USX
              acquired U. S. Steel Kosice s.r.o., which held the steel and
              related assets of VSZ a.s., headquartered in the Slovak Republic.
              U. S. Steel Group revenues as a percentage of total USX
              consolidated revenues were 15 percent in 2000, 19 percent in 1999
              and 23 percent in 1998.

         On November 30, 2000, USX announced that the board of directors
authorized management to retain financial, tax and legal advisors to perform an
in-depth study of the corporation's targeted stock structure and all alternative
structures which may be in the best interest of all USX shareholders. This study
is ongoing and will take several months to complete. The advisors will report
their findings and recommendations to the USX board of directors, who will
review them to determine what actions to take.

                                       3

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


<TABLE> 
<CAPTION> 
                                   Revenues              Income                              Assets 
                                      and                 from               Net               at            Capital
         (Millions)              Other Income/(a)/    Operations/(b)/    Income (Loss)       Year-End    Expenditures
         ------------------------------------------------------------------------------------------------------------
         <S>                     <C>                  <C>                <C>                <C>          <C> 
         Marathon Group
           2000                     $ 33,859            $   1,648           $   432         $  15,232       $  1,425
           1999                       23,707                1,713               654            15,674          1,378
           1998                       21,623                  938               310            14,544          1,270
                                                                                                                   
         U. S. Steel Group                                                                                         
           2000                        6,132                  104               (21)            8,711            244
           1999                        5,470                  150                44             7,525            287
           1998                        6,477                  579               364             6,749            310
                                                                                                                   
         Eliminations                                                                                              
           2000                          (77)                   -                 -              (542)             -
           1999                          (58)                   -                 -              (268)             -
           1998                          (23)                   -                 -              (160)             -
                                                                                                                   
         Total USX Corporation                                                                                     
           2000                    $  39,914            $   1,752            $  411           $23,401       $  1,669
           1999                       29,119                1,863               698            22,931          1,665
           1998                       28,077                1,517               674            21,133          1,580
         ------------------------------------------------------------------------------------------------------------
</TABLE>
 
         /(a)/ Consists of revenues, dividend and investee income (loss), gain
               on ownership change in MAP, net gains (losses) on disposal of
               assets, and other income.

         /(b)/ Includes the following favorable (unfavorable) amounts:
               adjustments to the inventory market valuation reserve for the
               Marathon Group of $551 million and ($267) million in 1999 and
               1998, respectively; and gain on ownership change in MAP of $12
               million in 2000, $17 million in 1999 and $245 million in 1998.

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

         The total number of active USX Headquarters employees not assigned to a
specific group at year-end 2000 was 235.

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

                                       4

<PAGE>
 
MARATHON GROUP

         The Marathon Group is comprised of Marathon Oil Company and certain
other subsidiaries of USX which are engaged in worldwide exploration and
production of crude oil and natural gas; domestic refining, marketing and
transportation of petroleum products primarily through Marathon Ashland
Petroleum LLC ("MAP"), owned 62 percent by Marathon Oil Company; and other
energy related businesses. Marathon Group revenues as a percentage of total USX
consolidated revenues were 85 percent in 2000, 81 percent in 1999 and 77 percent
in 1998.

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

         Revenues and Other Income


<TABLE> 
<CAPTION> 
         (Millions)                                                 2000        1999           1998
         ---------------------------------------------------------------------------------------------
         <S>                                                     <C>          <C>            <C>  
         Revenues by product/(a)/:
            Refined products..................................   $ 22,514     $  15,181      $ 12,852
            Merchandise.......................................      2,441         2,194         1,941
            Liquid hydrocarbons...............................      6,856         4,587         5,023
            Natural gas.......................................      2,518         1,429         1,187
            Transportation and other products.................        158           199           271
         Gain on ownership change in MAP/(b)/.................         12            17           245
         Other/(c)/...........................................       (640)          100           104
                                                                 ---------    ---------      --------
            Total revenues and other income...................   $ 33,859     $  23,707      $ 21,623
         ---------------------------------------------------------------------------------------------
</TABLE>
 
         /(a)/ Reclassified to conform to 2000 classifications.
         /(b)/ See Note 5 to the Marathon Group Financial Statements for a
               discussion of the gain on ownership change in MAP.
         /(c)/ Includes dividend and investee income, net gains (losses) on
               disposal of assets and other income.

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

Exploration and Production

Oil and Natural Gas Exploration and Development

         Marathon is currently conducting exploration and development activities
in 11 countries. Principal exploration activities are in the United States,
United Kingdom, Angola, Canada, Denmark, Ireland, the Netherlands and Norway.
Principal development activities are in the United States, United Kingdom,
Canada, Gabon, Ireland, the Netherlands and Norway. Marathon is also pursuing
opportunities in North and West Africa, the Middle East and Southeast Asia.

                                       5

<PAGE>
 
       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> 
                                                 2000              1999             1998
-----------------------------------------------------------------------------------------
<S>                                              <C>               <C>              <C> 
United States
   Development/(b)/  - Oil                         23                11               28
                     - Gas                        109                54               58
                     - Dry                          2                 1                2
                                                 ----              ----             ----
                     Total                        134                66               88

   Exploratory       - Oil                          2                 5                7
                     - Gas                          6                 9                5
                     - Dry                          5                13                8
                                                 ----              ----             ----
                     Total                         13                27               20
                                                 ----              ----             ----
                     Total United States          147                93              108

International/(c)/
   Development/(b)/  - Oil                         12                42                7
                     - Gas                        111                55                7
                     - Dry                          5                11                2
                                                 ----              ----             ----
                     Total                        128               108               16

   Exploratory       - Oil                          4                 2                5
                     - Gas                         26                14                4
                     - Dry                         14                16               15
                                                 ----              ----             ----
                     Total                         44                32               24
                                                 ----              ----             ----
                     Total International          172               140               40
                                                 ----              ----             ----

                     Total Worldwide              320               233              148
-----------------------------------------------------------------------------------------
</TABLE>
 

/(a)/ Includes the number of wells completed during the year regardless of the
      year in which drilling was initiated. A dry well is a well found to be
      incapable of producing hydrocarbons in sufficient quantities to justify
      completion. A productive well is a well that is not a dry well.
/(b)/ Indicates wells drilled in the proved area of an oil or gas reservoir.
/(c)/ Includes Marathon's equity interest in CLAM Petroleum B.V. ("CLAM") and
      Sakhalin Energy Investment Company Ltd. ("Sakhalin Energy").

United States

       In the United States during 2000, Marathon drilled 24 gross (12 net)
wildcat and delineation ("exploratory") wells of which 14 gross (8 net) wells
encountered hydrocarbons. Of these 14 wells, 1 gross (1 net) well was
temporarily suspended, and will be reported in the Net Productive and Dry Wells
Completed table when completed. Principal domestic exploratory and development
activities were in the U.S. Gulf of Mexico and the states of Alaska, Louisiana,
New Mexico, Oklahoma, Texas and Wyoming.

       Exploration expenditures during the three-year period ended December 31,
2000, totaled $519 million in the United States, of which $161 million was
incurred in 2000. Development expenditures during the three-year period ended
December 31, 2000, totaled $951 million in the United States, of which $288
million was incurred in 2000.

                                       6

<PAGE>
 
         On December 22, 2000, Marathon announced its plans to acquire Pennaco
Energy, Inc. ("Pennaco"). Pennaco is a coal bed methane gas producer in the
Powder River Basin, located in northern Wyoming and southern Montana. This
acquisition will enhance Marathon's presence in a core area, the North American
gas market, and will provide an opportunity for possible new reserves to be
developed. The tender offer expired on February 5, 2001 at 12:00 midnight,
Eastern time. Marathon acquired approximately 17.6 million shares of Pennaco
common stock which were validly tendered and not withdrawn in the offer,
representing approximately 87 percent of the outstanding Pennaco shares.

         Marathon plans to acquire the remaining Pennaco shares through a merger
in which each share of Pennaco common stock, not purchased in the offer and not
held by stockholders who have properly exercised dissenters rights under
Delaware law, will be converted into the right to receive the tender offer price
in cash, without interest.

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

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

         The Camden Hills field is located in the deepwater Gulf on Mississippi
Canyon Block 348 in approximately 7,200 feet of water. The field, operated by
Marathon with a 50.03 percent working interest, was discovered in August 1999
and confirmed by a subsequent well in January 2000. Development is being
achieved with the sharing of infrastructure that will service two other fields
in the area. The Canyon Express natural gas gathering system will link three gas
fields, including Camden Hills, to a host processing platform named Canyon
Station. Marathon personnel are engaged in several teams responsible for the
design and implementation of Canyon Express as well as the completion of the
subsea wells. The first production is scheduled for mid-2002.

         In July 2000, production commenced from the Viosca Knoll Block 786
("Petronius") development in the deepwater Gulf. Proved reserves are estimated
to be approximately 57 million gross barrels of oil equivalent ("BOE"). Marathon
holds a 50 percent working interest in this project.

         In 2001, Marathon plans to drill six deepwater exploratory wells. To
support the drilling of deepwater prospects, Marathon, along with two other
parties, began a five-year commitment in 1999 on the Noble Amos Runner, a
drilling rig capable of drilling in water depths up to 6,600 feet. Additionally,
in the second quarter of 2001, Marathon expects to take receipt of the
Transocean-Sedco-Forex Cajun Express, a drilling rig capable of drilling in
water depths up to 8,500 feet. Marathon has an eighteen month commitment to
utilize this rig.

         Alaska - After being placed in service during the second quarter of
2000, the Marathon-owned Glacier drilling rig was used to drill and complete
four development wells and perform two workovers. Marathon's strong Cook Inlet
lease position facilitates an aggressive 2001 drilling program to further its
competitive position in the local gas market, as well as extending the ongoing
liquefied natural gas ("LNG") export project. Marathon and a co-venturer have
extended their LNG contract with the Japanese buyers from 2004 to 2009. This
extension represents a total sales commitment of 125 billion cubic feet ("bcf")
over a five year term commencing in 2004. Additionally, a prior gas discovery at
Wolf Lake is expected to be developed in 2001.

         Louisiana - In North Louisiana, Marathon continued an active
development program in the Haynesville, Cotton Valley and Logansport fields in
2000. These development programs will continue in 2001 with a total of 12 wells
planned.

                                       7

<PAGE>
 
         New Mexico - Marathon's New Mexico gas production continued with
successful development activity in the Indian Basin field. In 2000, seven
development wells were completed in this field and Marathon's Indian Basin gas
plant was further expanded to a capacity of 300 million cubic feet per day
("mmcfd"). Of particular importance were three Upper Penn development wells in
the eastern area of the Indian Basin field, which added 30 gross mmcfd. On the
strength of these projects, record gross production of 160 mmcfd was reached by
year-end from Marathon-operated wells. In 2001, eleven new well completions are
planned, seven of which will be in the prospective east Indian Basin area.

         Oklahoma - Marathon continued exploration in the Granite Wash play of
the Southern Anadarko Basin with four successful exploration wells drilled in
2000. Utilizing approximately 1,000 square miles of 3-D seismic data, Marathon
plans to drill six exploratory wells along the Granite Wash play in 2001.

         With Marathon's active development drilling following its 1998 Granite
Wash formation discovery, 19 wells were drilled in 2000 increasing production by
86 percent. Marathon's current net production now exceeds 26 mmcfd and 1,400
barrels of liquid hydrocarbons per day ("bpd"). In 2001, 18 additional
development wells are planned in the Granite Wash formation.

         Development drilling in the Carter Knox field included nine wells on
properties acquired in 2000. As a result, Marathon's production from acquired
properties increased from 13 to 46 net mmcfd. Production from the acquired
properties is nearly double expectations with well production fifteen percent
better than that of offset operators. Marathon's total net production from
Carter Knox increased 47 percent over the average 1999 total annual rate. In
2001, 14 development wells are planned for the Carter Knox field.

         Marathon's deep drilling activity in the Cement field, one of
Oklahoma's oldest fields, increased Marathon's field production 60 percent in
2000. With six successful wells (all with depths of 14,000 feet or greater),
Marathon's production now exceeds 15 net mmcfd. In 2001, four development wells
and four exploratory wells (with depths greater than 16,000 feet) are planned.

         Texas - In East Texas, Marathon continued an active development program
in the Oletha field after a January 2000 acquisition. An 11-well Travis
Peak/Cotton Valley development program is planned in the Oletha field for 2001.
Additionally, a horizontal well program in the James Lime play was initiated and
will continue. In 2000, Marathon drilled three horizontal exploratory wells and
participated in one horizontal exploratory well, all of which were successful.

         In West Texas, on December 28, 2000, Marathon signed a definitive
agreement to form a joint venture with Kinder Morgan Energy Partners, L.P.,
which commenced operations in January 2001. The formation of the joint venture
included contribution of interests in the Yates and SACROC assets. This
transaction will allow Marathon to expand its interests in the Permian Basin and
will improve access to materials for use in enhanced recovery techniques in the
Yates field. Marathon holds an 85 percent economic interest in the combined
entity.

         Wyoming - Successful exploratory and development drilling activity
along the Wamsutter Arch and in the Washakie Basin contributed to a growth in
gas production. This was offset, however, by a trade of minor interests in Moxa
Arch southwest Wyoming gas producing properties for oil producing properties in
the Big Horn Basin. The trade complements Marathon's position as Wyoming's
largest oil producer and enhances production, transportation and marketing
opportunities within the Big Horn Basin.

                                       8

<PAGE>
 
International

         Outside the United States during 2000, Marathon drilled 89 gross (53
net) exploratory wells in 7 countries. Of these 89 wells, 68 gross (39 net)
wells encountered hydrocarbons, of which 6 gross (5 net) wells were temporarily
suspended and will be reported in the Net Productive and Dry Wells Completed
table when completed.

         Marathon's expenditures for international oil and natural gas
exploration activities, including Marathon's 50 percent equity interest in CLAM
and former 37.5 percent equity interest in Sakhalin Energy Investment Company
Ltd. ("Sakhalin Energy"), during the three-year period ended December 31, 2000,
totaled $372 million, of which $128 million was incurred in 2000. Marathon's
international development expenditures, including CLAM and Sakhalin Energy,
during the three-year period ended December 31, 2000, totaled $707 million, of
which $222 million was incurred in 2000.

         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 - In 2000, Marathon acquired an interest in the
BP-operated Foinaven development in the U.K. Atlantic Margin. Marathon's
interest is 28 percent in the main Foinaven field (T34), 20 percent in the
deeper T35 Foinaven field and 47 percent in the East Foinaven field. Development
activity is scheduled for both Foinaven and East Foinaven in 2001. The East
Foinaven field will initially consist of production and water injection wells
tied back to the floating production, storage and offloading (FPSO) vessel with
first production expected late third quarter 2001. A third production well is
planned in 2003. Further development drilling in the main Foinaven field
involves four new production wells, a possible side track of an existing
production well, and one new water injection well.

         As an interest owner in Foinaven, Marathon also has an 11.465 percent
working interest in the West of Shetland gas evacuation line which is currently
under construction. The line will take gas from fields in the West of Shetlands
area to the BP-operated Magnus platform for injection and enhanced oil recovery
purposes. Gas from the Foinaven field, which is currently injected for disposal,
will be sold to the Magnus group, with sales commencing in early 2002.

         Marathon is continuing its development of the Brae area in the U.K.
North Sea where it is the operator and owns a 41.6 percent interest in the
South, Central and North Brae fields, a 38.5 percent interest in the East Brae
field and a 28.1 percent interest in the West Brae/Sedgwick joint development
project. Marathon has interests in 30 blocks in the U.K. North Sea and other
offshore areas. Marathon drilled one and participated in one exploratory well
offshore U.K. in 2000, and both were dry. One exploratory well in the Brae area
is planned for 2001.

         Angola - In May 1999, Marathon was awarded an interest in Blocks 31 and
32 offshore Angola. The blocks, which are located approximately 90 miles
northwest of Luanda in water depths between 5,400 and 9,200 feet, are adjacent
to Blocks 15 and 17 where major discoveries by others have been made. Marathon
holds a 10 percent working interest in these blocks, which are operated by
co-venturers. Surveys of 3-D seismic data have been acquired for both blocks and
two wells are planned to be drilled on Block 31 in 2001. Exploratory drilling
should commence on Block 32 in early 2002.

         Canada - In May 1999, Marathon was awarded three exploration licenses
offshore Nova Scotia. Marathon has a 30, 33.75 and 37.5 percent interest in
Exploration Licenses ("EL") 2377, 2384 and 2376, respectively and will be the
operator of EL 2377. Two of the licenses are in the immediate proximity of
recent production by others. In 2000, 3-D seismic data was acquired for all
blocks and is being evaluated. It is anticipated that a well will be drilled on
EL 2376 in late 2001.

         Congo - In February 2000, Marathon acquired a 15 percent equity
interest in the Mer Profonde Nord Permit, which is operated by a co-venturer.
One exploratory well was drilled and abandoned in 2000. This permit was
relinquished in December 2000.

                                       9

<PAGE>
 
         Denmark - In June 1998, Marathon acquired one block in Denmark. A 3-D
seismic program was completed in 1999 and evaluation of the data continues in
2001.

         Gabon - In November 2000, production commenced from the Tchatamba West
field in the Kowe Permit, located 15 miles offshore Gabon. This field was
developed as a one-well development tied back to the Tchatamba Marin facility.
Marathon is operator of this field. Its working interest was proportionately
reduced from 75 percent to 56.25 percent after the Gabonese government exercised
its right to obtain a 25 percent interest in the field.

         In 1998, Marathon acquired a 50 percent working interest in the
Inguessi Permit, which is adjacent to the Kowe Permit. During 1999, Marathon
acquired 139 square miles of 3-D seismic data. The seismic data was evaluated
and the block was relinquished in June 2000.

         Ireland - Plans are underway to convert the Southwest Kinsale field to
a gas storage field. The Southwest Kinsale field, located in the Celtic Sea 30
miles south of Cork, was brought online in 1999 through a single subsea well
tied back to the Kinsale Head field's Bravo platform. After producing just over
nine gross bcf, the field was shut-in during August 2000. Gas injection through
the existing well will commence in April 2001. Two additional wells to be used
for gas injection and withdrawal will be drilled and tied back to the existing
infrastructure during the second and third quarters of 2001. Marathon has a 100
percent interest in this field.

         During 2000, two additional appraisal wells were drilled in the Corrib
gas field in the Slyne Trough License PL 2/93, located 40 miles off the west
coast of Ireland. Four wells have now been drilled and suspended as producers in
this field, and a fifth appraisal well is planned in 2001. In December 2000, a
development plan was submitted to the Irish authorities with first gas expected
in October 2003. Marathon owns an 18.5 percent interest in the Corrib field.

         Norway - In 2000, Marathon participated in a project to modify the
Heimdal platform to a processing and transportation center for third party
business. Marathon owns a 23.798 percent interest in the Heimdal field and
platform.

         In November 2000, Marathon approved the development of the Vale field,
located northeast of the Heimdal field. Production from Vale, which has
estimated net proven reserves of six and one half million BOE, is expected to
start early 2002. Marathon owns a 46.904 percent interest in this field. An
exploration well between the Vale and Heimdal fields is planned in 2001.

         Netherlands - In 2000, Marathon, through its 50 percent equity interest
in CLAM, participated in two exploratory wells and one development well in the
Dutch sector of the North Sea. One exploration well was successful and was
brought on production at 45 mmcfd in October 2000. CLAM has a 9.95 percent
interest in this field. A second exploration well was spudded in late 2000. The
Q4 field came onstream in December 2000 at an initial rate of 48 mmcfd. CLAM has
a 19.8 percent interest in this field. The L12 FC field came onstream in
December 2000 at a rate of 16 mmcfd. CLAM holds a 15 percent interest in this
field.

         In 1998, CLAM was awarded two blocks in the Danish sector of the North
Sea. Surveys of 3-D seismic data were acquired in 1999 and two exploration wells
were drilled in 2000. Both wells were dry and the license will be relinquished
in 2001.

         Independent from its interest in CLAM, Marathon holds a 24 percent
working interest in the A-15 block in the Netherlands North Sea, which is
operated by a co-venturer. One exploration well was drilled in 1999, which
successfully tested the upper North Sea Group Sand. 3-D seismic data has been
acquired and will be interpreted in early 2001 with another exploration well
planned for 2001. In 2000, Marathon was awarded a new block, F12. Marathon's
interest in F12 is 24 percent.

                                       10

<PAGE>
 
         Russia - In December 2000, Marathon Sakhalin Limited transferred its
37.5 percent ownership interest in Sakhalin Energy to Shell Sakhalin Holdings
B.V. In exchange, Marathon received:

         .  Shell U.K. Limited's 28 percent interest in the BP-operated Foinaven
            field, located in the Atlantic Margin west of the Shetland Islands
            in the U.K.

         .  Shell U.K. Limited's interests in discoveries and prospects on
            license areas adjacent to the Foinaven field. 

         .  A 3.5 percent overriding royalty, payable from Shell's working
            interest, on 100 percent of the production from an eight block area
            in the Gulf of Mexico, which includes the producing Ursa field and
            the recently announced Princess discovery.

         .  Reimbursement of $54 million for its expenditures on the Sakhalin
            project for the year 2000.

         Tunisia - Marathon's 60 percent working interest in the South Jenein
Permit in southern Tunisia was formally ratified by the government in 1996. In
2000, one exploratory well was drilled to test the Mabrouk prospect. The well
was abandoned and no further drilling is planned for this permit as all work
commitments have been fulfilled.

         The above discussions include forward-looking statements concerning
various projects, drilling plans, expected production and sales levels, reserves
and dates of initial production, which are based on a number of assumptions,
including (among others) prices, amount of capital available for exploration and
development, worldwide supply and demand for petroleum products, regulatory
constraints, reserve estimates, production decline rates of mature fields,
reserve replacement rates, drilling rig availability, license relinquishments
and other geological, operating and economic considerations. Offshore production
and marine operations in areas such as the Gulf of Mexico, the U.K. North Sea,
the U.K. Atlantic Margin and West Africa are also subject to severe weather
conditions such as hurricanes or violent storms or other hazards. 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 and tax regulations, which could adversely
affect the economics of projects. To the extent these assumptions prove
inaccurate and/or negotiations and other considerations are not satisfactorily
resolved, actual results could be materially different than present
expectations.

Reserves

         At December 31, 2000, the Marathon Group's net proved liquid
hydrocarbon and natural gas reserves, including equity investee interests,
totaled approximately 1.2 billion barrels on a BOE basis, of which 63 percent
were located in the United States. (For purposes of determining BOE, natural gas
volumes are converted to approximate liquid hydrocarbon barrels by dividing the
natural gas volumes expressed in thousands of cubic feet ("mcf") by 6. The
liquid hydrocarbon volume is added to the barrel equivalent of gas volume to
obtain BOE.) At year-end 2000, Marathon revised its estimate of proved developed
and undeveloped oil and gas reserves downward by 167 million BOE. These
revisions were principally in Canada, the North Sea and the United States and
are the result of production performance and disappointing drilling results.

                                       11

<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
                                       ---------------------------        ---------------------------
(Millions of Barrels)                   2000       1999       1998          2000      1999       1998
-----------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>        <C>         <C>         <C>        <C>  
Liquid Hydrocarbons
     United States..................     414        476        489           458       520        549
     Europe.........................      74         90        119           108        90        122
     Other International............      57         72         67           151       187        194
                                      ------     ------     ------        ------    ------     ------
         Total Consolidated.........     545        638        675           717       797        865
     Equity Investees/(a)/..........      -          69         -             -         77         80
                                      ------     ------     ------        ------    ------     ------
WORLDWIDE...........................     545        707        675           717       874        945
                                      ======     ======     ======        ======    ======     ======
Developed reserves as % of
     total net proved reserves......    76.0%      80.9%      71.4%

(Billions of Cubic Feet)
Natural Gas
     United States..................   1,421      1,550      1,678         1,914     2,057      2,163
     Europe.........................     563        741        909           614       774        966
     Other International............     381        497        534           477       833        830
                                      ------     ------     ------        ------    ------     ------
         Total Consolidated.........   2,365      2,788      3,121         3,005     3,664      3,959
     Equity Investee/(b)/...........      52         65         76            89       123        110
                                      ------     ------     ------        ------    ------     ------
WORLDWIDE...........................   2,417      2,853      3,197         3,094     3,787      4,069
                                      ======     ======     ======        ======    ======     ======
Developed reserves as % of
     total net proved reserves......    78.1%      75.3%      78.6%

(Millions of Barrels)
Total BOEs
     United States..................     651        734        769           777       863        910
     Europe.........................     168        213        270           211       219        282
     Other International............     121        155        156           231       326        332
                                      ------     ------     ------        ------    ------     ------
         Total Consolidated.........     940      1,102      1,195         1,219     1,408      1,524
     Equity Investees/(a)/..........       9         80         13            15        98         98
                                      ------     ------     ------        ------    ------     ------
WORLDWIDE...........................     949      1,182      1,208         1,234     1,506      1,622
                                      ======     ======     ======        ======    ======     ======
Developed reserves as % of
     total net proved reserves......    76.9%      78.5%      74.5%
</TABLE>

 
-------------------------------------------------------------------------------
/(a)/  Represents Marathon's equity interests in CLAM and in 1999 and 1998,
       Sakhalin Energy.
/(b)/  Represents Marathon's equity interests in CLAM.

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

         For additional details of estimated quantities of net proved oil and
gas reserves at the end of each of the last three years, see "Consolidated
Financial Statements and Supplementary Data - Supplementary Information on Oil
and Gas Producing Activities - Estimated Quantities of Proved Oil and Gas
Reserves" on page U-32. Reports have been filed with the U.S. Department of
Energy ("DOE") for the years 1999 and 1998 disclosing the year-end estimated oil
and gas reserves. A similar report will be filed for 2000. The year-end
estimates reported to the DOE are the same as the estimates reported in the USX
Consolidated Supplementary Data.

                                       12

<PAGE>
 
Oil and Gas Acreage

         The following table sets forth, by geographic area, the developed and
undeveloped oil and gas acreage held as of December 31, 2000:

Gross and Net Acreage


<TABLE> 
<CAPTION> 
     -----------------------------------------------------------------------------------------------------
                                                                                           Developed &
                                        Developed                Undeveloped               Undeveloped
                                  --------------------      --------------------      --------------------
     (Thousands of Acres)            Gross       Net           Gross        Net          Gross        Net
     -----------------------------------------------------------------------------------------------------
     <S>                           <C>          <C>            <C>        <C>            <C>        <C> 
     United States...............   1,997         839          3,092       1,764         5,089       2,603
     Europe......................     348         287          2,465       1,205         2,813       1,492
     Other International.........   1,406         869          7,099       2,882         8,505       3,751
                                   ------      ------         ------      ------        ------      ------
     Total Consolidated..........   3,751       1,995         12,656       5,851        16,407       7,846
     Equity Investee/(a)/........     453          46            302          70           755         116
                                   ------      ------         ------      ------        ------      ------
     WORLDWIDE...................   4,204       2,041         12,958       5,921        17,162       7,962
     -----------------------------------------------------------------------------------------------------
</TABLE>
 

     /(a)/ Represents Marathon's equity interests in CLAM.

Oil and Natural Gas Production

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


<TABLE> 
<CAPTION> 
Net Liquid Hydrocarbons Production/(a)/
(Thousands of Barrels per Day)                                        2000         1999           1998
-------------------------------------------------------------------------------------------------------
<S>                                                                   <C>          <C>            <C> 
United States/(b)/............................................         131          145           135
Europe/(c)/...................................................          29           31            42
Other International/(c)/......................................          36           31            19
                                                                      ----         ----          ----
        Total Consolidated....................................         196          207           196
Equity Investees (CLAM & Sakhalin Energy)/(c)/................          11            1            - 
                                                                      ----         ----          ----
WORLDWIDE.....................................................         207          208           196
                                                                      ====         ====          ====

Net Natural Gas Production/(d)/
(Millions of Cubic Feet per Day)

United States/(b)/............................................         731          755           744
Europe/(e)/...................................................         327          325           360
Other International/(e)/......................................         143          163            81
                                                                    ------       ------        ------
        Total Consolidated....................................       1,201        1,243         1,185
Equity Investee (CLAM)/(e)/...................................          29           36            33
                                                                    ------       ------        ------
WORLDWIDE.....................................................       1,230        1,279         1,218
-------------------------------------------------------------------------------------------------------
</TABLE>
 
        
/(a)/   Includes crude oil, condensate and natural gas liquids.
/(b)/   Amounts reflect production from leasehold and plant ownership, after
        royalties and interests of others.
/(c)/   Amounts reflect equity tanker liftings, truck deliveries and direct
        deliveries of liquid hydrocarbons before royalties, if any; excluding
        Canada, Gabon and Russia where amounts are after royalties. The amounts
        correspond with the basis for fiscal settlements with governments. Crude
        oil purchases, if any, from host governments are not included.
/(d)/   Amounts reflect sales of equity production, only. It excludes volumes
        purchased from third parties for injection and subsequent resale of 11
        mmcfd in 2000 and 16 and 23 mmcfd in 1999 and 1998, respectively.
/(e)/   Amounts reflect production before royalties, excluding Canada where
        amounts are after royalties.

                                       13

<PAGE>
 
         At year-end 2000, Marathon was producing crude oil and/or natural gas
in seven countries, including the United States. Marathon's worldwide liquid
hydrocarbon production, including Marathon's share of equity investee
production, remained consistent with 1999. Marathon's 2000 worldwide sales of
equity natural gas production, including Marathon's share of CLAM's production,
decreased about four percent from 1999 reflecting dispositions and natural field
declines. In addition to sales of 500 net mmcfd of international equity natural
gas production, Marathon sold 11 net mmcfd of natural gas acquired for injection
and resale during 2000. In 2001, Marathon's worldwide production is expected to
average 430,000 BOE per day.

         The above projections of 2001 worldwide liquid hydrocarbon production
and natural gas volumes are forward-looking statements. Some factors that could
potentially affect timing and levels of production include pricing, supply and
demand for petroleum products, amount of capital available for exploration and
development, regulatory constraints, reserve estimates, reserve replacement
rates, production decline rates of mature fields, timing of commencing
production from new wells, drilling rig availability, the completion of the
merger with Pennaco, future acquisitions of producing properties, and other
geological, operating and economic considerations. These factors (among others)
could cause actual results to differ materially from those set forth in the
forward-looking statements.

United States

         Approximately 63 percent of Marathon's 2000 worldwide liquid
hydrocarbon production and equity investee liftings and 59 percent of worldwide
natural gas production (including CLAM volumes) were from domestic operations.
The principal domestic producing areas are located in the U.S. Gulf of Mexico
and the states of Alaska, New Mexico, Oklahoma, Texas and Wyoming. 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.

         Gulf of Mexico - During 2000, Marathon's Gulf of Mexico production
averaged 61,600 net bpd of liquid hydrocarbons and 88 net mmcfd of natural gas,
representing 47 percent and 12 percent of Marathon's total U.S. liquid
hydrocarbon and natural gas production, respectively. Liquid hydrocarbon
production decreased by 12,900 net bpd and natural gas production decreased by
18 net mmcfd from the prior year, mainly due to dispositions and natural field
declines. At year-end 2000, Marathon held working interests in 9 fields and 17
platforms, of which 7 platforms are operated by Marathon.

         Ewing Bank 873 is an important part of Marathon's deepwater
infrastructure. Marathon is the operator and holds a 66.7 percent working
interest. Production averaged 22,700 net bpd and 18 net mmcfd in 2000, compared
with 35,400 net bpd and 28 net mmcfd in 1999, primarily due to natural field
declines. Based on liquid hydrocarbon and natural gas production, Ewing Bank
ranked as Marathon's second highest domestic production field in 2000.

         Alaska - Marathon's production from Alaska averaged 160 net mmcfd of
natural gas in 2000, compared with 148 net mmcfd in 1999. Marathon's primary
focus in Alaska is the expansion of its natural gas business through
exploration, development and marketing.

         New Mexico - Production in New Mexico, primarily from the Indian Basin
field, averaged 12,600 net bpd and 121 net mmcfd in 2000, compared with 11,900
net bpd and 115 net mmcfd in 1999. The increase in gas production was primarily
due to ongoing development of the eastern area of the Indian Basin field.

         Oklahoma - Gas production for 2000 averaged 151 net mmcfd, representing
21 percent of Marathon's total U.S. gas production, compared with 127 net mmcfd
in 1999. The increase in gas production was primarily due to exploration success
in the Anadarko Basin coupled with the acquisition and further development of
existing producing properties.

                                       14

<PAGE>
 
         Texas - Onshore production for 2000 averaged 23,400 net bpd of liquid
hydrocarbons and 132 net mmcfd of natural gas, representing 18 percent of
Marathon's total U.S. liquid hydrocarbon and natural gas production. Liquid
production volumes decreased by 4,000 net bpd from 1999 levels, and gas volumes
decreased by 34 net mmcfd from 1999 levels. The volume decreases were mainly due
to natural field declines. Marathon's 13,900 net bpd of 2000 liquid hydrocarbon
production from the Yates field accounted for 11 percent of Marathon's total
U.S. liquids production.

         Wyoming - Liquid hydrocarbon production for 2000 averaged 25,300 net
bpd, representing 19 percent of Marathon's total U.S. liquid hydrocarbon
production, up from 22,000 net bpd in 1999. The increase in 2000 from 1999 was
primarily due to the Moxa Arch for Big Horn Basin property exchange and
associated development drilling on the acquired properties. Gas production
averaged 45 net mmcfd in 2000, compared to 57 net mmcfd in 1999, with the
decrease due mainly to property exchanges and natural production declines.

International

         Interests in liquid hydrocarbon and/or natural gas production are held
in the U.K. North Sea, the U.K. Atlantic Margin, Irish Celtic Sea, the Norwegian
North Sea, Canada and Gabon. In addition, Marathon has interests through an
equity investee in the Netherlands North Sea.

         U.K. North Sea - Production from the Brae area averaged 26,500 net bpd
of liquid hydrocarbons in 2000, compared with 31,100 net bpd in 1999. The
decrease is mainly within the East Brae field, reflecting the expected decline
of the field.

         The Brae A facilities act as the host platform for the underlying South
Brae field, adjacent Central Brae field and West Brae/Sedgwick fields. The North
Brae field, which is produced via the Brae B platform, and the East Brae field
are gas condensate fields. These fields are produced using the gas cycling
technique. Although partial cycling continues, the majority of North Brae gas is
being transferred to the East Brae reservoir for pressure maintenance and sales.

         The strategic location of the Brae A, Brae B and East Brae platforms
and pipeline infrastructure has generated significant third-party business since
1986. Currently, there are 15 agreements with third-party fields contracted to
use the Brae system. In addition to generating processing and pipeline tariff
revenue, third-party business also has a favorable impact on Brae area
operations by optimizing infrastructure usage and extending the economic life of
the facilities.

         Participation in the Scottish Area Gas Evacuation ("SAGE") system
provides pipeline transportation and onshore processing for Brae-area gas. The
Brae group owns 50 percent of SAGE, which has a total wet gas capacity of
approximately 1.0 bcfd. The other 50 percent is owned by the Beryl group, which
operates the system. Pipelines connect the Brae, Britannia, Beryl and Scott
fields to the SAGE gas processing terminal at St. Fergus in northeast Scotland.

         Marathon's total United Kingdom gas sales from all sources averaged 224
net mmcfd in 2000, compared with 184 net mmcfd in 1999. Sales of Brae-area gas
through the SAGE pipeline system averaged 222 net mmcfd for the year 2000 and
182 net mmcfd for the year 1999. Of these totals, 211 mmcfd and 166 mmcfd was
Brae-area equity gas in 2000 and 1999, respectively, and 11 and 16 mmcfd was gas
acquired for injection and subsequent resale in 2000 and 1999, respectively.

         U.K.  Atlantic Margin - As of the end of December 2000, the Foinaven
field was producing  approximately  24,000 net bpd of liquid hydrocarbons.

         Ireland - Marathon holds a 100 percent working interest in the Kinsale
Head, Ballycotton and Southwest Kinsale fields in the Irish Celtic Sea. Natural
gas sales were 114 net mmcfd in 2000, compared with 132 net mmcfd in 1999. This
reduction is due to natural field declines and changes to the production profile
of the Southwest Kinsale field. The Southwest Kinsale field has been shut-in so
gas can be saved and produced at peak times.

                                       15

<PAGE>
 
         Norway - In the Norwegian North Sea, Marathon holds a 23.8 percent
working interest in the Heimdal field. Heimdal production ceased at the end of
September 1999. Production of the remaining remnant gas from Heimdal is expected
to commence in the second quarter of 2001. Marathon also holds a 46.904 percent
working interest in the Vale field. This single well sub-sea development will be
tied back to the Heimdal platform, with first production expected early 2002.

         Canada - Production in Canada averaged 18,400 bpd and 143 mmcfd in
2000, compared with 17,200 bpd and 150 mmcfd in 1999. The increase in liquid
hydrocarbon production was primarily due to higher heavy oil volumes. Natural
gas sales were lower because of natural declines and higher royalty payments due
to higher realized sales prices. This decline was partially offset by production
from new wells.

         Gabon - Production in Gabon averaged 15,800 net bpd of liquid
hydrocarbons in 2000, compared with 9,000 net bpd in 1999. This increase
reflected a full year production from the Tchatamba South field, which began
production in August 1999, and the addition of the Tchatamba West field, which
began production in November 2000.

         Netherlands - Marathon's 50 percent equity interest in CLAM provides a
5 percent entitlement in the production from 21 gas fields, which provided sales
of 29 net mmcfd of natural gas in 2000, compared with 36 net mmcfd in 1999.

                                       16

<PAGE>
 
         The following tables set forth productive wells and service wells for
each of the last three years and drilling wells as of December 31, 2000:

Gross and Net Wells


<TABLE> 
<CAPTION> 
2000                                       Productive Wells/(a)/                   
----                               ---------------------------------
                                          Oil              Gas          Service Wells/(b)/  Drilling Wells/(c)/
                                   ---------------   ---------------    ----------------   ---------------
                                     Gross    Net     Gross     Net        Gross    Net       Gross   Net
----------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>      <C>      <C>         <C>     <C>       <C>     <C>   
United States.................      8,013    3,113    2,526    1,275       3,103     976       31     16
Europe........................         54       18       66       34          25       9        1      -
Other International ..........        868      616    1,832    1,257         249     172        5      4
                                   ------    -----    -----    -----       -----   -----      ---    ---
     Total Consolidated.......      8,935    3,747    4,424    2,566       3,377   1,157       37     20
Equity Investee/(e)/..........          -        -       85        5           -       -        2      -
                                   ------    -----    -----    -----       -----   -----      ---    ---
WORLDWIDE.....................      8,935    3,747    4,509    2,571       3,377   1,157       39     20
                                   ======    =====    =====    =====       =====   =====      ===    ===
</TABLE>
 


<TABLE> 
<CAPTION> 
 1999                                     Productive Wells/(a)/                         
 ----                              ---------------------------------
                                          Oil              Gas          Service Wells/(b)/
                                   ---------------   ---------------   -----------------
                                     Gross    Net     Gross     Net        Gross    Net
----------------------------------------------------------------------------------------
<S>                                <C>       <C>      <C>      <C>         <C>     <C> 
United States.................      8,654    3,205    3,122    1,396       3,617   1,056
Europe........................         36       14       65       33          18       7
Other International ..........      1,590      754    1,746    1,214         461     133
                                   ------    -----    -----    -----       -----   -----
     Total Consolidated.......     10,280    3,973    4,933    2,643       4,096   1,196
Equity Investees/(d)/.........          5        2       83        4           1       -
                                   ------    -----    -----    -----       -----   -----
WORLDWIDE.....................     10,285    3,975    5,016    2,647       4,097   1,196
                                   ======    =====    =====    =====       =====   =====
</TABLE>
 


<TABLE> 
<CAPTION> 
1998                                    Productive Wells/(a)/                    
----                               ---------------------------------
                                          Oil              Gas          Service Wells/(b)/
                                   ---------------   ---------------    ------------------
                                     Gross    Net     Gross     Net        Gross    Net
-----------------------------------------------------------------------------------------   
<S>                                 <C>      <C>      <C>      <C>         <C>     <C> 
United States.................      9,396    3,616    3,214    1,414       4,062   1,127
Europe........................         33       13       64       32          22       9
Other International...........      1,605      826    1,459    1,068         162     111
                                   ------    -----    -----    -----       -----   -----
     Total Consolidated.......     11,034    4,455    4,737    2,514       4,246   1,247
Equity Investee/(e)/..........          -        -       83        4           -       -
                                   ------    -----    -----    -----       -----   -----
WORLDWIDE.....................     11,034    4,455    4,820    2,518       4,246   1,247
----------------------------------------------------------------------------------------- 
</TABLE>
 

/a)/   Includes active wells and wells temporarily shut-in. Of the gross
       productive wells, gross wells with multiple completions operated by
       Marathon totaled 469, 478 and 518 in 2000, 1999 and 1998, respectively.
       Information on wells with multiple completions operated by other
       companies is not available to Marathon.
/(b)/  Consist of injection, water supply and disposal wells.
/(c)/  Consist of exploratory and development wells.
/(d)/  Represents CLAM and Sakhalin Energy.
/(e)/  Represents CLAM.

                                       17

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


<TABLE> 
<CAPTION> 
Average Production Costs/(a)/
(Dollars per BOE)                                                  2000        1999        1998
-------------------------------------------------------------------------------------------------
<S>                                                              <C>         <C>        <C>  
United States.................................................   $  4.01     $  3.26    $   3.12
International  - Europe.......................................      3.82        4.62        4.29
               - Other International..........................      6.09        4.66        4.73
Total Consolidated............................................   $  4.29     $  3.73    $   3.55
               - Equity Investees/(c)/........................      6.00       10.02        3.99
WORLDWIDE.....................................................   $  4.35     $  3.83    $   3.56
</TABLE>
 


<TABLE> 
<CAPTION> 
Average Sales Prices/(b)/                      2000        1999        1998       2000        1999        1998
                                             -------     -------     -------     -------    -------      -------
(Dollars per Barrel)                              Crude Oil and Condensate             Natural Gas Liquids
----------------------------------------------------------------------------------------------------------------
<S>                                           <C>         <C>        <C>         <C>         <C>        <C>   
United States..............................   $ 25.96     $ 15.78    $  10.60    $ 19.20     $ 12.30    $   8.64
International  - Europe....................     27.90       17.59       12.87      24.98       13.84       11.49
               - Other International.......     25.77       16.77       11.31      23.48       13.49        8.38
Total Consolidated.........................   $ 26.22     $ 16.21    $  11.14    $ 20.35     $ 12.67    $   9.32
               - Equity Investees/(c)/.....     29.64       23.43           -      28.74       13.22       12.65
WORLDWIDE..................................   $ 26.42     $ 16.25    $  11.14    $ 20.37     $ 12.67    $   9.33
</TABLE>
 


<TABLE> 
<CAPTION> 
(Dollars per Thousand Cubic Feet)                        Natural Gas
-----------------------------------------------------------------------------
<S>                                           <C>         <C>        <C> 
United States..............................   $  3.30     $  1.90    $   1.79
International  - Europe....................      2.56        2.03        2.07
               - Other International.......      3.20        1.64        1.34
Total Consolidated.........................   $  3.08     $  1.90    $   1.85
               - Equity Investee (CLAM)....      2.75        1.87        2.37
WORLDWIDE..................................   $  3.08     $  1.90    $   1.86
------------------------------------------------------------------------------
</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 and certain administrative costs.
      Natural gas volumes were converted to BOE using a conversion factor of six
      mcf of natural gas to one barrel of oil.
/(b)/ Prices exclude gains/losses from hedging activities.
/(c)/ Represents CLAM and Sakhalin Energy for 2000 and 1999, and CLAM for 1998.

                                       18

<PAGE>
 
Refining, Marketing and Transportation

         Refining, Marketing and Transportation ("RM&T") operations are
primarily conducted by MAP and its subsidiaries, including its wholly-owned
subsidiaries, Speedway SuperAmerica LLC and Marathon Ashland Pipe Line LLC.
Marathon holds a 62 percent interest in MAP and Ashland Inc. holds the remaining
38 percent interest. The following discussion of RM&T operations includes
historical data for the three-year period ended December 31, 2000.

Refining

         MAP owns and operates seven refineries with an aggregate refining
capacity of 935,000 barrels of crude oil per day. The table below sets forth the
location and daily throughput capacity of each of MAP's refineries as of
December 31, 2000:

                     In-Use Refining Capacity
                     (Barrels per Day)

                     Garyville, LA.................    232,000
                     Catlettsburg, KY..............    222,000
                     Robinson, IL..................    192,000
                     Detroit, MI...................     74,000
                     Canton, OH....................     73,000
                     Texas City, TX................     72,000
                     St. Paul Park, MN.............     70,000
                                                      --------
                     TOTAL.........................    935,000
                                                      ========

         MAP's refineries include crude oil atmospheric and vacuum distillation,
fluid catalytic cracking, catalytic reforming, desulfurization and sulfur
recovery units. The refineries have the capability to process a wide variety of
crude oils and to produce typical refinery products, including reformulated
gasoline ("RFG"). MAP'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 and Catlettsburg to Robinson where excess reforming capacity is
available. Gas oil is moved from Robinson to Detroit and Catlettsburg where
excess fluid catalytic cracking unit capacity is available. Light cycle oil is
moved from Texas City to Robinson where excess desulfurization capacity is
available.

         MAP also produces asphalt cements, polymerized asphalt, asphalt
emulsions and industrial asphalts. MAP manufactures petroleum pitch, primarily
used in the graphite electrode, clay target and refractory industries.
Additionally, MAP manufactures aromatics, aliphatic hydrocarbons, cumene, base
oil and slack wax.

                                       19

<PAGE>
 
         During 2000, MAP's refineries processed 900,000 bpd of crude oil and
141,000 bpd of other charge and blend stocks. The following table sets forth
MAP's refinery production by product group for each of the last three years:


<TABLE> 
<CAPTION> 
Refined Product Yields
(Thousands of Barrels per Day)                                       2000         1999           1998
-----------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>          <C> 
Gasoline......................................................         552          566           545
Distillates...................................................         278          261           270
Propane.......................................................          20           22            21
Feedstocks & Special Products.................................          74           66            64
Heavy Fuel Oil................................................          43           43            49
Asphalt.......................................................          74           69            68
                                                                     -----        -----         -----
TOTAL.........................................................       1,041        1,027         1,017
                                                                     =====        =====         =====
</TABLE>
 

         Planned maintenance activities requiring temporary shutdown of certain
refinery operating units ("turnarounds") are periodically performed at each
refinery. MAP completed major turnarounds at the Catlettsburg, Detroit and
Robinson refineries in 2000.

         MAP is constructing a delayed coker unit at its Garyville, Louisiana
refinery. This unit will allow for the use of heavier, lower cost crude and
reduce the production of heavy fuel oil. To supply this new unit, MAP reached an
agreement with P.M.I. Comercio Internacional, S.A. de C.V., (PMI), an affiliate
of Petroleos Mexicanos, (PEMEX), to purchase approximately 90,000 bpd of heavy
Mayan crude oil. This is a multi-year contract, which will begin upon completion
of the delayed coker unit which is scheduled in the fall of 2001. In addition, a
project to increase light product output is underway at MAP's Robinson, Illinois
refinery and is expected to be completed in the second quarter of 2001.

Marketing

         In 2000, MAP's refined product sales volumes (excluding matching
buy/sell transactions) totaled 19.3 billion gallons (1,254,000 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, the upper Great Plains
and the Southeast, and sales in the spot market, accounted for about 64 percent
of MAP's refined product sales volumes in 2000. Approximately 46 percent of
MAP's gasoline volumes and 78 percent of its distillate volumes were sold on a
wholesale or spot market basis to independent unbranded customers or other
wholesalers in 2000.

                                       20

<PAGE>
 
         The following table sets forth the volume of MAP's consolidated refined
product sales by product group for each of the last three years:


<TABLE> 
<CAPTION> 
Refined Product Sales
(Thousands of Barrels per Day)                                       2000         1999           1998
-----------------------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>           <C> 
Gasoline .....................................................         746          714           671
Distillates...................................................         352          331           318
Propane  .....................................................          21           23            21
Feedstocks & Special Products.................................          69           66            67
Heavy Fuel Oil................................................          43           43            49
Asphalt.......................................................          75           74            72
                                                                     -----        -----         -----
TOTAL.........................................................       1,306        1,251         1,198
                                                                     =====        =====         =====
Matching Buy/Sell Volumes included in above...................          52           45            39
</TABLE>
 

         As of December 31, 2000, MAP supplied petroleum products to 3,729
Marathon and Ashland branded retail outlets located primarily in Michigan, Ohio,
Indiana, Kentucky and Illinois. Branded retail outlets are also located in West
Virginia, Florida, Georgia, Wisconsin, Minnesota, Virginia, Tennessee,
Pennsylvania, North Carolina, South Carolina and Alabama.

         In 2000, retail sales of gasoline and diesel fuel were also made
through limited service and self-service stations and truck stops operated in 20
states by a wholly owned MAP subsidiary, Speedway SuperAmerica LLC ("SSA"). As
of December 31, 2000, this subsidiary had 2,242 retail outlets which sold
petroleum products and convenience-store merchandise, primarily under the brand
names "Speedway"and "SuperAmerica". SSA's revenues from the sale of
convenience-store merchandise totaled $2,322 million in 2000, compared with
$2,056 million in 1999. Profits generated from these sales tend to moderate the
margin volatility experienced in the retail sale of gasoline and diesel fuel.
The selection of merchandise varies among outlets. At December 31, 2000, 2,100
of SSA's 2,242 outlets 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.

         MAP sells RFG in parts of its marketing territory, primarily Chicago,
Illinois; Louisville, Kentucky; Northern Kentucky; Maryland; Virginia; and
Milwaukee, Wisconsin. MAP also markets low-vapor-pressure gasolines in all or
parts of eleven states.

Supply and Transportation

         The crude oil processed in MAP's refineries is obtained from negotiated
contract and spot purchases or exchanges. In 2000, MAP's net purchases of U.S.
crude oil for refinery input averaged 400,000 bpd including 24,000 bpd from
Marathon. In 2000, 56 percent or 500,000 bpd of the crude oil processed by MAP's
refineries was from foreign sources, including approximately 301,000 bpd from
the Middle East, and was acquired primarily from various foreign national oil
companies, producing companies and traders.

         MAP operates a system of pipelines and terminals to provide crude oil
to its refineries and refined products to its marketing areas. Ninety-one light
product and asphalt terminals are strategically located throughout the Midwest,
upper Great Plains and Southeast. These facilities are supplied by a combination
of pipelines, barges, rail cars and trucks.

         At December 31, 2000, MAP owned, leased or had an ownership interest in
approximately 68 miles of crude oil gathering lines; 3,564 miles of crude oil
trunk lines; and 2,834 miles of products trunk lines. MAP owned a 46.7 percent
interest in LOOP LLC ("LOOP"), which is the owner and operator of the only U.S.
deepwater oil port, located 18 miles off the coast of Louisiana; a 49.9 percent
interest in LOCAP Inc. ("LOCAP"), which is the owner and operator of a crude oil
pipeline connecting LOOP and the Capline system; and a 37.2 percent interest in
the Capline system, a large diameter crude oil pipeline extending from St.
James, Louisiana to Patoka, Illinois.

                                       21

<PAGE>
 
         MAP also has a 33.3 percent ownership interest in Minnesota Pipe Line
Company, which operates a crude oil pipeline in Minnesota. Minnesota Pipe Line
Company provides MAP with access to crude oil common carrier transportation from
Clearbrook, Minnesota to Cottage Grove, Minnesota, which is in the vicinity of
MAP's St. Paul Park, Minnesota, refinery.

         A MAP subsidiary, Ohio River Pipe Line LLC ("ORPL"), plans to build a
pipeline from Kenova, West Virginia to Columbus, Ohio. ORPL is a common carrier
pipeline company and the pipeline will be an interstate common carrier pipeline.
The pipeline is expected to initially move about 50,000 bpd of refined petroleum
into the central Ohio region. The pipeline is currently expected to be
operational in mid-2002. The startup of this pipeline is largely dependent on
obtaining the final regulatory approvals, obtaining the necessary rights-of-way,
of which approximately 95 percent have been obtained to date, and completion of
construction. ORPL is still negotiating with a few landowners to obtain the
remaining rights-of-way. Where necessary, ORPL has filed condemnation actions to
acquire some rights-of-way. These actions are at various stages of litigation
and appeal with several recent decisions supporting ORPL's use of eminent
domain.

         MAP has joined CMS Energy Corporation and TEPPCO Partners, L.P., in an
agreement to form a limited liability company with equal ownership to operate an
interstate refined petroleum products pipeline extending from the U.S. Gulf of
Mexico to the Midwest. The new company plans to build a 74-mile, 24-inch
diameter pipeline connecting TEPPCO's facility in Beaumont, Texas, with an
existing 720-mile, 26-inch diameter pipeline extending from Longville, Louisiana
to Bourbon, Illinois. In addition, a two million barrel terminal storage
facility will be constructed. The system will be called Centennial Pipeline and
will connect with existing MAP transportation assets and other common carrier
lines. Construction is expected to be completed in the fourth quarter of 2001.

         MAP's marine transportation operations include towboats and barges that
transport refined products on the Ohio, Mississippi and Illinois rivers, their
tributaries, and the Intercoastal Waterway. MAP also leases and owns rail cars
in various sizes and capacities for movement and storage of petroleum products
and a large number of tractors, tank trailers and general service trucks.

         The above RM&T discussions include forward-looking statements
concerning anticipated refinery and pipeline projects. Some factors that could
potentially cause actual results to differ materially from present expectations
include (among others) price of petroleum products, levels of cash flow from
operations, obtaining the necessary construction and environmental permits,
unforeseen hazards such as weather conditions, obtaining the necessary
rights-of-way and regulatory approval constraints. This forward-looking
information may prove to be inaccurate and actual results may differ
significantly from those presently anticipated.

Other Energy Related Businesses

Natural Gas and Crude Oil Marketing and Transportation

         Marathon owns and operates, as a common carrier, approximately 174
miles of crude oil gathering lines and 187 miles of crude oil trunk lines that
were not contributed to MAP. Marathon also owns an interest in the following
pipeline systems that were not contributed to MAP. Marathon has a 29 percent
interest in Odyssey Pipeline LLC and a 28 percent interest in Poseidon Oil
Pipeline Company, LLC, both Gulf of Mexico crude oil pipeline systems. Marathon
has a 24 percent interest in Nautilus Pipeline Company, LLC and a 24 percent
interest in Manta Ray Offshore Gathering Company, LLC, both Gulf of Mexico
natural gas pipeline systems. Marathon has a 17 percent interest in Explorer
Pipeline Company and a 2.5 percent interest in Colonial Pipeline Company, both
light product pipeline systems extending from the Gulf of Mexico to the Midwest
and East Coast, respectively.

                                       22

<PAGE>
 
         Marathon has a 30 percent ownership in a Kenai, Alaska, natural gas
liquefication plant and two 87,500 cubic meter tankers used to transport 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 percent participation in this contract which is effective through March 31,
2004, and provides an option for a five-year extension. During 2000, LNG
deliveries totaled 64 gross bcf (19 net bcf), unchanged from 1999.

         Marathon has a 34 percent ownership interest in the Neptune natural gas
processing plant located in St. Mary Parish, Louisiana, which commenced
operations on March 20, 2000. The plant has the capacity to process 300 mmcfd of
natural gas, which is transported on the Nautilus pipeline system.

         In addition to the sale of equity oil and natural gas production,
Marathon purchases oil and gas from third-party producers and marketers for
resale.

Power Generation

         Marathon, through its wholly owned subsidiary, Marathon Power Company,
Ltd. ("Marathon Power"), pursues development, construction, ownership and
operation of independent electric power projects in the global electrical power
market.

Competition and Market Conditions

         The oil and gas industry is characterized by a large number of
companies, none of which is dominant within the industry, but a number of which
have greater resources than Marathon. Marathon must compete with these companies
for the rights to explore for oil and gas. Acquiring the more attractive
exploration opportunities frequently requires competitive bids involving
substantial front-end bonus payments or commitments to work programs. Based on
industry sources, Marathon believes it currently ranks 9th among U.S. based
petroleum corporations on the basis of 1999 worldwide liquid hydrocarbon and
natural gas production.

         Marathon through MAP must also compete with a large number of other
companies to acquire crude oil for refinery processing and in the distribution
and marketing of a full array of petroleum products. MAP believes it ranks fifth
among U.S. petroleum companies on the basis of crude oil refining capacity as of
January 1, 2001. MAP competes in four distinct markets - wholesale, spot,
branded and retail distribution - for the sale of refined products, and believes
it competes with about 50 companies in the wholesale distribution of petroleum
products to private brand marketers and large commercial and industrial
consumers; about 75 companies in the sale of petroleum products in the spot
market; 10 refiner/marketers in the supply of branded petroleum products to
dealers and jobbers; and over 600 petroleum product retailers in the retail sale
of petroleum products. Marathon also competes in the convenience store industry
through SSA's retail outlets. The retail outlets offer consumers gasoline,
diesel fuel (at selected locations) and a broad mix of other products and
services, such as tobacco, soft drinks, health and beauty aids, groceries,
fresh-baked goods, automated teller machines, automotive accessories and a line
of private-label items. Some locations also have on-premises brand-name
restaurants such as Subway and Taco Bell.

         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, results from production
operations benefit from higher crude oil and natural gas prices while refining
and marketing margins may be adversely affected by crude oil price increases.
Market conditions in the oil industry are cyclical and subject to global
economic and political events.

Employees

         The Marathon Group had 30,892 active employees as of December 31, 2000,
which included 27,799 MAP employees. Of the MAP total, 21,677 were employees of
Speedway SuperAmerica LLC, primarily representing employees at retail marketing
outlets.

                                       23

<PAGE>
 
         Certain hourly employees at the Catlettsburg and Canton refineries are
represented by the Paper, Allied-Industrial, Chemical and Energy Workers
International Union under labor agreements which expire on January 31, 2002,
while certain hourly employees at the Texas City refinery are represented by the
same union under a labor agreement which expires on March 31, 2002. Certain
hourly employees at the St. Paul Park and Detroit refineries are represented by
the International Brotherhood of Teamsters under labor agreements which expire
on May 31, 2002 and January 31, 2003, respectively.

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 Marathon Group on page M-30.

Environmental Matters

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

         The businesses of the Marathon Group are subject to numerous federal,
state and local laws and regulations relating to the protection of the
environment. These environmental laws and regulations include the 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, 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 many of them have become more 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, new water quality
standards and stricter fuel regulations could result in increased capital,
operating and compliance costs.

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

Management's Discussion and Analysis of Environmental Matters, Litigation and
Contingencies"on page M-31 and "Legal Proceedings"for the Marathon Group on page
38.

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

                                       24

<PAGE>
 
Air

         The CAA imposes stringent limits on air emissions, establishes a
federally mandated operating permit program and allows for civil and criminal
enforcement sanctions. The principal impact of the CAA on the Marathon Group is
on its RM&T operations. The CAA also establishes attainment deadlines and
control requirements based on the severity of air pollution in a geographical
area. It is estimated that, from 2001 to 2004, the Marathon Group, which
includes all seven MAP refineries, may spend approximately $110 million in order
to comply with the proposed Maximum Achievable Control Technology ("MACT") Phase
II standards under the CAA. These standards require new control equipment on
Fluid Catalytic Cracking Units and other units. New Tier II Fuels regulations
were proposed in late 1999. The gasoline rules, which were finalized by the U.S.
Environmental Protection Agency ("EPA") in February 2000, and the diesel fuel
rule which was finalized in January 2001, require substantially reduced sulfur
levels. The combined capital cost to achieve compliance with the gasoline and
diesel regulations could amount to approximately $600 - $700 million between
2003 and 2005.

         In July 1997, the EPA promulgated more stringent revisions to the
National Ambient Air Quality Standards ("NAAQS") for ozone and particulate
matter. These revisions had been vacated by the Court of Appeals for the
District of Columbia and remanded to the EPA for further action. The EPA sought
review of the matter by the United States Supreme Court, and the Supreme Court
heard the case in the fall of 2000. On February 27, 2001 the Supreme Court
affirmed in part, reversed in part, and remanded the case to the EPA to develop
a reasonable interpretation of the nonattainment implementation provisions
insofar as they relate to the revised ozone NAAQS. Additionally, in 1998, the
EPA published a nitrogen oxide ("NOx") State Implementation Plan ("SIP") call,
which would require some 22 states, including many states where the Marathon
Group has operations, to revise their SIPs to reduce NOx emissions. In December
1999, the EPA granted a petition from several northeastern states requesting
that stricter NOx standards be adopted by midwestern states, including several
states where the Marathon Group has refineries. The impact of the revised NAAQS
and NOx standards could be significant to Marathon, but the potential financial
effects cannot be reasonably estimated until the EPA takes further action on the
revised ozone NAAQA (along with any further judicial review) and the states, as
necessary, develop and implement revised SIPs in response to the revised NAAQS
and NOx 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 releases of oil or
hazardous substances. Also, in case of such releases, OPA-90 requires
responsible companies to pay resulting removal costs and damages, provides for
substantial civil penalties, and imposes criminal sanctions for violations of
this law.

         Additionally, OPA-90 requires that new tank vessels entering or
operating in domestic waters be double-hulled, and that existing tank vessels
that are not double-hulled be retrofitted or removed from domestic service,
according to a phase-out schedule. The Coast Guard National Pollution Funds
Center has granted permission to Marathon and Ashland to self-insure the
financial responsibility amount for liability purposes for MAP's tankers, as
provided in OPA-90. In addition, most of the barges, which are used in MAP's
river transportation operations, meet the double-hulled requirements of OPA-90.
Single-hulled barges owned and operated by MAP are in the process of being
phased out. Displaced single-hulled barges will be divested or recycled into
docks or floats within MAP's system.

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

                                       25

<PAGE>
 
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 the
appropriate state UST reimbursement fund once the applicable deductible has been
satisfied. Accruals for remediation expenses and associated reimbursements are
established for sites where contamination has been determined to exist and the
amount of associated costs is reasonably determinable.

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

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

                                       26

<PAGE>
 
U. S. STEEL GROUP

         The U. S. Steel Group is engaged in the production and sale of steel
mill products, coke, and taconite pellets; the management of mineral resources;
coal mining; real estate development; and engineering and consulting services.
Certain business activities are conducted through joint ventures and
partially-owned companies, such as USS-POSCO Industries ("USS-POSCO"), PRO-TEC
Coating Company ("PRO-TEC"), Transtar, Inc. ("Transtar"), Clairton 1314B
Partnership, and Republic Technologies International LLC ("Republic"). On
November 24, 2000, USX acquired U. S. Steel Kosice s.r.o. ("USSK"), which held
the steel and related assets of VSZ a.s., headquartered in the Slovak Republic.
U. S. Steel Group revenues as a percentage of total USX consolidated revenues
were approximately 15 percent in 2000, 19 percent in 1999 and 23 percent in
1998.

         The following table sets forth the total revenues of the U. S. Steel
         Group for each of the last three years.


<TABLE> 
<CAPTION> 
         Revenues and other income
         (Millions)                                                 2000           1999          1998
         --------------------------------------------------------------------------------------------
         <S>                                                     <C>          <C>            <C> 
         Revenues by product:
            Sheet and semi-finished steel products............   $  3,288     $  3,433       $ 3,598 
            Tubular, plate, and tin mill products ............      1,731        1,140         1,546 
            Raw materials (coal, coke and iron ore)...........        626          549           744 
            Other/(a)/........................................        445          414           490 
         Income (loss) from affiliates........................         (8)         (89)           46 
         Gain on disposal of assets...........................         46           21            54 
         Other income (loss)..................................          4            2            (1)
                                                                  -------      -------       -------
            Total revenues and other income...................   $  6,132     $  5,470       $ 6,477 
         --------------------------------------------------------------------------------------------
         /(a)/ Includes revenue from the sale of steel production by-products, real
               estate development, resource management, and engineering and consulting services.
</TABLE>
 

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

         The total number of active U. S. Steel Group domestic employees at
year-end 2000 was 18,784. The total number of active USSK employees was 16,244.
Most hourly and certain salaried employees in the United States are represented
by the United Steelworkers of America ("USWA"). Most USSK employees are
represented by OZ Metalurg which on February 16, 2001 signed a Collective Labor
Agreement with USSK which, for nonwage issues, covers the years 2001 to 2004 and
covers all 2001 wage issues. Wage issues for the remainder of the term of the
Collective Labor Agreement are expected to be renegotiated annually.

Steel Industry Background and Competition

         The 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 and international steel industries face competition from
producers of materials such as aluminum, cement, composites, glass, plastics and
wood in many markets.

                                       27

<PAGE>
 
         U. S. Steel Group is one of the largest steel producers in the United
States and, through its subsidiary USSK, the largest integrated flat rolled
producer in Central Europe, and competes with many domestic and foreign steel
producers. Competitors include integrated producers which, like U. S. Steel
Group, 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. 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 Group's selling prices and shipment levels.

         Steel imports to the United States accounted for an estimated 27%, 26%
and 30% of the domestic steel market for 2000, 1999 and 1998, respectively.
Steel imports of pipe increased 37% and of hot rolled steel increased 19% in
2000, compared to 1999. 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. High levels of
imported steel are expected to continue to have an adverse effect on future
market prices and demand levels for domestic steel.

         On November 13, 2000, U. S. Steel Group joined with eight other
producers and the Independent Steelworkers Union to file trade cases against
hot-rolled carbon steel flat products from 11 countries (Argentina, India,
Indonesia, Kazakhstan, the Netherlands, the People's Republic of China, Romania,
South Africa, Taiwan, Thailand and Ukraine). Three days later the USWA also
entered the cases as a petitioner. Antidumping ("AD") cases were filed against
all the countries and countervailing duty ("CVD") cases were filed against
Argentina, India, Indonesia, South Africa and Thailand. On December 28, 2000,
the U.S. International Trade Commission ("ITC") made a preliminary determination
that there is a reasonable indication that the domestic industry is materially
injured by the imports in question. As a result, both the ITC and the U.S.
Department of Commerce ("Commerce") will continue their investigations in these
cases.

         U. S. Steel Group believes that the remedies provided by U.S. law to
private litigants are insufficient to correct the widespread dumping and subsidy
abuses that currently characterize steel imports into our country. U. S. Steel
Group, nevertheless, intends to file additional AD and CVD petitions against
unfairly traded imports that adversely impact, or threaten to adversely impact,
the results of the U. S. Steel Group and is urging the U.S. government to take
additional steps.

         On July 3, 2000, Commerce and the ITC initiated the mandatory five-year
"sunset"reviews of AD orders issued in 1995 against seamless pipe from
Argentina, Brazil, Germany and Italy and oil country tubular goods ("OCTG") from
Argentina, Italy, Japan, Mexico and South Korea. The reviews also encompass the
1995 CVD orders against the same two products from Italy. The "sunset" review
procedures require that an order must be revoked after five years unless
Commerce and the ITC determine that, if the orders would be discontinued,
dumping or a countervailable subsidy would be likely to continue or recur and
that material injury to the domestic industry would be likely to continue or
recur. Of the 11 orders, 8 are the subject of expedited review at Commerce
because there was no response, inadequate response, or waiver of participation
by the respondent parties. Therefore, at Commerce, only three of the orders (AD:
OCTG from Mexico; and CVD: OCTG and seamless pipe from Italy) are the subject of
a full review. The ITC is conducting full reviews of all the cases, despite the
fact that responses by some of the respondent countries were inadequate.

                                       28

<PAGE>
 
         The U. S. Steel Group's domestic 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 Group
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 Group'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
Proceedings on page 42, Legal Proceedings on page 42, and Management's
Discussion and Analysis of Environmental Matters, Litigation and Contingencies
on page S-30.

         USSK does business primarily in Central Europe and is subject to market
conditions in this area which are similar to domestic factors, including excess
world supply, and also can be influenced by matters peculiar to international
marketing such as tariffs.

Business Strategy

         U. S. Steel Group produces raw steel at Gary Works in Indiana, Mon
Valley Works in Pennsylvania, Fairfield Works in Alabama, and USSK in Kosice,
Slovak Republic.

         U. S. Steel Group has 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, higher
strength plate products, improved tin mill products for the container industry
and oil country tubular goods. Several recent modernization projects further
support U. S. Steel Group's objectives of providing value-added products and
services to customers. These projects include, for the automotive industry - the
degasser facility at Mon Valley Works, the second hot-dip galvanized sheet at
PRO-TEC, the Fairless Works galvanizing line upgrade and the cold reduction mill
upgrades at Gary Works and Mon Valley Works; for the construction industry - the
dual coating lines at Fairfield Works and Mon Valley Works; for the tubular
market - the Fairfield Works pipemill upgrade and acquiring full ownership of
Lorain Tubular Company LLC's tubular facilities and for the plate market - the
heat treat facility at the Gary Works plate mill. Also, a new pickle line was
built at the Mon Valley Works which replaced three older and less efficient
facilities located at Fairless Works and Mon Valley Works.

         Through its purchase in 2000 of USSK, which held the steel producing
operations and related assets of VSZ a.s. in the Slovak Republic, the U. S.
Steel Group took a major strategic step by expanding offshore and following many
of its customers into the European market. The objective is to advance USSK to
become a leader among European steel producers and the prime supplier of
flat-rolled steel to the growing central European market. This globalization
strategy is also being pursued through our Acero Prime joint venture in Mexico.
The location of this joint venture allows for easy servicing and just-in-time
delivery to customers throughout Mexico.

         In addition, in October 2000, U. S. Steel Group entered into an
agreement with LTV Corporation ("LTV") to purchase LTV's tin mill products
business, including its Indiana Harbor, Indiana tin operations. This acquisition
recently closed and was effective March 1, 2001. Under this agreement, U. S.
Steel Group will lease the land and take title to the buildings, facilities and
inventory of LTV's Indiana Harbor tin operations. U. S. Steel Group intends to
operate these facilities as an ongoing business and tin mill employees at
Indiana Harbor became U. S. Steel Group employees. The U. S. Steel Group and LTV
also entered into 5-year agreements for LTV to supply U. S. Steel Group with
pickled hot bands and for U. S. Steel Group to provide LTV with processing of
cold rolled steel. U. S. Steel Group will not lease the land or take title to
the buildings of LTV's Aliquippa, Pennsylvania tin operations. However, U. S.
Steel Group has the right to transfer certain tin line equipment from Aliquippa
to Indiana Harbor and other U. S. Steel Group tin operations to upgrade those
facilities.

         In addition to the modernization of its production facilities, USX has
entered into a number of joint ventures with domestic and foreign partners to
take advantage of market or manufacturing opportunities in the sheet, tin mill,
tubular, bar and plate consuming industries.

                                       29

<PAGE>
 
         U. S. Steel Group 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,
increased customer orientation and improved process control. In January 2001, 
U. S. Steel domestic operations requested from current suppliers an immediate,
temporary eight percent price reduction from existing levels.

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


<TABLE> 
<CAPTION> 
      Domestic Steel
      --------------
<S>                                                          <C> 
         Gary.............................................   Sheets; Tin Mill; Plates; Coke                         
         Fairfield........................................   Sheets; Tubular                                        
         Mon Valley.......................................   Sheets                                                 
         Fairless.........................................   Sheets; Tin Mill                                       
         USS-POSCO/(a)/...................................   Sheets; Tin Mill                                       
         Lorain Tubular Company LLC.......................   Tubular                                                
         Republic Technologies International, LLC/(a)/....   Bar                                                    
         PRO-TEC/(a)/.....................................   Galvanized Sheet                                       
         Clairton.........................................   Coke                                                   
         Clairton 1314B Partnership/(a)/..................   Coke                                                   
         Transtar/(a)/....................................   Transportation                                         
         Minntac..........................................   Taconite Pellets                                       
         U. S. Steel Mining...............................   Coal                                                   
         Resource Management..............................   Administration of Mineral, Coal and Timber Properties  
         USX Realty Development...........................   Real estate sales, leasing and management              
         USX Engineers and Consultants....................   Engineering and Consulting Services                    
      USSK                                                                                                          
      ----                                                                                                                    
         U. S. Steel Kosice s.r.o.........................   Sheets; Tin Mill; Plates; Coke                          
         ------------------------------------------------------------------------------------------------------------------
         /(a)/  Equity investee
</TABLE>
 

U. S. Steel Domestic Operations

         U. S. Steel domestic operations includes plants which produce steel
products in a variety of forms and grades. Raw steel production was 11.4 million
tons in 2000, compared with 12.0 million tons in 1999 and 11.2 million tons in
1998. Raw steel produced was nearly 100% continuous cast in 2000, 1999 and 1998.
Raw steel production averaged 89% of capability in 2000, compared with 94% of
capability in 1999 and 88% of capability in 1998. U. S. Steel's stated annual
raw steel production capability was 12.8 millions tons for 2000 (7.5 million at
Gary Works, 2.9 million at Mon Valley Works, and 2.4 million at Fairfield
Works).

         Steel shipments were 10.8 million tons in 2000, 10.6 million tons in
1999 and 10.7 million tons in 1998. U. S. Steel Group shipments comprised
approximately 9.8% of domestic steel shipments in 2000. Exports accounted for
approximately 5% of U. S. Steel Group shipments in 2000, 3% in 1999 and 4% in
1998.

                                       30

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

Steel Shipments By Market and Product (United States production only)


<TABLE> 
<CAPTION> 
                                                                  Sheets &       Tubular,
                                                                Semi-finished   Plate & Tin
Major Market - 2000                                                 Steel      Mill Products     Total
------------------------------------------------------------------------------------------------------
(Thousands of Net Tons)
<S>                                                             <C>            <C>           <C> 
Steel Service Centers.........................................       1,636          679         2,315
Further Conversion:
     Trade Customers..........................................         742          432         1,174
     Joint Ventures...........................................       1,771            -         1,771
Transportation (Including Automotive).........................       1,206          260         1,466
Containers....................................................         182          520           702
Construction and Construction Products........................         778          158           936
Oil, Gas and Petrochemicals...................................           -          973           973
Export........................................................         346          198           544
All Other.....................................................         748          127           875
                                                                     -----        -----        ------
        TOTAL.................................................       7,409        3,347        10,756
                                                                     =====        =====        ======

Major Market - 1999
-------------------
(Thousands of Net Tons)
Steel Service Centers.........................................       1,867          589         2,456
Further Conversion:
     Trade Customers..........................................       1,257          376         1,633
     Joint Ventures...........................................       1,818            -         1,818
Transportation (Including Automotive).........................       1,280          225         1,505
Containers....................................................         167          571           738
Construction and Construction Products........................         660          184           844
Oil, Gas and Petrochemicals...................................           -          363           363
Export........................................................         246           75           321
All Other.....................................................         819          132           951
                                                                     -----        -----        ------
     TOTAL....................................................       8,114        2,515        10,629
                                                                     =====        =====        ======

Major Market - 1998
-------------------
(Thousands of Net Tons)
Steel Service Centers.........................................       1,867          696         2,563
Further Conversion:
     Trade Customers..........................................         706          434         1,140
     Joint Ventures...........................................       1,473            -         1,473
Transportation (Including Automotive).........................       1,438          347         1,785
Containers....................................................         222          572           794
Construction and Construction Products........................         809          178           987
Oil, Gas and Petrochemicals...................................           -          509           509
Export........................................................         226          156           382
All Other.....................................................         867          186         1,053
                                                                     -----        -----        ------
     TOTAL....................................................       7,608        3,078        10,686
                                                                     =====        =====        ======
</TABLE>
 

                                       31

<PAGE>
 
         USX and its wholly owned entity, U. S. Steel Mining, have domestic coal
properties with demonstrated bituminous coal reserves of approximately 787
million net tons at year-end 2000 and at year-end 1999. The reserves are of
metallurgical and steam quality in approximately equal proportions. They are
located in Alabama, Illinois, Indiana, Pennsylvania, Tennessee and West
Virginia. Approximately 93% of the reserves are owned, and the rest are leased.
The leased properties are covered by leases which expire in 2005 and 2012.
During 2000, the U. S. Steel Group recorded $71 million of impairments relating
to coal assets located in West Virginia and Alabama. The impairment was recorded
as a result of a reassessment of long-term prospects after geological conditions
were encountered. U. S. Steel Mining's coal production was 6.2 million tons in
2000, compared with 6.6 million tons in 1999 and 8.2 million tons in 1998. Coal
shipments were 6.8 million tons in 2000, compared with 6.9 million tons in 1999
and 7.7 million tons in 1998.

         USX controls domestic iron ore properties having demonstrated iron ore
reserves in grades subject to beneficiation processes in commercial use by U. S.
Steel domestic operations of approximately 710 million tons at year-end 2000,
substantially all of which are iron ore concentrate equivalents available from
low-grade iron-bearing materials. All demonstrated reserves are located in
Minnesota. Approximately 32% of these reserves are owned and the remaining 68%
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 Group's iron ore operations at Mt. Iron, Minnesota ("Minntac") produced
16.3 million net tons of taconite pellets in 2000, 14.3 million net tons in 1999
and 15.8 million net tons in 1998. Taconite pellet shipments were 15.0 million
tons in 2000, compared with 15.0 million tons in 1999 and 15.4 million tons in
1998.

         USX's Resource Management administers the remaining mineral lands and
timber lands of U. S. Steel domestic operations and is responsible for the lease
or sale of these lands and their associated resources, which encompass
approximately 270,000 acres of surface rights and 1,500,000 acres of mineral
rights in 13 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.

         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.

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

         USX participates directly and through subsidiaries in a number of joint
ventures included in the Domestic Steel segment. 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, Republic, Acero Prime and the Clairton 1314B Partnership. For
financial information regarding joint ventures and other investments, see
"Financial Statements and Supplementary Data - Notes to Financial Statements -
16. Investments and Long-Term Receivables" for the U. S. Steel Group on page
S-16.

          USX and Pohang Iron & Steel Co., Ltd. ("POSCO") of South Korea
participate in a joint venture, USS-POSCO, which owns and operates the former U.
S. Steel Pittsburg, California plant. The joint venture markets high quality
sheet and tin products, principally in the western United States. USS-POSCO
produces cold-rolled sheets, galvanized sheets, tin plate and tin-free steel,
with hot bands principally provided by U. S. Steel Group and POSCO. Total
shipments by USS-POSCO were approximately 1.5 million tons in 2000.

         USX owns approximately a 16% interest in Republic Technologies
International, LLC ("Republic"), a subsidiary of Republic Technologies
International Holdings, LLC which is controlled by Blackstone Capital Partners
II. Republic produces raw steel, semi-finished steel products and bar products.
Total shipments by Republic were approximately 2.5 million tons in 2000.

                                       32

<PAGE>
 
         USX and Kobe Steel, Ltd. ("Kobe") participate in a joint venture,
PRO-TEC, which owns and operates two hot-dip galvanizing lines in Leipsic, Ohio.
The first galvanizing line commenced operations in early 1993. In November 1998,
operations commenced on a second hot-dip galvanized sheet line which expanded
PRO-TEC's capacity nearly 400,000 tons a year to 1.0 million tons annually.
Total shipments by PRO-TEC were approximately 1.0 million tons in 2000.

         USX and Worthington Industries Inc. participate in a joint venture
known as Worthington Specialty Processing which operates a steel processing
facility in Jackson, Michigan. The plant is operated by Worthington Industries,
Inc. The facility contains state-of-the-art technology capable of processing
master steel coils into both slit coils and sheared first operation blanks
including rectangles, trapezoids, parallelograms and chevrons. It is designed to
meet specifications for the automotive, appliance, furniture and metal door
industries. In 2000, Worthington Specialty Processing shipments were
approximately 299 thousand 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, Michigan. This facility enables U. S. Steel Group to 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.
Availability of the facility is shared equally by the partners. In 2000, DESCO
produced approximately 799 thousand tons of electrogalvanized steel.

         USX and Olympic Steel, Inc. participate in a 50-50 joint venture to
process laser welded sheet steel blanks at a facility in Van Buren, Michigan.
The joint venture conducts business as Olympic Laser Processing. Startup began
in 1998. In February 2000 an expansion project was announced adding two manually
operated welding lines. The expansion will create the needed flexibility and
capacity to service current and growing requirements for automotive laser weld
applications. Laser welded blanks are used in the automotive industry for an
increasing number of body fabrication applications. U. S. Steel Group is the
venture's primary customer and is responsible for marketing the laser-welded
blanks. In 2000, Olympic Laser Processing shipments were approximately 676
thousand parts.

         In 2000, USX owned 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 owned 53% of Transtar, and
the senior management of Transtar owned the remaining 1%. In October 2000,
Transtar announced that it had entered into a Reorganization and Exchange
Agreement with its two voting shareholders, USX and Transtar Holdings, L.P.
("Holdings"), an affiliate of Blackstone Capital Partners L.P. Upon closing, USX
will become sole owner of Transtar and certain of its subsidiaries, namely, the
Birmingham Southern Railroad Company; the Elgin, Joliet and Eastern Railway
Company; the Lake Terminal Railroad Company; the McKeesport Connecting Railroad
Company; the Mobile River Terminal Company, Inc.; the Union Railroad Company;
the Warrior & Gulf Navigation Company; and Tracks Traffic Management Services,
Inc. and their subsidiaries. Holdings will own the other subsidiaries.

         In 1998, USX and VSZ a.s. ("VSZ"), formed a 50-50 joint venture in
Kosice, Slovak Republic for the production and marketing of tin mill products.
VSZ's interest in the joint venture was transferred as part of the November 24,
2000 transaction in which USX purchased USSK. In 2000, through the date of the
acquisition, the former joint venture shipments were approximately 148 thousand
net tons.

         USX, through its subsidiary, United States Steel Export Company de
Mexico, along with Feralloy Mexico, S.R.L. de C.V., and Intacero de Mexico, S.A.
de C.V., participate in a joint venture, Acero Prime, for a slitting and
warehousing facility in San Luis Potosi, Mexico. In May 2000, an expansion
project was announced for the joint venture. The expansion project involves the
construction of a 60,000 square-foot addition that will double the current
facility's size and total warehousing capacity. A second slitting line and an
automatic packaging system will also be installed as part of the project. Also,
a new 70,000 square-foot, in-bond warehouse facility will be built in Coahuilla
state in Ramos Arizpe. The warehouse will store and manage coil inventories.
Startup is scheduled for the first quarter of 2001. In 2000, the joint venture
processed approximately 95 thousand tons.

                                       33

<PAGE>
 
         On February 24, 2000, U. S. Steel Group entered into a strategic
alliance with e-STEEL Corporation ("e-STEEL"), a leading online exchange for the
global steel industry. e-STEEL provides an easy-to-use, secure web site where
both steel buyers and sellers can initiate, describe, specifically target,
negotiate in real time, and conclude transactions online. As part of the
agreement, U. S. Steel Group has taken a minority stake in e-STEEL. e-STEEL also
entered into agreements with USX Engineers and Consultants, Inc., a wholly owned
subsidiary of USX, for joint marketing and implementation of system integration
services.

U. S. Steel Kosice

         On November 24, 2000, USX completed the acquisition of the steelmaking
operations and related assets of VSZ located in Kosice in the Slovak Republic.
These operations are now operating as USSK. The commercial strategy is to serve
existing U. S. Steel Group customers in Central Europe and to grow our customer
base in this region. For more information on this transaction, see "Financial
Statements and Supplementary Data - Notes to Financial Statements - 5. Business
Combination" for the U. S. Steel Group on page S-8.

         USSK produces steel products in a variety of forms and grades. For the
38 days of U. S. Steel Group's ownership in 2000, USSK raw steel production was
382 thousand tons or 82% of capability, based on annual capability of 4.5
million tons. USSK has three blast furnaces, two steel shops with two vessels
each, a dual strand caster attached to each steel shop, a hot strip mill, cold
rolling mill, pickling lines, galvanizing line, tin coating line and two coke
batteries. Raw steel produced in 2000 was 100% continuous cast.

         USSK shipped 317 thousand tons following the acquisition. These
shipments included sheet products, galvanized sheet products, tin mill products
and plate products. In addition, USSK includes Walzwerk Finow GmbH, located in
eastern Germany, which produces about 90,000 tons per year of welded precision
steel tubes from both cold rolled and hot rolled product as well as cold rolled
specialty shaped sections. USSK also has facilities for manufacturing heating
radiators and spiral weld pipe.

         A majority of product sales by USSK are anticipated to be denominated
in Euros while only a small percent of expected expenditures is anticipated to
be in Euros. In addition, most interest and debt payments will be in U.S.
dollars and the majority of other spending is expected to be in U.S. dollars and
the Slovak koruna. This introduces exposure to currency fluctuations.

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-28.

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 concerning the implementation of cost effective pollution
reduction strategies.

                                       34

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

         For a discussion of environmental capital expenditures and the cost of
compliance for air, water, solid waste and remediation, see "Management's
Discussion and Analysis of Environmental Matters, Litigation and
Contingencies" on page S-30 and "Legal Proceedings" for the U. S. Steel Group on
page 42.

         The U. S. Steel Group has incurred and will continue to incur
substantial capital, operating and maintenance, and remediation expenditures as
a result of environmental laws and regulations. In recent years, these
expenditures have been mainly for process changes in order to meet CAA
obligations, although ongoing compliance costs have also been significant. To
the extent these expenditures, as with all costs, are not ultimately reflected
in the prices of the U. S. Steel Group's products and services, operating
results will be adversely affected. U. S. Steel believes that its major domestic
integrated steel competitors are confronted by substantially similar conditions
and thus does not believe that its relative position with regard to such
competitors is materially affected by the impact of environmental laws and
regulations. However, the costs and operating restrictions necessary for
compliance with environmental laws and regulations may have an adverse effect on
U. S. Steel's competitive position with regard to domestic mini-mills and some
foreign steel producers and producers of materials which compete with steel,
which may not be required to undertake equivalent costs in their operations. In
addition, the specific impact on each competitor may vary depending on a number
of factors, including the age and location of its operating facilities and its
production methods. For further information, see "Legal Proceedings" on page 42,
and "Management's Discussion and Analysis of Environmental Matters, Litigation
and Contingencies" on page S-30.

         The 1997 Kyoto Global Climate Change Agreement ("Kyoto Protocol")
produced by the United Nations convention on climate change, if ratified by the
U. S. Senate, would require restrictions on greenhouse gas emissions in the
United States. Options that could be considered by federal regulators to force
the reductions necessary to meet these restrictions could escalate energy costs
and thereby increase steel production costs. Until action is taken by the U. S.
Senate to ratify or reject the Kyoto Protocol, it is not possible to estimate
the effect of regulations that may be considered for implementation of emissions
restrictions in the United States.

Air

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

         The CAA requires the regulation of hazardous air pollutants and
development and promulgation of Maximum Achievable Control Technology ("MACT")
Standards. The amendment to the Chrome Electroplating MACT to include the chrome
processes at Gary and Fairless is expected sometime in the next couple years.
The EPA is also promulgating MACT standards for integrated iron and steel plants
and taconite iron ore processing which are expected to be finalized in 2002. The
impact of these new standards could be significant to U. S. Steel, but the cost
cannot be reasonably estimated until the rules are finalized.

                                       35

<PAGE>
 
         The CAA specifically addressed the regulation and control of coke oven
batteries. The National Emission Standard for Hazardous Air Pollutants for coke
oven batteries was finalized in October 1993, setting forth the MACT standard
and, as an alternative, a Lowest Achievable Emission Rate ("LAER") standard.
Effective January 1998, U. S. Steel elected to comply with the LAER standards.
U. S. Steel believes it will be able to meet the current LAER standards. The
LAER standards will be further revised in 2010 and additional health risk-based
standards are expected to be adopted in 2020. EPA is in the process of
developing the Phase II Coke MACT for pushing, quenching and battery stacks
which is scheduled to be finalized in 2002. This MACT will impact U. S. Steel,
but the cost cannot be reasonably estimated at this time.

         The CAA also mandates the nationwide reduction of emissions of acid
rain precursors (sulfur dioxide and nitrogen oxides) from fossil fuel-fired
electrical utility plants. U. S. Steel, like all other electricity consumers,
will be impacted by increased electrical energy costs that are expected as
electric utilities seek rate increases to comply with the acid rain
requirements.

         In September 1997, the EPA adopted revisions to the National Ambient
Air Quality Standards for ozone and particulate matter which are significantly
more stringent than prior standards. EPA has issued a Nitrogen Oxide ("NOx")
State Implementation Plan ("SIP") call to require certain states to develop
plans to reduce NOx emissions focusing on large utility and industrial boilers.
The impact of these revised standards could be significant to U. S. Steel, but
the cost cannot be reasonably estimated until the final revised standards and
the NOx SIP call are issued and, more importantly, the states implement their
SIPs covering their standards.

         In 2000, 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. The new
ozone and particulate matter standards could be significant to U. S. Steel
Mining, but the cost is not capable of being reasonably estimated until rules
are proposed or finalized.

Water

         The U. S. Steel Group maintains the necessary discharge permits as
required under the National Pollutant Discharge Elimination System ("NPDES")
program of the CWA, and it is in compliance with such permits. In 1998, USX
entered into a consent decree with the Environmental Protection Agency ("EPA")
which resolved alleged violations of the Clean Water Act NPDES permit at Gary
Works and provides for a sediment remediation project for a section of the Grand
Calumet River that runs through Gary Works. Contemporaneously, USX entered into
a consent decree with the public trustees which resolves potential liability for
natural resource damages on the same section of the Grand Calumet River. In
1999, USX paid civil penalties of $2.9 million for the alleged water act
violations and $0.5 million in natural resource damages assessment costs. In
addition, USX will pay the public trustees $1 million at the end of the
remediation project for future monitoring costs and USX is obligated to purchase
and restore several parcels of property that have been or will be conveyed to
the trustees. During the negotiations leading up to the settlement with EPA,
capital improvements were made to upgrade plant systems to comply with the NPDES
requirements. The sediment remediation project is an approved final interim
measure under the corrective action program for Gary Works and is expected to
cost approximately $36.4 million over the next five years. Estimated remediation
and monitoring costs for this project have been accrued.

Solid Waste

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

                                       36

<PAGE>
 
Remediation

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

         The U. S. Steel Group is also involved in a number of remedial actions
under CERCLA, RCRA and other federal and state statutes, and it is possible that
additional matters may come to its attention which may require remediation. For
a discussion of remedial actions related to the U. S. Steel Group, see "Legal
Proceedings - U. S. Steel Group Environmental Proceedings" on page 42.

                                       37

<PAGE>
 

I
tem 2.  PROPERTIES

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

         Several steel production facilities and interests in two liquefied
natural gas tankers are leased. See "Financial Statements and Supplementary Data
- Notes to Consolidated Financial Statements - 10. Leases" on page U-17.

         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,
2000.


Item 3.  LEGAL PROCEEDINGS

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

Marathon Group

Posted Price Litigation

         The Marathon Group, alone or with other energy companies, was named in
a number of lawsuits in State and Federal courts alleging various causes of
action related to crude oil royalty payments based on posted prices, including
underpayment of royalty interests, underpayment of severance taxes, antitrust
violations, and violation of the Texas common purchaser statute. Plaintiffs in
these actions included governmental entities and private entities or
individuals. Except for the litigation described in the following paragraph, all
posted price litigation involving crude oil royalties has been resolved as to
Marathon.

         During November 1997, Marathon and over twenty other defendants entered
into a proposed class settlement agreement covering antitrust and contract
claims from January 1, 1986, through September 30, 1997, excluding federal and
Indian royalty claims, common purchaser claims and severance tax claims. A new
settlement agreement was filed with the U.S. District Court for the Southern
District of Texas on June 26, 1998, which replaced the November 1997 Settlement
Agreement. The new settlement agreement omits from the settlement class all
State entities which receive royalty payments and only covers private claimants.
At a hearing on December 1, 1998, the court preliminarily approved the new
settlement agreement for the group of defendants of which Marathon is a part.
The new settlement agreement settles all private claims, subject to opt-outs.
The agreement was approved by the court in April 1999. The approval of the
settlement has been appealed to the 5th Circuit Court of Appeals. A decision
from the court is expected in 2001. This statement as to the expected decision
from the court is a forward-looking statement. Predictions as to the date of the
decision are subject to uncertainties with respect to (among other things) the
court's docket and caseload.

                                       38

<PAGE>
 
         Marathon has been named by private plaintiffs as a defendant, along
with 17 other energy companies, in a lawsuit under the False Claims Act in the
U.S. District Court for the Eastern District of Texas. In February 2001,
Marathon paid $7.7 million to settle this dispute over the calculation and
amount of royalties due from leases on federal and Native American lands between
1988 and 1998.

         Marathon is a named defendant in Wright v. Chevron, et al., a qui tam
case originally filed in the U.S. District Court for the Eastern District of
Texas against over 125 companies which alleges violations under the federal
False Claims Act arising from the reporting and payment of royalties on natural
gas and natural gas liquids in connection with leases on federal and Native
American lands. The Department of Justice decided not to intervene in the case
against Marathon.

         The Marathon Group intends to vigorously defend such remaining cases.

Manteo

         On July 18, 1997, the United States Court of Federal Claims, Case No.
92-331C, entered a judgment in the amount of $78 million in favor of Marathon
Oil Company and against the United States of America. The U.S. government was
effectively ordered to return lease bonuses that Marathon paid in 1981 for
interest in five oil and gas leases offshore North Carolina. The lawsuit filed
in May 1992 alleged, inter alia, that the federal government breached the leases
through passage of legislation which disputed the company's rights to explore,
develop, and produce hydrocarbons from the leases. The Department of Justice
appealed the trial court's decision to the U.S. Court of Appeals for Federal
Claims which reversed the trial court. During the fourth quarter of 1999,
Marathon's request for Writ of Certiorari to the U.S. Supreme Court was granted.
On June 26, 2000, the U.S. Supreme Court reversed and remanded the case to the
U.S. Court of Appeals for the Federal Circuit for further action. The court of
appeals subsequently ordered full restitution. The U.S. government's request for
reconsideration was denied.

FTC Investigation

         On June 27, 2000, the Federal Trade Commission ("FTC") issued a
subpoena to MAP as part of an investigation to determine whether firms engaged
in the production, transportation, distribution, marketing or sale of petroleum
products have engaged in any unfair methods of competition in the Midwest in
violation of Section 5 of the Federal Trade Commission Act. MAP responded to the
subpoena and has cooperated with the investigation. On June 29, 2000, MAP
received a demand for information from the Wisconsin Attorney General which is
substantially similar to the FTC subpoena. MAP has responded to the request and
certain other informal requests for information.

         The investigation was in response to gasoline price increases during
the summer of 2000, particularly those in the Midwest. MAP believes that much of
the increase nationwide was related to the price of crude oil, which nearly
tripled between January 1999 and the summer of 2000, and to the implementation
of regulations which force refiners to produce an ever-widening array of motor
fuels for different markets. In addition to these factors, the Midwest had been
experiencing an imbalance of gasoline supply and demand. The primary causes of
this imbalance were new fuels required June 1, 2000 for the Chicago, Milwaukee
and St. Louis markets and a series of pipeline and refinery disruptions. MAP
believes that it properly responded to market forces in its gasoline pricing
practices.

Environmental Proceedings

         The following is a summary of proceedings attributable to the Marathon
Group that were pending or contemplated as of December 31, 2000, 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.

                                       39

<PAGE>
 
Because of various factors including the ambiguity of the regulations, the
difficulty of identifying the responsible parties for any particular site, the
complexity of determining the relative liability among them, the uncertainty as
to the most desirable remediation techniques and the amount of damages and
cleanup costs and the time period during which such costs may be incurred, USX
is unable to reasonably estimate its ultimate cost of compliance with CERCLA.

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

         At December 31, 2000, USX had been identified as a PRP at a total of 13
CERCLA waste 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 all but
one of these sites will be under $1 million per site, and most will be under
$100,000. USX believes that its liability for cleanup and remediation costs in
connection with the one remaining site will be under $2.5 million.

         In addition, there are 6 waste 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 115 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. Of these sites, 15
were associated with properties conveyed to MAP by Ashland which has retained
liability for all costs associated with remediation. 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 20 of these sites will be under $100,000 per site, 32 sites have
potential costs between $100,000 and $1 million per site, 10 sites may involve
remediation costs between $1 million and $5 million per site and 6 sites have
incurred remediation costs of more than $5 million per site. Of the 6 sites,
only 1 site as described in the following paragraph has future costs that are
estimated to exceed $5 million. There are 32 sites with insufficient information
to estimate any remediation costs.

         There is one site that involves a remediation program in cooperation
with the Michigan Department of Environmental Quality at a closed and dismantled
refinery site located near Muskegon, Michigan. During the next 10 to 20 years,
the Marathon Group anticipates spending less than $7 million at this site.
Expenditures in 2001 are expected to be approximately $500,000. Additionally,
negotiations are taking place with Michigan Department of Environmental Quality
to eventually perform a risk-based closure on this site.

         In October 1998, the National Enforcement Investigations Center and
Region V of the EPA conducted a multi-media inspection of MAP's Detroit
refinery. Subsequently, in November 1998, Region V conducted a multi-media
inspection of MAP's Robinson refinery. These inspections covered compliance with
the Clean Air Act (New Source Performance Standards, Prevention of Significant
Deterioration, and the National Emission Standards for Hazardous Air Pollutants
for Benzene), the Clean Water Act (permit exceedances for the Waste Water
Treatment Plant), reporting obligations under the Emergency Planning and
Community Right to Know Act and the handling of process waste. MAP has been
advised, in ongoing discussions with the EPA, as to certain compliance issues
regarding MAP's Detroit and Robinson refineries. Thus far, MAP has been served
with two Notices of Violation ("NOV") and three Findings of Violation in
connection with the multi-media inspection at its Detroit refinery. The Detroit
notices allege violations of the Michigan State Air Pollution Regulations, the
EPA New Source Performance Standards and National Emission Standards for
Hazardous Air Pollutants for Benzene. On March 6, 2000, MAP received its first
NOV arising out of the multi-media inspection of the Robinson refinery conducted
in November 1998. The NOV is for alleged Resource Conservation and Recovery Act
(hazardous waste) violations.

                                       40

<PAGE>
 
         MAP has responded to information requests from the EPA regarding New
Source Review ("NSR") compliance at its Garyville and Texas City refineries. In
addition, the scope of the EPA's 1998 multi-media inspections of the Detroit and
Robinson refineries included NSR compliance. NSR requires new major stationary
sources and major modifications at existing major stationary sources to obtain
permits, perform air quality analysis and install stringent air pollution
control equipment at affected facilities. The current EPA initiative appears to
target many items that the industry has historically considered routine repair,
replacement and maintenance or other activity exempted from the NSR
requirements. MAP is engaged in ongoing discussions with the EPA on these issues
concerning all of MAP's refineries.

         While MAP has not been notified of any formal findings or violations
resulting from either the information requests or inspections regarding NSR
compliance, MAP has been informed during discussions with the EPA of potential
non-compliance concerns of the EPA based on these inspections and other
information identified by the EPA. Recently, discussions with the EPA have
included commitment to some specific control technologies and implementation
schedules, but not penalties. In addition, MAP anticipates that some or all of
the non-NSR related issues arising from the multi-media inspections may also be
resolved as part of the current discussions with the EPA. A negotiated
resolution with the EPA could result in increased environmental capital
expenditures in future years, in addition to as yet, undetermined penalties.

         In connection with the multi-media inspection at MAP's Detroit
refinery, in December 1998, EPA, Region V issued a Notice of Violation against
the refinery alleging that, as a result of "stack tests" conducted in 1992,
1995, 1997 and 1998, at the fluid catalytic cracking unit and the fluid
catalytic cracking unit carbon monoxide boiler, the refinery exceeded the
emission limits for particulate matter and sulfur dioxide thereby violating the
CAA.

         In January 1997, a Notice of Violation ("NOV") was served by the
Illinois Environmental Protection Agency on the Marathon Group, including
Marathon Oil Company (Robinson Refinery and Brand Marketing, now operating
organizations within MAP), Marathon Pipe Line Company (now Marathon Ashland Pipe
Line LLC) and Emro Marketing Company (now Speedway SuperAmerica LLC),
consolidating various alleged violations of federal and state environmental laws
and regulations relating to air, water and soil contamination. Three of these
matters have been resolved through two court consent decrees (relating to an
Underground Storage Tank ("UST") site in Chicago, Illinois and Stage II Vapor
Recovery Systems at certain station sites) and an administrative order (a UST
site in Springfield, Illinois) with civil penalties of less than $100,000 per
matter. Three more matters have settlements in concept (two refining and one
pipeline) with civil penalties of less than $100,000 per matter.

         In October 1996, EPA Region V issued a Finding of Violation against the
Robinson refinery alleging that it does not qualify for an exemption under the
National Emission Standards for Benzene Waste Operations pursuant to the 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. However, in February 1999, the
U.S. Department of Justice ("DOJ") in Chicago, Illinois, filed a civil complaint
in the U.S. District Court for the Southern District of Illinois alleging six
counts of violations of the CAA with respect to the benzene releases. The case
has been settled in concept with Marathon and MAP agreeing to pay a combined
$1.8 million civil penalty and conduct various injunctive remedies. It is
anticipated that a consent decree will be negotiated and agreed to in the first
half of 2001.

         In connection with the formation of MAP all three of the refineries
owned by Ashland Inc. ("Ashland") were conveyed effective January 1, 1998, to
MAP or its subsidiaries. Ashland reported in its 1997 Form 10-K, that during
1997, the EPA completed comprehensive inspections of these three refineries,
prior to formation of MAP. These inspections resulted in a consent decree, which
required Ashland to pay civil penalties and to undertake specific remedial
projects and improvements at the refinery sites, as well as a number of
supplemental environmental projects involving improvements to the facilities'
operations. Under the terms of its agreements with MAP, Ashland has retained
responsibility for matters arising out of these inspections, including
commencement of work as soon as practical on certain enumerated projects. During
2000, Ashland continued its work under its consent decree with the EPA regarding
these matters.

                                       41

<PAGE>
 
         In 2000, the Kentucky Natural Resources and Environmental Cabinet
("Cabinet") sent Catlettsburg Refining, LLC a NOV seeking a $150,000 civil
penalty for a tank rupture and spill at the Catlettsburg refinery. This matter
is pending.

         In 2000, the Cabinet sent Marathon Ashland Pipe Line LLC a NOV seeking
a $300,000 civil penalty associated with a pipeline spill earlier that year in
Winchester, Kentucky. Discussions with the Cabinet have been ongoing.

U. S. Steel Group

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. On September 21, 1999, the Patent Office Board of
Appeals affirmed the decision of the Patent Office. Inland filed a notice of
appeal with the Court of Appeals for the Federal Circuit on November 17, 1999. A
hearing was held before the court on January 10, 2001, and the decision is
pending.

Asbestos Litigation

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

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, 2000, under
federal and state environmental laws. Except as described herein, it is not
possible to accurately predict the ultimate outcome of these matters; however,
management's belief set forth in the first paragraph under "Item 3. Legal
Proceedings" above takes such matters into account.

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

                                       42

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

         At December 31, 2000, USX had been identified as a PRP at a total of 25
CERCLA sites related to the U. S. Steel Group. Based on currently available
information, which is in many cases preliminary and incomplete, USX believes
that its liability for cleanup and remediation costs in connection with 11 of
these sites will be between $100,000 and $1 million per site and 7 will be under
$100,000.

         At the remaining 7 sites, USX expects that its share in the remaining
cleanup costs at any single site will not exceed $5 million, although it is not
possible to accurately predict the amount of USX's share in any final allocation
of such costs. Following is a summary of the status of these sites:

         1.   At USX's former Duluth, Minn. Works, USX spent a total of
              approximately $11.2 million through 2000. The Duluth Works was
              listed by the Minnesota Pollution Control Agency under the
              Minnesota Environmental Response and Liability Act on its
              Permanent List of Priorities. The EPA has consolidated and
              included the Duluth Works site with the St. Louis River and
              Interlake sites on the EPA's National Priorities List. The Duluth
              Works cleanup has proceeded since 1989. USX is conducting an
              engineering study of the estuary sediments and the construction of
              a breakwater in the estuary. Depending upon the method and extent
              of remediation at this site, future costs are presently unknown
              and indeterminable.

         2.   The Buckeye Reclamation Landfill, near St. Clairsville, Ohio, has
              been used at various times as a disposal site for coal mine refuse
              and municipal and industrial waste. USX is one of 15 PRPs that
              have entered into an agreed order with the EPA to perform a
              remediation of the site. 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 Environmental
              Protection Agency, and 13 PRPs including USX. The EPA, in turn,
              filed suit against the PRPs to recover $1.5 million in oversight
              costs. In May 1996, USX entered into a final settlement agreement
              to resolve this litigation and the overall allocation. 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. To date USX has spent $900,000 at the
              site. Remediation commenced in 1999 and should be substantially
              completed in 2001.

         3.   The D'Imperio/Ewan sites in New Jersey are waste disposal sites
              where a former USX subsidiary allegedly disposed of used paint and
              solvent wastes. USX has entered into a settlement agreement with
              the major PRPs at the sites which fixes USX's share of liability
              at approximately $1.2 million, $598,000 of which USX has already
              paid. The balance, which is expected to be paid over the next
              several years, has been accrued.

         4.   The Berks Associates/Douglassville Site ("Berks Site") is situated
              on a 50-acre parcel located on the Schuylkill River in Berks
              County, Pa. Used oil and solvent reprocessing operations were
              conducted on the Berks Site between 1941 and 1986. The EPA
              undertook the dismantling of the Berks Site's former processing
              area and instituted a cost recovery suit in July 1991 against 30
              former Berks Site customers, as PRPs to recover $8 million it
              expended in the process area dismantling. The 30 PRPs targeted by
              the EPA joined over 400 additional PRPs in the EPA's cost recovery
              litigation. On June 30, 1993, the EPA issued a unilateral
              administrative order to the original 30 PRPs ordering remediation
              which the EPA estimated would cost over $70 million. In June 1996,
              the PRPs proposed an alternative remedy estimated to cost
              approximately $20 million. USX expected its share of these costs
              to be approximately 7%. In September 1997, USX signed a consent
              decree to conduct a feasibility study at the site relating to the
              alternative remedy. In 1999, a new Record of Decision was approved
              by EPA and the DOJ. On January 19, 2001, USX signed a consent
              decree with the EPA to remediate this site. The cost to USX for
              remediating this site is approximately $450,000.

                                       43

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

         5.   In 1987 the California Department of Health Services ("DHS")
              issued a remedial action order for the GBF/Pittsburg landfill near
              Pittsburg, Calif. DHS alleged that from 1972 through 1974,
              Pittsburg Works arranged for the disposal of approximately 2.6
              million gallons of waste oil, sludge, caustic mud and acid which
              were eventually taken to this landfill for disposal. The parties
              are attempting to negotiate a buyout arrangement with a third
              party remediation firm, whereby the firm would agree to take title
              to and remediate the site and also indemnify the PRPs. This
              commitment would be backed by pollution insurance. USX's share to
              participate in the buyout has been estimated at approximately
              $1.05 million.

         6.   In 1988, USX and three other PRPs agreed to the issuance of an
              administrative order by the EPA to undertake emergency removal
              work at the Municipal & Industrial Disposal Co. site in Elizabeth,
              Pa. The cost of such removal, which has been completed, was
              approximately $4.2 million, of which USX paid $3.4 million. The
              EPA has indicated that further remediation of this site may be
              required in the future, but it has not conducted any assessment or
              investigation to support what remediation would be required. In
              October 1991, the PaDER placed the site on the Pennsylvania State
              Superfund list and began a Remedial Investigation ("RI") which was
              issued in 1997. It is not possible to estimate accurately the cost
              of any remediation or USX's share in any final allocation formula;
              however, based on presently available information, USX may have
              been responsible for as much as 70% of the waste material
              deposited at the site. On October 10, 1995, the DOJ filed a
              complaint in the U.S. District Court for Western Pennsylvania
              against USX and other Municipal & Industrial Disposal Co.
              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. In 1996, USX filed a cost recovery action against parties who
              did not contribute to the cost of the removal activity at the
              site. USX has reached a settlement in principle with all of the
              parties except the site owner. The PRPs are awaiting issuance of
              the State's Feasibility Study ("FS").

         7.   USX participated with 35 other PRPs in performing removal work at
              the Ekotek/Petrochem site in Salt Lake City, Utah under the terms
              of a 1991 administrative order negotiated with the EPA. The
              removal work was completed in 1992 at a cost of over $9 million.
              In July 1992, the PRP Remediation Committee negotiated an
              administrative order on consent to perform a RI/FS of the site.
              The RI/FS was completed in 1995. A remediation plan estimated to
              cost $16.6 million was proposed by the EPA in 1995. In 1997, the
              EPA issued a revised Record of Decision with a remedial action
              estimated to cost $12.2 million. USX has contributed approximately
              $1.1 million through 1999 towards completing the removal work and
              performing the RI/FS. USX's proportionate share of costs presently
              being used by the PRP Remediation Committee is approximately 5% of
              the participating PRPs. The PRP Remediation Committee commenced
              cost recovery litigation against approximately 1,100 non-
              participating PRPs. Almost all of these defendants have settled
              their liability or joined the PRP Remediation Committee. In
              February 1997, the EPA issued an administrative order to USX and
              other PRPs to undertake the proposed remedial action and to
              reimburse approximately $5 million to de minimus PRPs who had
              earlier settled with the EPA on the basis of a substantially
              greater remedial cost estimate. On December 15, 1997, USX, along
              with forty other parties, signed a consent decree to clean up the
              site. Site cleanup commenced in 1999 and was completed in 2000.
              Payment has been made for all remediation work.

         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.

                                       44

<PAGE>
 
         There are also 29 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 4 of these sites
will be under $100,000 per site, another 3 sites have potential costs between
$100,000 and $1 million per site, and 7 sites may involve remediation costs
between $1 million and $5 million. Another 3 sites, including the Grand Calumet
River remediation at Gary Works, the Peters Creek Lagoon remediation at
Clairton, and the potential claim for investigation, restoration and
compensation of injuries to sediments in the East Branch of the Grand Calumet
River near Gary Works, have or are expected to have costs for remediation,
investigation, restoration or compensation in excess of $5 million. Potential
costs associated with remediation at the remaining 12 sites are not presently
determinable.

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

Gary Works

         In 1990 a consent decree was signed by USX which, among other things,
required USX to study and implement a program to remediate the sediment in a
portion of the Grand Calumet River. USX has developed a sediment remediation
plan for the section of the Grand Calumet River that runs through Gary Works. As
proposed, this project would require five to six years to complete after
approval and would be followed by an environmental recovery validation. The
estimated program cost, which has been accrued, is approximately $36.4 million.
In 1998, USX entered into a consent decree with the EPA which provides for the
expanded sediment remediation program and resolves alleged violations of the
prior consent decree and National Pollutant Discharge Elimination System permit
since 1990. In 1999, USX paid civil penalties of $2.9 million for alleged
violations of the Clean Water Act at Gary Works. In addition, USX has entered
into a consent decree 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 and pay $1.5 million in past and future assessment and monitoring
costs. In 1999, USX reimbursed past assessment costs of $570,000 and purchased
properties which were conveyed to trustees.

         In October 1996, USX was notified by the Indiana Department of
Environmental Management ("IDEM") acting as lead trustee, that IDEM and the U.S.
Department of the Interior had concluded a preliminary investigation of
potential injuries to natural resources related to releases of hazardous
substances from various municipal and industrial sources along the east branch
of the Grand Calumet River and Indiana Harbor Canal. The Public Trustees
completed a preassessment screen pursuant to federal regulations and have
determined to perform a NRD Assessment. USX was identified as a PRP along with
15 other companies owning property along the river and harbor canal. USX and
eight other PRPs have formed a joint defense group. The Trustees notified the
public of their plan for assessment and later adopted the plan. In 2000, the
Trustees concluded their assessment of sediment injuries, which includes a
technical review of environmental conditions. The PRP joint defense group is
discussing settlement opportunities with the Trustees and EPA.

         On October 23, 1998, a final Administrative Order on Consent was issued
by EPA addressing Corrective Action for Solid Waste Management Units throughout
Gary Works. This order requires USX to perform a RCRA Facility Investigation
("RFI") and a Corrective Measure Study ("CMS") at Gary Works. The Current
Conditions Report, USX's first deliverable, was submitted to EPA in January 1997
and was approved by EPA in 1998. The Phase I RFI work plan was submitted to the
EPA in July 1999.

         IDEM issued NOVs to USS Gary Works in 1994 alleging various violations
of air pollution requirements. In early 1996, USX paid a $6 million penalty and
agreed to install additional pollution control equipment and programs and
implement programs costing over $100 million over a period of several years. In
1999, USS Gary Works entered into an Agreed Order with IDEM to resolve
outstanding air issues. USX paid a penalty of $207,400 and installed equipment
at the No. 8 Blast Furnace and the No. 1 BOP to reduce air emissions. In
November 1999, IDEM issued to USS Gary Works a NOV alleging various air
violations. USS and IDEM are in the process of negotiating an Agreed Order.

                                       45

<PAGE>
 
         In February 1999, the DOJ and EPA issued a letter demanding a cash
payment of approximately $4 million to resolve a Finding of Violation issued in
1997 alleging improper sampling of benzene waste streams at Gary Coke. On
September 18, 2000, a Consent Decree was entered which required USX to pay a
civil penalty of $587,000 and to replace PCB transformers as a Supplemental
Environmental Program ("SEP") at a cost of approximately $2.2 million. Payment
of the civil penalty was made on October 13, 2000.

Clairton

         In 1987, USX and the PaDER entered into a consent Order to resolve an
incident in January 1985 involving the alleged unauthorized discharge of benzene
and other organic pollutants from Clairton Works in Clairton, Pa. That consent
Order required USX to pay a penalty of $50,000 and a monthly payment of $2,500
for five years. In 1990, USX and the PaDER reached agreement to amend the
consent Order. Under the amended Order, USX agreed to remediate the Peters Creek
Lagoon (a former coke plant waste disposal site); to pay a penalty of $300,000;
and to pay a monthly penalty of up to $1,500 each month until the former
disposal site is closed. Remediation costs have amounted to $8.8 million with
another $634,000 presently projected to complete the project.

Fairless Works

         In January 1992, USX commenced negotiations with the EPA regarding the
terms of an Administrative Order on consent, pursuant to the RCRA, under which
USX would perform a RFI and a CMS at Fairless Works. A Phase I RFI report was
submitted during the third quarter of 1997. A Phase II/III RFI will be submitted
following EPA approval. The RFI/CMS will determine whether there is a need for,
and the scope of, any remedial activities at Fairless Works. USX is working with
the Commonwealth of Pennsylvania to use PA Act 2 to facilitate the site cleanup.

Fairfield Works

         In December 1995, USX reached an agreement in principle with the EPA
and the DOJ with respect to alleged RCRA violations at Fairfield Works. A
consent decree was signed by USX and the United States and filed with the court
on December 11, 1997, under which USX will pay a civil penalty of $1 million,
implement two SEPs costing a total of $1.75 million and implement a RCRA
corrective action at the facility. One SEP was completed during 1998 at a cost
of $250,000. The second SEP is underway. The first RFI work plan for the site
will be submitted for agency approval in the first quarter of 2001.

         In November 2000, Fairfield received a Notice of Violation from
Jefferson County Health Department ("JHCD") alleging violation of the
Halogenated Solvent NESHAP and the JCHD VOC regulation at the Sheet Mill Stretch
Leveler. USX has proposed a civil penalty of $100,000 and a VOC emission limit.

Mon Valley Works/Edgar Thomson Plant

         In September 1997, USX received a draft consent decree addressing
issues raised in a NOV issued by the EPA in January 1997. The NOV alleged air
quality violations at U. S. Steel's Edgar Thomson Plant, which is part of Mon
Valley Works. The draft consent decree addressed these issues, including various
operational requirements, which EPA believed were necessary to bring the plant
into compliance. USX has completed implementing the compliance requirements
identified by EPA. USX has paid a cash penalty of $550,000 and implemented five
SEPs valued at approximately $1.5 million in settlement of the government's
allegations. On February 1, 2000, the U.S. District Court for Western
Pennsylvania entered the consent decree.


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

         Not applicable.

                                       46

<PAGE>
 

                                    PART II


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

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

         As of January 31, 2001, there were 64,511 registered holders of
Marathon Stock and 49,940 registered holders of Steel Stock.

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

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

         See "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - 18. Dividends" on page U-23.

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

                                       47

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

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

         Because the Board owes an equal duty to all common stockholders
regardless of class, the Board is the appropriate body to deal with these
matters. In order to assist the Board in this regard, the Board has adopted
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. Under principles of Delaware law and
the "business judgment rule,"absent abuse of discretion, a good faith
determination made by a disinterested and adequately informed Board with respect
to any matter having disparate impacts upon holders of Marathon and Steel Stock
would be a defense to any challenge to such determination made by or on behalf
of the holders of either class of USX common stock.

                                       48

<PAGE>
 

Item 6.  SELECTED FINANCIAL DATA
         USX - Consolidated


<TABLE> 
<CAPTION> 
Dollars in millions (except per share data)             2000         1999         1998         1997         1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>           <C>          <C>          <C>     
Statement of Operations Data:
   Revenues and other income/(a)(b)/..............   $ 39,914     $ 29,119      $28,077      $22,824      $ 22,938 
      Income from operations/(b)/.................      1,752        1,863        1,517        1,705         1,779 
      Includes:
      Inventory market valuation
         charges (credits)........................          -         (551)         267          284          (209)
      Gain on ownership change in MAP.............        (12)         (17)        (245)           -             - 
   Income from continuing operations..............   $    411     $    705      $   674      $   908      $    946 
   Income (loss) from discontinued operations.....          -            -            -           80             6 
   Extraordinary losses...........................          -           (7)           -            -            (9)
                                                      -------      -------      -------      -------       -------
   Net income ....................................   $    411     $    698      $   674      $   988      $    943 
   Noncash credit from exchange of
      preferred stock.............................          -            -            -           10             - 
   Dividends on preferred stock...................         (8)          (9)          (9)         (13)          (22)
                                                      -------      -------      -------      -------       ------- 
   Net income applicable to common stocks.........   $    403     $    689      $   665      $   985      $    921 
------------------------------------------------------------------------------------------------------------------
</TABLE>
 

/(a)/ Consists of revenues, dividend and investee income (loss), gain on
      ownership change in MAP, net gains/(losses) on disposal of assets, gain on
      investee stock offering and other income.

/(b)/ Excludes amounts for the Delhi Companies (sold in 1997), which have been
      reclassified as discontinued operations. See Note 5 to the USX
      Consolidated Financial Statements, on page U-12.

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


<TABLE> 
<CAPTION> 
Common Share Data
Marathon Stock:
<S>                                                  <C>          <C>           <C>          <C>          <C> 
   Income before extraordinary losses
      applicable to Marathon Stock................   $    432     $    654      $   310      $   456      $    671 
   Per share  - basic (in dollars)................       1.39         2.11         1.06         1.59          2.33 
              - diluted (in dollars)..............       1.39         2.11         1.05         1.58          2.31 

   Net income applicable to
      Marathon Stock..............................        432          654          310          456           664 
   Per share  - basic (in dollars) ...............       1.39         2.11         1.06         1.59          2.31 
              - diluted (in dollars)..............       1.39         2.11         1.05         1.58          2.29 

   Dividends paid per share (in dollars)..........        .88          .84          .84          .76           .70 
      Common Stockholders' Equity
         per share (in dollars)...................      15.70        15.38        13.95        12.53         11.62 
</TABLE>
 

                                       49

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


<TABLE> 
<CAPTION> 
Dollars in millions (except per share data)             2000         1999         1998         1997           1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>           <C>          <C>          <C> 
Steel Stock:
   Income (loss) before extraordinary losses
      applicable to Steel Stock...................   $    (29)    $      42     $    355     $    449     $     253
   Per share  - basic (in dollars) ...............       (.33)          .48         4.05         5.24          3.00
              - diluted (in dollars)..............       (.33)          .48         3.92         4.88          2.97

   Net income (loss) applicable to Steel Stock....        (29)           35          355          449           251
   Per share  - basic (in dollars) ...............       (.33)          .40         4.05         5.24          2.98
              - diluted (in dollars)..............       (.33)          .40         3.92         4.88          2.95

   Dividends paid per share (in dollars)..........       1.00          1.00         1.00         1.00          1.00
   Common Stockholders' Equity
      per share (in dollars)......................      21.58         23.23        23.66        20.56         18.37

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

Balance Sheet Data - December 31:
   Capital expenditures - for year................   $  1,669     $   1,665     $  1,580     $  1,373     $   1,168
      Total assets................................     23,401        22,931       21,133       17,284        16,980
      Capitalization:
      Notes payable...............................   $    150     $       -     $    145     $    121     $      81
      Total long-term debt........................      4,460         4,283        3,991        3,403         4,212
      Preferred stock of subsidiary/(a)/..........        250           250          250          250           250
      Trust preferred securities/(a)/.............        183           183          182          182             - 
      Minority interest in MAP....................      1,840         1,753        1,590            -             - 
      Redeemable Delhi Stock/(b)/.................          -             -            -          195             - 
      Preferred stock.............................          2             3            3            3             7
      Common stockholders' equity.................      6,762         6,853        6,402        5,397         5,015
                                                     --------     ---------     --------     --------     ---------
      Total capitalization........................   $ 13,647     $  13,325     $ 12,563     $  9,551     $   9,565
                                                     ========     =========     ========     ========     =========

   Ratio of earnings to fixed charges/(c)/........       3.89          4.32         3.56         3.79          3.65
   Ratio of earnings to combined fixed charges
      and preferred stock dividends/(c)/..........       3.79          4.20         3.45         3.63          3.41
-------------------------------------------------------------------------------------------------------------------
</TABLE>
 

/(a)/ See Note 22 to the USX Consolidated Financial Statements, on page U-25.
/(b)/ On January 26, 1998, USX redeemed all of the outstanding shares of Delhi
      Stock. For additional information regarding Delhi Stock, see Note 5 to the
      USX Consolidated Financial Statements, on page U-12.
/(c)/ Amounts represent combined fixed charges and earnings from continuing
      operations.

                                       50

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


<TABLE> 
<CAPTION> 
Dollars in millions (except per share data)             2000         1999         1998         1997           1996
------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>           <C>          <C>          <C> 
Statement of Operations Data:
   Revenues and other income/(a)/.................   $ 33,859     $ 23,707      $21,623      $15,775      $ 16,153 
   Income from operations.........................      1,648        1,713          938          932         1,296 
      Includes:
      Inventory market valuation
         charges (credits)........................          -         (551)         267          284          (209)
      Gain on ownership change in MAP.............        (12)         (17)        (245)           -             - 
   Income before extraordinary losses.............        432          654          310          456           671 
   Net income.....................................   $    432     $    654      $   310      $   456      $    664 
   Net income applicable to
      Marathon Stock..............................   $    432     $    654      $   310      $   456      $    664 

------------------------------------------------------------------------------------------------------------------
Per Common Share Data
   Income before extraordinary losses
      - basic.....................................   $   1.39     $   2.11      $  1.06      $  1.59      $   2.33 
      - diluted...................................       1.39         2.11         1.05         1.58          2.31 
   Net income   - basic...........................       1.39         2.11         1.06         1.59          2.31 
                - diluted.........................       1.39         2.11         1.05         1.58          2.29 
   Dividends paid.................................        .88          .84          .84          .76           .70 
   Common stockholders' equity....................      15.70        15.38        13.95        12.53         11.62 

------------------------------------------------------------------------------------------------------------------
Balance Sheet Data-December 31:
   Capital expenditures - for year................   $  1,425     $  1,378      $ 1,270      $ 1,038      $    751 
   Total assets...................................     15,232       15,674       14,544       10,565        10,151 

   Capitalization:
      Notes payable...............................   $     80     $      -      $   132      $   108      $     59 
      Total long-term debt........................      2,085        3,368        3,515        2,893         2,906 
      Preferred stock of subsidiary...............        184          184          184          184           182 
      Minority interest in MAP....................      1,840        1,753        1,590            -             - 
      Common stockholders' equity.................      4,845        4,800        4,312        3,618         3,340 
                                                     ---------    ---------     --------     --------     ---------
         Total capitalization.....................   $  9,034     $ 10,105      $ 9,733      $ 6,803      $  6,487 
------------------------------------------------------------------------------------------------------------------
</TABLE>
 

/(a)/ Consists of revenues, dividend and investee income, gain on ownership
      change in MAP, net gains/(losses) on disposal of assets and other income.

                                       51

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


<TABLE> 
<CAPTION> 
Dollars in millions (except per share data)             2000         1999         1998         1997           1996
------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>           <C>          <C>          <C> 
Statement of Operations Data:
   Revenues and other income/(a)/.................   $  6,132     $  5,470      $ 6,477      $ 7,156      $  6,872 
   Income from operations.........................        104          150          579          773           483 
   Income (loss) before extraordinary losses......        (21)          51          364          452           275 
   Net income (loss)..............................   $    (21)    $     44      $   364      $   452      $    273 
   Noncash credit from exchange
      of preferred stock..........................          -            -            -           10             - 
   Dividends on preferred stock...................         (8)          (9)          (9)         (13)          (22)
                                                     --------     --------      -------      -------      -------- 
   Net income (loss) applicable to Steel Stock....   $    (29)    $     35      $   355      $   449      $    251 

------------------------------------------------------------------------------------------------------------------
Per Common Share Data
   Income (loss) before extraordinary losses
      - basic.....................................   $   (.33)    $    .48      $  4.05      $  5.24      $   3.00 
      - diluted...................................       (.33)         .48         3.92         4.88          2.97 
   Net income (loss)  - basic.....................       (.33)         .40         4.05         5.24          2.98 
                      - diluted...................       (.33)         .40         3.92         4.88          2.95 
   Dividends paid.................................       1.00         1.00         1.00         1.00          1.00 
   Common stockholders' equity....................      21.58        23.23        23.66        20.56         18.37 

------------------------------------------------------------------------------------------------------------------
Balance Sheet Data - December 31:
   Capital expenditures - for year................   $    244     $    287      $   310      $   261      $    337 
   Total assets...................................      8,711        7,525        6,749        6,694         6,580 

   Capitalization:
      Notes payable...............................   $     70     $      -      $    13      $    13      $     18 
      Total long-term debt........................      2,375          915          476          510         1,087 
      Preferred stock of subsidiary...............         66           66           66           66            64 
      Trust Preferred Securities..................        183          183          182          182             - 
      Preferred stock.............................          2            3            3            3             7 
      Common stockholders' equity.................      1,917        2,053        2,090        1,779         1,559 
                                                     --------     --------      -------      -------      --------
         Total capitalization.....................   $  4,613     $  3,220      $ 2,830      $ 2,553      $  2,735 
------------------------------------------------------------------------------------------------------------------
</TABLE>
 

/(a)/ Consists of revenues, dividend and investee income (loss), net gains on
      disposal of assets, gain on investee stock offering and other income
      (loss).

                                       52

<PAGE>
 

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

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


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

         Not applicable.

                                       53

<PAGE>
 
          USX


               Index to Consolidated Financial Statements, Supplementary
               Data, Management's Discussion and Analysis, and Quantitative
               and Qualitative Disclosures About Market Risk


<TABLE>
<CAPTION>
                                                                          Page
                                                                          ---- 
<S>                                                                       <C>
Management's Report...................................................... U-1
Audited Consolidated Financial Statements:
 Report of Independent Accountants....................................... U-1
 Consolidated Statement of Operations.................................... U-2
 Consolidated Balance Sheet.............................................. U-4
 Consolidated Statement of Cash Flows.................................... U-5
 Consolidated Statement of Stockholders' Equity.......................... U-6
 Notes to Consolidated Financial Statements.............................. U-8
Selected Quarterly Financial Data........................................ U-29
Principal Unconsolidated Affiliates...................................... U-30
Supplementary Information................................................ U-30
Five-Year Operating Summary -- Marathon Group............................ U-35
Five-Year Operating Summary -- U. S. Steel Group......................... U-37
Five-Year Financial Summary.............................................. U-38
Management's Discussion and Analysis..................................... U-39
Quantitative and Qualitative Disclosures About Market Risk............... U-60
</TABLE>


<PAGE>
 
                     THIS PAGE IS INTENTIONALLY LEFT BLANK

<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 accounting
             principles generally accepted in the United States. They
             necessarily include some amounts that are based on best judgments
             and estimates. The consolidated financial information displayed in
             other sections of this report is consistent with these consolidated
             financial statements.

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

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

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


<TABLE> 
<CAPTION> 
  
             Thomas J. Usher                   Robert M. Hernandez      Larry G. Schultz
             <S>                               <C>                      <C>
             Chairman, Board of Directors &    Vice Chairman &          Vice President-
             Chief Executive Officer           Chief Financial Officer  Accounting
 </TABLE>



             Report of Independent Accountants

             To the Stockholders of USX Corporation:

             In our opinion, the accompanying consolidated financial statements
             appearing on pages U-2 through U-28 present fairly, in all material
             respects, the financial position of USX Corporation and its
             subsidiaries at December 31, 2000 and 1999, and the results of
             their operations and their cash flows for each of the three years
             in the period ended December 31, 2000, in conformity with
             accounting principles generally accepted in the United States of
             America. 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 auditing standards generally
             accepted in the United States of America, 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 our opinion.



             PricewaterhouseCoopers LLP
             600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
             February 7, 2001


                                                                             U-1

<PAGE>
 
             Consolidated Statement of Operations


<TABLE>
<CAPTION>
             (Dollars in millions)                                         2000      1999      1998
             -------------------------------------------------------------------------------------- 
             <S>                                                        <C>       <C>       <C>    
             Revenues and other income:
              Revenues (Note 6)                                         $40,500   $29,068   $27,629
              Dividend and investee income (loss)                            94       (20)       96
              Net gains (losses) on disposal of assets (Note 27)           (739)       21        82
              Gain on ownership change in
               Marathon Ashland Petroleum LLC (Note 3)                       12        17       245
              Other income                                                   47        33        25
                                                                        -------   -------   -------
                 Total revenues and other income                         39,914    29,119    28,077
                                                                        -------   -------   -------
             Costs and expenses:
              Cost of revenues (excludes items shown below)              31,056    21,679    20,211
              Selling, general and administrative expenses                  402       203       304
              Depreciation, depletion and amortization                    1,605     1,254     1,224
              Taxes other than income taxes                               4,861     4,433     4,241
              Exploration expenses                                          238       238       313
              Inventory market valuation charges (credits) (Note 15)          -      (551)      267
                                                                        -------   -------   -------
                 Total costs and expenses                                38,162    27,256    26,560
                                                                        -------   -------   -------
             Income from operations                                       1,752     1,863     1,517
             Net interest and other financial costs (Note 6)                341       362       279
             Minority interest in income of
              Marathon Ashland Petroleum LLC (Note 3)                       498       447       249
                                                                        -------   -------   -------
             Income before income taxes and extraordinary losses            913     1,054       989
             Provision for income taxes (Note 11)                           502       349       315
                                                                        -------   -------   -------
             Income before extraordinary losses                             411       705       674
             Extraordinary losses (Note 7)                                    -         7         -
                                                                        -------   -------   -------
             Net income                                                     411       698       674
             Dividends on preferred stock                                     8         9         9
                                                                        -------   -------   -------
             Net income applicable to common stocks                     $   403   $   689   $   665
             -------------------------------------------------------------------------------------- 
</TABLE>


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

U-2

<PAGE>
 
             Income Per Common Share


<TABLE> 
<CAPTION> 
             (Dollars in millions, except per share data)      2000    1999   1998
             ---------------------------------------------------------------------
             <S>                                              <C>     <C>    <C>                        
             Applicable to Marathon Stock:
              Net income                                      $ 432   $ 654  $ 310
              Per Share Data:
               Basic                                           1.39    2.11   1.06
               Diluted                                         1.39    2.11   1.05
             --------------------------------------------------------------------- 
             Applicable to Steel Stock:
              Income (loss) before extraordinary losses       $ (29)  $  42  $ 355
              Extraordinary losses                                -       7      -
                                                              -----   -----  -----
              Net income (loss)                               $ (29)  $  35  $ 355
              Per Share Data
               Basic:
                Income (loss) before extraordinary losses     $(.33)  $ .48  $4.05
                Extraordinary losses                              -     .08      -
                                                              -----   -----  -----
                Net income (loss)                             $(.33)  $ .40  $4.05
               Diluted:
                Income (loss) before extraordinary losses     $(.33)  $ .48  $3.92
                Extraordinary losses                              -     .08      -
                                                              -----   -----  -----
                Net income (loss)                             $(.33)  $ .40  $3.92
             ---------------------------------------------------------------------
</TABLE>


             See Note 20, for a description and computation of income per common
             share.
             The accompanying notes are an integral part of these consolidated
             financial statements.

                                                                             U-3

<PAGE>
 
             Consolidated Balance Sheet


<TABLE> 
<CAPTION> 
             (Dollars in millions)                                                   December 31      2000      1999
             -------------------------------------------------------------------------------------------------------
             <S>                                                                                   <C>       <C> 
             Assets
             Current assets:
              Cash and cash equivalents                                                            $   559   $   133
              Receivables, less allowance for doubtful accounts
               of $60 and $12                                                                        2,888     2,367
              Receivables subject to a security interest (Note 14)                                     350       350
              Inventories (Note 15)                                                                  2,813     2,627
              Deferred income tax benefits (Note 11)                                                   261       303
              Assets held for sale (Note 27)                                                           330        84
              Other current assets                                                                     131        92
                                                                                                   -------   -------
                  Total current assets                                                               7,332     5,956

             Investments and long-term receivables, less reserves of
              $28 and $3 (Note 12)                                                                     801     1,237
             Property, plant and equipment - net (Note 21)                                          12,114    12,809
             Prepaid pensions (Note 9)                                                               2,879     2,629
             Other noncurrent assets                                                                   275       300
                                                                                                   -------   -------
                  Total assets                                                                     $23,401   $22,931
             ------------------------------------------------------------------------------------------------------- 
             Liabilities
             Current liabilities:
              Notes payable (Note 13)                                                              $   150   $     -

              Accounts payable                                                                       3,774     3,409
              Payroll and benefits payable                                                             432       468
              Accrued taxes                                                                            281       283
              Accrued interest                                                                         108       107
              Long-term debt due within one year (Note 14)                                             287        61
                                                                                                   -------   -------
                  Total current liabilities                                                          5,032     4,328

             Long-term debt (Note 14)                                                                4,173     4,222
             Deferred income taxes (Note 11)                                                         2,020     1,839
             Employee benefits (Note 9)                                                              2,415     2,809
             Deferred credits and other liabilities                                                    724       691
             Preferred stock of subsidiary (Note 22)                                                   250       250
             USX obligated mandatorily redeemable convertible preferred
              securities of a subsidiary trust holding solely junior subordinated
              convertible debentures of USX (Note 22)                                                  183       183
 
             Minority interest in Marathon Ashland Petroleum LLC (Note 3)                            1,840     1,753
 
             Stockholders' Equity (Details on pages U-6 and U-7)
             Preferred stock (Note 23) -
              6.50% Cumulative Convertible issued - 2,413,487 shares and
               2,715,287 shares ($121 and $136 liquidation preference, respectively)                     2         3
             Common stocks:
              Marathon Stock issued - 312,165,978 shares and 311,767,181 shares
               (par value $1 per share, authorized 550,000,000 shares)                                 312       312
              Steel Stock issued - 88,767,395 shares and 88,397,714 shares
               (par value $1 per share, authorized 200,000,000 shares)                                  89        88
              Securities exchangeable solely into Marathon Stock -
               issued - 281,148 shares and 288,621 shares (Note 3)                                       -         -
             Treasury common stock, at cost -
              Marathon Stock - 3,899,714 shares and -0- shares                                        (104)        -
             Additional paid-in capital                                                              4,676     4,673
             Deferred compensation                                                                      (8)        -
             Retained earnings                                                                       1,847     1,807
             Accumulated other comprehensive income (loss)                                             (50)      (27)
                                                                                                   -------   -------
                  Total stockholders' equity                                                         6,764     6,856
                                                                                                   -------   -------
                  Total liabilities and stockholders' equity                                       $23,401   $22,931
             -------------------------------------------------------------------------------------------------------
</TABLE>

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

U-4

<PAGE>
 
             Consolidated Statement of Cash Flows


<TABLE>
<CAPTION>
             (Dollars in millions)                                                             2000      1999      1998
             ---------------------------------------------------------------------------------------------------------- 
             <S>                                                                            <C>       <C>       <C> 
             Increase (decrease) in cash and cash equivalents                             
                                                                                          
             Operating activities:                                                        
                                                                                      
             Net income                                                                     $   411   $   698   $   674
             Adjustments to reconcile to net cash provided                                
              from operating activities:                                                  
               Extraordinary losses                                                               -         7         -
               Minority interest in income of                                             
                Marathon Ashland Petroleum LLC                                                  498       447       249
               Depreciation, depletion and amortization                                       1,605     1,254     1,224
               Exploratory dry well costs                                                        86       109       186
               Inventory market valuation charges (credits)                                       -      (551)      267
               Pensions and other postretirement benefits                                      (778)     (220)     (181)
               Deferred income taxes                                                            149       212       184
               Gain on ownership change in                                                
                Marathon Ashland Petroleum LLC                                                  (12)      (17)     (245)
               Net (gains) losses on disposal of assets                                         739       (21)      (82)
               Changes in: Current receivables - sold                                             -      (320)      (30) 
                                               - operating turnover                            (375)     (988)      451
                           Inventories                                                          (46)      (77)       (6)
                           Current accounts payable and accrued expenses                        182     1,251      (497)
               All other - net                                                                   72       152      (172)
                                                                                            -------   -------   -------
                 Net cash provided from operating activities                                  2,531     1,936     2,022
                                                                                            -------   -------   -------
             Investing activities:                                                        
                                                                                      
             Capital expenditures                                                            (1,669)   (1,665)   (1,580)
             Acquisitions - U.S. Steel Kosice s.r.o., net of cash acquired of $59               (10)        -         -
                          - Tarragon Oil and Gas Limited                                          -         -      (686)
             Disposal of assets                                                                 560       366        86
             Restricted cash - withdrawals                                                      273        60       241
                             - deposits                                                        (270)      (61)      (67)
             Investees - investments                                                           (100)      (74)     (115)
                       - loans and advances                                                     (16)      (70)     (104)
                       - returns and repayments                                                  10         1        71
             All other - net                                                                     29       (25)       (4)
                                                                                            -------   -------   -------
                 Net cash used in investing activities                                       (1,193)   (1,468)   (2,158)
                                                                                            -------   -------   -------
             Financing activities:                                                        
                                                                                      
             Commercial paper and revolving credit arrangements - net                            62      (381)      724
             Other debt - borrowings                                                            273       810     1,036
                        - repayments                                                           (339)     (242)   (1,445)
             Common stock - issued                                                                -        89       668
                          - repurchased                                                        (105)        -      (195)
             Treasury common stock reissued                                                       1         -         -
             Preferred stock repurchased                                                        (12)       (2)       (8)
             Dividends paid                                                                    (371)     (354)     (342)
             Distributions to minority shareholder of                                                              
              Marathon Ashland Petroleum LLC                                                   (420)     (400)     (211)
                                                                                            -------   -------   -------
                 Net cash provided from (used in) financing activities                         (911)     (480)      227
                                                                                            -------   -------   -------
             Effect of exchange rate changes on cash                                             (1)       (1)        1
                                                                                            -------   -------   -------
             Net increase (decrease) in cash and cash equivalents                               426       (13)       92
                                                                                      
             Cash and cash equivalents at beginning of year                                     133       146        54
                                                                                            -------   -------   -------
             Cash and cash equivalents at end of year                                       $   559   $   133   $   146
             ---------------------------------------------------------------------------------------------------------- 
</TABLE>

             See Note 16, for supplemental cash flow information.
             The accompanying notes are an integral part of these consolidated
             financial statements.

                                                                             U-5

<PAGE>
 
             Consolidated Statement of Stockholders' Equity

             USX has two classes of common stock: USX - Marathon Group Common
             Stock (Marathon Stock) and USX - U. S. Steel Group Common Stock
             (Steel Stock), which are intended to reflect the performance of the
             Marathon and U. S. Steel Groups, respectively. (See Note 8, for a
             description of the two Groups.) During 1998, USX issued 878,074
             Exchangeable Shares (exchangeable solely into Marathon Stock)
             related to the purchase of Tarragon Oil and Gas Limited. (See Note
             3.)

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


<TABLE>
<CAPTION>
                                                                      Dollars in millions                 Shares in thousands
                                                              -------------------------------      -------------------------------
                                                                2000        1999        1998        2000         1999         1998
             ---------------------------------------------------------------------------------------------------------------------
             <S>                                               <C>         <C>         <C>       <C>          <C>          <C> 
             Preferred stock (Note 23) -
              6.50% Cumulative Convertible:
               Balance at beginning of year                    $   3       $   3       $   3       2,715        2,768        2,962
               Repurchased                                        (1)          -           -        (302)         (53)        (194)
                                                               -----       -----       -----     -------      -------      -------
               Balance at end of year                          $   2       $   3       $   3       2,413        2,715        2,768
             ---------------------------------------------------------------------------------------------------------------------
             Common stocks:
              Marathon Stock:
               Balance at beginning of year                    $ 312       $ 308       $ 289     311,767      308,459      288,786
               Issued in public offering                           -           -          17           -           67       17,000
               Issued for:
                Employee stock plans                               -           3           2         391        2,903        2,236
                Dividend Reinvestment and
                 Direct Stock Purchase Plan                        -           -           -           -          120           66
                Exchangeable Shares                                -           1           -           8          218          371
                                                               -----       -----       -----     -------      -------      -------
               Balance at end of year                          $ 312       $ 312       $ 308     312,166      311,767      308,459
             ---------------------------------------------------------------------------------------------------------------------
              Steel Stock:
               Balance at beginning of year                    $  88       $  88       $  86      88,398       88,336       86,578
               Issued for:
                Employee stock plans                               1           -           2         369           62        1,733
                Dividend Reinvestment and
                 Direct Stock Purchase Plan                        -           -           -           -            -           25
                                                               -----       -----       -----     -------      -------      -------
               Balance at end of year                          $  89       $  88       $  88      88,767       88,398       88,336
             ---------------------------------------------------------------------------------------------------------------------
              Securities exchangeable solely into
               Marathon Stock:
               Balance at beginning of year                    $   -       $   1       $   -         289          507            -
               Issued to acquire Tarragon stock                    -           -           1           -            -          878
               Exchanged for Marathon Stock                        -          (1)          -          (8)        (218)        (371)
                                                               -----       -----       -----     -------      -------      -------
               Balance at end of year                          $   -       $   -       $   1         281          289          507
             ---------------------------------------------------------------------------------------------------------------------
             Treasury common stock, at cost -
              Marathon Stock:
               Balance at beginning of year                    $   -       $   -       $   -           -            -            -
               Repurchased                                      (105)          -           -      (3,957)           -            -
               Reissued for:
                Employee stock plans                               1           -           -          43            -            -
                Non-employee Board of Directors
                 deferred compensation plan                        -           -           -          14            -            -
                                                               -----       -----       -----     -------      -------      -------
               Balance at end of year                          $(104)      $   -       $   -      (3,900)           -            -
             ---------------------------------------------------------------------------------------------------------------------
</TABLE>


                        (Table continued on next page)

U-6

<PAGE>
 

<TABLE>
<CAPTION>
                                                                      Stockholders' Equity              Comprehensive Income
                                                                         ----------------------------       -----------------------
             (Dollars in millions)                                       2000        1999        1998       2000       1999    1998
             ----------------------------------------------------------------------------------------------------------------------
             <S>                                                       <C>         <C>         <C>        <C>        <C>      <C>  
             Additional paid-in capital:                                                                                           
              Balance at beginning of year                             $4,673      $4,587      $3,924                              
              Marathon Stock issued                                         9          92         598                              
              Steel Stock issued                                            5           2          57                              
              Exchangeable Shares:                                                                                                 
               Issued                                                       -           -          28                              
               Exchanged for Marathon Stock                                 -          (6)        (12)                             
              Repurchase of 6.50% preferred stock                         (11)         (2)         (8)                             
                                                                       ------      ------      ------                              
              Balance at end of year                                   $4,676      $4,673      $4,587                              
             ----------------------------------------------------------------------------------------                              
             Deferred compensation (Note 17)                           $   (8)     $    -      $   (1)                             
             ----------------------------------------------------------------------------------------                              
             Retained earnings:                                                                                                    
              Balance at beginning of year                             $1,807      $1,467      $1,138                              
              Net income                                                  411         698         674     $  411      $ 698   $ 674
              Dividends on preferred stock                                 (8)         (9)         (9)                             
              Dividends on Marathon Stock                                                                                          
               (per share: $.88 in 2000 and                                                                                        
               $.84 in 1999 and 1998)                                    (274)       (261)       (248)                             
              Dividends on Steel Stock                                                                                             
               (per share $1.00)                                          (89)        (88)        (88)                             
                                                                       ------      ------      ------                              
              Balance at end of year                                   $1,847      $1,807      $1,467                              
             ----------------------------------------------------------------------------------------                              
             Accumulated other comprehensive income (loss):                                                                        
              Minimum pension liability adjustments:                                                                               
               Balance at beginning of year                            $  (10)     $  (37)     $  (32)                             
               Changes during year, net of taxes/(a)/                     (11)         27          (5)       (11)        27      (5)
                                                                       ------      ------      ------                              
               Balance at end of year                                     (21)        (10)        (37)                             
                                                                       ------      ------      ------                              
              Foreign currency translation adjustments:                                                                            
               Balance at beginning of year                            $  (17)     $  (11)     $   (8)                             
               Changes during year, net of taxes/(a)/                     (12)         (6)         (3)       (12)        (6)     (3)
                                                                       ------      ------      ------                              
               Balance at end of year                                     (29)        (17)        (11)                             
                                                                       ------      ------      ------                              
              Unrealized holding losses on investments:                                                                            
               Balance at beginning of year                            $    -      $    -      $    3                              
               Changes during year, net of taxes/(a)/                       -          (1)          2          -         (1)      2
               Reclassification adjustment included in net income           -           1          (5)         -          1      (5)
                                                                       ------      ------      ------                              
               Balance at end of year                                       -           -           -                              
             ----------------------------------------------------------------------------------------                              
               Total balances at end of year                           $  (50)     $  (27)     $  (48)                             
             ---------------------------------------------------------------------------------------------------------------------- 
               Total comprehensive income/(b)/                                                            $  388      $ 719   $ 663
             ---------------------------------------------------------------------------------------------------------------------- 
             Total stockholders' equity                                $6,764      $6,856      $6,405                              
             ----------------------------------------------------------------------------------------                              
             /(a)/ Related income tax provision (credit):               2000        1999        1998                               
                                                                       ------      ------      ------                              
                    Minimum pension liability adjustments              $    4      $  (13)     $    3                              
                    Foreign currency translation adjustments               (4)          3           4                              
                    Unrealized holding gains on investments                 -           -           2                              
                                                                                                                                   
             /(b)/  Total comprehensive income (loss) by Group:                                                                    
                      Marathon Group                                   $  419      $  660      $  306                              
                      U. S. Steel Group                                   (31)         59         357                              
                                                                       ------      ------      ------                              
                       Total                                           $  388      $  719      $  663                              
                                                                       ======      ======      ======                               
</TABLE>
 
          
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                                                             U-7

<PAGE>
 
             Notes to Consolidated Financial Statements  
             
1. Summary of Principal Accounting Policies 
                                            
             Principles applied in consolidation - The consolidated financial
             statements include the accounts of USX Corporation and the 
             majority-owned subsidiaries which it controls (USX).

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

                 Investments in 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 loans and
             advances.

                 Investments in companies whose stock is publicly traded are
             carried generally at market value. The difference between the cost
             of these investments and market value is recorded in other
             comprehensive income (net of tax). Investments in companies whose
             stock has no readily determinable fair value are carried at cost.

                 Dividend and investee income includes USX's proportionate share
             of income from equity method investments and dividend income from
             other investments. Dividend income is recognized when dividend
             payments are received.

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

             Use of estimates - Generally accepted accounting principles require
             management to make estimates and assumptions that affect the
             reported amounts of assets and liabilities, the disclosure of
             contingent assets and liabilities at year-end and the reported
             amounts of revenues and expenses during the year. Significant items
             subject to such estimates and assumptions include the carrying
             value of long-lived assets; valuation allowances for receivables,
             inventories and deferred income tax assets; environmental
             liabilities; liabilities for potential tax deficiencies and
             potential litigation claims and settlements; and assets and
             obligations related to employee benefits. Additionally, certain
             estimated liabilities are recorded when management commits to a
             plan to close an operating facility or to exit a business activity.
             Actual results could differ from the estimates and assumptions
             used.

             Revenue recognition - Revenues are recognized generally when
             products are shipped or services are provided to customers, the
             sales price is fixed and determinable, and collectibility is
             reasonably assured. Costs associated with revenues, including
             shipping and other transportation costs, are recorded in cost of
             revenues. Matching buy/sell transactions settled in cash are
             recorded in both revenues and cost of revenues as separate sales
             and purchase transactions, with no net effect on income. USX
             follows the sales method of accounting for gas production
             imbalances and would recognize a liability if the existing proved
             reserves were not adequate to cover the current imbalance
             situation.

             Cash and cash equivalents - Cash and cash equivalents include cash
             on hand and on deposit and investments in 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 uses commodity-based and foreign
             currency derivative instruments to manage its exposure to price
             risk. Management is authorized to use futures, forwards, swaps and
             options related to the purchase, production or sale of crude oil,
             natural gas, refined products, nonferrous metals and electricity.
             While USX's 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 price risk.

U-8

<PAGE>
 
                 Commodity-Based Hedging Transactions - For transactions that
                 qualify for hedge accounting, the resulting gains or losses are
                 deferred and subsequently recognized in income from operations,
                 as a component of revenues or cost of revenues, in the same
                 period as the underlying physical transaction. To qualify for
                 hedge accounting, derivative positions cannot remain open if
                 the underlying physical market risk has been removed. If such
                 derivative positions remain in place, they would be marked-to-
                 market and accounted for as trading or other activities.
                 Recorded deferred gains or losses are reflected within other
                 current and noncurrent assets or accounts payable and deferred
                 credits and other liabilities, as appropriate.

                 Commodity-Based Trading and Other Activities - Derivative
                 instruments used for trading and other activities are 
                 marked-to-market and the resulting gains or losses are
                 recognized in the current period within income from operations.
                 This category also includes the use of derivative instruments
                 that have no offsetting underlying physical market risk.

                 Foreign Currency Transactions - USX uses forward exchange
                 contracts to manage currency risks. Gains or losses related to
                 firm commitments are deferred and recognized concurrent with
                 the underlying transaction. All other gains or losses are
                 recognized in income in the current period as revenues, cost of
                 revenues, interest income or expense, or other income, as
                 appropriate. Forward exchange contracts are recorded as
                 receivables or payables, as appropriate.

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

             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 domestic 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.

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

                 When long-lived assets depreciated on an individual basis are
             sold or otherwise disposed of, any gains or losses are reflected in
             income. Gains on disposal of long-lived assets are recognized when
             earned, which is generally at the time of closing. If a loss on
             disposal is expected, such losses are recognized when long-lived
             assets are reclassified as assets held for sale. Proceeds from
             disposal of long-lived assets depreciated on a group basis are
             credited to accumulated depreciation, depletion and amortization
             with no immediate effect on income.

             Major maintenance activities - USX incurs planned major maintenance
             costs primarily for refinery turnarounds in the Marathon Group and
             blast furnace relines in the U. S. Steel Group. Costs associated
             with refinery turnarounds are expensed in the same annual period as
             incurred; however, estimated annual turnaround costs are recognized
             in income throughout the year on a pro rata basis. Costs associated
             with blast furnace relines are separately capitalized in property,
             plant and equipment. Such costs are amortized over their estimated
             useful life, which is generally the period until the next scheduled
             reline.

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

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

                                                                             U-9

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

             Reclassifications - Certain reclassifications of prior years' data
             have been made to conform to 2000 classifications.

________________________________________________________________________________
2. New Accounting Standards

             In the fourth quarter of 2000, USX adopted the following accounting
             pronouncements primarily related to the classification of items in
             the financial statements. The adoption of these new pronouncements
             had no net effect on the financial position or results of
             operations of USX, although they required reclassifications of
             certain amounts in the financial statements, including all prior
             periods presented.

               .  In December 1999, the Securities and Exchange Commission (SEC)
                  issued Staff Accounting Bulletin No. 101 (SAB 101) "Revenue
                  Recognition in Financial Statements," which summarizes the SEC
                  staff's interpretations of generally accepted accounting
                  principles related to revenue recognition and classification.

               .  In 2000, the Emerging Issues Task Force of the Financial
                  Accounting Standards Board (EITF) issued EITF Consensus No.
                  99-19 "Reporting Revenue Gross as a Principal versus Net as an
                  Agent," which addresses whether certain items should be
                  reported as a reduction of revenue or as a component of both
                  revenues and cost of revenues, and EITF Consensus No. 00-10
                  "Accounting for Shipping and Handling Fees and Costs," which
                  addresses the classification of costs incurred for shipping
                  goods to customers.

               .  In September 2000, the Financial Accounting Standards Board
                  issued Statement of Financial Accounting Standards No. 140,
                  "Accounting for Transfers and Servicing of Financial Assets
                  and Extinguishments of Liabilities" (SFAS 140). SFAS 140
                  revises the standards for accounting for securitizations and
                  other transfers of financial assets and collateral and
                  requires certain disclosures. USX adopted certain recognition
                  and reclassification provisions of SFAS 140, which were
                  effective for fiscal years ending after December 15, 2000. The
                  remaining provisions of SFAS 140 are effective after March 31,
                  2001.

               In June 1998, the Financial Accounting Standards Board issued
             Statement of Financial Accounting Standards No. 133, "Accounting
             for Derivative Instruments and Hedging Activities" (SFAS No. 133),
             which later was amended by SFAS Nos. 137 and 138. This Standard
             requires recognition of all derivatives as either assets or
             liabilities at fair value. Changes in fair value will be reflected
             in either current period net income or other comprehensive income,
             depending on the designation of the derivative instrument. USX may
             elect not to designate a derivative instrument as a hedge even if
             the strategy would be expected to qualify for hedge accounting
             treatment. The adoption of SFAS No. 133 will change the timing of
             recognition for derivative gains and losses as compared to previous
             accounting standards.

               USX will adopt the Standard effective January 1, 2001. The
             transition adjustment resulting from the adoption of SFAS No. 133
             will be reported as a cumulative effect of a change in accounting
             principle. The unfavorable cumulative effect on net income, net of
             tax, is expected to approximate $9 million. The unfavorable
             cumulative effect on other comprehensive income, net of tax, will
             approximate $7 million. The amounts reported as other comprehensive
             income will be reflected in net income when the anticipated
             physical transactions are consummated. It is not possible to
             estimate the effect that this Standard will have on future results
             of operations.

________________________________________________________________________________
3. Business Combinations

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

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

U-10

<PAGE>
 
                 VSZ did not provide historical carve-out financial information
             for its steel activities prepared in accordance with generally
             accepted accounting principles in the United States. USX was unable
             to fully determine the effects of transfer pricing, intercompany
             eliminations and expense allocations in order to prepare such 
             carve-out information from Slovak statutory reports and VSZ
             internal records. USX broadly estimates that the unaudited pro
             forma effect on its 2000 and 1999 revenues, giving effect to the
             acquisition as if it had been consummated at the beginning of those
             periods, would have been to increase revenues in each period by
             approximately $1 billion. USX cannot determine the unaudited pro
             forma effect on its 2000 and 1999 net income. In any event,
             historical pro forma information is not necessarily indicative of
             future results of operations.

                 In August 1998, Marathon Oil Company (Marathon) acquired
             Tarragon Oil and Gas Limited (Tarragon), a Canadian oil and gas
             exploration and production company. Securityholders of Tarragon
             received, at their election, Cdn$14.25 for each Tarragon share, or
             the economic equivalent in Exchangeable Shares of an indirect
             Canadian subsidiary of Marathon, which are exchangeable solely on a
             one-for-one basis into Marathon Stock. The purchase price included
             cash payments of $686 million, issuance of 878,074 Exchangeable
             Shares valued at $29 million and the assumption of $345 million in
             debt.

                 The Exchangeable Shares are exchangeable at the option of the
             holder at any time and automatically redeemable on August 11, 2003
             (and, in certain circumstances, as early as August 11, 2001). The
             holders of Exchangeable Shares are entitled to receive declared
             dividends equivalent to dividends declared from time to time by USX
             on Marathon Stock.

                 USX accounted for the acquisition using the purchase method of
             accounting. The 1998 results of operations include the operations
             of Marathon Canada Limited, formerly known as Tarragon, commencing
             August 12, 1998.

                 During 1997, Marathon and Ashland Inc. (Ashland) agreed to
             combine the major elements of their refining, marketing and
             transportation (RM&T) operations. On January 1, 1998, Marathon
             transferred certain RM&T net assets to Marathon Ashland Petroleum
             LLC (MAP), a new consolidated subsidiary. Also on January 1, 1998,
             Marathon acquired certain RM&T net assets from Ashland in exchange
             for a 38% interest in MAP. The acquisition was accounted for under
             the purchase method of accounting. The purchase price was
             determined to be $1.9 billion, based upon an external valuation.
             The change in Marathon's ownership interest in MAP resulted in a
             gain of $245 million in 1998. In accordance with MAP closing
             agreements, Marathon and Ashland have made capital contributions to
             MAP for environmental improvements. The closing agreements
             stipulate that ownership interests in MAP will not be adjusted as a
             result of such contributions. Accordingly, Marathon recognized a
             gain on ownership change of $12 million in 2000 and $17 million in
             1999.

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

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

________________________________________________________________________________
4. Transactions Between MAP and Ashland

             At December 31, 2000 and 1999, MAP had current receivables from
             Ashland of $35 million and $26 million, respectively, and current
             payables to Ashland of $2 million.

                 MAP has a $190 million revolving credit agreement with Ashland.
             Interest on borrowings is based on defined short-term market rates.
             At December 31, 2000 and 1999, there were no borrowings against
             this facility.

                 During 2000, 1999 and 1998, MAP's sales to Ashland, consisting
             primarily of petroleum products, were $285 million, $198 million
             and $190 million, respectively, and MAP's purchases of products and
             services from Ashland were $26 million, $22 million and $47
             million, respectively. These transactions were conducted under
             terms comparable to those with unrelated parties.

                                                                            U-11

<PAGE>
 
________________________________________________________________________________
5. Discontinued Operations

             Effective October 31, 1997, USX sold its stock in Delhi Gas
             Pipeline Corporation and other subsidiaries of USX that comprised
             all of the Delhi Group. USX elected to use the net proceeds of $195
             million, or $20.60 per share, to redeem all shares of Delhi Stock.
             The net proceeds were distributed to the Delhi shareholders on
             January 26, 1998. After the redemption, 50,000,000 shares of Delhi
             Stock remain authorized but unissued.

________________________________________________________________________________
6. Other Items


<TABLE> 
<CAPTION> 
             (In millions)                                            2000   1999    1998
             ----------------------------------------------------------------------------
             <S>                                                     <C>    <C>     <C> 
             Net interest and other financial costs
               Interest and other financial income:
                 Interest income                                     $  29  $  16   $  35
                 Other                                                   5    (13)      4
                                                                     -----  -----   -----
                  Total                                                 34      3      39
                                                                     -----  -----   -----
               Interest and other financial costs:
                 Interest incurred                                     328    326     325
                 Less interest capitalized                              19     26      46
                                                                     -----  -----   -----
                  Net interest                                         309    300     279
                 Interest on tax issues                                 17     20      21
                 Financial costs on trust preferred securities          13     13      13
                 Financial costs on preferred stock of subsidiary       22     22      22
                 Amortization of discounts                               3      3       6
                 Expenses on sales of accounts receivable                -     15      21
                 Adjustment to settlement value of indexed debt          -    (13)    (44)
                 Other                                                  11      5       -
                                                                     -----  -----   -----
                  Total                                                375    365     318
                                                                     -----  -----   -----
               Net interest and other financial costs                $ 341  $ 362   $ 279
             ----------------------------------------------------------------------------
</TABLE>


             Foreign currency transactions

               For 2000, 1999 and 1998, the aggregate foreign currency
               transaction gains (losses) included in determining net income
               were $37 million, $(12) million and $13 million, respectively.

             Consumer excise taxes

               Included in revenues and costs and expenses for 2000, 1999 and
               1998 were $4,344 million, $3,973 million and $3,824 million,
               respectively, representing consumer excise taxes on petroleum
               products and merchandise.

________________________________________________________________________________
7. Extraordinary Losses

             In 1999, USX irrevocably deposited with a trustee the entire 5.5
             million common shares it owned in RTI International Metals, Inc.
             (RTI). The deposit of the shares resulted in the satisfaction of
             USX's obligation under its 6 3/4% Exchangeable Notes (indexed
             debt) due February 1, 2000. Under the terms of the indenture, the
             trustee exchanged one RTI share for each note at maturity. All
             shares were required for satisfaction of the indexed debt;
             therefore, none reverted back to USX.

                 As a result of the above transaction, USX recorded in 1999 an
             extraordinary loss of $5 million, net of a $3 million income tax
             benefit, representing prepaid interest expense and the write-off of
             unamortized debt issue costs, and a pretax charge of $22 million,
             representing the difference between the carrying value of the
             investment in RTI and the carrying value of the indexed debt, which
             is included in net gains (losses) on disposal of assets. Since
             USX's investment in RTI was attributed to the U. S. Steel Group,
             the indexed debt was also attributed to the U. S. Steel Group.

                 In 1999, Republic Technologies International, LLC, an equity
             investee of USX, recorded an extraordinary loss related to the
             early extinguishment of debt. As a result, USX recorded an
             extraordinary loss of $2 million, net of a $1 million income tax
             benefit, representing its share of the extraordinary loss.

U-12

<PAGE>
 
________________________________________________________________________________
8. Group and Segment Information

USX has two classes of common stock: Marathon Stock and Steel Stock, which are
intended to reflect the performance of the Marathon Group and the U. S. Steel
Group, respectively. A description of each group and its products and services
is as follows:

  Marathon Group - The Marathon Group includes Marathon Oil Company and certain
  other subsidiaries of USX. Marathon Group revenues as a percentage of total
  consolidated USX revenues were 85% in 2000, 81% in 1999 and 77% in 1998.

  U. S. Steel Group - The U. S. Steel Group consists of U. S. Steel, the largest
  domestic integrated steel producer and U. S. Steel operations in the Slovak
  Republic. U. S. Steel Group revenues as a percentage of total consolidated USX
  revenues were 15% in 2000, 19% in 1999 and 23% in 1998.

Group Operations:


<TABLE> 
<CAPTION> 
                                                                             Income         Net 
                                                                              From         Income           Capital  
       (In millions)                   Year                 Revenues       Operations      (Loss)         Expenditures      Assets
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                  <C>            <C>             <C>            <C>              <C> 
Marathon Group                         2000                  $34,487           $1,648      $   432            $ 1,425      $15,232
                                       1999                   23,590            1,713          654              1,378       15,674
                                       1998                   21,274              938          310              1,270       14,544
-----------------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group                      2000                    6,090              104          (21)               244        8,711
                                       1999                    5,536              150           44                287        7,525
                                       1998                    6,378              579          364                310        6,749
-----------------------------------------------------------------------------------------------------------------------------------
Eliminations                           2000                      (77)               -            -                  -         (542)
                                       1999                      (58)               -            -                  -         (268)
                                       1998                      (23)               -            -                  -         (160)
-----------------------------------------------------------------------------------------------------------------------------------
Total USX                              2000                  $40,500           $1,752      $   411            $ 1,669      $23,401
  Corporation                          1999                   29,068            1,863          698              1,665       22,931
                                       1998                   27,629            1,517          674              1,580       21,133
-----------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Revenues by Product:
(In millions)                                                                                 2000               1999         1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                <C>          <C>
Marathon Group
  Refined products                                                                         $22,514            $15,181      $12,852
  Merchandise                                                                                2,441              2,194        1,941
  Liquid hydrocarbons                                                                        6,856              4,587        5,023
  Natural gas                                                                                2,518              1,429        1,187
  Transportation and other products                                                            158                199          271
-----------------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group
  Sheet and semi-finished steel products                                                   $ 3,288            $ 3,433      $ 3,598
  Tubular, plate and tin mill products                                                       1,731              1,140        1,546
  Raw materials (coal, coke and iron ore)                                                      626                549          744
  Other/(a)/                                                                                   445                414          490
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Includes revenue from the sale of steel production by-products,
      engineering and consulting services, real estate development and resource
      management.

Operating Segments:

USX's reportable operating segments are business units within the Marathon and
U. S. Steel Groups, each providing their own unique products and services. Each
operating segment is independently managed and requires different technology and
marketing strategies. Segment income represents income from operations allocable
to operating segments. The following items included in income from operations
are not allocated to operating segments:

   . Gain on ownership change in MAP

   . Net pension credits associated with the U. S. Steel Group's pension plan
     assets and liabilities

   . Certain costs related to former U. S. Steel Group business activities

   . Certain general and administrative costs related to all Marathon Group
     operating segments in excess of amounts billed to MAP under service
     contracts and amounts charged out to operating segments under Marathon's
     shared services procedures

   . USX corporate general and administrative costs. These costs primarily
     consist of employment costs including pension effects, professional
     services, facilities and other related costs associated with corporate
     activities.

   . Inventory market valuation adjustments

   . Certain other items not allocated to operating segments for business
     performance reporting purposes (see (a) in reconcilement table on page U-
     15)

                                                                            U-13

<PAGE>
 
  The Marathon Group's operations consist of three reportable operating
segments: 1) Exploration and Production (E&P) - explores for and produces crude
oil and natural gas on a worldwide basis; 2) Refining, Marketing and
Transportation (RM&T) - refines, markets and transports crude oil and petroleum
products, primarily in the Midwest and southeastern United States through MAP;
and 3) Other Energy Related Businesses (OERB). Other Energy Related Businesses
is an aggregation of two segments which fall below the quantitative reporting
thresholds: 1) Natural Gas and Crude Oil Marketing and Transportation - markets
and transports its own and third-party natural gas and crude oil in the United
States; and 2) Power Generation - develops, constructs and operates independent
electric power projects worldwide. The U. S. Steel Group consists of two
reportable operating segments: 1) Domestic Steel and 2) U. S. Steel Kosice
(USSK). Domestic Steel includes the United States operations of U. S. Steel,
while USSK includes the U. S. Steel Kosice operations in the Slovak Republic.
Domestic Steel is engaged in the domestic production and sale of steel mill
products, coke and taconite pellets; the management of mineral resources; coal
mining; engineering and consulting services; and real estate development and
management. USSK is engaged in the production and sale of steel mill products
and coke and primarily serves European markets.

  Information on assets by segment is not provided as it is not reviewed by the
chief operating decision maker.


<TABLE>
<CAPTION>
 
                                                                                   Total                        Total
                                                                                  Marathon  Domestic         U. S. Steel
(In millions)                                             E&P     RM&T     OERB   Segments    Steel    USSK    Segments     Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>      <C>      <C>     <C>       <C>        <C>   <C>           <C>
2000
Revenues and other income:
 Customer                                               $4,184   $28,693  $1,550   $34,427    $5,981    $92       $6,073   $40,500
 Intersegment/(a)/                                         412        83      78       573         -      -            -       573
 Intergroup/(a)/                                            30         1      29        60        17      -           17        77
 Equity in earnings (losses) of 
  unconsolidated investees                                  47        22      15        84        (8)     -           (8)       76
 Other                                                      21        50      12        83        50      -           50       133
                                                        ------   -------  ------   -------    ------   ----       ------   -------
   Total revenues and other income                      $4,694   $28,849  $1,684   $35,227    $6,040    $92       $6,132   $41,359
                                                        ======   =======  ======   =======    ======   ====       ======   =======
Segment income                                          $1,535   $ 1,273  $   38   $ 2,846    $   23    $ 2       $   25   $ 2,871
Significant noncash items included
 in segment income - depreciation,
 depletion and amortization/(b)/                           723       315       3     1,041       285      4          289     1,330
Capital expenditures/(c)/                                  742       656       2     1,400       239      5          244     1,644
-----------------------------------------------------------------------------------------------------------------------------------
1999
Revenues and other income:
 Customer                                               $2,856   $19,962  $  731   $23,549    $5,519    $ -       $5,519   $29,068
 Intersegment/(a)/                                         202        47      40       289         -      -            -       289
 Intergroup/(a)/                                            19         -      22        41        17      -           17        58
 Equity in earnings (losses) of   
  unconsolidated investees                                  (2)       17      26        41       (43)     -          (43)       (2)
 Other                                                      30        50      15        95        46      -           46       141
                                                        ------   -------  ------   -------    ------   ----       ------   -------
   Total revenues and other income                      $3,105   $20,076  $  834   $24,015    $5,539    $ -       $5,539   $29,554
                                                        ======   =======  ======   =======    ======   ====       ======   ======= 
Segment income                                          $  618   $   611  $   61   $ 1,290    $   91    $ -       $   91   $ 1,381
Significant noncash items included
 in segment income - depreciation,
 depletion and amortization/(b)/                           638       280       5       923       304      -          304     1,227
Capital expenditures/(c)/                                  744       612       4     1,360       286      -          286     1,646
-----------------------------------------------------------------------------------------------------------------------------------
1998
Revenues and other income:
 Customer                                               $1,905   $19,018  $  306   $21,229    $6,374    $ -       $6,374   $27,603
 Intersegment/(a)/                                         144        10      17       171         -      -            -       171
 Intergroup/(a)/                                            13         -       7        20         2      -            2        22
 Equity in earnings of             
  unconsolidated investees                                   2        12      14        28        46      -           46        74
 Other                                                      26        40      11        77        55      -           55       132
                                                        ------   -------  ------   -------    ------   ----       ------   -------
   Total revenues and other income                      $2,090   $19,080  $  355   $21,525    $6,477    $ -       $6,477   $28,002
                                                        ======   =======  ======   =======    ======   ====       ======   ======= 
Segment income                                          $  278   $   896  $   33   $ 1,207    $  517    $ -       $  517   $ 1,724
Significant noncash items included
 in segment income - depreciation,
 depletion and amortization/(b)/                           581       272       6       859       283      -          283     1,142
Capital expenditures/(c)/                                  839       410       8     1,257       305      -          305     1,562
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Intersegment and intergroup revenues and transfers were conducted under
      terms comparable to those with unrelated parties.
/(b)/ Differences between segment totals and consolidated totals represent
      amounts included in administrative expenses, international and domestic
      oil and gas property impairments and impairment of coal assets.
/(c)/ Differences between segment totals and consolidated totals represent
      amounts related to corporate administrative activities.

U-14

<PAGE>
 
  The following schedules reconcile segment amounts to amounts reported in the
Groups' financial statements:


<TABLE>
<CAPTION>
                                                                    Marathon Group                         U. S. Steel Group
                                                          ---------------------------------         ------------------------------
(In millions)                                                2000         1999         1998           2000        1999        1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>          <C>          <C>             <C>         <C>         <C>
Revenues and Other Income:                                                                                             
 Revenues and other income of                                                                                          
  reportable segments                                     $35,227      $24,015      $21,525         $6,132      $5,539      $6,477
 Items not allocated to segments:                                                                                      
  Joint venture formation charges                            (931)           -            -              -           -           -
  Gain on ownership change in MAP                              12           17          245              -           -           -
  Losses on certain equity investments                          -            -            -              -         (69)          -
  Other                                                       124          (36)          24              -           -           -
 Elimination of intersegment revenues                        (573)        (289)        (171)             -           -           -
                                                          -------      -------      -------         ------      ------      ------
   Total Group revenues and other income                  $33,859      $23,707      $21,623         $6,132       5,470      $6,477
                                                          =======      =======      =======         ======      ======      ======
Income:                                                                                                          
 Income for reportable segments                           $ 2,846      $ 1,290      $ 1,207         $   25      $   91      $  517
 Items not allocated to segments:                                                                                         
  Joint venture formation charges                            (931)           -            -              -           -           -
  Gain on ownership change in MAP                              12           17          245              -           -           -
  Administrative expenses                                    (136)        (108)        (106)           (25)        (17)        (24)
  Net pension credits                                           -            -            -            266         228         186
  Costs related to former business activities                   -            -            -            (91)        (83)       (100)
  Inventory market valuation adjustments                        -          551         (267)             -           -           -
  Other/(a)/                                                 (143)         (37)        (141)           (71)        (69)          -
                                                          -------      -------      -------         ------      ------      ------
   Total Group income from operations                     $ 1,648      $ 1,713      $   938         $  104      $  150      $  579
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Represents in 2000, for the Marathon Group, certain oil and gas property
      impairments, net gains on certain asset sales and reorganization charges
      and for the U. S. Steel Group, impairment of coal assets. Represents in
      1999, for the Marathon Group, primarily certain oil and gas property
      impairments, costs of a voluntary early retirement program and net losses
      on certain asset sales and, for the U. S. Steel Group, certain losses
      related to investments in equity investees. Represents in 1998, certain
      international oil and gas property impairments, certain suspended
      exploration well write-offs, a gas contract settlement and MAP transition
      charges.

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 and Other Income
                                                                 --------------------------------------------    
                                                                     Within            Between
(In millions)                                             Year  Geographic Areas   Geographic Areas    Total    Assets/(a)/
--------------------------------------------------------------------------------------------------------------------------- 
<S>                                                       <C>   <C>                <C>                <C>       <C>
Marathon Group:                                         
   United States                                          2000       $32,239           $     -        $32,239       $ 6,711
                                                          1999        22,716                 -         22,716         7,555
                                                          1998        20,837                 -         20,837         7,659
   Canada                                                 2000           856               899          1,755           940
                                                          1999           426               521            947         1,112
                                                          1998           209               368            577         1,094
   United Kingdom                                         2000           567                 -            567         1,698
                                                          1999           459                 -            459         1,581
                                                          1998           462                 -            462         1,739
   Other Foreign Countries                                2000           197               188            385           310
                                                          1999           106                88            194           735
                                                          1998           115                52            167           468
   Eliminations                                           2000             -            (1,087)        (1,087)            -
                                                          1999             -              (609)          (609)            -
                                                          1998             -              (420)          (420)            -
   Total Marathon Group                                   2000       $33,859           $     -        $33,859       $ 9,659
                                                          1999        23,707                 -         23,707        10,983
                                                          1998        21,623                 -         21,623        10,960
---------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group:                                      
   United States                                          2000       $ 6,027           $     -        $ 6,027       $ 2,745
                                                          1999         5,452                 -          5,452         2,889
                                                          1998         6,460                 -          6,460         3,043
   Foreign Countries                                      2000           105                 -            105           386
                                                          1999            18                 -             18            63
                                                          1998            17                 -             17            69
   Total U. S. Steel Group                                2000       $ 6,132           $     -        $ 6,132       $ 3,131
                                                          1999         5,470                 -          5,470         2,952
                                                          1998         6,477                 -          6,477         3,112
---------------------------------------------------------------------------------------------------------------------------
Eliminations                                              2000       $   (77)          $     -        $   (77)      $     -
                                                          1999           (58)                -            (58)            -
                                                          1998           (23)                -            (23)            -
---------------------------------------------------------------------------------------------------------------------------
Total USX Corporation                                     2000       $39,914           $     -        $39,914       $12,790
                                                          1999        29,119                 -         29,119        13,935
                                                          1998        28,077                 -         28,077        14,072
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Includes property, plant and equipment and investments.

                                                                            U-15

<PAGE>
 
________________________________________________________________________________
9. Pensions and Other Postretirement Benefits

             USX has noncontributory defined benefit pension plans covering
             substantially all U.S. employees. Benefits under these plans are
             primarily 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 based upon a
             percent of total career pensionable earnings cover certain
             participating salaried employees.

                 USX also has defined benefit retiree health care and life
             insurance plans (other benefits) covering most U.S. employees upon
             their retirement. Health care benefits are provided through
             comprehensive hospital, surgical and major medical benefit
             provisions or through health maintenance organizations, both
             subject to various cost sharing features. Life insurance benefits
             are provided to certain nonunion and union represented retiree
             beneficiaries primarily based on employees' annual base salary at
             retirement. For most U.S. union retirees, benefits are provided for
             the most part based on fixed amounts negotiated in labor contracts
             with the appropriate unions. 


<TABLE>
<CAPTION>
                                                                      Pension Benefits                 Other Benefits
                                                                   ---------------------          -----------------------
             (In millions)                                             2000         1999            2000           1999
             ------------------------------------------------------------------------------------------------------------
             <S>                                                    <C>            <C>            <C>            <C>   
             Change in benefit obligations
             Benefit obligations at January 1                       $  7,584       $  8,629       $  2,374       $  2,710 
             Service cost                                                128            152             26             32 
             Interest cost                                               572            540            184            169 
             Plan amendments                                               6            399/(a)/         1           (30) 
             Actuarial (gains) losses                                    551         (1,019)           306           (333)
             Plan mergers and acquisitions                                 -             56              -             11 
             Settlements, curtailments and termination benefits          (99)          (329)            22              - 
             Benefits paid                                              (883)          (844)          (189)          (185) 
                                                                    --------       --------       --------       --------
             Benefit obligations at December 31                     $  7,859       $  7,584       $  2,724       $  2,374 
             ------------------------------------------------------------------------------------------------------------
             Change in plan assets                                                               
             Fair value of plan assets at January 1                 $ 11,305       $ 11,574       $    281       $    265   
             Actual return on plan assets                                131            865             26             20   
             Plan merger and acquisitions                                 (1)            38              -              1   
             Employer contributions                                        1              2            576/(b)/        34
             Trustee distributions/(c)/                                  (34)           (30)             -              -   
             Settlements paid                                           (134)          (306)             -              -   
             Benefits paid from plan assets                             (877)          (838)           (41)           (39)  
                                                                    --------       --------       --------       --------   
             Fair value of plan assets at December 31               $ 10,391       $ 11,305       $    842       $    281    
             ------------------------------------------------------------------------------------------------------------ 
             Funded status of plans at December 31                  $  2,532/(d)/  $  3,721/(d)/  $ (1,882)      $ (2,093)
             Unrecognized net gain from transition                       (20)           (95)             -              -
             Unrecognized prior service costs (credits)                  778            880            (47)           (53)
             Unrecognized net actuarial gains                           (499)        (1,945)          (126)          (458)
             Additional minimum liability/(e)/                           (38)           (24)             -              -
                                                                    --------       --------       --------       --------
             Prepaid (accrued) benefit cost                         $  2,753       $  2,537       $ (2,055)      $ (2,604)
             ------------------------------------------------------------------------------------------------------------
             /(a)/  Results primarily from a five-year labor contract with the United Steelworkers of America ratified in August
                    1999.
             /(b)/  Includes for the U. S. Steel Group, contributions of $530 million to a Voluntary Employee Benefit Association
                    trust, comprised of $30 million in contractual requirements and an elective contribution of $500 million. Also
                    includes for the U. S. Steel Group, a $30 million elective contribution to the non-union retiree life insurance
                    trust.
             /(c)/  Represents transfers of excess pension assets to fund retiree health care benefits accounts under Section 420 of
                    the Internal Revenue Code.
             /(d)/  Includes several plans that have accumulated 
                     benefit obligations in excess of plan assets:
                      Aggregate accumulated benefit obligations     $    (74)      $    (53)
                      Aggregate projected benefit obligations            (92)           (76)
                      Aggregate plan assets                                -              -
             /(e)/  Additional minimum liability recorded
                     was offset by the following:
                      Intangible asset                              $      6       $      9
                                                                    --------       --------
                      Accumulated other comprehensive income 
                       (losses):
                        Beginning of year                           $    (10)      $    (37)
                        Change during year (net of tax)                  (11)            27
                                                                    --------       --------
                        Balance at end of year                      $    (21)      $    (10)
             ------------------------------------------------------------------------------------------------------------
</TABLE>
 

U-16

<PAGE>
 

<TABLE>
<CAPTION>
                                                                      Pension Benefits                     Other Benefits
                                                              ------------------------------     ----------------------------------
             (In millions)                                      2000       1999        1998         2000        1999       1998
             ---------------------------------------------------------------------------------------------------------------------- 
             <S>                                              <C>      <C>           <C>         <C>         <C>        <C> 
             Components of net periodic 
              benefit cost (credit)
             Service cost                                   $   128     $   152       $  119      $   26      $  32      $  27   
             Interest cost                                      572         540          544         184        169        172   
             Expected return on plan assets                    (958)       (895)        (876)        (24)       (21)       (21)  
             Amortization - net transition gain                 (71)        (72)         (74)          -          -          -   
                          - prior service costs (credits)       102          87           75          (6)        (4)         1   
                          - actuarial (gains) losses            (53)          7            6         (26)        (5)       (13)  
                                                                                                                                 
             Multiemployer and other USX plans                    5           5            6           9/(a)/     7/(a)/    13/(a)/
             Settlement and termination (gains) losses           32/(b)/    (42)/(b)/     10/(b)/     21/(b)/     -          -   
                                                            -------     -------       ------      ------      -----      -----   
             Net periodic benefit cost (credit)             $  (243)    $  (218)      $ (190)     $  184      $ 178      $ 179    
             ----------------------------------------------------------------------------------------------------------------------
</TABLE>
 
             /(a)/  Represents payments to a multiemployer health care 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 $84 million, including the effects of future
                    medical inflation, and this amount could increase if
                    additional beneficiaries are assigned.
             /(b)/  Relates primarily to voluntary early retirement programs.


<TABLE>
<CAPTION>
                                                                                             Pension Benefits     Other Benefits 
                                                                                            ------------------ --------------------
                                                                                             2000      1999     2000       1999 
             ----------------------------------------------------------------------------------------------------------------------
             <S>                                                                            <C>          <C>    <C>        <C>      
             Weighted average actuarial assumptions                                   
              at December 31:                                                         
             Discount rate                                                                      7.5%      8.0%     7.5%     8.0%
             Expected annual return on plan assets                                              9.0%      8.6%     8.5%     8.5%
             Increase in compensation rate                                                      4.1%      4.1%     4.1%     4.1%
             ----------------------------------------------------------------------------------------------------------------------
</TABLE>


                 For measurement purposes, a 7.6% annual rate of increase in the
             per capita cost of covered health care benefits was assumed for
             2001. The rate was assumed to decrease gradually to 5% in 2006 for
             the U. S. Steel Group and in 2007 for the Marathon Group and remain
             at that level thereafter.

                 A one-percentage-point change in assumed health care cost trend
             rates would have the following effects:


<TABLE>
<CAPTION>
                                                                                                  1-Percentage-    1-Percentage-
             (In millions)                                                                        Point Increase  Point Decrease
             ----------------------------------------------------------------------------------------------------------------------
             <S>                                                                                  <C>             <C>
             Effect on total of service and interest cost components                                   $ 25           $ (21)
             Effect on other postretirement benefit obligations                                         248            (209)
             ----------------------------------------------------------------------------------------------------------------------
</TABLE>


--------------------------------------------------------------------------------
10. 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>         
             2001                                                                                            $  12         $ 173   
             2002                                                                                               12           139   
             2003                                                                                               12            98   
             2004                                                                                               12            87   
             2005                                                                                               12           141   
             Later years                                                                                        89           173   
             Sublease rentals                                                                                    -           (80)  
                                                                                                             -----         -----   
               Total minimum lease payments                                                                    149         $ 731   
                                                                                                                           =====   
             Less imputed interest costs                                                                        54                 
                                                                                                             -----                 
               Present value of net minimum lease payments                                                                         
                included in long-term debt                                                                   $  95                 
             ----------------------------------------------------------------------------------------------------------------------
</TABLE>
 


<TABLE> 
<CAPTION> 
               Operating lease rental expense:
             (In millions)                                                                       2000         1999       1998     
             ----------------------------------------------------------------------------------------------------------------------
             <S>                                                                                <C>          <C>       <C>        
              Minimum rental                                                                    $ 288        $ 273         $ 288  
              Contingent rental                                                                    30           29            29  
              Sublease rentals                                                                    (19)         (19)          (14) 
                                                                                                -----        -----     ---------  
               Net rental expense                                                               $ 299        $ 283         $ 303  
             ----------------------------------------------------------------------------------------------------------------------
</TABLE>


                 USX leases a wide variety of facilities and equipment under
             operating leases, including land and building space, office
             equipment, production facilities and transportation equipment. Most
             long-term leases include renewal options and, in certain leases,
             purchase options. In the event of a change in control of USX, as
             defined in the agreements, or certain other circumstances,
             operating lease obligations totaling $104 million may be declared
             immediately due and payable.

                                                                            U-17

<PAGE>
 
--------------------------------------------------------------------------------
11. Income Taxes

             Provisions (credits) for income taxes were:


<TABLE> 
<CAPTION> 
                                                 2000                           1999                              1998            
                                     ---------------------------     ---------------------------     ----------------------------  
             (In millions)           Current   Deferred    Total     Current   Deferred    Total     Current    Deferred    Total 
             -------------------------------------------------------------------------------------------------------------------- 
             <S>                     <C>       <C>         <C>       <C>       <C>         <C>       <C>        <C>        <C>    
             Federal                   $257      $ 196      $453       $107     $ 257      $ 364       $102       $ 168    $ 270   
             State and local             41          3        44          4         1          5         33          18       51   
             Foreign                     55        (50)        5         26       (46)       (20)        (4)         (2)      (6)  
                                       ----      -----      ----       ----     -----      -----       ----       -----    -----   
                Total                  $353      $ 149      $502       $137     $ 212      $ 349       $131       $ 184    $ 315   
             --------------------------------------------------------------------------------------------------------------------  
</TABLE>
 
          
                 A reconciliation of federal statutory tax rate (35%) to total
             provisions follows:


<TABLE> 
<CAPTION> 
             (In millions)                                                               2000         1999         1998
             ---------------------------------------------------------------------------------------------------------- 
             <S>                                                                        <C>          <C>         <C> 
             Statutory rate applied to income before income taxes                       $ 320        $ 369       $  346
             Effects of foreign operations:                                                 
              Impairment of deferred tax benefits                                         235            -            -
              Adjustments to foreign valuation allowances                                 (30)           -            -
              All other, including foreign tax credits                                    (35)         (20)         (37)
             State and local income taxes after federal income tax effects                 29            3           33
             Credits other than foreign tax credits                                       (10)         (10)         (12)
             Excess percentage depletion                                                   (3)          (7)         (11)
             Effects of partially owned companies                                          (5)          (5)          (4)
             Dispositions of subsidiary investments                                         -            7            -
             Adjustment of prior years' federal income taxes                               (6)           4           (5)
             Other                                                                          7            8            5
                                                                                     --------     --------   ----------
                 Total provisions                                                       $ 502        $ 349       $  315
             ----------------------------------------------------------------------------------------------------------  
</TABLE>
 

                 Deferred tax assets and liabilities resulted from the 
             following:


<TABLE> 
<CAPTION> 
             (In millions)                                                      December 31                      2000         1999
             --------------------------------------------------------------------------------------------------------------------- 
             <S>                                                                                              <C>          <C> 
             Deferred tax assets:                                                         
              Minimum tax credit carryforwards                                                                $    39      $   131
              State tax loss carryforwards (expiring in 2001 through 2020)                                        125          122
              Foreign tax loss carryforwards (portion of which expire in 2001 through 2015)                       269          408
              Employee benefits                                                                                 1,028        1,204
              Expected federal benefit for:                                                                       
               Crediting certain foreign deferred income taxes                                                    315          530
               Deducting state deferred income taxes                                                               36           36
              Receivables, payables and debt                                                                       93           82
              Contingency and other accruals                                                                      226          202
              Investments in foreign subsidiaries                                                                  39           52
              Other                                                                                                62           45
              Valuation allowances:                                                       
               Federal                                                                                              -          (30)
               State                                                                                              (50)         (52)
               Foreign                                                                                           (252)        (282)
                                                                                                              -------      -------
                 Total deferred tax assets/(a)/                                                                 1,930        2,448
                                                                                                              -------      -------
             Deferred tax liabilities:                                                    
              Property, plant and equipment                                                                     1,890        2,365
              Prepaid pensions                                                                                  1,165        1,048
              Inventory                                                                                           335          340
              Investments in subsidiaries and equity investees                                                     52           76
              Other                                                                                               221          155
                                                                                                              -------      ------- 
                 Total deferred tax liabilities                                                                 3,663        3,984
                                                                                                              -------      -------
                   Net deferred tax liabilities                                                               $ 1,733      $ 1,536
             --------------------------------------------------------------------------------------------------------------------- 
</TABLE>

             /(a)/  USX expects to generate sufficient future taxable income to
                    realize the benefit of its deferred tax assets. In addition,
                    the ability to realize the benefit of foreign tax credits is
                    based upon certain assumptions concerning future operating
                    conditions (particularly as related to prevailing oil
                    prices), income generated from foreign sources and USX's tax
                    profile in the years that such credits may be claimed.
                    During 2000, the amount of net deferred tax assets expected
                    to be realized was reduced as a result of the change in the
                    amount and timing of future foreign source income due to the
                    exchange of Marathon's interest in Sakhalin Energy
                    Investment Company Ltd. (Sakhalin Energy) for other oil and
                    gas producing interests. Additionally, gross deferred tax
                    assets and the associated valuation allowance were reduced
                    by a change in management's intent regarding the permanent
                    reinvestment of the earnings from certain foreign
                    subsidiaries.

                       The consolidated tax returns of USX for the years 1990
             through 1997 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 $245 million, $63 million
             and $(75) million attributable to foreign sources in 2000, 1999 and
             1998, respectively.

U-18

<PAGE>
 
                 Undistributed earnings of certain consolidated foreign
             subsidiaries at December 31, 2000, amounted to $223 million. No
             provision for deferred U.S. income taxes has been made for these
             subsidiaries because USX intends to permanently reinvest such
             earnings in those foreign operations. If such earnings were not
             permanently reinvested, a deferred tax liability of $78 million
             would have been required.

--------------------------------------------------------------------------------
12. Investments and Long-Term Receivables


<TABLE> 
<CAPTION> 
             (In millions)                                                      December 31     2000     1999
             ------------------------------------------------------------------------------------------------- 
             <S>                                                                              <C>      <C> 
             Equity method investments                                                        $  575   $1,055
             Other investments                                                                   101       71
             Receivables due after one year                                                       59       57
             Deposits of restricted cash                                                          19       22
             Other                                                                                47       32
                                                                                              ------   ------
                  Total                                                                       $  801   $1,237
             ------------------------------------------------------------------------------------------------- 
</TABLE>
 

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


<TABLE> 
<CAPTION> 
             (In millions)                                                             2000     1999      1998
             ------------------------------------------------------------------------------------------------- 
             <S>                                                                      <C>      <C>      <C>     
             Income data - year:                                                     
              Revenues and other income                                               $3,901   $3,449   $3,510
              Operating income                                                           286       95      324
              Net income (loss)                                                          (43)     (74)     176
             -------------------------------------------------------------------------------------------------      
             Balance sheet data - December 31:                                       
              Current assets                                                          $1,239   $1,382
              Noncurrent assets                                                        3,443    5,008
              Current liabilities                                                      1,427    1,481
              Noncurrent liabilities                                                   1,957    2,317
             ------------------------------------------------------------------------------------------------- 
</TABLE>


                 USX acquired a 25% interest in VSZ during 2000. VSZ does not
             provide its shareholders with financial statements prepared in
             accordance with generally accepted accounting principles in the
             United States (USGAAP). Although shares of VSZ are traded on the
             Bratislava Stock Exchange, those securities do not have a readily
             determinable fair value as defined under USGAAP. Accordingly, USX
             accounts for its investment in VSZ under the cost method of
             accounting.

                 In 1999, USX and Kobe Steel, Ltd. (Kobe Steel) completed a
             transaction that combined the steelmaking and bar producing assets
             of USS/Kobe Steel Company (USS/Kobe) with companies controlled by
             Blackstone Capital Partners II. The combined entity was named
             Republic Technologies International, LLC and is a wholly owned
             subsidiary of Republic Technologies International Holdings, LLC
             (Republic). As a result of this transaction, USX recorded $47
             million in charges related to the impairment of the carrying value
             of its investment in USS/Kobe and costs related to the formation of
             Republic. These charges were included in dividend and investee
             income (loss) in 1999. In addition, USX made a $15 million equity
             investment in Republic. USX owned 50% of USS/Kobe and now owns 16%
             of Republic. USX accounts for its investment in Republic under the
             equity method of accounting. The seamless pipe business of USS/Kobe
             was excluded from this transaction. That business, now known as
             Lorain Tubular Company, LLC, became a wholly owned subsidiary of
             USX at the close of business on December 31, 1999.

                 Dividends and partnership distributions received from equity
             investees were $56 million in 2000, $46 million in 1999 and $42
             million in 1998.

                 USX purchases from equity investees totaled $627 million, $411
             million and $395 million in 2000, 1999 and 1998, respectively. USX
             sales to equity investees totaled $986 million, $853 million and
             $747 million in 2000, 1999 and 1998, respectively.

--------------------------------------------------------------------------------
13. Short-Term Debt

             In November 2000, USX entered into a $451 million 364-day revolving
             credit agreement, which terminates in November 2001. Interest is
             based on defined short-term market rates. During the term of the
             agreement, USX is obligated to pay a variable facility fee on total
             commitments, which at December 31, 2000 was .10%. At December 31,
             2000, there were no borrowings against this facility. USX has a
             short-term line of credit totaling $150 million, bearing interest
             at a defined short-term market rate, which at December 31, 2000 was
             7.10%. At December 31, 2000, USX had borrowed $150 million against
             this facility. Certain other banks provide short-term lines of
             credit totaling $150 million which require a .125% fee or
             maintenance of compensating balances of 3%. At December 31, 2000,
             there were no borrowings against these facilities.

                                                                            U-19

<PAGE>
 
                 MAP has a $100 million short-term revolving credit facility
             that terminates in July 2001. Interest is based on defined short-
             term market rates. During the term of the agreement, MAP is
             required to pay a variable facility fee on total commitments, which
             at December 31, 2000 was .11%. At December 31, 2000, there were no
             borrowings against this facility.

                 USSK has a short-term $50 million credit facility that expires
             in November 2001. The facility, which is non-recourse to USX, bears
             interest on prevailing short-term market rates plus 1%. USSK is
             obligated to pay a .25% commitment fee on undrawn amounts. At
             December 31, 2000, there were no borrowings against this facility.

--------------------------------------------------------------------------------
14. Long-Term Debt


<TABLE> 
<CAPTION> 
                                                                        Interest                           December 31
             (In millions)                                              Rates - %        Maturity           2000    1999
             -----------------------------------------------------------------------------------------------------------
             <S>                                                    <C>                 <C>               <C> 
             USX Corporation:
              Revolving credit facility/(a)/                                                   2005       $  300  $  300
              Commercial paper/(a)/                                  7.68                                     77     165
              Notes payable                                          6 13/20 - 9 4/5    2001 - 2023        2,505   2,525
              Obligations relating to Industrial Development and     
               Environmental Improvement Bonds and Notes/(b)/          4 1/4 - 6 7/8    2009 - 2033          494     494
              Receivables facility/(c)/                                                        2004          350     350
              All other obligations, including sale-leaseback
               financing and capital leases                                             2001 - 2012           88      92
             Consolidated subsidiaries:
              Revolving credit facilities/(d)/                                          2001 - 2003            -       -
              USSK loan facility/(e)/                                8 1/2                     2010          325       -
              Guaranteed Notes                                       7                         2002          135     135
              Guaranteed Loan/(f)/                                   9 1/20             2001 - 2006          199     223
              Notes payable                                          8 1/2                     2001            1       1
              All other obligations, including capital leases                           2001 - 2011           11      26
                                                                                                          ------  ------
                 Total/(g)(h)/                                                                             4,485   4,311
             Less unamortized discount                                                                        25      28
             Less amount due within one year                                                                 287      61
                                                                                                          ------  ------
                 Long-term debt due after one year                                                        $4,173  $4,222
             -----------------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/  In November 2000, USX entered into a $1,354 million 5-year
                    revolving credit agreement, terminating in November 2005,
                    which in conjunction with a $451 million 364-day revolving
                    credit agreement, terminating in December 2001, replaced the
                    prior $2,350 million facility. Interest on the facility is
                    based on defined short-term market rates. During the term of
                    the agreement, USX is obligated to pay a variable facility
                    fee on total commitments, which at December 31, 2000 was
                    .125%. At December 31, 2000, $300 million had been borrowed
                    against this facility. The commercial paper is supported by
                    the unused and available credit on the 5-year facility and,
                    accordingly, is classified as long-term debt.
             /(b)/  At December 31, 2000, USX had outstanding obligations
                    relating to Environmental Improvement Bonds in the amount of
                    $141 million, which were supported by letter of credit
                    arrangements that could become short-term obligations under
                    certain circumstances.
             /(c)/  In December 1999, USX entered into an agreement under which
                    the U. S. Steel Group participates in a program to sell an
                    undivided interest in certain accounts receivable. A
                    previous program expired in October 1999 and was accounted
                    for as a transfer of receivables. The new program is
                    accounted for as a secured borrowing. Payments are collected
                    from sold accounts receivable and invested in new accounts
                    receivable for the purchaser and a yield, based on short-
                    term market rates, is transferred to the purchaser. If the
                    U. S. Steel Group does not have sufficient eligible
                    receivables to reinvest for the purchaser, the size of the
                    program is reduced accordingly. The purchaser has a security
                    interest in a pool of receivables to secure USX's
                    obligations under the program. If the receivables facility
                    is not renewed annually, the balance outstanding of such
                    facility could be refinanced by the 5-year facility
                    discussed in (a), or another long-term debt source; and
                    therefore, is classified as long-term debt. The amounts sold
                    under the previous receivables programs averaged $291
                    million and $347 million for the years 1999 and 1998,
                    respectively.
             /(d)/  MAP has a $400 million revolving credit facility that
                    terminates in July 2003. Interest is based on defined short-
                    term market rates. During the term of the agreement, MAP is
                    required to pay a variable facility fee on total
                    commitments, which at December 31, 2000 was .125%. At
                    December 31, 2000, the unused and available credit was $352
                    million, which reflects reductions for outstanding letters
                    of credit. In the event that MAP defaults on indebtedness
                    (as defined in the agreement) in excess of $100 million, USX
                    has guaranteed the payment of any outstanding obligations.
             /(e)/  USSK has a loan facility with a group of financial
                    institutions aggregating $325 million. The loan, which is
                    non-recourse to USX, bears interest at a fixed rate of 8.5%
                    per annum. The loan is subject to annual repayments of $20
                    million beginning in 2003, with the balance due in 2010.
                    Mandatory prepayments of the loan may be required based upon
                    a cash flow formula or a change in control of USX.
             /(f)/  The Guaranteed Loan was used to fund a portion of the costs
                    in connection with the development of the East Brae Field
                    and the SAGE pipeline in the North Sea. A portion of
                    proceeds from a long-term gas sales contract is dedicated to
                    loan service under certain circumstances. Prepayment of the
                    loan may be required under certain situations, including
                    events impairing the security interest.
             /(g)/  Required payments of long-term debt for the years 2002-2005
                    are $209 million, $207 million, $710 million and $440
                    million, respectively.
             /(h)/  In the event of a change in control of USX, as defined in
                    the related agreements, debt obligations totaling $3,614
                    million may be declared immediately due and payable. The
                    principal obligations subject to such a provision are Notes
                    payable -$2,505 million; USSK loan facility - $325 million;
                    and Guaranteed Loan - $199 million. In such event, USX may
                    also be required to either repurchase the leased Fairfield
                    slab caster for $100 million or provide a letter of credit
                    to secure the remaining obligation.

U-20

<PAGE>
 
--------------------------------------------------------------------------------
15. Inventories


<TABLE> 
<CAPTION> 
             (In millions)                                                           December 31      2000    1999
             -------------------------------------------------------------------------------------------------------  
             <S>                                                                                    <C>     <C> 
             Raw materials                                                                          $  915  $  830
             Semi-finished products                                                                    429     392
             Finished products                                                                       1,279   1,239
             Supplies and sundry items                                                                 190     166
                                                                                                    ------  ------
                  Total (at cost)                                                                    2,813   2,627
             Less inventory market valuation reserve                                                     -       -
                                                                                                    ------  ------
                  Net inventory carrying value                                                      $2,813  $2,627
             -------------------------------------------------------------------------------------------------------  
</TABLE>
                                                            
                                                                    
                 At December 31, 2000 and 1999, the LIFO method accounted for
             92% and 91%, respectively, of total inventory value. Current
             acquisition costs were estimated to exceed the above inventory
             values at December 31 by approximately $880 million and $570
             million in 2000 and 1999, respectively. Cost of revenues was
             reduced and income from operations was increased by $17 million in
             2000 as a result of liquidations of LIFO inventories.

                 The inventory market valuation reserve reflects the extent that
             the recorded LIFO cost basis of crude oil and refined products
             inventories exceeds net realizable value. The reserve is decreased
             to reflect increases in market prices and inventory turnover and
             increased to reflect decreases in market prices. Changes in the
             inventory market valuation reserve result in noncash charges or
             credits to costs and expenses. During 2000, there were no charges
             or credits to costs and expenses.

--------------------------------------------------------------------------------
16. Supplemental Cash Flow Information


<TABLE> 
<CAPTION> 
             (In millions)                                                                 2000      1999       1998
             ------------------------------------------------------------------------------------------------------- 
             <S>                                                                        <C>       <C>       <C>     
             Cash used in operating activities included:
              Interest and other financial costs paid
               (net of amount capitalized)                                              $  (341)  $  (366)  $   (336)
              Income taxes paid                                                            (387)      (98)      (183)
             ------------------------------------------------------------------------------------------------------- 
             Commercial paper and revolving credit arrangements - net:
              Commercial paper  - issued                                                $ 3,362   $ 6,282   $      -
                                - repayments                                             (3,450)   (6,117)         -
              Credit agreements - borrowings                                                437     5,529     17,486
                                - repayments                                               (437)   (5,980)   (16,817)
              Other credit arrangements - net                                               150       (95)        55
                                                                                        -------   -------   --------
                 Total                                                                  $    62   $  (381)  $    724
             ------------------------------------------------------------------------------------------------------- 
             Noncash investing and financing activities:
              Common stock issued for dividend reinvestment and
               employee stock plans                                                     $    15   $     6   $      5
              Marathon Stock issued for Exchangeable Shares                                   -         7         11
              Investee preferred stock received in conversion of investee loan                -       142          -
              Disposal of assets:
               Exchange of Sakhalin Energy investment                                       410         -          -
               Deposit of RTI common shares in satisfaction of indexed debt                   -        56          -
               Interest in USS/Kobe contributed to Republic                                   -        40          -
               Other - notes or common stock received                                        20        20          2
              Business combinations:
               Acquisition of USSK:
                Liabilities assumed                                                         568         -          -
                Contingent consideration payable at present value                            21         -          -
                Investee liabilities consolidated in step acquisition                         3         -          -
               Acquisition of Tarragon:
                Exchangeable Shares issued                                                    -         -         29
                Liabilities assumed                                                           -         -        433
               Acquisition of Ashland RM&T net assets:
                38% interest in MAP                                                           -         -      1,900
                Liabilities assumed                                                           -         -      1,038
               Other acquisitions:
                Liabilities assumed                                                           -        42          -
                Investee liabilities consolidated in step acquisition                         -        26          -
             -------------------------------------------------------------------------------------------------------  
</TABLE>


                                                                            U-21

<PAGE>
 
________________________________________________________________________________
17. Stock-Based Compensation Plans

             The 1990 Stock Plan, as amended and restated, authorizes the
             Compensation Committee of the Board of Directors to grant
             restricted stock, stock options and stock appreciation rights to
             key management employees. Such employees are generally granted
             awards of the class of common stock intended to reflect the
             performance of the group(s) to which their work relates. Up to .5
             percent of the outstanding Marathon Stock and .8 percent of the
             outstanding Steel Stock, as determined on December 31 of the
             preceding year, are available for grants during each calendar year
             the 1990 Plan is in effect. In addition, awarded shares that do not
             result in shares being issued are available for subsequent grant,
             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, 2000, 8,519,302 Marathon Stock shares
             and 2,108,128 Steel Stock shares were available for grants in 2001.

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

                 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         
                                            -----------------------------      -----------------------------
                                              2000        1999     1998          2000       1999      1998  
             -----------------------------------------------------------------------------------------------
             <S>                            <C>          <C>       <C>         <C>         <C>       <C>    
             Number of shares granted        410,025      28,798   25,378       305,725     18,272    17,742
             Weighted-average grant-date                                                                    
              fair value per share          $  25.50     $ 29.38  $ 34.00      $  23.00    $ 28.22   $ 37.28 
             -----------------------------------------------------------------------------------------------
</TABLE>


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

                 The following is a summary of stock option activity:


<TABLE>
<CAPTION>
                                               Marathon Stock              Steel Stock
                                          ------------------------    ----------------------
                                            Shares     Price/(a)/      Shares     Price/(a)/
             -------------------------------------------------------------------------------  
             <S>                           <C>         <C>            <C>         <C>
             Balance December 31, 1997     3,694,865        $24.81    1,633,100       $34.35
             Granted                         987,535         34.00      611,515        37.28
             Exercised                      (594,260)        27.61     (230,805)       32.00
             Canceled                        (13,200)        27.22      (21,240)       35.89
                                           ---------                  ---------       
             Balance December 31, 1998     4,074,940         26.62    1,992,570        35.50
             Granted                       1,005,000         29.38      656,400        28.22
             Exercised                      (176,160)        27.27       (2,580)       24.92
             Canceled                       (121,055)        30.19      (20,005)       38.51
                                           ---------                  ---------       
             Balance December 31, 1999     4,782,725         27.08    2,626,385        33.67
             Granted                       1,799,880         25.18      915,470        23.00
             Exercised                       (58,870)        23.11         (400)       24.30
             Canceled                       (410,115)        28.06      (62,955)       38.19
                                           ---------                  ---------       
             Balance December 31, 2000     6,113,620         26.50    3,478,500        30.78
             -------------------------------------------------------------------------------
</TABLE>

             /(a)/  Weighted-average exercise price

                 The weighted-average grant-date fair value per option for the
             Marathon Stock was $7.51 in 2000, $8.89 in 1999 and $10.43 in 1998.
             For the Steel Stock such amounts were $6.63 in 2000, $6.95 in 1999
             and $8.29 in 1998.

                 The following table represents stock options at December 31,
             2000:


<TABLE> 
<CAPTION> 
                                                                         Outstanding                             Exercisable
                                                      ----------------------------------------------    -------------------------
                                                                          Weighted-
                                                        Number             Average         Weighted-     Number        Weighted-
                                     Range of          of Shares          Remaining         Average     of Shares       Average
                                     Exercise            Under           Contractual       Exercise       Under         Exercise
                                      Prices            Option               Life            Price       Option          Price
             -------------------------------------------------------------------------------------------------------------------- 
             <S>                  <C>                 <C>                <C>               <C>          <C>            <C> 
             Marathon Stock       $  17.00-23.44      1,947,290           4.5 years         $21.03      1,647,290        $20.60
                                     25.38-26.47      1,512,905           8.6                25.53        135,225         25.38
                                     29.38-34.00      2,653,425           7.5                31.06      2,653,425         31.06
                                                      ---------                                         ---------  
                                      Total           6,113,620                                         4,435,940
                                                      ---------                                         ---------  
             Steel Stock          $  23.00-28.22      1,592,305           8.8 years         $25.17        678,135        $28.10
                                     31.69-34.44      1,050,920           5.2                32.53      1,050,920         32.53
                                     37.28-44.19        835,275           6.0                39.26        835,275         39.26
                                                      ---------                                         ---------  
                                      Total           3,478,500                                         2,564,330
             -------------------------------------------------------------------------------------------------------------------- 
</TABLE>


U-22

<PAGE>
 
                 Actual stock-based compensation expense (credit) was $6 million
             in 2000 and $(3) million in 1999 and 1998. Incremental compensation
             expense, as determined under a fair value model, was not material
             ($.02 or less per share for all years presented). Therefore, pro
             forma net income and earnings per share data have been omitted.

                 USX has a deferred compensation plan for non-employee directors
             of its Board of Directors. The plan permits participants to defer
             some or all of their annual retainers in the form of common stock
             units or cash and it requires new directors to defer at least half
             of their annual retainer in the form of common stock units. Common
             stock units are book entry units equal in value to a share of
             Marathon Stock or Steel Stock. Deferred stock benefits are
             distributed in shares of common stock within five business days
             after a participant leaves the Board of Directors. During 2000,
             14,242 shares of Marathon Stock and 4,872 shares of Steel Stock
             were issued and during 1999, 10,541 shares of Marathon Stock and
             3,798 shares of Steel Stock were issued. During 1998, no shares of
             common stock were issued.

________________________________________________________________________________
18. Dividends

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

                 Dividends on the Steel Stock are further limited to the
             Available Steel Dividend Amount. At December 31, 2000, the
             Available Steel Dividend Amount was at least $3,161 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.

________________________________________________________________________________
19. Stockholder Rights Plan

             On September 28, 1999, USX's Board of Directors adopted a new
             Stockholder Rights Plan and declared a dividend distribution of one
             right for each outstanding share of Marathon Stock and Steel Stock
             (referred to together as "Voting Stock") to stockholders of record
             on October 9, 1999. Each right becomes exercisable, at a price of
             $110, after any person or group has acquired, obtained the right to
             acquire or made a tender or exchange offer for 15% or more of the
             outstanding voting power represented by the outstanding Voting
             Stock, except pursuant to a qualifying all-cash tender offer for
             all outstanding shares of Voting Stock which results in the offeror
             owning shares of Voting Stock representing a majority of the voting
             power (other than Voting Stock beneficially owned by the offeror
             immediately prior to the offer). Each right entitles the holder,
             other than the acquiring person or group, to purchase one one-
             hundredth of a share of Series A Junior Preferred Stock or, upon
             the acquisition by any person of 15% or more of the outstanding
             voting power represented by the outstanding Voting Stock, Marathon
             Stock or Steel Stock (or, in certain circumstances, other property)
             having a market value of twice the exercise price. After a person
             or group acquires 15% or more of the outstanding voting power, if
             USX engages in a merger or other business combination where it is
             not the surviving corporation or where it is the surviving
             corporation and the Voting Stock is changed or exchanged, 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 the exercise price are subject to
             adjustment. The rights will expire on October 9, 2009, unless such
             date is extended or the rights are earlier 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.

                                                                            U-23

<PAGE>

--------------------------------------------------------------------------------
20. Income Per Common Share

             The method of calculating net income (loss) per share for the
             Marathon Stock and the Steel Stock reflects the USX Board of
             Directors' intent that the separately reported earnings and surplus
             of the Marathon Group and the U. S. Steel Group, as determined
             consistent with the USX Certificate, 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 and the U. S. Steel
             Group, taken together, include all accounts which comprise the
             corresponding consolidated financial statements of USX.

                 Basic net income (loss) 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.

                 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.

                        COMPUTATION OF INCOME PER SHARE


<TABLE> 
<CAPTION> 
                                                                 2000                     1999                1998
                                                          -------------------   ---------------------  ------------------
                                                           Basic     Diluted       Basic     Diluted    Basic    Diluted
       ------------------------------------------------------------------------------------------------------------------ 
       <S>                                                <C>        <C>        <C>          <C>       <C>       <C> 
       Marathon Group
       --------------
       Net income (millions)                              $    432   $    432      $    654  $    654  $    310  $    310
                                                          ========   ========      ========  ========  ========  ========
       Shares of common stock outstanding (thousands):
        Average number of common shares outstanding        311,531    311,531       309,696   309,696   292,876   292,876
        Effect of dilutive securities -
         Stock options                                           -        230             -       314         -       559
                                                          --------   --------      --------  --------  --------  --------
           Average common shares and dilutive effect       311,531    311,761       309,696   310,010   292,876   293,435
                                                          ========   ========      ========  ========  ========  ========
       Net income per share                               $   1.39   $   1.39      $   2.11  $   2.11  $   1.06  $   1.05
       ------------------------------------------------------------------------------------------------------------------
 
       U. S. Steel Group
       -----------------
       Net income (loss) (millions):
        Income (loss) before extraordinary losses         $    (21)  $    (21)     $     51  $     51  $    364  $    364
        Dividends on preferred stock                             8          8             9         9         9         -
        Extraordinary losses                                     -          -             7         7         -         -
                                                          --------   --------      --------  --------  --------  --------
        Net income (loss) applicable to Steel Stock            (29)       (29)           35        35       355       364
        Effect of dilutive securities -
         Trust preferred securities                              -          -             -         -         -         8
                                                          --------   --------      --------  --------  --------  --------
           Net income (loss) assuming conversions         $    (29)  $    (29)     $     35  $     35  $    355  $    372
                                                          ========   ========      ========  ========  ========  ========
       Shares of common stock outstanding (thousands):
        Average number of common shares outstanding         88,613     88,613        88,392    88,392    87,508    87,508
        Effect of dilutive securities:
         Trust preferred securities                              -          -             -         -         -     4,256
         Preferred stock                                         -          -             -         -         -     3,143
         Stock options                                           -          -             -         4         -        36
                                                          --------   --------      --------  --------  --------  --------
           Average common shares and dilutive effect        88,613     88,613        88,392    88,396    87,508    94,943
                                                          ========   ========      ========  ========  ========  ========
       Per share:
        Income (loss) before extraordinary losses         $   (.33)  $   (.33)     $    .48  $    .48  $   4.05  $   3.92
        Extraordinary losses                                     -          -           .08       .08         -         -
                                                          --------   --------      --------  --------  --------  --------
        Net income (loss)                                 $   (.33)  $   (.33)     $    .40  $    .40  $   4.05  $   3.92
       ------------------------------------------------------------------------------------------------------------------ 
</TABLE>
 

--------------------------------------------------------------------------------
21. Property, Plant and Equipment


<TABLE> 
<CAPTION> 
             (In millions)                                                      December 31                2000      1999
             ------------------------------------------------------------------------------------------------------------ 
             <S>                                                                                       <C>       <C> 
             Marathon Group                                                                            $ 19,066  $ 20,860
             U. S. Steel Group                                                                            9,270     8,748
                                                                                                       --------  --------
                  Total                                                                                  28,336    29,608
             Less accumulated depreciation, depletion and amortization                                   16,222    16,799
                                                                                                       --------  --------
                  Net                                                                                  $ 12,114  $ 12,809
             ------------------------------------------------------------------------------------------------------------ 
</TABLE>


                 Property, plant and equipment includes gross assets acquired
             under capital leases (including sale-leasebacks accounted for as
             financings) of $106 million at December 31, 2000, and $125 million
             at December 31, 1999; related amounts in accumulated depreciation,
             depletion and amortization were $79 million and $81 million,
             respectively.

                 During 2000, the U. S. Steel Group recorded $71 million of
             impairments relating to coal assets located in West Virginia and
             Alabama. The impairment was recorded as a result of a reassessment
             of long-term prospects after adverse geological conditions were
             encountered.

                 During 2000, the Marathon Group recorded $193 million of
             impairments of certain E&P segment oil and gas properties,
             primarily located in Canada. The impairments were recorded due to
             reserve revisions as a result of production performance and
             disappointing drilling results.

                 These impairment charges are included in depreciation,
             depletion and amortization.

U-24

<PAGE>
 
________________________________________________________________________________
22. Preferred Stock of Subsidiary and Trust Preferred Securities

             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, and will
             be redeemed from the proceeds of any repayment of the loan by USX.
             In addition, upon final maturity of the loan, USX Capital LLC is
             required to redeem the MIPS. The financial costs are included in
             net interest and other financial costs.

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

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

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

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

                 The Trust Preferred Securities may be redeemed at any time at
             the option of USX, at a premium of 101.95% of the initial
             liquidation amount through March 31, 2001, and thereafter,
             declining annually to the initial liquidation amount on April 1,
             2003, and thereafter. They are mandatorily redeemable at March 31,
             2037, or earlier under certain circumstances.

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

________________________________________________________________________________
23. Preferred Stock

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

             6.50% Cumulative Convertible Preferred Stock (6.50% Preferred
             Stock) - As of December 31, 2000, 2,413,487 shares (stated value of
             $1.00 per share; liquidation preference of $50.00 per share) were
             outstanding. The 6.50% Preferred Stock is convertible at any time,
             at the option of the holder, into shares of Steel Stock at a
             conversion price of $46.125 per share of Steel Stock, subject to
             adjustment in certain circumstances. This stock is redeemable at
             USX's sole option, at a price of $50.975 per share beginning April
             1, 2000, 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-25

<PAGE>
 
________________________________________________________________________________
24. Derivative Instruments

USX remains at risk for possible changes in the market value of derivative
instruments; 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 for derivative instruments categorized as trading or other than
trading:


<TABLE>
<CAPTION>
                                                                            Recognized            
                                                Fair             Carrying     Trading    Recorded             
                                               Value              Amount      Gain or    Deferred    Aggregate
                                               Assets             Assets    (Loss) for   Gain or     Contract
(In millions)                         (Liabilities)/(a)(b)/   (Liabilities)  the Year     (Loss)     Values/(c)/
----------------------------------------------------------------------------------------------------------------
<S>                                   <C>                     <C>           <C>          <C>         <C>
December 31, 2000:
Exchange-traded commodity futures:
 Trading                                     $     -             $     -      $   (19)     $    -      $     -
 Other than trading                                -                   -            -           7          897
Exchange-traded commodity options:
 Trading                                           -                   -            -           -            -
 Other than trading                               (6)/(d)/            (6)           -          (1)         971
OTC commodity swaps/(e)/:
 Trading                                           -                   -            -           -            -
 Other than trading                               35/(f)/             35            -          25          426
OTC commodity options:
 Trading                                           -                   -            -           -            -
 Other than trading                              (52)/(g)/           (52)           -         (40)          94
                                             -------             -------      -------      ------      -------   
   Total commodities                         $   (23)            $   (23)     $   (19)     $   (9)     $ 2,388
                                             =======             =======      =======      ======      =======   
Forward exchange contracts/(h)/:
   - receivable                              $    14             $    14      $     -      $    -      $    14
----------------------------------------------------------------------------------------------------------------  
December 31, 1999:
Exchange-traded commodity futures:
 Trading                                     $     -             $     -      $     4      $    -      $     8           
 Other than trading                                -                   -            -          28          344           
Exchange-traded commodity options:                                                                                       
 Trading                                           -                   -            4           -          179           
 Other than trading                               (6)/(d)/            (6)           -         (10)       1,262           
OTC commodity swaps:                                                                                                     
 Trading                                           -                   -            -           -            -           
 Other than trading                                6/(f)/              6            -           5          193           
OTC commodity options:                                                                                                   
 Trading                                           -                   -            -           -            -           
 Other than trading                                4/(g)/              4            -           5          238           
                                             -------             -------      -------      ------      -------   
   Total commodities                         $     4             $     4      $     8      $   28      $ 2,224           
                                             =======             =======      =======      ======      =======   
Forward exchange contracts:
   - receivable                              $    52             $    52      $     -      $    -      $    51
----------------------------------------------------------------------------------------------------------------  
</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
      forward 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)/ The aggregate average fair value of all trading activities for 2000 and
      1999 was $(5) million and $3 million, respectively. Detail by class of
      instrument was not available.
/(c)/ 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.
/(d)/ Includes fair values as of December 31, 2000 and 1999, for assets of $10
      million and $11 million and for liabilities of $(16) million and $(17)
      million, respectively.
/(e)/ The OTC swap arrangements vary in duration with certain contracts
      extending into 2008.
/(f)/ Includes fair values as of December 31, 2000 and 1999, for assets of $84
      million and $11 million and for liabilities of $(49) million and $(5)
      million, respectively.
/(g)/ Includes fair values as of December 31, 2000 and 1999, for assets of $1
      million and $5 million and for liabilities of $(53) million and $(1)
      million, respectively.
/(h)/ The forward exchange contracts relating to USX's foreign operations have
      various maturities ending in March 2001.

U-26

<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, by individual balance sheet
             account:


<TABLE> 
<CAPTION> 
                                                                                             2000                    1999
                                                                                      ------------------     ---------------------
                                                                                      Fair      Carrying       Fair       Carrying
             (In millions)                                     December 31            Value      Amount        Value       Amount
             ----------------------------------------------------------------------------------------------------------------------
             <S>                                               <C>                   <C>         <C>           <C>        <C> 
             Financial assets:                                                                                        
              Cash and cash equivalents                                               $  559       $  559      $  133      $  133
              Receivables                                                              3,238        3,238       2,717       2,717
              Investments and long-term receivables                                      211          147         190         134
                                                                                      ------       ------      ------      ------
                Total financial assets                                                $4,008       $3,944      $3,040      $2,984
             ----------------------------------------------------------------------------------------------------------------------
             Financial liabilities:                                                                                   
              Notes payable                                                           $  150       $  150      $    -      $    -
              Accounts payable                                                         3,774        3,774       3,409       3,409
              Accrued interest                                                           108          108         107         107
              Long-term debt (including amounts due within one year)                   4,549        4,365       4,278       4,176
              Preferred stock of subsidiary and trust                                                                 
               preferred securities                                                      357          433         408         433
                                                                                      ------       ------      ------      ------
                Total financial liabilities                                           $8,938       $8,830      $8,202      $8,125
             ----------------------------------------------------------------------------------------------------------------------
</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. Certain foreign cost method
             investments are excluded from investments and long-term receivables
             because the fair value is not readily determinable. USX is subject
             to market risk and liquidity risk related to its investments;
             however, these risks are not readily quantifiable. Fair value of
             preferred stock of subsidiary and trust preferred securities was
             based on market prices. Fair value of long-term debt instruments
             was based on market prices where available or current borrowing
             rates available for financings with similar terms and maturities.

                USX's only unrecognized financial instruments are financial
             guarantees and commitments to extend credit. 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
             financial guarantees, see Note 26.

--------------------------------------------------------------------------------
26. 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, 2000 and 1999, accrued liabilities for remediation
             totaled $212 million and $170 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 $57
             million at December 31, 2000, and $52 million at December 31, 1999.

                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 2000 and 1999, such
             capital expenditures totaled $91 million and $78 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, 2000 and 1999, accrued liabilities for
             platform abandonment and dismantlement totaled $162 million and
             $152 million, respectively.

                                                                            U-27

<PAGE>
 
             Guarantees -

                Guarantees of the liabilities of unconsolidated entities by
             USX and its consolidated subsidiaries totaled $82 million at
             December 31, 2000, and $219 million at December 31, 1999. In the
             event that any defaults of guaranteed liabilities occur, USX has
             access to its interest in the assets of most of the investees to
             reduce potential losses resulting from these guarantees. As of
             December 31, 2000, the largest guarantee for a single such entity
             was $59 million.

                At December 31, 2000 and 1999, USX's pro rata share of
             obligations of LOOP LLC and various pipeline investees secured by
             throughput and deficiency agreements totaled $119 million and $146
             million, respectively. Under the agreements, USX is required to
             advance funds if the investees are unable to service debt. Any such
             advances are prepayments of future transportation charges.

             Commitments -

                At December 31, 2000 and 1999, contract commitments to acquire
             property, plant and equipment and long-term investments totaled
             $663 million and $568 million, respectively.

                USSK has a commitment to the Slovak government for a capital
             improvements program of $700 million, subject to certain
             conditions, over a period commencing with the acquisition date and
             ending on December 31, 2010. USSK is required to report
             periodically to the Slovak government on its status toward meeting
             this commitment. The first reporting period ends on December 31,
             2003.

                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 million. Charges for
             deliveries of pulverized coal totaled $23 million in 2000, 1999 and
             1998. If USX elects to terminate the contract early, a maximum
             termination payment of $96 million, which declines over the
             duration of the agreement, may be required.

                USX is a party to a 15-year transportation services agreement
             with a natural gas transmission company. The contract requires USX
             to pay minimum annual demand charges of approximately $5 million
             starting in December 2000 and concluding in 2015. The payments are
             required even if the transportation facility is not utilized.
             Demand charges paid in 2000 were less than $1 million.

--------------------------------------------------------------------------------
27. Joint Venture Formation

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

                As a result of the agreement to form this joint venture,
             Marathon recognized a pretax charge of $931 million in the fourth
             quarter 2000, which is included in net gains (losses) on disposal
             of assets, and reclassified the remaining book value associated
             with the Yates Field from property, plant and equipment to assets
             held for sale. Upon completion of this transaction in January 2001,
             the book value will be transferred from assets held for sale to
             investments and long-term receivables.

--------------------------------------------------------------------------------
28. Subsequent Event - Business Combination

             On February 7, 2001, Marathon acquired 87% of the outstanding
             common stock of Pennaco Energy Inc., a natural gas producer.
             Marathon plans to acquire the remaining Pennaco shares through a
             merger in which each share of Pennaco common stock, not purchased
             in the offer and not held by stockholders who have properly
             exercised dissenters rights under Delaware law, will be converted
             into the right to receive the tender offer price in cash, without
             interest. The purchase price is expected to approximate $500
             million. The acquisition will be accounted for using the purchase
             method of accounting.

U-28

<PAGE>
 
Selected Quarterly Financial Data (Unaudited)


<TABLE>
<CAPTION>
                                                                        2000      
                                             --------------------------------------------------------------
(In millions, except per share data)           4th Qtr.        3rd Qtr.       2nd Qtr.       1st Qtr.    
-----------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>             <C>   
Revenues and other income:
 Revenues/(a)/                               $ 10,293       $  10,607      $  10,293       $  9,307  
 Other income (loss)                             (837)             72             57            122    
                                             --------       ---------      ---------       --------  
   Total                                        9,456          10,679         10,350          9,429    
Income (loss) from operations                    (625)            789            972            616    
 Includes:
  Joint venture
   formation charges                             (931)              -              -              -    
  Inventory market
   valuation credits                                -               -              -              -    
Income (loss) before
 extraordinary losses                            (449)            140            423            297    
Net income (loss)                                (449)            140            423            297    
-----------------------------------------------------------------------------------------------------------
Marathon Stock data:
--------------------
Net income (loss)                            $   (310)      $     121      $     367       $    254    
 Per share - basic and diluted                  (1.00)            .38           1.18            .81    
Dividends paid per share                          .23             .23            .21            .21    
Price range of Marathon Stock/(b)/:
 - Low                                             25-1/4          23-1/2         22-13/16       20-11/16 
 - High                                            30-3/8          29-5/8         29-3/16        27-1/2   
-----------------------------------------------------------------------------------------------------------
Steel Stock data:
-----------------
Income (loss) before
 extraordinary losses
 applicable to Steel Stock                   $   (141)      $      17      $      54       $     41       
 - Per share:  basic                            (1.59)            .19            .62            .45       
               diluted                          (1.59)            .19            .62            .45       
Dividends paid per share                          .25             .25            .25            .25       
Price range of Steel Stock/(b)/:
 - Low                                             12-11/16        14-7/8         18-1/4         20-5/8   
 - High                                            18-5/16         19-11/16       26-7/8         32-15/16 
-----------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                        1999
                                             --------------------------------------------------------------
(In millions, except per share data)           4th Qtr.        3rd Qtr.       2nd Qtr.       1st Qtr.    
-----------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>             <C>   
Revenues and other income:
 Revenues/(a)/                               $  8,725       $   7,713      $   6,649       $  5,981
 Other income (loss)                               53             (13)            35            (24)
                                             --------       ---------      ---------       --------  
   Total                                        8,778           7,700          6,684          5,957
Income (loss) from operations                     425             535            502            401
 Includes:
  Joint venture
   formation charges                                -               -              -              -
  Inventory market
   valuation credits                                -             136             66            349
Income (loss) before
 extraordinary losses                             205             201            189            110
Net income (loss)                                 205             199            189            105
----------------------------------------------------------------------------------------------------------- 
Marathon Stock data:
--------------------
Net income (loss)                            $    171       $     230      $     134       $    119
 Per share - basic and diluted                    .55             .74            .43            .38
Dividends paid per share                          .21             .21            .21            .21
Price range of Marathon Stock/(b)/:
 - Low                                             23-5/8          28-1/2         25-13/16       19-5/8
 - High                                            30-5/8          33-7/8         32-3/4         31-3/8
----------------------------------------------------------------------------------------------------------- 
Steel Stock data:
-----------------
Income (loss) before
 extraordinary losses
 applicable to Steel Stock                   $     32       $     (31)     $      52       $    (11)
 - Per share:  basic                              .35            (.35)           .60           (.13)
               diluted                            .35            (.35)           .59           (.13)
Dividends paid per share                          .25             .25            .25            .25
Price range of Steel Stock/(b)/:
 - Low                                             21-3/4          24-9/16        23-1/2         22-1/4
 - High                                            33              30-1/16        34-1/4         29-1/8
-----------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Certain items have been reclassified between revenues and cost of
      revenues, primarily to give effect to new accounting standards as
      disclosed in Note 2 of the Notes to Consolidated Financial Statements.
      Amounts reclassified in the first, second and third quarters of 2000 were
      $(65) million, $(138) million and $(14) million, respectively, and for the
      first, second, third and fourth quarters of 1999 were $(97) million, $(82)
      million, $(113) million and $(172) million, respectively.
/(b)/ Composite tape.

                                                                            U-29

<PAGE>
 
Principal Unconsolidated Investees (Unaudited)


<TABLE> 
<CAPTION> 
                                                          December 31, 2000
            Company                            Country        Ownership               Activity
-----------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>                    <C>        
Clairton 1314B Partnership, L.P.             United States       10%             Coke & Coke By-Products
CLAM Petroleum B.V.                          Netherlands         50%             Oil & Gas Production
Double Eagle Steel Coating Company           United States       50%             Steel Processing
Kenai LNG Corporation                        United States       30%             Natural Gas Liquification
LOCAP, Inc.                                  United States       50%  /(a)/      Pipeline & Storage Facilities
LOOP LLC                                     United States       47%  /(a)/      Offshore Oil Port
Manta Ray Offshore Gathering Company, LLC    United States       24%             Natural Gas Transmission
Minnesota Pipe Line Company                  United States       33%  /(a)/      Pipeline Facility
Nautilus Pipeline Company, LLC               United States       24%             Natural Gas Transmission
Odyssey Pipeline LLC                         United States       29%             Pipeline Facility
Poseidon Oil Pipeline Company, LLC           United States       28%             Crude Oil Transportation
PRO-TEC Coating Company                      United States       50%             Steel Processing
Republic Technologies International, LLC     United States       16%             Steel Products
Transtar, Inc.                               United States       46%             Transportation
USS-POSCO Industries                         United States       50%             Steel Processing
Worthington Specialty Processing             United States       50%             Steel Processing
-----------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Represents the ownership of MAP.

Supplementary Information on Mineral Reserves (Unaudited)

Mineral Reserves (other than oil and gas)


<TABLE> 
<CAPTION> 
                                                  Reserves at December 31/(a)/                    Production
                                             --------------------------------------  ------------------------------------
(Million tons)                                2000   1999     1998    1997    1996    2000    1999   1998    1997    1996
-------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>     <C>     <C>     <C>     <C>      <C>     <C>    <C>     <C>     <C>   
Iron/(b)/                                    709.8   726.1   738.6   754.8   716.3    16.3    14.3   15.8    16.8    15.1
Coal/(c)/                                    786.6   787.4   789.7   798.8   859.5     5.5     6.2    7.3     7.5     7.1
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Commercially recoverable reserves include demonstrated (measured and
      indicated) quantities which are expressed in recoverable net product tons.
/(b)/ Iron ore reserves decreased in 2000, 1999 and 1998 due to production,
      lease activity and engineering revisions. The increase in 1997 resulted
      from lease exchanges of 55.3 million tons.
/(c)/ Coal reserves decreased due to production, lease activity and engineering
      revisions, and additionally in 1997 due to a 53.2 million ton lease
      termination.

Supplementary Information on Oil and Gas Producing Activities (Unaudited)

Capitalized Costs and Accumulated Depreciation, Depletion and Amortization


<TABLE> 
<CAPTION> 
                                                   United                   Other                     Equity
(In millions)            December 31               States       Europe      Intl.     Consolidated   Investees       Total
----------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                      <C>          <C>         <C>        <C>            <C>           <C>    
2000
    Capitalized costs:
      Proved properties                           $  5,752     $  4,739    $  1,373     $  11,864    $     226     $  12,090
      Unproved properties                              343          124         180           647            2           649
                                                  --------     --------    --------     ---------    ---------     ---------
         Total                                       6,095        4,863       1,553        12,511          228        12,739
                                                  --------     --------    --------     ---------    ---------     ---------
    Accumulated depreciation,
      depletion and amortization:
      Proved properties                              3,435        3,074         420         6,929          170         7,099
      Unproved properties                              107            -          13           120            1           121
                                                  --------     --------    --------     ---------    ---------     ---------
         Total                                       3,542        3,074         433         7,049          171         7,220
                                                  --------     --------    --------     ---------    ---------     ---------
    Net capitalized costs                         $  2,553     $  1,789    $  1,120     $   5,462    $      57     $   5,519
---------------------------------------------------------------------------------------------------------------------------- 
1999
    Capitalized costs:
      Proved properties                           $  8,270     $  4,465    $  1,270     $  14,005    $     612     $  14,617
      Unproved properties                              349           55         187           591          123           714
                                                  --------     --------    --------     ---------    ---------     ---------
         Total                                       8,619        4,520       1,457        14,596          735        15,331
                                                  --------     --------    --------     ---------    ---------     ---------
    Accumulated depreciation,
      depletion and amortization:
    Proved properties                                5,019        2,859         136         8,014          169         8,183
    Unproved properties                                 78            -           6            84            -            84
                                                  --------     --------    --------     ---------    ---------     ---------
         Total                                       5,097        2,859         142         8,098          169         8,267
                                                  --------     --------    --------     ---------    ---------     ---------
    Net capitalized costs                         $  3,522     $  1,661    $  1,315     $   6,498    $     566     $   7,064
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


U-30

<PAGE>
 
     Supplementary Information on Oil and Gas Producing Activities           
     (Unaudited) continued                                                   
                                                                             
     Results of Operations for Oil and Gas Producing Activities, Excluding   
     Corporate Overhead and Interest Costs/(a)/                              
                                                                             

<TABLE>                                                                 
<CAPTION>                                                                
                                                        United                     Other                     Equity
     (In millions)                                      States       Europe        Intl.     Consolidated   Investees     Total
     ----------------------------------------------------------------------------------------------------------------------------
     <S>                                               <C>          <C>         <C>        <C>            <C>           <C>       
     2000: Revenues:                                                                                                              
            Sales                                      $    783     $    579    $    310     $   1,672    $     145     $   1,817 
            Transfers                                     1,337            -         188         1,525            -         1,525 
            Other revenues/(b)/                            (875)          10          55          (810)           -          (810)
                                                       --------     --------    --------     ---------    ---------     ---------
              Total revenues                              1,245          589         553         2,387          145         2,532 
           Expenses:                                                                                                              
            Production costs                               (371)        (111)       (133)         (615)         (34)         (649)
            Shipping and handling costs/(c)/                (72)           -           -           (72)           -           (72)
            Exploration expenses                           (125)         (37)        (74)         (236)          (6)         (242)
            Reorganization costs                            (45)         (12)        (10)          (67)           -           (67)
            Depreciation, depletion                                                                                               
              and amortization                             (380)        (175)       (122)         (677)         (27)         (704)
            Impairments                                      (5)           -        (188)         (193)           -          (193)
            Other expenses                                  (33)          (3)        (15)          (51)           -           (51)
                                                       --------     --------    --------     ---------    ---------     ---------
              Total expenses                             (1,031)        (338)       (542)       (1,911)         (67)       (1,978)
            Other production-related                                                                                              
              earnings (losses)/(d)/                          4          (21)          4           (13)           1           (12)
                                                       --------     --------    --------     ---------    ---------     ---------
            Results before income taxes                     218          230          15           463           79           542 
            Income taxes (credits)/(e)/                      70           62          (1)          131           27           158 
                                                       --------     --------    --------     ---------    ---------     ---------
            Results of operations                      $    148     $    168    $     16     $     332    $      52     $     384
     ----------------------------------------------------------------------------------------------------------------------------
     1999: Revenues:                                                                                                              
            Sales                                      $    547     $    431    $    200     $   1,178    $      33     $   1,211 
            Transfers                                       882            -          88           970            -           970 
            Other revenues/(b)/                               4            -          (2)            2            -             2 
                                                       --------     --------    --------     ---------    ---------     ---------
              Total revenues                              1,433          431         286         2,150           33         2,183 
           Expenses:                                                                                                              
            Production costs                               (322)        (137)        (99)         (558)         (25)         (583)
            Shipping and handling costs/(c)/                (77)           -           -           (77)           -           (77)
            Exploration expenses                           (134)         (42)        (51)         (227)          (4)         (231)
            Depreciation, depletion                                                                                               
              and amortization                             (362)        (143)        (99)         (604)         (13)         (617)
            Impairments                                     (16)           -           -           (16)           -           (16)
            Other expenses                                  (28)          (7)        (15)          (50)           -           (50)
                                                       --------     --------    --------     ---------    ---------     ---------
              Total expenses                               (939)        (329)       (264)       (1,532)         (42)       (1,574)
            Other production-related                                                                                              
              earnings (losses)/(d)/                          1            4           4             9            1            10 
                                                       --------     --------    --------     ---------    ---------     ---------
            Results before income taxes                     495          106          26           627           (8)          619 
            Income taxes (credits)                          168           33          (7)          194           (3)          191 
                                                       --------     --------    --------     ---------    ---------     ---------
            Results of operations                      $    327     $     73    $     33     $     433    $      (5)    $     428 
     ----------------------------------------------------------------------------------------------------------------------------
     1998: Revenues:                                                                                                              
            Sales                                      $    542     $    454    $     71     $   1,067    $      28     $   1,095 
            Transfers                                       536            -          51           587            -           587 
            Other revenues/(b)/                              43            -           -            43            -            43 
                                                       --------     --------    --------     ---------    ---------     ----------
              Total revenues                              1,121          454         122         1,697           28         1,725 
           Expenses:                                                                                                              
            Production costs                               (295)        (153)        (57)         (505)          (8)         (513)
            Shipping and handling costs/(c)/                (67)           -           -           (67)           -           (67)
            Exploration expenses                           (165)         (23)        (49)         (237)          (5)         (242)
            Depreciation, depletion                                                                                               
              and amortization                             (339)        (150)        (58)         (547)          (8)         (555)
            Impairments/(f)/                                (14)         (22)        (47)          (83)           -           (83)
            Other expenses                                  (37)          (3)        (11)          (51)           -           (51)
                                                       --------     --------    --------     ---------    ---------     ---------
              Total expenses                               (917)        (351)       (222)       (1,490)         (21)       (1,511)
            Other production-related                                                                                              
              earnings (losses)/(d)/                          1           15           3            19            1            20 
                                                       --------     --------    --------     ---------    ---------     ---------
            Results before income taxes                     205          118         (97)          226            8           234
            Income taxes (credits)                           61           22         (28)           55            3            58
                                                       --------     --------    --------     ---------    ---------     ---------
            Results of operations                      $    144     $     96    $    (69)    $     171    $       5     $     176 
     ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
     
                  
     /(a)/ Includes the results of using derivative instruments to manage
           commodity and foreign currency risks.
     /(b)/ Includes net gains (losses) on asset dispositions and contract
           settlements.
     /(c)/ Represents a reclassification of shipping and handling costs
           previously reported as a reduction from oil and gas revenues.
     /(d)/ Includes revenues, net of associated costs, from third-party
           activities that are an integral part of USX's production operations
           which 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 net valuation allowance tax charges of $205 million.    
     /(f)/ Includes suspended exploration well write-offs.                  

                                                                            U-31

<PAGE>
 
     Supplementary Information on Oil and Gas Producing Activities
     (Unaudited) continued
           
     Costs Incurred for Property Acquisition, Exploration and Development -
     Including Capital Expenditures


<TABLE> 
<CAPTION> 
                                                              United                      Other                 Equity
     (In millions)                                            States          Europe      Intl.   Consolidated  Investees  Total
     ------------------------------------------------------------------------------------------------------------------------------ 
     <S>                                                     <C>              <C>         <C>     <C>           <C>       <C> 
     2000:  Property acquisition:           
              Proved                                         $   128          $    -      $   12    $  140      $   -     $  140  
              Unproved                                            (5)/(a)/         -          10         5          -          5  
            Exploration                                          161              33          93       287          2        289  
            Development                                          288              42         103       433         77        510  
     -----------------------------------------------------------------------------------------------------------------------------
     1999:  Property acquisition:                                                                                                 
              Proved                                         $    20          $    -      $   10    $   30      $   -     $   30  
              Unproved                                            26              12         107       145          -        145  
            Exploration                                          141              47          64       252          8        260  
            Development                                          232              34         117       383         84        467  
     -----------------------------------------------------------------------------------------------------------------------------
     1998:  Property acquisition:                                                                                                 
              Proved                                         $     3          $    3      $1,051    $1,057      $   -     $1,057  
              Unproved                                            82               -          57       139          -        139  
            Exploration                                          217              39          75       331         11        342  
            Development                                          431              39          46       516        165        681  
     ------------------------------------------------------------------------------------------------------------------------------ 
</TABLE>


     /(a)/ Includes proceeds of $25 million realized from the reduction of
           mineral interests. 

     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.
     USX did not have any quantities of oil and gas reserves subject to long-
     term supply agreements with foreign governments or authorities in which USX
     acts as producer.


<TABLE>
<CAPTION>
                                                    United                  Other                    Equity
     (Millions of barrels)                          States       Europe     Intl.     Consolidated  Investees      Total
     ------------------------------------------------------------------------------------------------------------------------ 
     <S>                                            <C>          <C>        <C>       <C>           <C>            <C>     
     Liquid Hydrocarbons                        
          Proved developed and                  
           undeveloped reserves:                
            Beginning of year - 1998                  590         161          26          777          82           859      
            Purchase of reserves in place               1           -         156          157           -           157      
            Revisions of previous estimates            (1)        (28)          1          (28)         (2)          (30)     
            Improved recovery                           3           -           -            3           -             3      
            Extensions, discoveries and                                                                                       
             other additions                           10           4          18           32           -            32      
            Production                                (49)        (15)         (7)         (71)          -           (71)     
            Sales of reserves in place                 (5)          -           -           (5)          -            (5)     
                                                   ------      ------      ------        -----       -----         -----      
            End of year - 1998                        549         122         194          865          80           945      
            Purchase of reserves in place              14           -           7           21           -            21      
            Revisions of previous estimates             2         (20)          -          (18)         (3)          (21)     
            Improved recovery                          11           -           1           12           -            12      
            Extensions, discoveries and                                                                                       
             other additions                            9           -           5           14           -            14      
            Production                                (53)        (12)        (11)         (76)          -           (76)     
            Sales of reserves in place                (12)          -          (9)         (21)          -           (21)     
                                                   ------      ------      ------        -----       -----         ----- 
            End of year - 1999                        520          90         187          797          77           874      
            Purchase of reserves in place              27           -           -           27           -            27      
            Exchange of interest/(a)/                   6          60           -           66         (73)           (7)     
            Revisions of previous estimates            (4)        (35)        (21)         (60)          -           (60)     
            Improved recovery                           7           -           -            7           -             7      
            Extensions, discoveries and                                                                                       
             other additions                           15           3           1           19           -            19      
            Production                                (48)        (10)        (13)         (71)         (4)          (75)     
            Sales of reserves in place                (65)          -          (3)         (68)          -           (68)     
                                                   ------      ------      ------        -----       -----         ----- 
            End of year - 2000                        458         108         151          717           -           717      
     ------------------------------------------------------------------------------------------------------------------------ 
          Proved developed reserves:                                                                                          
            Beginning of year - 1998                  486         161          12          659           -           659      
            End of year - 1998                        489         119          67          675           -           675      
            End of year - 1999                        476          90          72          638          69           707      
            End of year - 2000                        414          74          57          545           -           545      
     ------------------------------------------------------------------------------------------------------------------------ 
</TABLE>


     /(a)/ Reserves represent the exchange of an equity interest in Sakhalin
           Energy Investment Company Ltd. for certain interests in the UK
           Atlantic Margin area and the Gulf of Mexico.

U-32

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

     Estimated Quantities of Proved Oil and Gas Reserves (continued)


<TABLE>                            
<CAPTION>                          
                                                            United            Other                     Equity
     (Billions of cubic feet)                               States   Europe   Intl.   Consolidated     Investees   Total
     ---------------------------------------------------------------------------------------------------------------------------- 
     <S>                                                    <C>      <C>      <C>     <C>              <C>         <C>      
     Natural Gas                        
       Proved developed and             
       undeveloped reserves:            
        Beginning of year - 1998                             2,232    1,048      23          3,303         111      3,414
        Purchase of reserves in place                           10        -     782            792           -        792
        Revisions of previous estimates                        (16)      10      (1)            (7)          5         (2)
        Improved recovery                                        -        -       -              -           -          -
        Extensions, discoveries and                                                                                      
         other additions                                       238       32      55            325           5        330
        Production                                            (272)    (124)    (29)          (425)        (11)      (436)
        Sales of reserves in place                             (29)       -       -            (29)          -        (29)
                                                           -------   ------   -----         ------      ------     ------ 
        End of year - 1998                                   2,163      966     830          3,959         110      4,069
        Purchase of reserves in place                            5        -      11             16           -         16
        Revisions of previous estimates                        (83)     (81)     (3)          (167)         13       (154)
        Improved recovery                                        8        -       2             10           -         10
        Extensions, discoveries and                                                                                      
         other additions                                       281        -      94            375          13        388
        Production                                            (275)    (111)    (59)          (445)        (13)      (458)
        Sales of reserves in place                             (42)       -     (42)           (84)          -        (84)
                                                           -------   ------   -----         ------      ------     ------ 
        End of year - 1999                                   2,057      774     833          3,664         123      3,787
        Purchase of reserves in place                          114        -      15            129           -        129
        Exchange of interest/(a)/                               14       31       -             45           -         45
        Revisions of previous estimates                       (154)    (114)   (347)          (615)        (26)      (641)
        Improved recovery                                        -        -       -              -           -          -
        Extensions, discoveries and                                                                                      
         other additions                                       217       35      38            290           2        292
        Production                                            (268)    (112)    (52)          (432)        (10)      (442)
        Sales of reserves in place                             (66)       -     (10)           (76)          -        (76)
                                                           -------   ------   -----         ------      ------     ------ 
        End of year - 2000                                   1,914      614     477          3,005          89      3,094
     ---------------------------------------------------------------------------------------------------------------------------- 
     Proved developed reserves:                                                                                          
        Beginning of year - 1998                             1,702    1,024      19          2,745          78      2,823
        End of year - 1998                                   1,678      909     534          3,121          76      3,197
        End of year - 1999                                   1,550      741     497          2,788          65      2,853
        End of year - 2000                                   1,421      563     381          2,365          52      2,417 
     ----------------------------------------------------------------------------------------------------------------------------
</TABLE>


     /(a)/ Reserves represent the exchange of an equity interest in Sakhalin
           Energy Investment Company Ltd. for certain interests in the UK
           Atlantic Margin area and the Gulf of Mexico.

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

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

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

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

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

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

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

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

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

                                                                            U-33

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

   Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
   Oil and Gas Reserves (continued)


<TABLE>  
<CAPTION>                                                                 
                                             United                    Other                         Equity       
   (In millions)                             States        Europe      Intl.         Consolidated   Investees    Total     
   ----------------------------------------------------------------------------------------------------------------------  
   <S>                                     <C>            <C>         <C>            <C>            <C>        <C>         
   December 31, 2000:                                                                                                      
    Future cash inflows                    $ 25,052       $ 4,571     $ 6,704          $ 36,327     $   313    $ 36,640    
    Future production costs                  (5,689)       (1,662)     (1,156)           (8,507)       (125)     (8,632)   
    Future development costs                   (638)         (185)       (309)           (1,132)        (26)     (1,158)   
    Future income tax expenses               (6,290)         (677)     (2,102)           (9,069)        (76)     (9,145)    
                                           --------       -------     -------          --------     -------    --------    
    Future net cash flows                    12,435         2,047       3,137            17,619          86      17,705    
    10% annual discount for                                                                                                
     estimated timing of cash flows          (5,403)         (486)     (1,524)           (7,413)        (19)     (7,432)   
                                           --------       -------     -------          --------     -------    --------    
    Standardized measure of                                                                                                
     discounted future net cash                                                                                            
     flows relating to proved oil                                                                                          
     and gas reserves                      $  7,032       $ 1,561     $ 1,613          $ 10,206     $    67    $ 10,273    
   ----------------------------------------------------------------------------------------------------------------------  
   December 31, 1999:                                                                                                      
    Future cash inflows                    $ 15,393       $ 4,426     $ 5,242          $ 25,061     $ 2,154    $ 27,215    
    Future production costs                  (4,646)       (1,864)     (1,107)           (7,617)       (850)     (8,467)   
    Future development costs                   (445)          (86)       (315)             (846)        (88)       (934)   
    Future income tax expenses               (3,102)         (987)     (1,581)           (5,670)       (328)     (5,998)   
                                           --------       -------     -------          --------     -------    --------    
    Future net cash flows                     7,200         1,489       2,239            10,928         888      11,816     
    10% annual discount for                                                                                                
     estimated timing of cash flows          (3,371)         (374)       (862)           (4,607)       (372)     (4,979)   
                                           --------       -------     -------          --------     -------    --------    
    Standardized measure of                                                                                                
     discounted future net cash                                                                                            
     flows relating to proved oil                                                                                          
     and gas reserves                      $  3,829       $ 1,115     $ 1,377          $  6,321     $   516    $  6,837    
   ----------------------------------------------------------------------------------------------------------------------   
   December 31, 1998:                                                                                                      
    Future cash inflows                    $  8,442       $ 3,850     $ 2,686          $ 14,978     $ 1,036    $ 16,014    
    Future production costs                  (3,731)       (2,240)       (950)           (6,921)       (586)     (7,507)   
    Future development costs                   (559)         (130)       (323)           (1,012)       (124)     (1,136)   
    Future income tax expenses                 (816)         (630)       (542)           (1,988)        (45)     (2,033)   
                                           --------       -------     -------          --------     -------    --------    
    Future net cash flows                     3,336           850         871             5,057         281       5,338     
    10% annual discount for                                                                                                
      estimated timing of cash flows         (1,462)         (256)       (392)           (2,110)       (136)     (2,246)  
                                           --------       -------     -------          --------     -------    --------  
   Standardized measure of                                                                                                
      discounted future net cash                                                                                          
      flows relating to proved oil                                                                                        
      and gas reserves                     $  1,874       $   594     $   479          $  2,947     $   145    $  3,092   
   ---------------------------------------------------------------------------------------------------------------------- 
</TABLE>
 

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


<TABLE>   
<CAPTION> 
                                              Consolidated                   Equity Investees                    Total             
                                     ------------------------------    ---------------------------  -------------------------------
   (In millions)                        2000      1999     1998          2000      1999      1998    2000         1999      1998   
   --------------------------------------------------------------------------------------------------------------------------------
   <S>                               <C>        <C>       <C>         <C>         <C>       <C>     <C>         <C>       <C>    
   Sales and transfers of                                                                                                          
    oil and gas produced,                                                                                                          
    net of production costs          $(2,508)   $(1,516)  $(1,125)    $  (111)    $    (8)  $ (20)  $(2,619)    $(1,524)  $(1,145) 
   Net changes in prices and                                                                                                       
    production costs related                                                                                                       
    to future production               6,820      5,891    (3,579)         12         484    (372)    6,832       6,375    (3,951) 
   Extensions, discoveries and                                                                                                     
    improved recovery, less                                                                                                        
    related costs                      1,472        566       284           3           9       4     1,475         575       288  
   Development costs incurred                                                                                                      
    during the period                    433        383       516          77          84     165       510         467       681  
   Changes in estimated future                                                                                                     
    development costs                   (273)       (69)     (285)        (22)        (52)   (100)     (295)       (121)     (385) 
   Revisions of previous                                                                                                           
    quantity estimates                (1,899)      (346)     (110)        (43)         (8)     (2)   (1,942)       (354)     (112) 
   Net changes in purchases                                                                                                        
    and sales of minerals in place       380         68       637           -           -       -       380          68       637  
   Net change in exchanges of                                                                                                      
    reserves in place                    755          -         -        (547)          -       -       208           -         -   
   Accretion of discount                 843        382       623          62          18      39       905         400       662  
   Net change in income taxes         (1,969)    (1,995)      825          90        (117)     57    (1,879)     (2,112)      882  
   Other                                (169)        10       401          30         (39)    102      (139)        (29)      503  
   --------------------------------------------------------------------------------------------------------------------------------
   Net change for the year             3,885      3,374    (1,813)       (449)        371    (127)    3,436       3,745    (1,940) 
   Beginning of year                   6,321      2,947     4,760         516         145     272     6,837       3,092     5,032  
   --------------------------------------------------------------------------------------------------------------------------------
   End of year                       $10,206    $ 6,321   $ 2,947     $    67     $   516   $ 145   $10,273     $ 6,837   $ 3,092  
   --------------------------------------------------------------------------------------------------------------------------------
</TABLE>


U-34

<PAGE>
 
Five-Year Operating Summary - Marathon Group


<TABLE>
<CAPTION>
                                                                          2000     1999      1998       1997    1996
------------------------------------------------------------------------------------------------------------------------ 
<S>                                                                     <C>        <C>        <C>        <C>     <C>  
Net Liquid Hydrocarbon Production (thousands of barrels per day)
 United States (by region)
  Alaska                                                                    -         -         -         -         8
  Gulf Coast                                                               62        74        55        29        30
  Southern                                                                  5         5         6         8         9
  Central                                                                   4         4         4         5         4
  Mid-Continent                                                            34        38        44        46        45
  Rocky Mountain                                                           26        24        26        27        26
                                                                        ---------------------------------------------       
     Total United States                                                  131       145       135       115       122
                                                                        ---------------------------------------------             
International
  Canada                                                                   19        17         6         -         -
  Egypt                                                                     1         5         8         8         8
  Gabon                                                                    16         9         5         -         -
  Norway                                                                    -         -         1         2         3
  United Kingdom                                                           29        31        41        39        48
                                                                        ---------------------------------------------     
     Total International                                                   65        62        61        49        59
                                                                        ---------------------------------------------     
       Consolidated                                                       196       207       196       164       181
Equity investee/(a)/                                                       11         1         -         -         -
                                                                        ---------------------------------------------     
     Total                                                                207       208       196       164       181
Natural gas liquids included in above                                      22        19        17        17        17
------------------------------------------------------------------------------------------------------------------------ 
Net Natural Gas Production (millions of cubic feet per day)
 United States (by region)
  Alaska                                                                  160       148       144       151       145
  Gulf Coast                                                               88       107        84        78        88
  Southern                                                                147       178       208       189       161
  Central                                                                 156       134       117       119       109
  Mid-Continent                                                           133       129       125       125       122
  Rocky Mountain                                                           47        59        66        60        51
                                                                        --------------------------------------------- 
     Total United States                                                  731       755       744       722       676
                                                                        --------------------------------------------- 
International
 Canada                                                                   143       150        65         -         -
 Egypt                                                                      -        13        16        11        13
 Ireland                                                                  115       132       168       228       259
 Norway                                                                     -        26        27        54        87
 United Kingdom - equity                                                  212       168       165       130       140
                - other/(b)/                                               11        16        23        32        32
                                                                        --------------------------------------------- 
     Total International                                                  481       505       464       455       531
                                                                        --------------------------------------------- 
       Consolidated                                                     1,212     1,260     1,208     1,177     1,207
 Equity investee/(c)/                                                      29        36        33        42        45
                                                                        --------------------------------------------- 
          Total                                                         1,241     1,296     1,241     1,219     1,252
------------------------------------------------------------------------------------------------------------------------  
Average Sales Prices
 Liquid Hydrocarbons (dollars per barrel)/(d)(e)/
  United States                                                       $ 25.11    $15.44    $10.42    $16.88    $18.58
  International                                                         26.54     16.90     12.24     18.77     20.34
 Natural Gas (dollars per thousand cubic feet)/(d)(e)/
  United States                                                       $  3.30     $1.90     $1.79     $2.20     $2.09
  International                                                          2.76      1.90      1.94      2.00      1.97
------------------------------------------------------------------------------------------------------------------------  
Net Proved Reserves at year-end (developed and undeveloped)
 Liquid Hydrocarbons (millions of barrels)                            
  United States                                                           458       520       549       590       570
  International                                                           259       277       316       187       203
                                                                        --------------------------------------------- 
       Consolidated                                                       717       797       865       777       773
  Equity investee/(a)/                                                      -        77        80        82         -
                                                                        --------------------------------------------- 
          Total                                                           717       874       945       859       773
 Developed reserves as % of total net reserves                             76%       81%       71%       77%       80%
------------------------------------------------------------------------------------------------------------------------  
 Natural Gas (billions of cubic feet)
  United States                                                         1,914     2,057     2,163     2,232     2,251
  International                                                         1,091     1,607     1,796     1,071     1,199
                                                                        --------------------------------------------- 
       Consolidated                                                     3,005     3,664     3,959     3,303     3,450
  Equity investee/(c)/                                                     89       123       110       111       132
                                                                        --------------------------------------------- 
          Total                                                         3,094     3,787     4,069     3,414     3,582
 Developed reserves as % of total net reserves                             78%       75%       79%       83%       83%
------------------------------------------------------------------------------------------------------------------------ 
</TABLE>


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

                                                                            U-35

<PAGE>
 
Five-Year Operating Summary - Marathon Group continued


<TABLE>
<CAPTION>
                                                                               2000/(a)/   1999/(a)/   1998/(a)/     1997      1996
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>         <C>         <C>           <C>       <C> 
U.S. Refinery Operations (thousands of barrels per day)       
 In-use crude oil capacity at year-end                                           935         935         935          575       570
 Refinery runs - crude oil refined                                               900         888         894          525       511
               - other charge and blend stocks                                   141         139         127           99        96
 In-use crude oil capacity utilization rate                                       96%         95%         96%          92%       90%
-----------------------------------------------------------------------------------------------------------------------------------
Source of Crude Processed (thousands of barrels per day)
 United States                                                                   400         349         317          202       229
 Canada                                                                          102          92          98           24        18
 Middle East and Africa                                                          346         363         394          241       193
 Other International                                                              52          84          85           58        73 
                                                                             ------------------------------------------------------ 
     Total                                                                       900         888         894          525       513
-----------------------------------------------------------------------------------------------------------------------------------
Refined Product Yields (thousands of barrels per day)
 Gasoline                                                                        552         566         545          353       345
 Distillates                                                                     278         261         270          154       155
 Propane                                                                          20          22          21           13        13 
 Feedstocks and special products                                                  74          66          64           36        35
 Heavy fuel oil                                                                   43          43          49           35        30
 Asphalt                                                                          74          69          68           39        36 
                                                                             ------------------------------------------------------ 
     Total                                                                     1,041       1,027       1,017          630       614
-----------------------------------------------------------------------------------------------------------------------------------
Refined Products Yields (% breakdown)
 Gasoline                                                                         53%         55%         54%          56%       56%
 Distillates                                                                      27          25          27           24        25
 Other products                                                                   20          20          19           20        19
                                                                             ------------------------------------------------------ 
     Total                                                                       100%        100%        100%         100%      100%
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Refined Product Sales Volumes (thousands of barrels per day)
 Gasoline                                                                        746         714         671          452       468
 Distillates                                                                     352         331         318          198       192 
 Propane                                                                          21          23          21           12        12
 Feedstocks and special products                                                  69          66          67           40        37
 Heavy fuel oil                                                                   43          43          49           34        31
 Asphalt                                                                          75          74          72           39        35
                                                                             ------------------------------------------------------ 
     Total                                                                     1,306       1,251       1,198          775       775
 Matching buy/sell volumes included in above                                      52          45          39           51        71
-----------------------------------------------------------------------------------------------------------------------------------
Refined Products Sales Volumes by Class of Trade
 (as a % of total sales volumes)
  Wholesale - independent private-brand
               marketers and consumers                                            65%         66%         65%          61%       62%
  Marathon and Ashland brand jobbers and dealers                                  12          11          11           13        13
  Speedway SuperAmerica retail outlets                                            23          23          24           26        25
                                                                             ------------------------------------------------------ 
     Total                                                                       100%        100%        100%         100%      100%
-----------------------------------------------------------------------------------------------------------------------------------
Refined Products (dollars per barrel)
 Average sales price                                                          $38.24      $24.59      $20.65       $26.38    $27.43
 Average cost of crude oil throughput                                          29.07       18.66       13.02        19.00     21.94
-----------------------------------------------------------------------------------------------------------------------------------
Petroleum Inventories at year-end (thousands of barrels)
 Crude oil, raw materials and natural gas liquids                             33,720      34,255      35,630       19,351    20,047
 Refined products                                                             34,386      32,853      32,334       20,598    21,283
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Refined Product Marketing
 Outlets at year-end
 MAP operated terminals                                                           91          93          88           51        51
 Retail - Marathon and Ashland brand outlets                                   3,728       3,482       3,117        2,465     2,392
        - Speedway SuperAmerica outlets                                        2,242       2,433       2,257        1,544     1,592
-----------------------------------------------------------------------------------------------------------------------------------
Pipelines (miles of common carrier pipelines)/(b)/
 Crude Oil - gathering lines                                                     419         557       2,827        1,003     1,052
           - trunklines                                                        4,623       4,720       4,859        2,665     2,665
 Products  - trunklines                                                        2,834       2,856       2,861        2,310     2,310
                                                                             ------------------------------------------------------ 
     Total                                                                     7,876       8,133      10,547        5,978     6,027
-----------------------------------------------------------------------------------------------------------------------------------
Pipeline Barrels Handled (millions)/(c)/
 Crude Oil - gathering lines                                                    22.7        30.4        47.8         43.9      43.2
           - trunklines                                                        563.6       545.7       571.9        369.6     378.7 
 Products  - trunklines                                                        329.7       331.9       329.7        262.4     274.8 
                                                                             ------------------------------------------------------ 
     Total                                                                     916.0       908.0       949.4        675.9     696.7
-----------------------------------------------------------------------------------------------------------------------------------
River Operations
 Barges - owned/leased                                                           158         169         169            -         - 
 Boats  - owned/leased                                                             6           8           8            -         -
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ 1998-2000 statistics include 100% of MAP and should be considered when
      compared to prior periods.
/(b)/ Pipelines for downstream operations also include non-common carrier,
      leased and equity investees.
/(c)/ Pipeline barrels handled on owned common carrier pipelines, excluding
      equity investees.

U-36

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


<TABLE> 
<CAPTION> 
     (Thousands of net tons, unless otherwise noted)            2000         1999        1998        1997        1996   
     ----------------------------------------------------------------------------------------------------------------- 
     <S>                                                       <C>          <C>         <C>         <C>         <C>     
     Raw Steel Production                                                                                              
       Gary, IN                                                  6,610       7,102       6,468       7,428       6,840  
       Mon Valley, PA                                            2,683       2,821       2,594       2,561       2,746  
       Fairfield, AL                                             2,069       2,109       2,152       2,361       1,862  
       Kosice, Slovak Republic                                     382           -           -           -           -  
                                                               ------------------------------------------------------- 
               Total                                            11,744      12,032      11,214      12,350      11,448  
     -----------------------------------------------------------------------------------------------------------------  
     Raw Steel Capability                                                                                                
       Domestic Steel                                           12,800      12,800      12,800      12,800      12,800  
       U. S. Steel Kosice/(a)/                                     467           -           -           -           -  
                                                               ------------------------------------------------------- 
               Total                                            13,267      12,800      12,800      12,800      12,800  
               Total production as % of total capability          88.5        94.0        87.6        96.5        89.4  
     -----------------------------------------------------------------------------------------------------------------  
     Hot Metal Production                                                                                                
       Domestic Steel                                            9,904      10,344       9,743      10,591       9,716  
       U. S. Steel Kosice                                          340           -           -           -           -  
                                                               ------------------------------------------------------- 
               Total                                            10,244      10,344       9,743      10,591       9,716  
     ----------------------------------------------------------------------------------------------------------------- 
     Coke Production                                                                                                    
       Domestic Steel/(b)/                                       5,003       4,619       4,835       5,757       6,777  
       U. S. Steel Kosice                                          188           -           -           -           -  
                                                               ------------------------------------------------------- 
               Total                                             5,191       4,619       4,835       5,757       6,777  
     -----------------------------------------------------------------------------------------------------------------  
     Iron Ore Pellets - Minntac, MN                                                                                      
       Shipments                                                15,020      15,025      15,446      16,403      14,962 
     -----------------------------------------------------------------------------------------------------------------
     Coal Production                                             6,195       6,632       8,150       7,528       7,283 
     -----------------------------------------------------------------------------------------------------------------
     Coal Shipments                                              6,779       6,924       7,670       7,811       7,117 
     -----------------------------------------------------------------------------------------------------------------
     Steel Shipments by Product - Domestic Steel                                                                       
       Sheet and semi-finished steel products                    7,409       8,114       7,608       8,170       8,677 
       Tubular, plate and tin mill products                      3,347       2,515       3,078       3,473       2,695 
                                                               -------------------------------------------------------
               Total                                            10,756      10,629      10,686      11,643      11,372 
               Total as % of domestic steel industry               9.8        10.0        10.5        10.9        11.3 
     ----------------------------------------------------------------------------------------------------------------- 
     Steel Shipments by Product - U. S. Steel Kosice                                                                     
       Sheet and semi-finished steel products                      207           -           -           -           -  
       Tubular, plate and tin mill products                        110           -           -           -           -  
                                                               ------------------------------------------------------- 
               Total                                               317           -           -           -           -  
     ----------------------------------------------------------------------------------------------------------------- 
     Steel Shipments by Market - Domestic Steel                                                                         
       Steel service centers                                     2,315       2,456       2,563       2,746       2,831  
       Transportation                                            1,466       1,505       1,785       1,758       1,721  
       Further conversion:                                                                                              
         Joint ventures                                          1,771       1,818       1,473       1,568       1,542  
         Trade customers                                         1,174       1,633       1,140       1,378       1,227  
       Containers                                                  702         738         794         856         874  
       Construction                                                936         844         987         994         865  
       Oil, gas and petrochemicals                                 973         363         509         810         746  
       Export                                                      544         321         382         453         493  
       All other                                                   875         951       1,053       1,080       1,073  
                                                               ------------------------------------------------------- 
               Total                                            10,756      10,629      10,686      11,643      11,372  
     -----------------------------------------------------------------------------------------------------------------  
     Average Steel Price Per Ton                                                                                            
       Domestic Steel                                          $   450     $   420     $   469     $   479     $   467     
       U. S. Steel Kosice                                          269           -           -           -           -     
     -------------------------------------------------------------------------------------------------------------------    
</TABLE>


     /(a)/ Represents the operations of U. S. Steel Kosice s.r.o., following the
           acquisition of the steelmaking operations and related assets of VSZ
           a.s. on November 24, 2000.
     /(b)/ The reduction in coke production after 1996 reflected U. S. Steel's
           entry into a strategic partnership with two limited partners on June
           1, 1997, to acquire an interest in three coke batteries at its
           Clairton (Pa.) Works.

                                                                            U-37

<PAGE>
 
     Five-Year Financial Summary 


<TABLE> 
<CAPTION> 
     (Dollars in millions, except as noted)                             2000          1999            1998      1997       1996    
     ----------------------------------------------------------------------------------------------------------------------------- 
     <S>                                                             <C>            <C>             <C>        <C>       <C>      
     Statement of Operations                                                                                                      
     Revenues and other income/(a)/                                  $ 39,914       $ 29,119        $28,077    $22,824   $ 22,938  
     Income from operations                                             1,752          1,863          1,517      1,705      1,779  
      Includes:                                                                                                                   
       Joint venture formation charges                                   (931)             -              -          -          -  
       Inventory market valuation (charges) credits                         -            551           (267)      (284)       209  
       Gain on ownership change in MAP                                     12             17            245          -          -  
     Income from continuing operations                               $    411       $    705        $   674    $   908   $    946  
     Income from discontinued operations                                    -              -              -         80          6  
     Extraordinary losses                                                   -             (7)             -          -         (9) 
                                                                     ------------------------------------------------------------ 
       Net Income                                                    $    411       $    698        $   674    $   988   $    943  
     ----------------------------------------------------------------------------------------------------------------------------  
     Applicable to Marathon Stock                                    
      Income before extraordinary loss                               $    432       $    654        $   310    $   456   $    671 
      Income before extraordinary loss                                    
       per share - basic (in dollars)                                    1.39           2.11           1.06       1.59       2.33
                 - diluted (in dollars)                                  1.39           2.11           1.05       1.58       2.31
      Net income                                                          432            654            310        456        664
      Net income per share  - basic (in dollars)                         1.39           2.11           1.06       1.59       2.31
                            - diluted (in dollars)                       1.39           2.11           1.05       1.58       2.29
      Dividends paid per share (in dollars)                               .88            .84            .84        .76        .70
     ----------------------------------------------------------------------------------------------------------------------------
     Applicable to Steel Stock                                                                                                   
     Income (loss) before extraordinary losses                       $    (29)      $     42        $   355    $   449   $    253 
     Income (loss) before extraordinary losses                                                                                   
       per share - basic (in dollars)                                    (.33)           .48           4.05       5.24       3.00
                 - diluted (in dollars)                                  (.33)           .48           3.92       4.88       2.97 
       Net income (loss)                                                  (29)            35            355        449        251 
       Net income (loss) per share - basic (in dollars)                  (.33)           .40           4.05       5.24       2.98 
                                   - diluted (in dollars)                (.33)           .40           3.92       4.88       2.95 
       Dividends paid per share (in dollars)                             1.00           1.00           1.00       1.00       1.00 
     ----------------------------------------------------------------------------------------------------------------------------- 
     Balance Sheet Position at year-end                                                                                         
       Cash and cash equivalents                                     $    559       $    133        $   146    $    54   $     55 
       Total assets                                                    23,401         22,931         21,133     17,284     16,980 
       Capitalization:                                                              
        Notes payable                                                $    150       $      -        $   145    $   121   $     81 
        Total long-term debt                                            4,460          4,283          3,991      3,403      4,212
        Preferred stock of subsidiary and                                           
         trust preferred securities                                       433            433            432        432        250
        Minority interest in MAP                                        1,840          1,753          1,590          -          - 
        Redeemable Delhi Stock                                              -              -              -        195          - 
        Preferred stock                                                     2              3              3          3          7 
        Common stockholders' equity                                     6,762          6,853          6,402      5,397      5,015 
                                                                     ------------------------------------------------------------
           Total capitalization                                      $ 13,647       $ 13,325        $12,563    $ 9,551   $  9,565 
     ---------------------------------------------------------------------------------------------------------------------------- 
       % of total debt to capitalization/(b)/                            36.9           35.4           36.4       41.4       47.5  
     ----------------------------------------------------------------------------------------------------------------------------
     Cash Flow Data                                                     
       Net cash from operating activities                            $  2,531       $  1,936        $ 2,022    $ 1,464   $  1,655  
       Capital expenditures                                             1,669          1,665          1,580      1,373      1,168  
       Disposal of assets                                                 560            366             86        481        443  
       Dividends paid                                                     371            354            342        316        307  
     ----------------------------------------------------------------------------------------------------------------------------
      Employee Data                                                    
       Total employment costs/(c)(d)/                                $  2,692       $  2,582        $ 2,372    $ 2,289   $  2,179   
       Average number of employees/(c)(d)/                             52,459         52,596         44,860     41,620     41,553
       Number of pensioners at year-end/(d)/                           97,594        100,504/(e)/    95,429     97,051     99,713
     ----------------------------------------------------------------------------------------------------------------------------
</TABLE>


     /(a)/ 1996-1999 reclassified to conform to 2000 classifications.
     /(b)/ Total debt represents the sum of notes payable, total long-term debt
           and preferred stock of subsidiary and trust preferred securities.
     /(c)/ Includes U. S. Steel Kosice s.r.o. from date of acquisition in 2000
           and excludes the Delhi Companies sold in 1997.
     /(d)/ Data for 1998 includes Ashland employees from the date of their
           payroll transfer to MAP, which occurred at various times throughout
           1998. These employees were contracted to MAP in 1998, prior to their
           payroll transfer.
     /(e)/ Includes approximately 8,000 surviving spouse beneficiaries added to
           the U. S. Steel pension plan in 1999.

U-38

<PAGE>
 
 
              Management's Discussion and Analysis 

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

                    Effective October 31, 1997, USX sold Delhi Gas Pipeline
               Corporation and other subsidiaries of USX that comprised all of
               the USX - Delhi Group ("Delhi Companies"). On January 26, 1998,
               USX used the $195 million net proceeds from the sale to redeem
               all of the 9.45 million outstanding shares of USX - Delhi Group
               Common Stock. For additional information, see Note 5 to the USX
               Consolidated Financial Statements.

                    On January 1, 1998, Marathon Oil Company ("Marathon")
               transferred certain refining, marketing and transportation
               ("RM&T") net assets to Marathon Ashland Petroleum LLC ("MAP"), a
               new consolidated subsidiary. Also on January 1, 1998, Marathon
               acquired certain RM&T net assets from Ashland Inc. ("Ashland") in
               exchange for a 38 percent interest in MAP. Financial measures
               such as revenues, income from operations and capital expenditures
               in 2000, 1999 and 1998 include 100 percent of MAP and are not
               comparable to prior period amounts. Net income and related per
               share amounts for 2000, 1999 and 1998 are net of minority
               interest. For further discussion of MAP, see Note 3 to the USX
               Consolidated Financial Statements.

                    On August 11, 1998, Marathon acquired Tarragon Oil and Gas
               Limited ("Tarragon"), a Canadian oil and gas exploration and
               production company. The purchase price included $686 million in
               cash payments, the assumption of $345 million in debt and the
               issuance of Exchangeable Shares of an indirect Canadian
               subsidiary of Marathon valued at $29 million. The Exchangeable
               Shares are exchangeable at any time on a one-for-one basis for
               shares of USX -Marathon Group Common Stock ("Marathon Stock"). On
               November 4, 1998, USX sold 17 million shares of Marathon Stock.
               The proceeds to USX of $528 million were used to reduce
               indebtedness incurred to fund the Tarragon acquisition. Financial
               measures such as revenues, income from operations and capital
               expenditures include operations of Marathon Canada Limited,
               formerly known as Tarragon, commencing August 12, 1998. For
               further discussion of Tarragon, see Note 3 to the USX
               Consolidated Financial Statements.

                    On November 24, 2000, USX acquired U. S. Steel Kosice s.r.o.
               ("USSK"), which held the steel operations and related assets of
               VSZ a.s. ("VSZ"), located in the Slovak Republic. The 2000
               results include USSK operations after the acquisition date. For
               further discussion of USSK, see Note 3 to the USX Consolidated
               Financial Statements.

                    Management's Discussion and Analysis of USX Consolidated
               Financial Statements provides certain information about the
               Marathon and U. S. Steel Groups, particularly in Management's
               Discussion and Analysis of Operations by Group. More expansive
               Group information is provided in Management's Discussion and
               Analysis of the Marathon Group and U. S. Steel Group, which are
               included in the USX 2000 Form 10-K. Management's Discussion and
               Analysis should be read in conjunction with the USX Consolidated
               Financial Statements and Notes to the USX 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 the 
               forward-looking statements. For additional risk factors affecting
               the businesses of USX, see Supplementary Data - Disclosures About
               Forward-Looking Statements in the USX 2000 Form 10-K. 

                                                                            U-39

<PAGE>
 
             Management's Discussion and Analysis continued

Management's Discussion and Analysis of Income

                     Revenues and Other Income for each of the last three years
               are summarized in the following table:


<TABLE>   
<CAPTION> 
               (Dollars in millions)                                                   2000      1999      1998       
               ------------------------------------------------------------------------------------------------
               <S>                                                                  <C>       <C>       <C>           
               Revenues and other income/(a)/                                                                        
                Marathon Group                                                      $33,859   $23,707   $21,623      
                U. S. Steel Group                                                     6,132     5,470     6,477      
                Eliminations                                                            (77)      (58)      (23)     
                                                                                    -------   -------   -------      
                   Total USX Corporation revenues and other income                   39,914    29,119    28,077      
               Less:                                                                                                 
                Consumer excise taxes on petroleum products and merchandise/(b)/      4,344     3,973     3,824      
                                                                                    -------   -------   -------      
                   Revenues and other income adjusted to exclude above item         $35,570   $25,146   $24,253      
               ------------------------------------------------------------------------------------------------
</TABLE>
    

             /(a)/ Consists of revenues, dividend and investee income (loss),
                   gain on ownership change in MAP, net gains (losses) on
                   disposal of assets and other income.
             /(b)/ Included in both revenues and costs and expenses for the
                   Marathon Group and USX Consolidated, resulting in no effect
                   on income.

                   Adjusted revenues and other income increased by $10,424
             million in 2000 compared with 1999, reflecting a 43 percent
             increase for the Marathon Group and a 12 percent increase for the
             U. S. Steel Group. Adjusted revenues and other income increased by
             $893 million in 1999 compared with 1998, reflecting a 10 percent
             increase for the Marathon Group, partially offset by a 16 percent
             decrease for the U. S. Steel Group. For further discussion, see
             Management's Discussion and Analysis of Operations by Group,
             herein.

                   Income from operations for each of the last three years are
             summarized in the following table:


<TABLE>   
<CAPTION> 
               (Dollars in millions)                                                   2000      1999      1998       
               ------------------------------------------------------------------------------------------------ 
               <S>                                                                  <C>       <C>       <C>           
               Reportable segments                                                                                        
                Marathon Group                                                                                            
                 Exploration & production                                           $ 1,535    $  618    $  278           
                 Refining, marketing & transportation                                 1,273       611       896           
                 Other energy related businesses                                         38        61        33           
                                                                                    -------    ------    ------          
                   Income for reportable segments - Marathon Group                    2,846     1,290     1,207           
                U. S. Steel Group                                                                                         
                 Domestic Steel                                                          23        91       517           
                 U. S. Steel Kosice                                                       2         -         -           
                                                                                    -------    ------    ------           
                   Income for reportable segments - U. S. Steel Group                    25        91       517           
                                                                                    -------    ------    ------           
                   Income for reportable segments - USX Corporation                   2,871     1,381     1,724            
               Items not allocated to reportable segments:                                                                 
                Marathon Group                                                       (1,198)      423      (269)           
                U. S. Steel Group                                                        79        59        62            
                                                                                    -------    ------    ------           
                   Total income from operations - USX Corporation                   $ 1,752    $1,863    $1,517            
               ------------------------------------------------------------------------------------------------ 
</TABLE>


                   Income from operations decreased $111 million in 2000
             compared with 1999 and increased $346 million in 1999 compared with
             1998. The decrease in 2000, despite higher income from reportable
             segments for the Marathon Group, was primarily due to special
             charges at Marathon, in particular a noncash adjustment related to
             the formation of a joint venture with Kinder Morgan Energy
             Partners, L.P. In addition, income from operations for the U. S.
             Steel Group declined in 2000 due primarily to higher costs related
             to energy and inefficient operating levels, lower income from raw
             materials operations, particularly coal operations, and lower sheet
             shipments resulting from high levels of imports that continued in
             2000. For further discussion, see Management's Discussion and
             Analysis of Operations by Group, herein.

U-40

<PAGE>
 
               Management's Discussion and Analysis continued

                     Net interest and other financial costs for each of the last
               three years are summarized in the following table:


<TABLE>
<CAPTION> 
               (Dollars in millions)                         2000   1999    1998
               -----------------------------------------------------------------
               <S>                                         <C>    <C>     <C>
               Interest and other financial income         $  34  $   3   $  39
               Interest and other financial costs            375    365     318
                                                           -----  -----   -----
                  Net interest and other financial costs     341    362     279
               Less:
                Favorable adjustment to
                 carrying value of indexed debt/(a)/            -   (13)    (44)
                                                           ------ -----   -----
               Net interest and other financial costs
                 adjusted to exclude above item            $ 341  $ 375   $ 323
               -----------------------------------------------------------------
</TABLE>


               /(a)/ In December 1996, USX issued $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 RTI International Metals, Inc. ("RTI") or
                     for the equivalent amount of cash, at USX's option. The
                     carrying value of indexed debt was adjusted quarterly to
                     settlement value based on changes in the value of RTI
                     common stock. Any resulting adjustment was charged or
                     credited to income and included in interest and other
                     financial costs. In 1999, USX irrevocably deposited with a
                     trustee the RTI common stock resulting in satisfaction of
                     USX's obligation. For further information see Note 7 to the
                     USX Consolidated Financial Statements.

                     Excluding the effect of the adjustment to the carrying
               value of indexed debt, net interest and other financial costs
               decreased by $34 million in 2000 as compared with 1999, and
               increased by $52 million in 1999 as compared with 1998. The
               decrease in 2000 was primarily due to higher interest income. The
               increase in 1999 was primarily due to lower interest income and
               increased financial costs as a result of higher average debt
               levels. For additional information, see Note 6 to the USX
               Consolidated Financial Statements.

                     The provision for income taxes was $502 million in 2000,
               compared with $349 million in 1999 and $315 million in 1998. The
               2000 provision included a $235 million one-time, noncash deferred
               tax charge for the Marathon Group as a result of the change in
               the amount and timing of future foreign source income due to the
               exchange of its interest in Sakhalin Energy Investment Company
               Ltd. for oil and gas producing interests. The 1999 provision
               included a $23 million favorable adjustment to deferred taxes for
               the Marathon Group related to the outcome of a United States Tax
               Court case. The 1998 income tax provision included $33 million of
               favorable income tax accrual adjustments relating to foreign
               operations. For reconciliation of the federal statutory rate to
               total provisions on income from continuing operations, see Note
               11 to the USX Consolidated Financial Statements.

                     Extraordinary loss of $7 million, net of income tax
               benefit, in 1999 included a $5 million loss resulting from the
               satisfaction of the indexed debt and a $2 million loss for USX's
               share of Republic Technologies International, LLC's extraordinary
               loss related to the early extinguishment of debt. For additional
               information, see Note 7 to the USX Consolidated Financial
               Statements.

                     Net income was $411 million in 2000, $698 million in 1999
               and $674 million in 1998. Excluding the gain on change of
               ownership in MAP in 2000, 1999 and 1998 and adjustments to the
               inventory market valuation reserve in 1999 and 1998, net income
               decreased by $69 million in 2000 compared with 1999, and
               decreased by $152 million in 1999 compared with 1998.

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

                     Current assets increased by $1,376 million from year-end
               1999, primarily reflecting increased cash and cash equivalents,
               receivables, inventories and assets held for sale. Receivables
               primarily increased as a result of higher commodity prices. Cash
               and cash equivalents increased primarily due to an increase in
               cash held by certain foreign subsidiaries. Inventories increased
               by $186 million largely due to increases at the U. S. Steel
               Group, in particular the acquisition of USSK. Assets held for
               sale increased mainly due to the reclassification of the Yates
               field from property, plant and equipment.

                                                                            U-41

<PAGE>
 
               Management's Discussion and Analysis continued

                    Current liabilities increased by $704 million from year-end
               1999, primarily due to an increase in accounts payable reflecting
               higher year-end commodity prices for the Marathon Group and the
               acquisition of USSK for the U. S. Steel Group. In addition, notes
               payable increased and, because of the reclassification of long-
               term debt to short-term, short-term debt also increased.

                    Investments and long-term receivables decreased by $436
               million from year-end 1999, primarily due to the exchange of
               Marathon's interest in Sakhalin Energy Investment Company Ltd.

                    Net property, plant and equipment decreased by $695 million
               from year-end 1999, primarily due to depreciation, asset
               impairments and sales, and reclassifications to assets held for
               sale, partially offset by property additions, including USSK.

                    Total long-term debt and notes payable increased by $327
               million from year-end 1999, primarily due to $325 million of debt
               related to the acquisition of USSK, which is nonrecourse to USX.
               Debt attributed to the U. S. Steel Group increased, while debt
               attributed to the Marathon Group decreased.

                    Stockholders' equity decreased by $92 million from year-end
               1999 mainly reflecting net income of $411 million offset by
               dividends declared and Marathon Stock repurchases of $105
               million. In July 2000, the USX Board of Directors authorized
               spending up to $450 million to repurchase shares of Marathon
               Stock. This repurchase program will continue from time to time as
               the Corporation's financial condition and market conditions
               warrant.

                    Net cash provided from operating activities was $2,531
               million in 2000, $1,936 million in 1999 and $2,022 million in
               1998. Cash provided from operating activities in 2000 included a
               $500 million elective contribution to a Voluntary Employee
               Benefit Association Trust ("VEBA"), a trust established by
               contract in 1994 covering United Steelworkers of America
               retirees' health care and life insurance benefits and a $30
               million elective contribution to a non-union retiree life
               insurance trust. Cash provided from operating activities in 1999
               included a payment of $320 million resulting from the expiration
               of a program to sell U. S. Steel Group's accounts receivable.
               Excluding the effects of these items, cash provided from
               operating activities increased $805 million in 2000 compared with
               1999 primarily due to increased cash provided from operations at
               the Marathon Group partially offset by increased income tax
               payments. Cash provided from operating activities in 1998
               included proceeds of $38 million for the insurance litigation
               settlement pertaining to the 1995 Gary Works #8 blast furnace
               explosion and the payment of $30 million for the repurchase of
               sold accounts receivable. Excluding the effects of these
               adjustments, cash provided from operating activities increased by
               $242 million in 1999 compared with 1998 primarily due to
               favorable working capital changes.

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


<TABLE>
<CAPTION> 
               (Dollars in millions)                            2000    1999    1998
               ------------------------------------------------------------------------
               <S>                                              <C>     <C>     <C>
               Marathon Group
                Exploration & production
                 Domestic                                       $  516  $  356  $  652
                 International                                     226     388     187
               Refining, marketing & transportation                656     612     410
               Other                                                27      22      21
                                                                ------  ------  ------
                    Subtotal Marathon Group                      1,425   1,378   1,270
               U. S. Steel Group                                   244     287     310
                                                                ------  ------  ------
                    Total USX Corporation capital expenditures  $1,669  $1,665  $1,580
               ------------------------------------------------------------------------
</TABLE>


                    Domestic exploration and production capital expenditures for
               the Marathon Group in 2000 mainly included the completion of the
               Viosca Knoll Block 786 (Petronius) development in the Gulf of
               Mexico, various producing property acquisitions, and natural gas
               developments in East Texas and other gas basins throughout the
               western United States. International exploration and production
               projects included the completion of the Tchatamba West
               development, located offshore Gabon, and continued oil and
               natural gas developments in Canada. Refining, marketing and
               transportation capital expenditures by MAP primarily consisted of
               refinery modifications, including the initiation of the delayed
               coker unit project at the Garyville refinery, and upgrades and
               expansions of retail marketing outlets.

U-42

<PAGE>
 
               Management's Discussion and Analysis continued

                    Capital expenditures for the U. S. Steel Group in 2000
               included exercising an early buyout option of a lease for
               approximately half of the Gary Works No. 2 Slab Caster, the
               continued replacement of coke battery thruwalls at Gary Works,
               installation of the remaining two coilers at Gary's hot strip
               mill, a blast furnace stove replacement at Gary Works and the
               continuation of an upgrade to the Mon Valley cold reduction mill.

                    Capital expenditures in 2001 are expected to be
               approximately $1.9 billion. Expenditures for the Marathon Group
               are expected to be approximately $1.5 billion. Domestic
               exploration and production projects planned for 2001 will focus
               on gas projects and include various producing property
               acquisitions. Planned capital expenditures in 2001 do not include
               the capital requirements related to the acquisition of Pennaco
               Energy, Inc. ("Pennaco"). International exploration and
               production projects include the continued development of the
               Foinaven area in the U.K. Atlantic Margin and continued oil and
               natural gas developments in Canada. Refining, marketing and
               transportation spending by MAP will primarily consist of refinery
               improvements, including the completion of the delayed coker unit
               project at the Garyville refinery, upgrades and expansions of
               retail marketing outlets, and expansion and enhancement of
               logistics systems. Other Marathon spending will include funds for
               development and installation of SAP software, which is an
               enterprise resource planning system that will allow the
               integration of processes among business units and with outside
               enterprises.

                    Capital expenditures for the U. S. Steel Group in 2001 are
               expected to be approximately $425 million. Planned projects
               include exercising an early buyout option of a lease for the
               balance of the Gary Works No. 2 Slab Caster, work on the No. 3
               blast furnace at Mon Valley Works, work on the No. 2 stove at the
               No. 6 blast furnace at Gary Works, the completion of the
               replacement of coke battery thruwalls at Gary Works, the
               completion of an upgrade to the Mon Valley cold reduction mill,
               mobile equipment purchases, systems development projects, and
               projects at USSK, including the completion of the tin mill
               upgrade.

                    Contract commitments to acquire property, plant and
               equipment and long-term investments at December 31, 2000, totaled
               $663 million compared with $568 million at December 31, 1999.

                    Investments in investees of $100 million in 2000 mainly
               reflected Marathon Group development spending for the Sakhalin II
               project in Russia and U. S. Steel Group investment in stock of
               VSZ in which USX now holds a 25 percent interest.

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

                    Proceeds from disposal of assets were $560 million in 2000,
               compared with $366 million in 1999 and $86 million in 1998.
               Proceeds in 2000 primarily reflected Marathon's Sakhalin
               exchange, sales of interest in the Angus/Stellaria development in
               the Gulf of Mexico, the sale of non-core Speedway SuperAmerica
               stores and other domestic production properties. Proceeds in 1999
               primarily reflected the sales of Scurlock Permian LLC, over 150
               non-strategic domestic and international production properties
               and Carnegie Natural Gas Company and affiliated subsidiaries, all
               of which were attributed to the Marathon Group.

                    The net change in restricted cash was a net withdrawal of $3
               million in 2000, compared with a net deposit of $1 million in
               1999 and a net withdrawal of $174 million in 1998. The $174
               million net withdrawal in 1998 was primarily the result of
               redeeming all of the outstanding shares of USX - Delhi Group
               Common Stock with the $195 million of net proceeds from the sale
               of the Delhi Companies.

                    Repayments of loans and advances to investees were $10
               million in 2000 compared with $1 million in 1999 and $71 million
               in 1998. In 1998, Sakhalin Energy Investment Company Ltd. repaid
               advances made by Marathon in connection with the Sakhalin II
               project.

                                                                            U-43

<PAGE>
 
               Management's Discussion and Analysis continued

                     Net cash changes related to financial obligations (the net
               of commercial paper and revolving credit arrangements, debt
               borrowings and repayments on the Consolidated Statement of Cash
               Flows) decreased $4 million in 2000, compared with an increase of
               $187 million in 1999 and an increase of $315 million in 1998. The
               decrease in 2000 reflects the net effects of net cash provided
               from operating activities, net cash used in investing activities,
               distributions to minority shareholder of MAP, dividends paid and
               a stock repurchase program for Marathon Group. The increase in
               1999 reflects the net effects of net cash provided from operating
               activities, net cash used in investing activities, distributions
               to minority shareholder of MAP and dividends paid. The increase
               in 1998 was primarily the result of borrowings against revolving
               credit agreements to fund the acquisition of Tarragon.

                     Significant additions to long-term debt for each of the
               last three years are summarized in the following table:


<TABLE>
<CAPTION> 
               (Dollars in millions)                          2000   1999   1998
               -----------------------------------------------------------------
               <S>                                           <C>    <C>    <C>
               Aggregate principal amounts of:
                6.65% Notes due 2006                         $   -  $ 300  $   -
                6.85% Notes due 2008                             -      -    400
                U. S. Steel receivables facility                 -    350      -
                USSK loan facility/(a)/                        325      -      -
                Environmental bonds and capital leases/(b)/      -     37    280
                                                             -----  -----  -----
                    Total                                    $ 325  $ 687  $ 680
               -----------------------------------------------------------------
</TABLE>


               /(a)/  The USSK loan facility is nonrecourse to USX.
               /(b)/  Issued to refinance an equivalent amount of environmental
                      improvement refunding bonds.  

                     In the event of a change in control of USX, debt and lease
               obligations totaling $3,818 million at year-end 2000 may be
               declared immediately due and payable or required to be
               collateralized. See Notes 10 and 14 to the USX Consolidated
               Financial Statements.

                     Marathon Stock repurchased was $105 million in 2000. In
               July 2000, the USX Board of Directors authorized spending up to
               $450 million to repurchase shares of Marathon Stock. This
               repurchase program will continue from time to time as the
               Corporation's financial condition and market conditions warrant.

                     Dividends paid increased $17 million in 2000 compared with
               1999 and increased $12 million in 1999 compared with 1998. The
               increase in 2000 was due primarily to a two-cents-per-share
               increase in the quarterly Marathon Stock dividend effective with
               dividends paid in the third quarter 2000.

               Benefit Plan Activity

                     In 2000, USX contributed $530 million to a VEBA, including
               a $500 million elective contribution, and $30 million to a non-
               union retiree life insurance trust. In 1999, USX contributed $20
               million to a VEBA.

               Debt and Preferred Stock Ratings

                     In May 2000, Standard & Poor's Corp. upgraded USX's and
               Marathon's senior debt to BBB, which continues the investment
               grade rating. At the same time, USX's subordinated debt was
               upgraded to BBB- and preferred stock was upgraded to BB+. Also in
               May 2000, Moody's Investors Services, Inc., upgraded USX's and
               Marathon's senior debt to the investment grade rating of Baa1,
               USX's subordinated debt to Baa2 and USX's preferred stock to
               baa3. Fitch IBCA Duff & Phelps currently rates USX's senior notes
               as investment grade at BBB and USX's subordinated debt as BBB-.
               In December 2000, Standard & Poor's Corp. advised that they had
               put USX on "Credit Watch Developing" status and Fitch IBCA, Duff
               & Phelps advised that they had put USX on "Rating Watch-Evolving"
               status. Both moves were in response to USX's announced structure
               study.

               Derivative Instruments

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

U-44

<PAGE>
 
               Management's Discussion and Analysis continued

               Liquidity

                    In December 2000, USX entered into a $1,354 million five-
               year revolving credit agreement, terminating in November 2005,
               and a $451 million 364-day facility, which together replaced the
               prior $2,350 million facility. At December 31, 2000, USX had $300
               million of borrowings against its $1,354 million long-term
               revolving credit agreements and commercial paper borrowings of
               $77 million. Also, USX had a short-term line of credit totaling
               $150 million which was fully drawn at December 31, 2000. There
               were no borrowings against MAP or USSK revolving credit
               agreements at December 31, 2000.

                    USX had a total of $1,678 million available at December 31,
               2000 under existing shelf registration statements filed with the
               Securities and Exchange Commission. These allow USX to offer and
               issue unsecured debt securities, common and preferred stock and
               warrants in one or more separate offerings on terms to be
               determined at the time of sale.

                    USX management believes that its short-term and long-term
               liquidity is adequate to satisfy its obligations as of December
               31, 2000, 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 2001, 2002 and 2003, and any amounts that may ultimately be
               paid in connection with contingencies (which are discussed in
               Note 26 to the USX Consolidated Financial Statements), are
               expected to be financed by a combination of internally generated
               funds, proceeds from the sale of stock, borrowings or other
               external financing sources. However, on November 30, 2000, USX
               announced that the USX Board of Directors had authorized
               management to retain financial, tax and legal advisors to perform
               an in-depth study of the corporation's targeted stock structure.
               Until the study is complete, USX management believes it will be
               more difficult to access traditional debt and equity markets.
               Although USX management believes that it will not be necessary to
               access financial markets during this time frame, nontraditional
               sources should be available to provide adequate liquidity, if
               necessary.

                    USX management's opinion concerning liquidity and USX's
               ability to avail itself in the future of the financing options
               mentioned in the above forward-looking statements are based on
               currently available information. To the extent that this
               information proves to be inaccurate, future availability of
               financing may be adversely affected. Factors that affect the
               availability of financing include the performance of each Group
               (as indicated by levels of cash provided from operating
               activities and other measures), the results of the announced
               structure study, the state of the debt and equity markets,
               investor perceptions of past performance and expectations
               regarding future actions and performance, the overall U.S.
               financial climate, and, in particular, with respect to
               borrowings, levels of USX's outstanding debt and credit ratings
               by rating agencies. For a summary of short-term and long-term
               debt, see Notes 13 and 14 to the USX 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 domestic
               competitors of the U. S. Steel Group and substantially all the
               competitors of the Marathon Group are subject to similar
               environmental laws and regulations. However, the specific impact
               on each competitor may vary depending on a number of factors,
               including the age and location of its operating facilities,
               marketing areas, production processes and the specific products
               and services it provides.

                    In addition, USX expects to incur capital expenditures to
               meet environmental standards under the Slovak Republic's
               environmental laws for the U. S. Steel Group's USSK operation.

                                                                            U-45

<PAGE>
 
               Management's Discussion and Analysis continued

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


<TABLE>
<CAPTION> 
               (Dollars in millions)                 2000   1999   1998
               ---------------------------------------------------------
               <S>                                   <C>    <C>    <C>
               Capital
                Marathon Group                       $  73  $  46  $  83
                U. S. Steel Group                       18     32     49
                                                     -----  -----  -----
                    Total capital                    $  91  $  78  $ 132
               ---------------------------------------------------------
               Compliance
                Operating & maintenance
                Marathon Group                       $ 139  $ 117  $ 126
                U. S. Steel Group                      194    199    198
                                                     -----  -----  -----
                    Total operating & maintenance      333    316    324
               Remediation/(b)/
                Marathon Group                          30     25     10
                U. S. Steel Group                       18     22     19
                                                     -----  -----  -----
                    Total remediation                   48     47     29
                    Total compliance                 $ 381  $ 363  $ 353
               ---------------------------------------------------------
</TABLE>


               /(a)/ Amounts for the Marathon Group are calculated based on
                     American Petroleum Institute survey guidelines and include
                     100% of MAP. Amounts for the U. S. Steel Group are based on
                     previously established U.S. Department of Commerce survey
                     guidelines.
               /(b)/ Amounts do not include noncash provisions recorded for
                     environmental remediation, but include spending charged
                     against remediation reserves, net of recoveries where
                     permissible.

                     USX's environmental capital expenditures accounted for 5%,
               5% and 8% of total consolidated capital expenditures in 2000,
               1999 and 1998, respectively.

                     USX's environmental compliance expenditures averaged 1% of
               total consolidated costs in each of 2000, 1999 and 1998.
               Remediation spending primarily reflected ongoing clean-up costs
               for soil and groundwater contamination associated with
               underground storage tanks and piping at retail gasoline stations,
               and remediation activities at former and present operating
               locations.

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

                     A significant portion of USX's currently identified
               environmental remediation projects relate to the remediation of
               former and present operating locations. These projects include
               remediation of contaminated sediments in a river that receives
               discharges from the Gary Works and the closure of permitted
               hazardous and non-hazardous waste landfills.

                     USX has been notified that it is a potentially responsible
               party ("PRP") at 38 waste sites under the Comprehensive
               Environmental Response, Compensation and Liability Act ("CERCLA")
               as of December 31, 2000. In addition, there are 23 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 144 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. Of these sites, 15 were associated with properties
               conveyed to MAP by Ashland for which Ashland has retained
               liability for all costs associated with remediation. At many of
               these sites, USX is one of a number of parties involved and the
               total cost of remediation, as well as USX's share thereof, is
               frequently dependent upon the outcome of investigations and
               remedial studies. USX accrues for environmental remediation
               activities when the responsibility to remediate is probable and
               the amount of associated costs is reasonably determinable. As
               environmental remediation matters proceed toward ultimate
               resolution or as additional remediation obligations arise,
               charges in excess of those previously accrued may be required.
               See Note 26 to the USX Consolidated Financial Statements.

U-46

<PAGE>
 
               Management's Discussion and Analysis continued

                    New Tier II Fuels regulations were proposed in late 1999.
               The gasoline rules, which were finalized by the U.S.
               Environmental Protection Agency ("EPA") in February 2000, and the
               diesel fuel rule, which was finalized in January 2001, require
               substantially reduced sulfur levels. The combined capital cost to
               achieve compliance with the gasoline and diesel regulations could
               amount to approximately $700 million between 2003 and 2005. This
               is a forward-looking statement and can only be a broad-based
               estimate due to the ongoing evolution of regulatory requirements.
               Some factors (among others) that could potentially affect
               gasoline and diesel fuel compliance costs include obtaining the
               necessary construction and environmental permits, operating
               considerations, and unforeseen hazards such as weather
               conditions.

                    In October 1998, the National Enforcement Investigations
               Center and Region V of the EPA conducted a multi-media inspection
               of MAP's Detroit refinery. Subsequently, in November 1998, Region
               V conducted a multi-media inspection of MAP's Robinson refinery.
               These inspections covered compliance with the Clean Air Act (New
               Source Performance Standards, Prevention of Significant
               Deterioration, and the National Emission Standards for Hazardous
               Air Pollutants for Benzene), the Clean Water Act (permit
               exceedances for the Waste Water Treatment Plant), reporting
               obligations under the Emergency Planning and Community Right to
               Know Act and the handling of process waste. MAP has been advised,
               in ongoing discussions with the EPA, as to certain compliance
               issues regarding MAP's Detroit and Robinson refineries. Thus far,
               MAP has been served with two Notices of Violation ("NOV") and
               three Findings of Violation in connection with the multi-media
               inspection at its Detroit refinery. The Detroit notices allege
               violations of the Michigan State Air Pollution Regulations, the
               EPA New Source Performance Standards and National Emission
               Standards for Hazardous Air Pollutants for Benzene. On March 6,
               2000, MAP received its first NOV arising out of the multi-media
               inspection of the Robinson refinery conducted in November 1998.
               The NOV is for alleged Resource Conservation and Recovery Act
               (hazardous waste) violations.

                    MAP has responded to information requests from the EPA
               regarding New Source Review ("NSR") compliance at its Garyville
               and Texas City refineries. In addition, the scope of the EPA's
               1998 multi-media inspections of the Detroit and Robinson
               refineries included NSR compliance. NSR requires new major
               stationary sources and major modifications at existing major
               stationary sources to obtain permits, perform air quality
               analysis and install stringent air pollution control equipment at
               affected facilities. The current EPA initiative appears to target
               many items that the industry has historically considered routine
               repair, replacement and maintenance or other activity exempted
               from the NSR requirements. MAP is engaged in ongoing discussions
               with the EPA on these issues concerning all of MAP's refineries.

                    While MAP has not been notified of any formal findings or
               violations resulting from either the information requests or
               inspections regarding NSR compliance, MAP has been informed
               during discussions with the EPA of potential non-compliance
               concerns of the EPA based on these inspections and other
               information identified by the EPA. Recently, discussions with the
               EPA have included commitment to some specific control
               technologies and implementation schedules, but not penalties. In
               addition, MAP anticipates that some or all of the non-NSR related
               issues arising from the multi-media inspections may also be
               resolved as part of the current discussions with the EPA. A
               negotiated resolution with the EPA could result in increased
               environmental capital expenditures in future years, in addition
               to as yet, undetermined penalties.

                    During 1999 an EPA advisory panel on oxygenate use in
               gasoline issued recommendations to the EPA, calling for the
               improved protection of drinking water from methyl tertiary butyl
               ether ("MTBE") impacts, a substantial reduction in the use of
               MTBE, and action by Congress to remove the oxygenate requirements
               for reformulated gasoline under the Clean Air Act. The panel
               reviewed public health and environmental issues that have been
               raised by the use of MTBE in gasoline, and specifically by the
               discovery of MTBE in water supplies. State and federal
               environmental regulatory agencies could implement the majority of
               the recommendations, while some would require Congressional
               legislative action. California has acted to ban MTBE use by
               December 31, 2002 and has requested a waiver from the EPA of
               California state oxygenate requirements. In addition, a number of
               states have passed laws which limit or require the phase out of
               MTBE in gasoline, including states in MAP's marketing area

                                                                            U-47

<PAGE>
 
               Management's Discussion and Analysis continued

               such as Michigan and Minnesota. Many other states are considering
               bills which require similar limitations or the phase out of MTBE.

                    MAP has a non-material investment in MTBE units at its
               Robinson, Catlettsburg and Detroit refineries. Approximately
               seven percent of MAP's refinery gasoline production includes
               MTBE. Potential phase-outs or restrictions on the use of MTBE
               would not be expected to have a material impact on MAP and its
               operations, although it is not possible to reach any conclusions
               until further federal or state actions, if any, are taken.

                    In October 1996, USX was notified by the Indiana Department
               of Environmental Management ("IDEM") acting as lead trustee, that
               IDEM and the U. S. Department of the Interior had concluded a
               preliminary investigation of potential injuries to natural
               resources related to releases of hazardous substances from
               various municipal and industrial sources along the east branch of
               the Grand Calumet River and Indiana Harbor Canal. The public
               trustees completed a pre-assessment screen pursuant to federal
               regulations and have determined to perform an NRD Assessment. USX
               was identified as a PRP along with 15 other companies owning
               property along the river and harbor canal. USX and eight other
               PRPs have formed a joint defense group. The trustees notified the
               public of their plan for assessment and later adopted the plan.
               In 2000, the trustees concluded their assessment of sediment
               injuries, which includes a technical review of environmental
               conditions. The PRP joint defense group is discussing settlement
               opportunities with the trustees and the EPA.

                    In 1997, USS/Kobe Steel Company ("USS/Kobe"), a joint
               venture between USX and Kobe Steel, Ltd. ("Kobe"), was the
               subject of a multi-media audit by the EPA that included an air,
               water and hazardous waste compliance review. USS/Kobe and the EPA
               entered into a tolling agreement pending issuance of the final
               audit and commenced settlement negotiations in July 1999. In
               August 1999, the steelmaking and bar producing operations of
               USS/Kobe were combined with companies controlled by Blackstone
               Capital Partners II to form Republic Technologies International,
               LLC ("Republic"). The tubular operations of USS/Kobe were
               transferred to a newly formed entity, Lorain Tubular Company, LLC
               ("Lorain Tubular"), which operated as a joint venture between USX
               and Kobe until December 31, 1999 when USX purchased all of Kobe's
               interest in Lorain Tubular. Republic and Lorain Tubular are
               continuing negotiations with the EPA. Most of the matters raised
               by the EPA relate to Republic's facilities; however, air
               discharges from Lorain Tubular's #3 seamless pipe mill have also
               been cited. Lorain Tubular will be responsible for matters
               relating to its facilities. The final report and citations from
               the EPA have not been issued.

                    In 1998, USX entered into a consent decree with the EPA
               which resolved alleged violations of the Clean Water Act National
               Pollution Discharge Elimination System ("NPDES") permit at Gary
               Works and provides for a sediment remediation project for a
               section of the Grand Calumet River that runs through Gary Works.
               Contemporaneously, USX entered into a consent decree with the
               public trustees which resolves potential liability for natural
               resource damages on the same section of the Grand Calumet River.
               In 1999, USX paid civil penalties of $2.9 million for the alleged
               water act violations and $0.5 million in natural resource damages
               assessment costs. In addition, USX will pay the public trustees
               $1 million at the end of the remediation project for future
               monitoring costs and USX is obligated to purchase and restore
               several parcels of property that have been or will be conveyed to
               the trustees. During the negotiations leading up to the
               settlement with EPA, capital improvements were made to upgrade
               plant systems to comply with the NPDES requirements. The sediment
               remediation project is an approved final interim measure under
               the corrective action program for Gary Works and is expected to
               cost approximately $36.4 million over the next five years.
               Estimated remediation and monitoring costs for this project have
               been accrued.

                    In February 1999, the U.S. Department of Justice and EPA
               issued a letter demanding a cash payment of approximately $4
               million to resolve a Finding of Violation issued in 1997 alleging
               improper sampling of benzene waste streams at Gary Coke. On
               September 18, 2000, a Consent Decree was entered which required
               USX to pay a civil penalty of $587,000 and to replace PCB
               transformers as a Supplemental Environmental Program at a cost of
               approximately $2.2 million. Payment of the civil penalty was made
               on October 13, 2000.

U-48

<PAGE>
 
               Management's Discussion and Analysis continued

                    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 2001. USX expects environmental capital expenditures
               in 2001 to be approximately $120 million, or approximately 5% of
               total estimated consolidated capital expenditures. Predictions
               beyond 2001 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 2002
               will total approximately $143 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.

               Outlook

                    For Outlook, see Management's Discussion and Analysis for
               the Marathon Group and the U. S. Steel Group, herein. 

               Accounting Standards

                    In the fourth quarter of 2000, USX adopted the following
               accounting pronouncements primarily related to the classification
               of items in the financial statements. The adoption of these new
               pronouncements had no net effect on the financial position or
               results of operations of USX, although they required
               reclassifications of certain amounts in the financial statements,
               including all prior periods presented.

                    .    In December 1999, the Securities and Exchange
                         Commission ("SEC") issued Staff Accounting Bulletin No.
                         101 ("SAB 101") "Revenue Recognition in Financial
                         Statements," which summarizes the SEC staff's
                         interpretations of generally accepted accounting
                         principles related to revenue recognition and
                         classification.

                    .    In 2000, the Emerging Issues Task Force of the
                         Financial Accounting Standards Board ("EITF") issued
                         EITF consensus No. 99-19 "Reporting Revenue Gross as a
                         Principal versus Net as an Agent," which addresses
                         whether certain items should be reported as a reduction
                         of revenue or as a component of both revenues and cost
                         of revenues, and EITF Consensus No. 00-10 "Accounting
                         for Shipping and Handling Fees and Costs," which
                         addresses the classification of costs incurred for
                         shipping goods to customers.

                    .    In September 2000, the Financial Accounting Standards
                         Board issued Statement of Financial Accounting
                         Standards No. 140, "Accounting for Transfers and
                         Servicing of Financial Assets and Extinguishments of
                         Liabilities" ("SFAS 140"). SFAS 140 revises the
                         standards for accounting for securitizations and other
                         transfers of financial assets and collateral and
                         requires certain disclosures. USX adopted certain
                         recognition and reclassification provisions of SFAS
                         140, which were effective for fiscal years ending after
                         December 15, 2000. The remaining provisions of SFAS 140
                         are effective after March 31, 2001.

                    In June 1998, the Financial Accounting Standards Board
               issued Statement of Financial Accounting Standards No. 133,
               "Accounting for Derivative Instruments and Hedging Activities"
               ("SFAS No. 133"), which later was amended by SFAS Nos. 137 and
               138. This Standard requires

                                                                            U-49

<PAGE>
 
               Management's Discussion and Analysis continued 

               recognition of all derivatives as either assets or liabilities at
               fair value. Changes in fair value will be reflected in either
               current period net income or other comprehensive income,
               depending on the designation of the derivative instrument. USX
               may elect not to designate a derivative instrument as a hedge
               even if the strategy would be expected to qualify for hedge
               accounting treatment. The adoption of SFAS No. 133 will change
               the timing of recognition for derivative gains and losses as
               compared to previous accounting standards.

                    USX will adopt the Standard effective January 1, 2001. The
               transition adjustment resulting from adoption of SFAS No. 133
               will be reported as a cumulative effect of a change in accounting
               principle. The unfavorable cumulative effect on net income, net
               of tax, is expected to approximate $9 million. The unfavorable
               cumulative effect on other comprehensive income, net of tax, will
               approximate $7 million. The amounts reported as other
               comprehensive income will be reflected in net income when the
               anticipated physical transactions are consummated. It is not
               possible to estimate the effect that this Standard will have on
               future results of operations.

Management's Discussion and Analysis by Group

          The Marathon Group

                    The Marathon Group includes Marathon Oil Company
               ("Marathon") and certain other subsidiaries of USX Corporation
               ("USX"), which are engaged in worldwide exploration and
               production of crude oil and natural gas; domestic refining,
               marketing and transportation of petroleum products primarily
               through Marathon Ashland Petroleum LLC ("MAP"), owned 62 percent
               by Marathon; and other energy related businesses. The
               Management's Discussion and Analysis should be read in
               conjunction with the Marathon Group's Financial Statements and
               Notes to Financial Statements.

                    The Marathon Group's 2000 financial performance was
               primarily affected by the strong recovery in worldwide liquid
               hydrocarbon and natural gas prices and stronger refining margins.
               During 2000, Marathon focused on the acquisition of assets with a
               strong strategic fit, the disposal of non-core properties, and
               workforce reductions through a voluntary early retirement
               program.

                    Revenues and Other Income for each of the last three years
               are summarized in the following table: 


<TABLE>
<CAPTION>                
               (Dollars in millions)                                                                   2000       1999      1998
               ------------------------------------------------------------------------------------------------------------------ 
               <S>                                                                                    <C>       <C>       <C> 
               Exploration & production ("E&P")                                                       $ 4,694   $ 3,105   $ 2,090
               Refining, marketing & transportation ("RM&T")/(a)/                                      28,849    20,076    19,080
               Other energy related businesses/(b)/                                                     1,684       834       355
                                                                                                      -------   -------   -------
                 Revenues and other income of reportable segments                                      35,227    24,015    21,525
               Revenues and other income not allocated to segments:                                  
                 Joint venture formation charges/(c)/                                                    (931)        -         -
                 Gain on ownership change in MAP                                                           12        17       245
                 Other/(d)/                                                                               124       (36)       24
               Elimination of intersegment revenues                                                      (573)     (289)     (171)
                                                                                                      -------   -------   -------
                  Total Group revenues and other income                                               $33,859   $23,707   $21,623
                                                                                                      =======   =======   =======
               Items included in both revenues and costs and expenses, resulting in no effect on  
                income:                                                                           
               Consumer excise taxes on petroleum                                                    
                 products and merchandise                                                             $ 4,344   $ 3,973   $ 3,824
               ------------------------------------------------------------------------------------------------------------------ 
</TABLE>

               /(a)/ Amounts include 100 percent of MAP.
               /(b)/ Includes domestic natural gas and crude oil marketing and
                     transportation, and power generation.
               /(c)/ Represents a pretax charge related to the joint venture
                     formation between Marathon and Kinder Morgan Energy
                     Partners, L.P.
               /(d)/ Represents net gains/(losses) on certain asset sales.

                     E&P segment revenues increased by $1,589 million in 2000
               from 1999 following an increase of $1,015 million in 1999 from
               1998. The increase in 2000 was primarily due to higher worldwide
               liquid hydrocarbon and natural gas prices, partially offset by
               lower domestic liquid hydrocarbon and

U-50

<PAGE>
 
               Management's Discussion and Analysis continued 

               worldwide natural gas production. The increase in 1999 was
               primarily due to higher worldwide liquid hydrocarbon prices,
               increased domestic liquid hydrocarbon production and higher E&P
               crude oil buy/sell volumes.

                    RM&T segment revenues increased by $8,773 million in 2000
               from 1999 following an increase of $996 million in 1999 from
               1998. The increase in 2000 primarily reflected higher refined
               product prices and increased refined product sales volumes. The
               increase in 1999 was mainly due to higher refined product prices,
               increased volumes of refined product sales and higher merchandise
               sales, partially offset by reduced crude oil sales revenues
               following the sale of Scurlock Permian LLC.

                    Other energy related businesses segment revenues increased
               by $850 million in 2000 from 1999 following an increase of $479
               million in 1999 from 1998. The increase in 2000 reflected higher
               natural gas and crude oil resale activity accompanied by higher
               crude oil and natural gas prices. The increase in 1999 was
               primarily due to increased crude oil and natural gas purchase and
               resale activity.

                    For additional discussion of revenues, see Note 10 to the
               Marathon Group Financial Statements.

                    Income from operations for each of the last three years is
               summarized in the following table:


<TABLE>
<CAPTION> 
               (Dollars in millions)                                             2000     1999     1998
               -----------------------------------------------------------------------------------------   
               <S>                                                              <C>      <C>      <C> 
               E&P
                Domestic                                                        $1,115   $  494   $  190
                International                                                      420      124       88
                                                                                ------   ------   ------
                 Income of E&P reportable segment                                1,535      618      278
               RM&T/(a)/                                                         1,273      611      896
               Other energy related businesses                                      38       61       33
                                                                                ------   ------   ------
                   Income for reportable segments                                2,846    1,290    1,207
               Items not allocated to reportable segments:
                Joint venture formation charges/(b)/                              (931)       -        -
                Administrative expenses/(c)/                                      (136)    (108)    (106)
                IMV reserve adjustment/(d)/                                          -      551     (267)
                Gain on ownership change & transition charges - MAP/(e)/            12       17      223
                Impairment of oil and gas properties, assets held for sale,
                  and gas contract settlement/(f)/                                (197)     (16)    (119)
                Gain/(loss) on disposal of assets/(g)/                             124      (36)       -
               Reorganization charges including pension settlement
                  (loss)/gain & benefit accruals/(h)/                              (70)      15        -
                                                                                ------   ------   ------
                  Total income from operations                                  $1,648   $1,713   $  938
               -----------------------------------------------------------------------------------------
</TABLE>


               /(a)/ Amounts include 100 percent of MAP.
               /(b)/ Represents a pretax charge related to the joint venture
                     formation between Marathon and Kinder Morgan Energy
                     Partners, L.P.
               /(c)/ Includes the portion of the Marathon Group's administrative
                     costs not charged to the operating segments and the portion
                     of USX corporate general and administrative costs allocated
                     to the Marathon Group.
               /(d)/ The inventory market valuation ("IMV") reserve reflects the
                     extent to which the recorded LIFO cost basis of crude oil
                     and refined products inventories exceeds net realizable
                     value. For additional discussion of the IMV, see Note 20 to
                     the Marathon Group Financial Statements.
               /(e)/ The gain on ownership change and one-time transition
                     charges in 1998 relate to the formation of MAP. For
                     additional discussion of the gain on ownership change in
                     MAP, see Note 5 to the Marathon Group Financial Statements.
               /(f)/ Represents in 2000, an impairment of certain oil and gas
                     properties, primarily in Canada, and assets held for sale.
                     Represents in 1999, an impairment of certain domestic
                     properties. Represents in 1998, a write-off of certain non-
                     revenue producing international investments and several
                     exploratory wells which had encountered hydrocarbons but
                     had been suspended pending further evaluation. It also
                     includes in 1998 a gain from the resolution of a contract
                     dispute with a purchaser of Marathon's natural gas
                     production from certain domestic properties.
               /(g)/ The net gain in 2000 represents a gain on the disposition
                     of Angus/Stellaria, a gain on the Sakhalin exchange, a gain
                     on the sale of Speedway SuperAmerica LLC ("SSA") non-core
                     stores, and a loss on the sale of the Howard Glasscock
                     field. The net loss in 1999 represents a loss on the sale
                     of Scurlock Permian LLC, certain domestic production
                     properties, Carnegie Natural Gas Company and affiliated
                     subsidiaries and a gain on certain Egyptian properties.
               /(h)/ Amounts in 2000 and 1999 represent pension settlement
                     gains/(losses) and various benefit accruals resulting from
                     retirement plan settlements, the voluntary early retirement
                     program, and reorganization charges.

                                                                            U-51

<PAGE>
 
               Management's Discussion and Analysis continued

                    Income for reportable segments increased by $1,556 million
               in 2000 from 1999, mainly due to higher worldwide liquid
               hydrocarbon and natural gas prices, and higher refined product
               margins, partially offset by decreased natural gas volumes.
               Income for reportable segments increased by $83 million in 1999
               from 1998, mainly due to higher worldwide liquid hydrocarbon
               prices, partially offset by lower refined product margins. Income
               from operations includes 100 percent of MAP beginning in 1998,
               and results from Marathon Canada Limited (formerly known as
               Tarragon) commencing August 12, 1998.


<TABLE> 
<CAPTION> 
                                          Average Volumes and Selling Prices
                                                                                  2000    1999    1998     
               ----------------------------------------------------------------------------------------
               <S>                                                               <C>     <C>     <C>       
               (thousands of barrels per day)                                                            
               Net liquids production/(a)/          - U.S.                          131     145     135    
                                                    - International/(b)/             65      62      61    
                                                                                 ------  ------  ------    
                                                    - Total consolidated            196     207     196    
                                                    - Equity investees/(c)/          11       1       -    
                                                                                 ------  ------  ------    
                                                    - Worldwide                     207     208     196    
               (millions of cubic feet per day)                                                            
               Net natural gas production           - U.S.                          731     755     744    
                                                    - International - equity        470     489     441    
                                                    - International - other/(d)/     11      16      23    
                                                                                 ------  ------  ------    
                                                    - Total consolidated          1,212   1,260   1,208    
                                                    - Equity investee/(e)/           29      36      33    
                                                                                 ------  ------  ------    
                                                    - Worldwide                   1,241   1,296   1,241    
               ----------------------------------------------------------------------------------------  
               (dollars per barrel)                                                                        
               Liquid hydrocarbons/(a)(f)/          - U.S.                       $25.11  $15.44  $10.42    
                                                    - International               26.54   16.90   12.24    
               (dollars per mcf)                                                                           
               Natural gas/(f)/                     - U.S.                       $ 3.30  $ 1.90  $ 1.79    
                                                    - International - equity       2.76    1.90    1.94    
               (thousands of barrels per day)                                                              
               Refined products sold/(g)/                                         1,306   1,251   1,198    
                 Matching buy/sell volumes included in above                         52      45      39     
               ----------------------------------------------------------------------------------------
</TABLE>


               /(a)/ Includes crude oil, condensate and natural gas liquids.
               /(b)/ Represents equity tanker liftings, truck deliveries and
                     direct deliveries.
               /(c)/ Represents Marathon's equity interest in Sakhalin Energy
                     Investment Company Ltd. ("Sakhalin Energy") and CLAM
                     Petroleum B.V. ("CLAM") for 2000 and 1999.
               /(d)/ Represents gas acquired for injection and subsequent
                     resale.
               /(e)/ Represents Marathon's equity interest in CLAM.
               /(f)/ Prices exclude gains/losses from hedging activities, equity
                     investees and purchase/resale gas.
               /(g)/ Refined products sold and matching buy/sell volumes include
                     100 percent of MAP.

                     Domestic E&P income increased by $621 million in 2000 from
               1999 following an increase of $304 million in 1999 from 1998. The
               increase in 2000 was primarily due to higher liquid hydrocarbon
               and natural gas prices, partially offset by lower liquid
               hydrocarbon and natural gas volumes due to natural field declines
               and asset sales, and derivative losses from other than trading
               activities.

                     The increase in 1999 was primarily due to higher liquid
               hydrocarbon and natural gas prices, increased liquid hydrocarbon
               volumes resulting from new production in the Gulf of Mexico and
               lower exploration expense.

                     International E&P income increased by $296 million in 2000
               from 1999 following an increase of $36 million in 1999 from 1998.
               The increase in 2000 was mainly due to higher liquid hydrocarbon
               and natural gas prices, higher liquid hydrocarbon liftings,
               primarily in Russia and Gabon, and lower dry well expense,
               partially offset by lower natural gas volumes.

                     The increase in 1999 was primarily due to higher liquid
               hydrocarbon prices, partially offset by lower liquid hydrocarbon
               and natural gas production in Europe and higher exploration
               expense.

U-52

<PAGE>
 
             Management's Discussion and Analysis  continued

                RM&T segment income increased by $662 million in 2000 from 1999
             following a decrease of $285 million in 1999 from 1998. The
             increase in 2000 was primarily due to higher refined product
             margins, partially offset by higher operating expenses for SSA,
             higher administrative expenses including increased variable pay
             plan costs, and higher transportation costs.

                The decrease in 1999 was primarily due to lower refined product
             margins, partially offset by recognized mark-to-market derivative
             gains, increased refined product sales volumes, higher merchandise
             sales at SSA and the realization of additional operating
             efficiencies as a result of forming MAP.

                Other energy related businesses segment income decreased by $23
             million in 2000 from 1999 following an increase of $28 million in
             1999 from 1998. The decrease in 2000 was primarily a result of
             derivative losses from other than trading activities and lower
             equity earnings as a result of decreased pipeline throughput. The
             increase in 1999 was primarily due to higher equity earnings as a
             result of increased pipeline throughput and a reversal of
             abandonment accruals of $10 million in 1999.

                Items not allocated to reportable segments: IMV reserve
             adjustment - When U. S. Steel Corporation acquired Marathon Oil
             Company in March 1982, crude oil and refined product prices were at
             historically high levels. In applying the purchase method of
             accounting, the Marathon Group's crude oil and refined product
             inventories were revalued by reference to current prices at the
             time of acquisition, and this became the new LIFO cost basis of the
             inventories. Generally accepted accounting principles require that
             inventories be carried at lower of cost or market. Accordingly, the
             Marathon Group has established an IMV reserve to reduce the cost
             basis of its inventories to net realizable value. Quarterly
             adjustments to the IMV reserve result in noncash charges or credits
             to income from operations.

                When Marathon acquired the crude oil and refined product
             inventories associated with Ashland's RM&T operations on January 1,
             1998, the Marathon Group established a new LIFO cost basis for
             those inventories. The acquisition cost of these inventories
             lowered the overall average cost of the Marathon Group's combined
             RM&T inventories. As a result, the price threshold at which an IMV
             reserve will be recorded was also lowered.

                These adjustments affect the comparability of financial results
             from period to period as well as comparisons with other energy
             companies, many of which do not have such adjustments. Therefore,
             the Marathon Group reports separately the effects of the IMV
             reserve adjustments on financial results. In management's opinion,
             the effects of such adjustments should be considered separately
             when evaluating operating performance.

                In 1999, the IMV reserve adjustment resulted in a credit to
             income from operations of $551 million compared to a charge of $267
             million in 1998, or a change of $818 million. The favorable 1999
             IMV reserve adjustment, which is almost entirely recorded by MAP,
             was primarily due to the significant increase in refined product
             prices experienced during 1999. For additional discussion of the
             IMV reserve, see Note 20 to the Marathon Group Financial
             Statements.

                Joint venture formation charges represent a pretax charge of
             $931 million in 2000 related to the joint venture formation between
             Marathon and Kinder Morgan Energy Partners, L.P. The formation of
             the joint venture included contribution of interests in the Yates
             and SACROC assets. Marathon holds an 85 percent economic interest
             in the combined entity which commenced operations in January 2001.

                Impairment of oil and gas properties, assets held for sale, and
             gas contract settlement includes in 2000, the impairments of
             certain oil and gas properties primarily in Canada and assets held
             for sale totaling $197 million. In 1999, the $16 million charge
             relates to the impairment of certain domestic properties. In 1998,
             the $119 million charge relates to a write-off of certain non-
             revenue producing international investments and several exploratory
             wells, partially offset by a gain from the resolution of a contract
             dispute with a purchaser of Marathon's natural gas production from
             certain domestic properties.

                                                                            U-53

<PAGE>
 
             Management's Discussion and Analysis  continued

                Gain/(loss) on disposal of assets represents in 2000 a net gain
             on the sale of Marathon's interest in the Angus/Stellaria
             development in the Gulf of Mexico, a gain on the Sakhalin exchange,
             a loss on the sale of the Howard Glasscock Field, and a gain on the
             sale of non-core SSA stores. In 1999, the net loss represents
             losses on the sale of Scurlock Permian LLC, certain domestic
             production properties, Carnegie Natural Gas Company and affiliated
             subsidiaries and a gain on certain Egyptian properties.

                Reorganization charges including pension settlement (loss)/gain
             and benefit accruals represent charges related to a reorganization
             program initiated by Marathon for its upstream business during
             2000.

             Outlook for 2001 - Marathon Group

                The outlook regarding the results of operations for the Marathon
             Group's upstream segment is largely dependent upon future prices
             and volumes of liquid hydrocarbons and natural gas. Prices have
             historically been volatile and have frequently been affected by
             unpredictable changes in supply and demand resulting from
             fluctuations in worldwide economic activity and political
             developments in the world's major oil and gas producing and
             consuming areas. Any significant decline in 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.

                At year-end 2000, Marathon revised its estimate of proved
             developed and undeveloped oil and gas reserves downward by 167
             million barrels of oil equivalent ("BOE"). These revisions were
             principally in Canada, the North Sea and United States and are the
             result of production performance and disappointing drilling
             results.

                BOE is a combined measure of worldwide liquid hydrocarbon and
             natural gas production, measured in barrels per day and cubic feet
             per day, respectively. For purposes of determining BOE, natural gas
             volumes are converted to approximate liquid hydrocarbon barrels by
             dividing the natural gas volumes expressed in thousands of cubic
             feet ("mcf") by 6. The liquid hydrocarbon volume is added to the
             barrel equivalent of gas volume to obtain BOE. Marathon intends to
             disclose total production estimates on a BOE basis from this point
             forward.

                In 2001, worldwide production is expected to average 430,000 BOE
             per day, split evenly between liquid hydrocarbons and natural gas,
             including production from Marathon's share of equity investees and
             future acquisitions.

                On December 28, 2000, Marathon signed a definitive agreement to
             form a joint venture with Kinder Morgan Energy Partners, L.P.,
             which commenced operations in January 2001. The formation of the
             joint venture included contribution of interests in the Yates and
             SACROC assets. This transaction will allow Marathon to expand its
             interests in the Permian Basin and will improve access to materials
             for use in enhanced recovery techniques in the Yates Field.
             Marathon holds an 85 percent economic interest in the combined
             entity, which will be accounted for under the equity method of
             accounting.

                On December 22, 2000, Marathon announced its plans to acquire
             Pennaco. This acquisition will enhance Marathon's presence in a
             core area, the North American gas market, and will provide a
             significant new reserve base that can be developed. The tender
             offer expired on February 5, 2001 at 12:00 midnight, Eastern time.
             Marathon acquired approximately 17.6 million shares of Pennaco
             common stock which were validly tendered and not withdrawn in the
             offer, representing approximately 87 percent of the outstanding
             Pennaco shares.

                Marathon plans to acquire the remaining Pennaco shares through a
             merger in which each share of Pennaco common stock not purchased in
             the offer and not held by stockholders who have properly exercised
             dissenters rights under Delaware law will be converted into the
             right to receive the tender offer price in cash, without interest.

U-54

<PAGE>
 
             Management's Discussion and Analysis  continued

                Marathon plans to drill six deepwater Gulf of Mexico exploratory
             wells in 2001. To support this increased drilling activity,
             Marathon has contracted two new deepwater rigs, capable of drilling
             in water depths beyond 6,500 feet.

                Other major upstream projects, which are currently underway or
             under evaluation and are expected to improve future income streams,
             include the Mississippi Canyon Block 348 in the Gulf of Mexico and
             various North American natural gas fields. Also, Marathon expects
             continued development in the Foinaven area in the U.K. Atlantic
             Margin. Marathon acquired an interest in this location through the
             exchange of its Sakhalin interests with Shell Oil in the fourth
             quarter of 2000.

                Marathon E&P is currently on target for achieving $150 million
             in annual repeatable pre-tax operating efficiencies by year-end
             2001. Marathon initiated a reorganization program for its upstream
             business units which will contribute to an overall workforce
             reduction of 24% compared to 1999 levels. In addition, regional
             production offices in Lafayette, Louisiana and Tyler, Texas have
             been closed along with the Petroleum Technology Center in
             Littleton, Colorado.

                The above discussion includes forward-looking statements with
             respect to 2001 worldwide liquid hydrocarbon production and natural
             gas volumes, the acquisition of Pennaco, commencement of upstream
             projects, and the Gulf of Mexico drilling program. Some factors
             that could potentially affect worldwide liquid hydrocarbon
             production/gas volumes, upstream projects, and the drilling program
             include: pricing, worldwide supply and demand for petroleum
             products, amount of capital available for exploration and
             development, regulatory constraints, reserve estimates, reserve
             replacement rates, production decline rates of mature fields,
             timing of commencing production from new wells, timing and results
             of future development drilling, drilling rig availability, the
             completion of the merger with Pennaco, future acquisitions of
             producing properties, and other geological, operating and economic
             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 timing and economics of projects. A
             factor that could affect the Pennaco acquisition is successful
             completion of the merger. These factors (among others) could cause
             actual results to differ materially from those set forth in the
             forward-looking statements.

                Downstream income of the Marathon Group is largely dependent
             upon refined product margins, which reflect the difference between
             the selling prices of refined products and the cost of raw
             materials refined and manufacturing costs. Refined product margins
             have been historically volatile and vary with the level of economic
             activity in the various marketing areas, the regulatory climate,
             crude oil costs, manufacturing costs, logistical limitations and
             the available supply of crude oil and refined products.

                In 2000, MAP, CMS Energy Corporation, and TEPPCO Partners, L.P.
             formed a limited liability company with equal ownership to operate
             an interstate refined petroleum products pipeline extending from
             the U.S. Gulf of Mexico to the Midwest. The new company plans to
             build a 74-mile, 24-inch diameter pipeline connecting TEPPCO's
             facility in Beaumont, Texas, with an existing 720-mile, 26-inch
             diameter pipeline extending from Longville, Louisiana to Bourbon,
             Illinois. In addition, a two million barrel terminal storage
             facility will be constructed. The system will be called Centennial
             Pipeline and will connect with existing MAP transportation assets
             and other common carrier lines. Construction is expected to be
             completed in the fourth quarter of 2001.

                A MAP subsidiary, Ohio River Pipe Line LLC ("ORPL"), plans to
             build a pipeline from Kenova, West Virginia to Columbus, Ohio. ORPL
             is a common carrier pipeline company and the pipeline will be an
             interstate common carrier pipeline. The pipeline is expected to
             initially move about 50,000 bpd of refined petroleum into the
             central Ohio region. The pipeline is currently expected to be
             operational in mid-2002. The startup of this pipeline is largely
             dependent on obtaining the final regulatory approvals, obtaining
             the necessary rights-of-way, of which approximately 95 percent have
             been obtained to date, and completion of construction. ORPL is
             still negotiating with a few landowners to obtain the remaining
             rights-of-way. Where necessary, ORPL has filed condemnation actions
             to acquire some rights-of-way. These actions are at various stages
             of litigation and appeal with several recent decisions supporting
             ORPL's use of eminent domain.

                                                                            U-55

<PAGE>
 
             Management's Discussion and Analysis  continued

                MAP is constructing a delayed coker unit at its Garyville,
             Louisiana refinery. This unit will allow for the use of heavier,
             lower cost crude and reduce the production of heavy fuel oil. To
             supply this new unit, MAP reached an agreement with P.M.I. Comercio
             Internacional, S.A. de C.V., (PMI), an affiliate of Petroleos
             Mexicanos, (PEMEX), to purchase approximately 90,000 bpd of heavy
             Mayan crude oil. This is a multi-year contract, which will begin
             upon completion of the delayed coker unit which is scheduled in the
             fall of 2001. In addition, a project to increase light product
             output is underway at MAP's Robinson, Illinois refinery and is
             expected to be completed in the second quarter of 2001.

                MAP initiated a program for 2000 to dispose of approximately 270
             non-core SSA retail outlets in the Midwest and Southeast. At the
             end of this program through December 31, 2000, 159 stores, which
             comprise about 7 percent of MAP's owned and operated SSA retail
             network, had been sold. MAP will continue to sell additional SSA
             stores as part of its ongoing store development process.

                The above discussion includes forward-looking statements with
             respect to pipeline and refinery improvement projects. Some factors
             that could potentially cause actual results to differ materially
             from present expectations include the price of petroleum products,
             levels of cash flow from operations, obtaining the necessary
             construction and environmental permits, unforeseen hazards such as
             weather conditions, obtaining the necessary rights-of-way, outcome
             of pending litigation, and regulatory approval constraints. These
             factors (among others) could cause actual results to differ
             materially from those set forth in the forward-looking statements.

          The U. S. Steel Group

                The U. S. Steel Group is engaged in the production and sale of
             steel mill products, coke, and taconite pellets; the management of
             mineral resources; coal mining; real estate development; and
             engineering and consulting services. Certain business activities
             are conducted through joint ventures and partially owned companies,
             such as USS-POSCO Industries ("USS-POSCO"), PRO-TEC Coating Company
             ("PRO-TEC"), Transtar, Inc. ("Transtar"), Clairton 1314B
             Partnership, and Republic Technologies International, LLC
             ("Republic"). On November 24, 2000, USX acquired U. S. Steel Kosice
             s.r.o. ("USSK"), which held the steel and related assets of VSZ
             a.s. ("VSZ"), headquartered in the Slovak Republic. Management's
             Discussion and Analysis should be read in conjunction with the U.
             S. Steel Group's Financial Statements and Notes to Financial
             Statements.

                Revenues and Other Income for each of the last three years are
             summarized in the following table:


<TABLE>
<CAPTION> 
             (Dollars in millions)                         2000     1999    1998
             --------------------------------------------------------------------
             <S>                                        <C>      <C>      <C>
             Revenues by product:
              Sheet and semi-finished steel products    $ 3,288  $ 3,433  $ 3,598
              Tubular, plate, and tin mill products       1,731    1,140    1,546
              Raw materials (coal, coke and iron ore)       626      549      744
              Other/(a)/                                    445      414      490
             Income (loss) from investees                    (8)     (89)      46
             Net gains on disposal of assets                 46       21       54
             Other income (loss)                              4        2       (1)
                                                        -------  -------  -------
               Total revenues and other income          $ 6,132  $ 5,470  $ 6,477
             --------------------------------------------------------------------
             </TABLE>
 

             /(a)/ Includes revenue from the sale of steel production by-
                   products, real estate development, resource management, and
                   engineering and consulting services.

                Total revenues and other income increased by $662 million in
             2000 from 1999 primarily due to the consolidation of Lorain Tubular
             Company, LLC, ("Lorain Tubular") effective January 1, 2000, higher
             average realized prices, particularly tubular product prices, and
             lower losses from investees, which, in 1999, included a $47 million
             charge for the impairment of U. S. Steel's investment in USS/Kobe
             Steel Company. Total revenues and other income in 1999 decreased by
             $1,007 million from 1998 primarily due to lower average realized
             prices and lower income from investees.

U-56

<PAGE>
 
             Management's Discussion and Analysis  continued

                Income from operations for the U. S. Steel Group for the last
             three years was:


<TABLE>
<CAPTION> 
             (Dollars in millions)                                        2000    1999    1998
             ---------------------------------------------------------------------------------
             <S>                                                         <C>     <C>     <C> 
             Segment income for Domestic Steel/(a)/                      $  23   $  91   $ 517
             Segment income for U. S. Steel Kosice/(b)/                      2       -       -
                                                                         -----   -----   -----
                 Income for reportable segments                          $  25   $  91   $ 517
             Items not allocated to segments:
              Net pension credits                                          266     228     186
              Administrative expenses                                      (25)    (17)    (24)
              Costs related to former business activities/(c)/             (91)    (83)   (100)
              Asset impairments - Coal                                     (71)      -       -
              Impairment of USX's investment in USS/Kobe and costs
               related to formation of Republic                              -     (47)      -
              Loss on investment in RTI stock used to satisfy indexed
               debt obligations/(d)/                                         -     (22)      -
                                                                         -----   -----   -----
                 Total income from operations                            $ 104   $ 150   $ 579
             ---------------------------------------------------------------------------------
</TABLE>


             /(a)/ Includes income from the sale and domestic production of
                   steel mill products, coke and taconite pellets; the
                   management of mineral resources; coal mining; real estate
                   development and management; and engineering and consulting
                   services.
             /(b)/ Includes the sale and production of steel products from
                   facilities primarily located in the Slovak Republic
                   commencing November 24, 2000. For further details, see Note 5
                   to the U. S. Steel Group Financial Statements.
             /(c)/ Includes the portion of postretirement benefit costs and
                   certain other expenses principally attributable to former
                   business units of the U. S. Steel Group.
             /(d)/ For further details, see Note 6 to the U. S. Steel Group
                   Financial Statements.

             Segment income for Domestic Steel

                Domestic Steel operations recorded segment income of $23 million
             in 2000 versus segment income of $91 million in 1999, a decrease of
             $68 million. The 2000 segment income included $36 million for
             certain environmental and legal accruals, a $34 million charge to
             establish reserves against notes and receivables from financially
             distressed steel companies and a $10 million charge for USX's share
             of Republic special charges. Results in 1999 included $17 million
             in charges for certain environmental and legal accruals and $7
             million in various non-recurring equity investee charges. Excluding
             these items, the decrease in segment income for Domestic Steel was
             primarily due to higher costs related to energy and inefficient
             operating levels due to lower throughput, lower income from raw
             materials operations, particularly coal operations and lower sheet
             shipments resulting from high levels of imports that continued in
             2000.

                Segment income for Domestic Steel operations in 1999 decreased
             $426 million from 1998. Results in 1998 included a net favorable
             $30 million for an insurance litigation settlement and charges of
             $10 million related to a voluntary workforce reduction plan.
             Excluding these items, the decrease in segment income for Domestic
             Steel was primarily due to lower average steel prices, lower income
             from raw materials operations, a less favorable product mix and
             lower income from investees.

                Segment income for U. S. Steel Kosice

                USSK segment income for the period following the November 24,
             2000 acquisition was $2 million.

                Items not allocated to segments: Net pension credits, which are
             primarily noncash, totaled $266 million in 2000, $228 million in
             1999 and $186 million in 1998. Net pension credits in 1999 included
             $35 million for a one-time favorable pension settlement primarily
             related to the voluntary early retirement program for salaried
             employees. For additional information on pensions, see Note 12 to
             the U. S. Steel Group Financial Statements.

                Asset impairments - Coal, were for asset impairments at U. S.
             Steel Mining's coal mines in Alabama and West Virginia in 2000
             following a reassessment of long-term prospects after adverse
             geological conditions were encountered.

                In 1999, an impairment of USX's investment in USS/Kobe and costs
             related to the formation of Republic totaled $47 million.

                                                                            U-57

<PAGE>
 
             Management's Discussion and Analysis  continued

                Income from operations in 1999 also included a loss on
             investment in RTI stock used to satisfy indexed debt obligations of
             $22 million from the termination of ownership in RTI International
             Metals, Inc. For further discussion, see Note 6 to the U. S. Steel
             Group Financial Statements.

             Outlook for 2001 - U. S. Steel Group

                Domestic Steel's order book and prices remain soft due to
             continued high import volumes (which in 2000 were second only to
             record-year 1998 levels), a draw-down of inventories by spot
             purchasers and increasing evidence that the growth in the domestic
             economy is slowing. In addition to these factors, our plate
             products business is being impacted by recently added domestic
             capacity. Although domestic shipments for the first quarter of 2001
             are projected to be somewhat better than fourth quarter 2000
             levels, we expect that sheet and plate pricing, which declined
             markedly in the fourth quarter, will continue to be depressed as a
             result of the factors cited above. The tubular business, however,
             remains strong. For the year 2001, domestic shipments are expected
             to be approximately 11 million net tons, excluding any shipments
             from the potential acquisition of LTV Corporation tin operations.
             For the year 2001, USSK shipments are expected to be approximately
             3.3 million to 3.6 million net tons.

                High natural gas prices adversely affected our results in 2000
             and are expected to persist for some time. The blast furnace idled
             at Gary Works in July 2000 for a planned 10-day outage remained
             down until late February 2001 due to business conditions. The U. S.
             Steel Group has continued its cost reduction efforts, and has
             recently requested from its current suppliers an immediate,
             temporary eight percent price reduction from existing levels to
             help weather this difficult period.

                Several domestic competitors recently have filed for Chapter 11
             bankruptcy protection. This provides them with certain competitive
             advantages and further demonstrates the very difficult economic
             circumstances faced by the domestic industry.

                U. S. Steel Group's income from operations includes net pension
             credits, which are primarily noncash, associated with all of U. S.
             Steel's pension plans. Net pension credits were $266 million in
             2000. At the end of 2000, U. S. Steel's main pension plans'
             transition asset was fully amortized, decreasing the pension credit
             by $69 million annually in future years for this component. In
             addition, for the year 2001, low marketplace returns on trust
             assets in the year 2000 and pending business combinations in the
             current year are expected to further reduce net pension credits to
             approximately $160 million. The above includes forward-looking
             statements concerning net pension credits which can vary depending
             upon the market performance of plan assets, changes in actuarial
             assumptions regarding such factors as the selection of a discount
             rate and rate of return on plan assets, changes in the amortization
             levels of transition amounts or prior period service costs, plan
             amendments affecting benefit payout levels, business combinations
             and profile changes in the beneficiary populations being valued.
             Changes in any of these factors could cause net pension credits to
             change. To the extent net pension credits decline in the future,
             income from operations would be adversely affected.

                The U. S. Steel Group includes a 16 percent equity method
             investment in Republic (through an ownership interest in Republic
             Technologies International Holdings, LLC ("Republic Holdings"),
             which is the sole owner of Republic). In the third quarter of 2000,
             Republic announced that it had completed a financial restructuring
             to improve its liquidity position. Republic raised approximately
             $30 million in loans from certain of its direct and indirect equity
             partners in exchange for notes of Republic and warrants to purchase
             Class D common stock of Republic Technologies International, Inc.,
             Republic's majority owner. The U. S. Steel Group's portion was
             approximately $6 million and the U. S. Steel Group also agreed to
             certain deferred payment terms into the year 2002, up to a maximum
             of $30 million, with regard to Republic's obligations relating to
             iron ore pellets supplied to Republic. In its Form 10-Q for the
             period ended September 30, 2000, which was filed with the SEC on
             October 31, 2000, Republic Holdings stated that "Notwithstanding
             these efforts, [Republic Holdings] may need to obtain additional
             financing to meet its cash flow requirements, including financing
             from the sale of additional debt or equity securities." Republic
             Holdings also stated "As a result of the factors mentioned above,
             [Republic Holdings] is highly leveraged and could be considered a
             risky investment."

U-58

<PAGE>
 
             Management's Discussion and Analysis  continued

                At December 31, 2000, the U. S. Steel Group's financial exposure
             to Republic totaled approximately $131 million, consisting of
             amounts owed by Republic to the U. S. Steel Group and debt
             obligations assumed by Republic.

                In early October 2000, the U. S. Steel Group announced an
             agreement with LTV Corporation ("LTV") to purchase LTV's tin mill
             products business, including its Indiana Harbor, Indiana tin
             operations. This acquisition recently closed and was effective
             March 1, 2001. Terms of this noncash transaction call for the U. S.
             Steel Group to assume certain employee-related obligations of LTV.
             The U. S. Steel Group intends to operate these facilities as an
             ongoing business and tin mill employees at Indiana Harbor became 
             U. S. Steel Group employees. The U. S. Steel Group and LTV also
             entered into 5-year agreements for LTV to supply the U. S. Steel
             Group with pickled hot bands and for the U. S. Steel Group to
             provide LTV with processing of cold rolled steel.

                In October 2000, Transtar announced it had entered into a
             Reorganization and Exchange Agreement with its two voting
             shareholders. Upon closing, Transtar and certain of its
             subsidiaries, namely, the Birmingham Southern Railroad Company; the
             Elgin, Joliet and Eastern Railway Company; the Lake Terminal
             Railroad Company; the McKeesport Connecting Railroad Company; the
             Mobile River Terminal Company, Inc.; the Union Railroad Company;
             the Warrior & Gulf Navigation Company; and Tracks Traffic and
             Management Services, Inc. will become subsidiaries within the U. S.
             Steel Group. The other shareholder, Transtar Holdings, L.P., an
             affiliate of Blackstone Capital Partners L.P., will become the
             owner of the other subsidiaries.

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

                                                                            U-59

<PAGE>
 
             Quantitative and Qualitative Disclosures About Market Risk

             Management Opinion Concerning Derivative Instruments

                USX uses commodity-based and foreign currency derivative
             instruments to manage its price risk. Management has authorized the
             use of futures, forwards, swaps and options to manage exposure to
             price fluctuations related to the purchase, production or sale of
             crude oil, natural gas, refined products, and nonferrous metals.
             For transactions that qualify for hedge accounting, the resulting
             gains or losses are deferred and subsequently recognized in income
             from operations, in the same period as the underlying physical
             transaction. Derivative instruments used for trading and other
             activities are marked-to-market and the resulting gains or losses
             are recognized in the current period in income from operations.
             While USX's 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 that assume price risk.

                Management believes that use of derivative instruments along
             with risk assessment procedures and internal controls does not
             expose USX to material risk. The use of derivative instruments
             could materially affect USX's results of operations in particular
             quarterly or annual periods. However, management believes that use
             of these instruments will not have a material adverse effect on
             financial position or liquidity. For a summary of accounting
             policies related to derivative instruments, see Note 1 to the USX
             Consolidated Financial Statements.

             Commodity Price Risk and Related Risks

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

                USX's market risk strategy has generally been to obtain
             competitive prices for its products and services and allow
             operating results to reflect market price movements dictated by
             supply and demand. However, USX uses fixed-price contracts and
             derivative commodity instruments to manage a relatively small
             portion of its commodity price risk. USX uses fixed-price contracts
             for portions of its natural gas production to manage exposure to
             fluctuations in natural gas prices. Certain derivative commodity
             instruments have the effect of restoring the equity portion of
             fixed-price sales of natural gas to variable market-based pricing.
             These instruments are used as part of USX's overall risk management
             programs.

U-60

<PAGE>
 
             Quantitative and Qualitative Disclosures
             About Market Risk continued

                Sensitivity analyses of the incremental effects on pretax
             income of hypothetical 10% and 25% changes in commodity prices for
             open derivative commodity instruments as of December 31, 2000 and
             December 31, 1999, are provided for the Marathon Group in the
             following table. While the U. S. Steel Group uses derivative
             commodity instruments, its usage is immaterial to the results of
             operations.


<TABLE> 
<CAPTION> 
             (Dollars in millions)
             -----------------------------------------------------------------------------------
                                                            Incremental Decrease in 
                                                           Pretax Income Assuming a 
                                                               Hypothetical Price
                                                                  Change of/(a)/
                                                         2000                 1999
             Derivative Commodity Instruments       10%      25%          10%       25%
             ----------------------------------------------------------------------------------- 
             <S>                                  <C>     <C>             <C>     <C>      
              Marathon Group/(b)(c)/:
              Crude oil/(d)/
               Trading                            $    -  $    -  /(e)/   $ 1.3   $ 7.7 /(e)/
               Other than trading                    9.1    27.2  /(e)/    16.5    54.0 /(e)/
              Natural gas/(d)/
               Trading                                 -       -  /(e)/       -       - /(f)/
               Other than trading                   20.2    50.6  /(e)/     4.7    16.8 /(f)/
              Refined products/(d)/
               Trading                                 -       -  /(e)/       -       - /(e)/
               Other than trading                    6.1    16.5  /(e)/     8.4    23.8 /(e)/
             -----------------------------------------------------------------------------------
</TABLE>


             /(a)/  Gains and losses on derivative commodity instruments are
                    generally offset by price changes in the underlying
                    commodity. Effects of these offsets are not reflected in the
                    sensitivity analyses. Amounts reflect the estimated
                    incremental effect on pretax income of hypothetical 10% and
                    25% changes in closing commodity prices for each open
                    contract position at December 31, 2000 and December 31,
                    1999. Marathon Group management evaluates their portfolio of
                    derivative commodity instruments on an ongoing basis and
                    adds or revises strategies to reflect anticipated market
                    conditions and changes in risk profiles. Changes to the
                    portfolio subsequent to December 31, 2000, would cause
                    future pretax income effects to differ from those presented
                    in the table.
             /(b)/  The number of net open contracts varied throughout 2000,
                    from a low of 12,252 contracts at July 5, to a high of
                    34,554 contracts at October 25, and averaged 21,875 for the
                    year. The derivative commodity instruments used and hedging
                    positions taken also varied throughout 2000, and will
                    continue to vary in the future. Because of these variations
                    in the composition of the portfolio over time, the number of
                    open contracts, by itself, cannot be used to predict future
                    income effects.
             /(c)/  The calculation of sensitivity amounts for basis swaps
                    assumes that the physical and paper indices are perfectly
                    correlated. Gains and losses on options are based on changes
                    in intrinsic value only.
             /(d)/  The direction of the price change used in calculating the
                    sensitivity amount for each commodity reflects that which
                    would result in the largest incremental decrease in pretax
                    income when applied to the derivative commodity instruments
                    used to hedge that commodity.
             /(e)/  Price increase.
             /(f)/  Price decrease.

                                                                            U-61

<PAGE>
 
             Quantitative and Qualitative Disclosures
             About Market Risk continued

                In total, Marathon's exploration and production operations
             recorded net pretax other than trading activity losses of
             approximately $34 million in 2000, gains of $3 million in 1999 and
             losses of $3 million in 1998.

                Marathon's refining, marketing and transportation operations
             generally use derivative commodity instruments to lock-in costs of
             certain crude oil and other feedstocks, to protect carrying values
             of inventories and to protect margins on fixed-price sales of
             refined products. Marathon's refining, marketing and transportation
             operations recorded net pretax other than trading activity losses,
             net of the 38% minority interest in MAP, of approximately $116
             million in 2000, and net pretax other than trading activity gains,
             net of the 38% minority interest in MAP, of $8 million in 1999 and
             $28 million in 1998. Marathon's refining, marketing and
             transportation operations used derivative instruments for trading
             activities and recorded net pretax trading activity losses, net of
             the 38% minority interest in MAP, of $11 million in 2000 and net
             pretax trading activity gains, net of the 38% minority interest in
             MAP, of $5 million in 1999.

                The U. S. Steel Group uses OTC commodity swaps to manage
             exposure to market risk related to the purchase of natural gas,
             heating oil and certain nonferrous metals. The U. S. Steel Group
             recorded net pretax other than trading activity gains of $2 million
             in 2000, losses of $4 million in 1999 and losses of $6 million in
             1998. These gains and losses were offset by changes in the realized
             prices of the underlying hedged commodities.

                For additional quantitative information relating to derivative
             commodity instruments, including aggregate contract values and fair
             values, where appropriate, see Note 24 to the USX Consolidated
             Financial Statements.

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

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

U-62

<PAGE>
 
             Quantitative and Qualitative Disclosures
             About Market Risk continued   

             Interest Rate Risk

                USX is subject to the effects of interest rate fluctuations on
             certain of its non-derivative financial instruments. A sensitivity
             analysis of the projected incremental effect of a hypothetical 10%
             decrease in year-end 2000 and 1999 interest rates on the fair value
             of USX's non-derivative financial instruments, is provided in the
             following table:

<TABLE>
<CAPTION>

             (Dollars in millions)
             ------------------------------------------------------------------------------------------------- 
             As of December 31,                                          2000                        1999
                                                                      Incremental                 Incremental
                                                                       Increase in                 Increase in
                                                             Fair         Fair         Fair          Fair
             Non-Derivative Financial Instruments/(a)/      Value/(b)/   Value/(c)/   Value/(b)/    Value/(c)/
             ------------------------------------------------------------------------------------------------- 
             <S>                                            <C>          <C>          <C>           <C>    
             Financial assets:                               
              Investments and long-term receivables/(d)/    $     211   $       -     $     190      $       -
             Financial liabilities:                                                                          
              Long-term debt/(e)(f)/                        $   4,549   $     166     $   4,278      $     164
              Preferred stock of subsidiary/(g)/                  238          20           239             21
              USX obligated mandatorily                                                                      
               redeemable convertible preferred                                                              
               securitiesof a subsidiary trust/(g)/               119          10           169             15
                                                            ---------   ---------     ---------      ---------
                 Total liabilities                          $   4,906   $     196     $   4,686      $     200
             -------------------------------------------------------------------------------------------------
</TABLE>
 

             /(a)/  Fair values of cash and cash equivalents, receivables, notes
                    payable, accounts payable and accrued interest, approximate
                    carrying value and are relatively insensitive to changes in
                    interest rates due to the short-term maturity of the
                    instruments. Accordingly, these instruments are excluded
                    from the table.
             /(b)/  See Note 25 to the USX Consolidated Financial Statements for
                    carrying value of instruments.
             /(c)/  Reflects, by class of financial instrument, the estimated
                    incremental effect of a hypothetical 10% decrease in
                    interest rates at December 31, 2000 and December 31, 1999,
                    on the fair value of USX's non-derivative financial
                    instruments. For financial liabilities, this assumes a 10%
                    decrease in the weighted average yield to maturity of USX's
                    long-term debt at December 31, 2000 and December 31, 1999.
             /(d)/  For additional information, see Note 12 to the USX
                    Consolidated Financial Statements.
             /(e)/  Includes amounts due within one year.
             /(f)/  Fair value was based on market prices where available, or
                    current borrowing rates for financings with similar terms
                    and maturities. For additional information, see Note 14 to
                    the USX Consolidated Financial Statements.
             /(g)/  See Note 22 to the USX Consolidated Financial Statements.

                At December 31, 2000, USX's portfolio of long-term debt was
             comprised primarily of fixed-rate instruments. Therefore, the fair
             value of the portfolio is relatively sensitive to effects of
             interest rate fluctuations. This sensitivity is illustrated by the
             $166 million increase in the fair value of long-term debt assuming
             a hypothetical 10% decrease in interest rates. However, USX's
             sensitivity to interest rate declines and corresponding increases
             in the fair value of its debt portfolio would unfavorably affect
             USX's results and cash flows only to the extent that USX elected to
             repurchase or otherwise retire all or a portion of its fixed-rate
             debt portfolio at prices above carrying value.

             Foreign Currency Exchange Rate Risk

                USX is subject to the risk of price fluctuations related to
             anticipated revenues and operating costs, firm commitments for
             capital expenditures and existing assets or liabilities denominated
             in currencies other than U.S. dollars, such as the Euro, the Slovak
             koruna and the Canadian dollar. USX has not generally used
             derivative instruments to manage this risk. However, USX has made
             limited use of forward currency contracts to manage exposure to
             certain currency price fluctuations. At December 31, 2000, USX had
             open Canadian dollar forward purchase contracts with a total
             carrying value of approximately $14 million compared to $52 million
             at December 31, 1999.  A 10% increase in the December 31, 2000,
             Canadian dollar to U.S. dollar forward rate, would result in a
             charge to income of approximately $1 million. Last year, a 10%
             increase in the December 31, 1999, Canadian dollar to U.S. dollar
             forward rate, would have resulted in a charge to income of $5
             million.
 
                                                                            U-63

<PAGE>
 
             Quantitative and Qualitative Disclosures
             About Market Risk continued

             Equity Price Risk

                USX is subject to equity price risk and liquidity risk related
             to its investment in VSZ, which is attributed to the U. S. Steel
             Group. These risks are not readily quantifiable.

             Safe Harbor

                USX's quantitative and qualitative disclosures about market risk
             include forward-looking statements with respect to management's
             opinion about risks associated with USX's use of derivative
             instruments. These statements are based on certain assumptions with
             respect to market prices and industry supply of and demand for
             crude oil, natural gas, refined products, steel products and
             certain raw materials. To the extent that these assumptions prove
             to be inaccurate, future outcomes with respect to USX's hedging
             programs may differ materially from those discussed in the forward-
             looking statements.

U-64

<PAGE>
 
          Marathon Group

               Index to Financial Statements, Supplementary Data,
               Management's Discussion and Analysis, and
               Quantitative and Qualitative Disclosures About Market Risk
 

<TABLE> 
<CAPTION> 
                                                                           Page 
                                                                           ----
<S>                                                                        <C>  
Management's Report......................................................  M-1
Audited Financial Statements:
 Report of Independent Accountants.......................................  M-1
 Statement of Operations.................................................  M-2
 Balance Sheet...........................................................  M-3
 Statement of Cash Flows.................................................  M-4
 Notes to Financial Statements...........................................  M-5
Selected Quarterly Financial Data........................................  M-21
Principal Unconsolidated Affiliates......................................  M-21
Supplementary Information................................................  M-21
Five-Year Operating Summary..............................................  M-22
Five-Year Financial Summary..............................................  M-24
Management's Discussion and Analysis.....................................  M-25
Quantitative and Qualitative Disclosures About Market Risk...............  M-37
</TABLE>


<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 accounting principles generally accepted in the United States. 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.


Thomas J. Usher                    Robert M. Hernandez        Larry G. Schultz
Chairman, Board of Directors &     Vice Chairman &            Vice President-
Chief Executive Officer            Chief Financial Officer    Accounting
 


Report of Independent Accountants

To the Stockholders of USX Corporation:

In our opinion, the accompanying financial statements appearing on pages M-2
through M-20 present fairly, in all material respects, the financial position of
the Marathon Group at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America. 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 auditing standards generally accepted in the
United States of America, 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 our opinion.

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


PricewaterhouseCoopers LLP
600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
February 7, 2001


                                                                             M-1

<PAGE>
 
Statement of Operations


<TABLE> 
<CAPTION> 
(Dollars in millions)                                       2000       1999     1998
--------------------------------------------------------------------------------------  
<S>                                                        <C>       <C>       <C> 
Revenues and other income:
 Revenues (Note 6)                                         $34,487   $23,590   $21,274
 Dividend and investee income                                  102        69        50
 Net gains (losses) on disposal of assets (Note 26)           (785)        -        28
 Gain on ownership change in
  Marathon Ashland Petroleum LLC (Note 5)                       12        17       245
 Other income                                                   43        31        26
                                                           -------   -------   -------
    Total revenues and other income                         33,859    23,707    21,623
                                                           -------   -------   -------
Costs and expenses:
 Cost of revenues (excludes items shown below)              25,477    16,653    14,630
 Selling, general and administrative expenses                  625       486       505
 Depreciation, depletion and amortization                    1,245       950       941
 Taxes other than income taxes                               4,626     4,218     4,029
 Exploration expenses                                          238       238       313
 Inventory market valuation charges (credits) (Note 20)          -      (551)      267
                                                           -------   -------   -------
    Total costs and expenses                                32,211    21,994    20,685
                                                           -------   -------   -------
Income from operations                                       1,648     1,713       938
Net interest and other financial costs (Note 6)                236       288       237
Minority interest in income of
 Marathon Ashland Petroleum LLC (Note 5)                       498       447       249
                                                           -------   -------   -------
Income before income taxes                                     914       978       452
Provision for income taxes (Note 18)                           482       324       142
                                                           -------   -------   -------
Net income                                                 $   432   $   654   $   310
--------------------------------------------------------------------------------------               
            
Income Per Common Share
                                                             2000     1999       1998
--------------------------------------------------------------------------------------               
Basic                                                      $  1.39   $  2.11   $  1.06
Diluted                                                       1.39      2.11      1.05
--------------------------------------------------------------------------------------  
</TABLE>


See Note 7, for a description and computation of income per common share.
The accompanying notes are an integral part of these financial statements.
             
M-2

<PAGE>
 
Balance Sheet


<TABLE> 
<CAPTION> 
(Dollars in millions)                                           December 31       2000         1999
----------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>          <C>
Assets
Current assets:
 Cash and cash equivalents                                                      $    340     $    111
 Receivables, less allowance for doubtful accounts
  of $3 and $2                                                                     2,267        1,887
 Inventories (Note 20)                                                             1,867        1,884
 Assets held for sale (Note 26)                                                      330           84
 Deferred income tax benefits (Note 18)                                               60           23
 Other current assets                                                                121           92
                                                                                --------     -------- 
    Total current assets                                                           4,985        4,081

Investments and long-term receivables (Note 19)                                      362          762
Property, plant and equipment - net (Note 16)                                      9,375       10,293
Prepaid pensions (Note 14)                                                           207          225
Other noncurrent assets                                                              303          313
                                                                                --------     -------- 
    Total assets                                                                $ 15,232     $ 15,674
----------------------------------------------------------------------------------------------------- 
Liabilities
Current liabilities:
 Notes payable                                                                  $     80     $      -

 Accounts payable                                                                  3,021        2,654
 Income taxes payable (Note 23)                                                      364           97
 Payroll and benefits payable                                                        230          146
 Accrued taxes                                                                       108          107
 Accrued interest                                                                     61           92
 Long-term debt due within one year (Note 12)                                        148           48
                                                                                --------     -------- 
    Total current liabilities                                                      4,012        3,144

Long-term debt (Note 12)                                                           1,937        3,320
Deferred income taxes (Note 18)                                                    1,354        1,495
Employee benefits (Note 14)                                                          648          564
Deferred credits and other liabilities (Note 23)                                     412          414
Preferred stock of subsidiary (Note 9)                                               184          184

Minority interest in Marathon Ashland Petroleum LLC (Note 5)                       1,840        1,753

Common Stockholders' Equity (Note 17)                                              4,845        4,800
                                                                                --------     -------- 
    Total liabilities and common stockholders' equity                           $ 15,232     $ 15,674
----------------------------------------------------------------------------------------------------- 
</TABLE>
 

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

                                                                             M-3

<PAGE>
 
Statement of Cash Flows


<TABLE> 
<CAPTION> 
(Dollars in millions)                                                                2000         1999          1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>          <C>          <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income                                                                          $   432      $   654      $   310
Adjustments to reconcile to net cash provided
 from operating activities:
  Minority interest in income of
   Marathon Ashland Petroleum LLC                                                       498          447          249
  Depreciation, depletion and amortization                                            1,245          950          941
  Exploratory dry well costs                                                             86          109          186
  Inventory market valuation charges (credits)                                            -         (551)         267
  Pensions and other postretirement benefits                                             69           36           34
  Deferred income taxes                                                                (240)         105           26
  Gain on ownership change in
   Marathon Ashland Petroleum LLC                                                       (12)         (17)        (245)
  Net (gains) losses on disposal of assets                                              785            -          (28)
  Changes in: Current receivables                                                      (377)        (844)         240
              Inventories                                                                17          (63)         (13)
              Current accounts payable and accrued expenses                             717        1,106         (233)
  All other - net                                                                       (62)          84          (92)
                                                                                    -------      -------      ------- 
     Net cash provided from operating activities                                      3,158        2,016        1,642
                                                                                    -------      -------      ------- 
Investing activities:
Capital expenditures                                                                 (1,425)      (1,378)      (1,270)
Acquisition of Tarragon Oil and Gas Limited                                               -            -         (686)
Disposal of assets                                                                      539          356           65
Restricted cash - withdrawals                                                           271           45           11
                - deposits                                                             (268)         (44)         (32)
Investees - investments                                                                 (65)         (59)         (42)
          - loans and advances                                                           (6)         (70)        (103)
          - returns and repayments                                                       10            1           71
All other - net                                                                          21          (25)         (18)
                                                                                    -------      -------      ------- 
     Net cash used in investing activities                                             (923)      (1,174)      (2,004)
                                                                                    -------      -------      -------  
Financing activities (Note 9):
Increase (decrease) in Marathon
 Group's portion of
 USX consolidated debt                                                               (1,200)        (296)         329
Specifically attributed debt:
 Borrowings                                                                             273          141          366
 Repayments                                                                            (279)        (144)        (389)
Marathon Stock - issued                                                                   -           89          613
               - repurchased                                                           (105)           -            -
Treasury common stock reissued                                                            1            -            -
Dividends paid                                                                         (274)        (257)        (246)
Distributions to minority shareholder of
 Marathon Ashland Petroleum LLC                                                        (420)        (400)        (211)
                                                                                    -------      -------      -------  
     Net cash provided from (used in) financing activities                           (2,004)        (867)         462
                                                                                    -------      -------      -------  
Effect of exchange rate changes on cash                                                  (2)          (1)           1
                                                                                    -------      -------      -------  
Net increase (decrease) in cash and cash equivalents                                    229          (26)         101

Cash and cash equivalents at beginning of year                                          111          137           36
                                                                                    -------      -------      -------  
Cash and cash equivalents at end of year                                            $   340      $   111      $   137
---------------------------------------------------------------------------------------------------------------------
</TABLE>
 

See Note 13 for supplemental cash flow information.
The accompanying notes are an integral part of these financial statements.

M-4

<PAGE>
 
                         Notes to Financial Statements


1.   Basis of Presentation

               USX Corporation (USX) has two classes of common stock: USX -
               Marathon Group Common Stock (Marathon Stock) and USX - U. S.
               Steel Group Common Stock (Steel Stock), which are intended to
               reflect the performance of the Marathon Group and the U. S. Steel
               Group, respectively.

                    The financial statements of the Marathon Group include the
               financial position, results of operations and cash flows for the
               businesses of Marathon Oil Company (Marathon) 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 financial statements are prepared using the amounts
               included in the USX consolidated financial statements. For a
               description of the Marathon Group's operating segments, see Note
               10.

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

--------------------------------------------------------------------------------
2.   Summary of Principal Accounting Policies

                    Principles applied in consolidation - These financial
               statements include the accounts of the businesses comprising the
               Marathon Group. The Marathon Group and the U. S. Steel Group
               financial statements, taken together, comprise all of the
               accounts included in the USX consolidated financial statements.

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

                    Investments in 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 loans and advances.

                    Investments in companies whose stock is publicly traded are
               carried at market value. The difference between the cost of these
               investments and market value is recorded in other comprehensive
               income (net of tax). Investments in companies whose stock has no
               readily determinable fair value are carried at cost.

                    Dividend and investee income includes the Marathon Group's
               proportionate share of income from equity method investments and
               dividend income from other investments. Dividend income is
               recognized when dividend payments are received.

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

               Use of estimates - Generally accepted accounting principles
               require management to make estimates and assumptions that affect
               the reported amounts of assets and liabilities, the disclosure of
               contingent assets and liabilities at year-end and the reported
               amounts of revenues and expenses during the year. Significant
               items subject to such estimates and assumptions include the
               carrying value of long-lived assets; valuation allowances for
               receivables, inventories and deferred income tax assets;
               environmental liabilities; liabilities for potential tax
               deficiencies and potential litigation claims and settlements; and
               assets and obligations related to employee benefits.
               Additionally, certain estimated liabilities are recorded when
               management commits to a plan to close an operating facility or to
               exit a business activity. Actual results could differ from the
               estimates and assumptions used.

                                                                             M-5

<PAGE>
 
               Revenue recognition - Revenues are recognized generally when
               products are shipped or services are provided to customers, the
               sales price is fixed and determinable, and collectibility is
               reasonably assured. Costs associated with revenues, including
               shipping and other transportation costs, are recorded in cost of
               revenues. Matching buy/sell transactions settled in cash are
               recorded in both revenues and cost of revenues as separate sales
               and purchase transactions, with no net effect on income. The
               Marathon Group follows the sales method of accounting for gas
               production imbalances and would recognize a liability if the
               existing proved reserves were not adequate to cover the current
               imbalance situation.

               Cash and cash equivalents - Cash and cash equivalents include
               cash on hand and on deposit and investments in 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 uses commodity-based
               and foreign currency derivative instruments to manage its
               exposure to price risk. Management is authorized to use futures,
               forwards, swaps and options related to the purchase, production
               or sale of crude oil, natural gas, refined products and
               electricity. While the Marathon Group's 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 price risk.

                    Commodity-Based Hedging Transactions - For transactions that
                    qualify for hedge accounting, the resulting gains or losses
                    are deferred and subsequently recognized in income from
                    operations, as a component of revenues or cost of revenues,
                    in the same period as the underlying physical transaction.
                    To qualify for hedge accounting, derivative positions cannot
                    remain open if the underlying physical market risk has been
                    removed. If such derivative positions remain in place, they
                    would be marked-to-market and accounted for as trading or
                    other activities. Recorded deferred gains or losses are
                    reflected within other current and noncurrent assets or
                    accounts payable and deferred credits and other liabilities,
                    as appropriate.

                    Commodity-Based Trading and Other Activities - Derivative
                    instruments used for trading and other activities are 
                    marked-to-market and the resulting gains or losses are
                    recognized in the current period within income from
                    operations. This category also includes the use of
                    derivative instruments that have no offsetting underlying
                    physical market risk.

                    Foreign Currency Transactions - The Marathon Group uses
                    forward exchange contracts to manage currency risks. Gains
                    or losses related to firm commitments are deferred and
                    recognized concurrent with the underlying transaction. All
                    other gains or losses are recognized in income in the
                    current period as revenues, cost of revenues, interest
                    income or expense, or other income, as appropriate. Forward
                    exchange contracts are recorded as receivables or payables,
                    as appropriate.

               Exploration and development - The Marathon Group follows the
               successful efforts method of accounting for oil and gas
               exploration and development.

               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.

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

                    When long-lived assets depreciated on an individual basis
               are sold or otherwise disposed of, any gains or losses are
               reflected in income. Gains on disposal of long-lived assets are
               recognized when earned, which is generally at the time of
               closing. If a loss on disposal is expected, such losses are
               recognized when long-lived assets are reclassified as assets held
               for sale. Proceeds from disposal of long-lived assets depreciated
               on a group basis are credited to accumulated depreciation,
               depletion and amortization with no immediate effect on income.

M-6

<PAGE>
 
               Major maintenance activities - The Marathon Group incurs planned
               major maintenance costs primarily for refinery turnarounds. Such
               costs are expensed in the same annual period as incurred;
               however, estimated annual turnaround costs are recognized in
               income throughout the year on a pro rata basis.

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

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

               Reclassifications - Certain reclassifications of prior years'
               data have been made to conform to 2000 classifications.

--------------------------------------------------------------------------------
3.   New Accounting Standards

               In the fourth quarter of 2000, USX adopted the following
               accounting pronouncements primarily related to the classification
               of items in the statement of operations. The adoption of these
               new pronouncements had no net effect on the financial position or
               results of operations of the Marathon Group, although they
               required reclassifications of certain amounts in the statement of
               operations, including all prior periods presented.

                    .    In December 1999, the Securities and Exchange
                         Commission (SEC) issued Staff Accounting Bulletin No.
                         101 (SAB 101) "Revenue Recognition in Financial
                         Statements," which summarizes the SEC staff's
                         interpretations of generally accepted accounting
                         principles related to revenue recognition and
                         classification.

                    .    In 2000, the Emerging Issues Task Force of the
                         Financial Accounting Standards Board (EITF) issued EITF
                         Consensus No. 99-19 "Reporting Revenue Gross as a
                         Principal versus Net as an Agent," which addresses
                         whether certain items should be reported as a reduction
                         of revenue or as a component of both revenues and cost
                         of revenues, and EITF Consensus No. 00-10 "Accounting
                         for Shipping and Handling Fees and Costs," which
                         addresses the classification of costs incurred for
                         shipping goods to customers.

                    In June 1998, the Financial Accounting Standards Board
               issued Statement of Financial Accounting Standards No. 133,
               "Accounting for Derivative Instruments and Hedging Activities"
               (SFAS No. 133), which later was amended by SFAS Nos. 137 and 138.
               This Standard requires recognition of all derivatives as either
               assets or liabilities at fair value. Changes in fair value will
               be reflected in either current period net income or other
               comprehensive income, depending on the designation of the
               derivative instrument. The Marathon Group may elect not to
               designate a derivative instrument as a hedge even if the strategy
               would be expected to qualify for hedge accounting treatment. The
               adoption of SFAS No. 133 will change the timing of recognition
               for derivative gains and losses as compared to previous
               accounting standards.

                    The Marathon Group will adopt the Standard effective January
               1, 2001. The transition adjustment resulting from the adoption of
               SFAS No. 133 will be reported as a cumulative effect of a change
               in accounting principle. The unfavorable cumulative effect on net
               income, net of tax, is expected to approximate $9 million. The
               unfavorable cumulative effect on other comprehensive income, net
               of tax, will approximate $7 million. The amounts reported as
               other comprehensive income will be reflected in net income when
               the anticipated physical transactions are consummated. It is not
               possible to estimate the effect that this Standard will have on
               future results of operations.

                                                                             M-7

<PAGE>
 
--------------------------------------------------------------------------------
4.   Corporate Activities

               Financial activities - As a matter of policy, USX manages most
               financial activities on a centralized, consolidated basis. Such
               financial activities include the investment of surplus cash; the
               issuance, repayment and repurchase of short-term and long-term
               debt; the issuance, repurchase and redemption of preferred stock;
               and the issuance and repurchase of common stock. Transactions
               related primarily to invested cash, short-term and long-term debt
               (including convertible debt), related net interest and other
               financial costs, and preferred stock and related dividends are
               attributed to the Marathon Group 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 groups. See Note 9, for the Marathon Group's
               portion of USX's financial activities attributed to all groups.
               However, transactions such as leases, certain collaterized
               financings, certain indexed debt instruments, financial
               activities of consolidated entities which are less than wholly
               owned by USX and transactions related to securities convertible
               solely into any one class of common stock are or will be
               specifically attributed to and reflected in their entirety in the
               financial statements of the group to which they relate.

               Corporate general and administrative costs - Corporate general
               and administrative costs are allocated to the Marathon Group 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 revenues. The costs allocated to the Marathon Group were $36
               million in 2000, $26 million in 1999 and $28 million in 1998, and
               primarily consist of employment costs including pension effects,
               professional services, facilities and other related costs
               associated with corporate activities.

               Income taxes - All members of the USX affiliated group are
               included in the consolidated United States federal income tax
               return filed by USX. Accordingly, the provision for federal
               income taxes and the related payments or refunds of tax are
               determined on a consolidated basis. The consolidated provision
               and the related tax payments or refunds have been reflected in
               the 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 between the Marathon Group
               and the U. S. Steel Group for group financial statement purposes,
               based principally upon the financial income, taxable income,
               credits, preferences and other amounts directly related to the
               respective groups.

                    For tax provision and settlement purposes, tax benefits
               resulting from attributes (principally net operating losses and
               various tax credits), which cannot be utilized by one of the
               groups on a separate return basis but which can be utilized on a
               consolidated basis in that year or in a carryback year, are
               allocated to the group that generated the attributes. To the
               extent that one of the groups is allocated a consolidated tax
               attribute which, as a result of expiration or otherwise, is not
               ultimately utilized on the consolidated tax return, the prior
               years' allocation of such attribute is adjusted such that the
               effect of the expiration is borne by the group that generated the
               attribute. Also, if a tax attribute cannot be utilized on a
               consolidated basis in the year generated or in a carryback year,
               the prior years' allocation of such consolidated tax effects is
               adjusted in a subsequent year to the extent necessary to allocate
               the tax benefits to the group that would have realized the tax
               benefits on a separate return basis. As a result, the allocated
               group amounts of taxes payable or refundable are not necessarily
               comparable to those that would have resulted if the groups had
               filed separate tax returns.

--------------------------------------------------------------------------------
5.   Business Combinations

               In August 1998, Marathon acquired Tarragon Oil and Gas Limited
               (Tarragon), a Canadian oil and gas exploration and production
               company. Securityholders of Tarragon received, at their election,
               Cdn$14.25 for each Tarragon share, or the economic equivalent in
               Exchangeable Shares of an indirect Canadian subsidiary of
               Marathon, which are exchangeable solely on a one-for-one basis
               into Marathon Stock. The purchase price included cash payments of
               $686 million, issuance of 878,074 Exchangeable Shares valued at
               $29 million and the assumption of $345 million in debt.

                    The Exchangeable Shares are exchangeable at the option of
               the holder at any time and automatically redeemable on August 11,
               2003 (and, in certain circumstances, as early as August 11,
               2001). The holders of Exchangeable Shares are entitled to receive
               declared dividends equivalent to dividends declared from time to
               time by USX on Marathon Stock.

                    USX accounted for the acquisition using the purchase method
               of accounting. The 1998 results of operations include the
               operations of Marathon Canada Limited, formerly known as
               Tarragon, commencing August 12, 1998.

M-8

<PAGE>
 
                    During 1997, Marathon and Ashland Inc. (Ashland) agreed to
               combine the major elements of their refining, marketing and
               transportation (RM&T) operations. On January 1, 1998, Marathon
               transferred certain RM&T net assets to Marathon Ashland Petroleum
               LLC (MAP), a new consolidated subsidiary. Also on January 1,
               1998, Marathon acquired certain RM&T net assets from Ashland in
               exchange for a 38% interest in MAP. The acquisition was accounted
               for under the purchase method of accounting. The purchase price
               was determined to be $1.9 billion, based upon an external
               valuation. The change in Marathon's ownership interest in MAP
               resulted in a gain of $245 million in 1998. In accordance with
               MAP closing agreements, Marathon and Ashland have made capital
               contributions to MAP for environmental improvements. The closing
               agreements stipulate that ownership interests in MAP will not be
               adjusted as a result of such contributions. Accordingly, Marathon
               recognized a gain on ownership change of $12 million in 2000 and
               $17 million in 1999.

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

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

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


<TABLE> 
<CAPTION> 
               (In millions)                                        2000     1999     1998
               ----------------------------------------------------------------------------
               <S>                                                  <C>      <C>      <C> 
               Net interest and other financial costs

                 Interest and other financial income/(a)/:
                   Interest income                                  $  26    $  15    $  30
                   Other                                               (2)     (13)       4
                                                                    -----    -----    -----
                     Total                                             24        2       34
                                                                    -----    -----    -----
                 Interest and other financial costs/(a)/:
                   Interest incurred                                  240      281      285
                   Less interest capitalized                           16       20       40
                                                                    -----    -----    -----
                    Net interest                                      224      261      245
                   Interest on tax issues                               6        5        5
                   Financial costs on preferred stock of subsidiary    17       17       17
                   Amortization of discounts                            2        2        4
                   Other                                               11        5        -
                                                                    -----    -----    -----
                     Total                                            260      290      271
                                                                    -----    -----    -----
                 Net interest and other financial costs/(a)/        $ 236    $ 288    $ 237
               ----------------------------------------------------------------------------
               /(a)/ See Note 4, for discussion of USX net interest and other financial 
               costs attributable to the Marathon Group.
               ----------------------------------------------------------------------------
</TABLE>
 
 
               Foreign currency transactions

                 For 2000, 1999 and 1998, the aggregate foreign currency
                 transaction gains (losses) included in determining net income
                 were $30 million, $(12) million and $13 million, respectively.

               Consumer excise taxes

                 Included in revenues and costs and expenses for 2000, 1999 and
                 1998 were $4,344 million, $3,973 million and $3,824 million,
                 respectively, representing consumer excise taxes on petroleum
                 products and merchandise.

--------------------------------------------------------------------------------
7.   Income Per Common Share

               The method of calculating net income per share for the Marathon
               Stock and the Steel Stock reflects the USX Board of Directors'
               intent that the separately reported earnings and surplus of the
               Marathon Group and the U. S. Steel Group, as determined
               consistent with the USX Restated Certificate of Incorporation,
               are available for payment of dividends to the respective classes
               of stock, although legally available funds and liquidation
               preferences of these classes of stock do not necessarily
               correspond with these amounts.

                                                                             M-9

<PAGE>
 
                    Basic net income per share is based on the weighted average
               number of common shares outstanding. Diluted net income per share
               assumes exercise of stock options, provided the effect is not
               antidilutive.


<TABLE> 
<CAPTION> 
                                                                 2000               1999                1998
                                                          ------------------  ------------------  ------------------ 
          Computation of Income Per Share                   Basic   Diluted     Basic   Diluted     Basic    Diluted  
          -------------------------------                 --------  --------  --------  --------  --------  --------
          <S>                                             <C>       <C>       <C>       <C>       <C>       <C> 
          Net income (millions)                           $    432  $    432  $    654  $    654  $    310  $    310       
                                                          ========  ========  ========  ========  ========  ========       
          Shares of common stock outstanding (thousands):                                                                  
           Average number of common shares outstanding     311,531   311,531   309,696   309,696   292,876   292,876       
           Effect of dilutive securities -                                                                                 
            Stock options                                        -       230         -       314         -       559       
                                                          --------  --------  --------  --------  --------  --------       
              Average common shares and dilutive effect    311,531   311,761   309,696   310,010   292,876   293,435       
                                                          ========  ========  ========  ========  ========  ========       
          Net income per share                            $   1.39  $   1.39  $   2.11  $   2.11  $   1.06  $   1.05  
                                                          ========  ========  ========  ========  ========  ======== 
</TABLE>


--------------------------------------------------------------------------------
8.   Transactions Between MAP and Ashland

               At December 31, 2000 and 1999, MAP had current receivables from
               Ashland of $35 million and $26 million, respectively, and current
               payables to Ashland of $2 million.

                    MAP has a $190 million revolving credit agreement with
               Ashland. Interest on borrowings is based on defined short-term
               market rates. At December 31, 2000 and 1999, there were no
               borrowings against this facility.

                    During 2000, 1999 and 1998, MAP's sales to Ashland,
               consisting primarily of petroleum products, were $285 million,
               $198 million and $190 million, respectively, and MAP's purchases
               of products and services from Ashland were $26 million, $22
               million and $47 million, respectively. These transactions were
               conducted under terms comparable to those with unrelated parties.

--------------------------------------------------------------------------------
9.   Financial Activities Attributed to Groups

               The following is the portion of USX financial activities
               attributed to the Marathon Group. These amounts exclude amounts
               specifically attributed to the Marathon Group.


<TABLE>
<CAPTION>
                                                                   Marathon Group        Consolidated USX/(a)/  
                                                                 ------------------      ---------------------- 
               (In millions)                      December 31     2000        1999        2000            1999  
               ------------------------------------------------------------------------------------------------ 
               <S>                                               <C>         <C>         <C>             <C>    
               Cash and cash equivalents                         $  193      $    8      $  364          $    9 
               Other noncurrent assets                                4           7           7               8 
                                                                 ------      ------      ------          ------  
                    Total assets                                 $  197      $   15      $  371          $   17 
               ------------------------------------------------------------------------------------------------ 
               Notes payable                                     $   80      $    -      $  150          $    - 
               Accrued interest                                      50          82          95              95 
               Long-term debt due within one year (Note 12)         147          47         277              54 
               Long-term debt (Note 12)                           1,930       3,305       3,734           3,771 
               Preferred stock of subsidiary                        184         184         250             250 
                                                                 ------      ------      ------          ------ 
                    Total liabilities                            $2,391      $3,618      $4,506          $4,170 
               ------------------------------------------------------------------------------------------------  

<CAPTION> 
                                                                  Marathon Group/(b)/        Consolidated USX   
                                                                 --------------------      -------------------- 
               (In millions)                                     2000    1999    1998      2000    1999    1998 
               ------------------------------------------------------------------------------------------------ 
               <S>                                               <C>     <C>     <C>       <C>     <C>     <C>  
               Net interest and other financial costs (Note 6)   $250    $295    $295      $309    $334    $324 
               ------------------------------------------------------------------------------------------------  
</TABLE>

               /(a)/  For details of USX long-term debt and preferred stock of
                      subsidiary, see Notes 14 and 22, respectively, to the USX
                      consolidated financial statements.
               /(b)/  The Marathon Group's net interest and other financial
                      costs reflect weighted average effects of all financial
                      activities attributed to all groups.

--------------------------------------------------------------------------------
10.  Segment Information

               The Marathon Group's operations consist of three reportable
               operating segments: 1) Exploration and Production - explores for
               and produces crude oil and natural gas on a worldwide basis; 2)
               Refining, Marketing and Transportation - refines, markets and
               transports crude oil and petroleum products, primarily in the
               Midwest and southeastern United States through MAP; and 3) Other
               Energy Related Businesses. Other Energy Related Businesses is an
               aggregation of two segments which fall below the quantitative
               reporting thresholds: 1) Natural Gas and Crude Oil Marketing and
               Transportation - markets and transports its own and third-party
               natural gas and crude oil in the United States; and

               2)   Power Generation - develops, constructs and operates
               independent electric power projects worldwide.

                    Revenues by product line are:

               (In millions)                         2000       1999       1998
               -----------------------------------------------------------------
               Refined products                    $22,514    $15,181    $12,852
               Merchandise                           2,441      2,194      1,941
               Liquid hydrocarbons                   6,856      4,587      5,023
               Natural gas                           2,518      1,429      1,187
               Transportation and other products       158        199        271
               -----------------------------------------------------------------

M-10

<PAGE>
 
     Segment income represents income from operations allocable to operating
segments. USX corporate general and administrative costs are not allocated to
operating segments. These costs primarily consist of employment costs including
pension effects, professional services, facilities and other related costs
associated with corporate activities. Certain general and administrative costs
related to all Marathon Group operating segments in excess of amounts billed to
MAP under service contracts and amounts charged out to operating segments under
Marathon's shared services procedures also are not allocated to operating
segments. Additionally, the following items are not allocated to operating
segments: inventory market valuation adjustments, gain on ownership change in
MAP and certain other items not allocated to operating segments for business
performance reporting purposes (see (a) in reconcilement table on page M-12).

     Information on assets by segment is not provided as it is not reviewed by
the chief operating decision maker.


<TABLE>
<CAPTION>
                                                                                Refining,          Other
                                                               Exploration      Marketing         Energy
                                                                   and             and            Related
(In millions)                                                   Production    Transportation     Businesses      Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>           <C>                 <C>            <C>
2000                                                                                                           
Revenues and other income:                                                                                     
  Customer                                                     $     4,184      $     28,693     $    1,550     $34,427
  Intersegment/(a)/                                                    412                83             78         573
  Intergroup/(a)/                                                       30                 1             29          60
  Equity in earnings of unconsolidated investees                        47                22             15          84
  Other                                                                 21                50             12          83
                                                               -----------      ------------     ----------     ------- 
   Total revenues and other income                             $     4,694      $     28,849     $    1,684     $35,227
                                                               ===========      ============     ==========     ======= 
Segment income                                                 $     1,535      $      1,273     $       38     $ 2,846
Significant noncash items included in segment income -                                                         
 Depreciation, depletion and amortization/(b)/                         723               315              3       1,041
Capital expenditures/(c)/                                              742               656              2       1,400
-----------------------------------------------------------------------------------------------------------------------
1999                                                                                                           
Revenues and other income:                                                                                     
  Customer                                                     $     2,856      $     19,962     $      731     $23,549
  Intersegment/(a)/                                                    202                47             40         289
  Intergroup/(a)/                                                       19                 -             22          41
  Equity in earnings (losses) of unconsolidated investees               (2)               17             26          41
  Other                                                                 30                50             15          95
                                                               -----------      ------------     ----------     -------  
   Total revenues and other income                             $     3,105      $     20,076     $      834     $24,015
                                                               ===========      ============     ==========     ======= 
Segment income                                                 $       618      $        611     $       61     $ 1,290
Significant noncash items included in segment income -                                                         
 Depreciation, depletion and amortization/(b)/                         638               280              5         923
Capital expenditures/(c)/                                              744               612              4       1,360
-----------------------------------------------------------------------------------------------------------------------
1998                                                                                                           
Revenues and other income:                                                                                     
  Customer                                                     $     1,905      $     19,018     $      306     $21,229
  Intersegment/(a)/                                                    144                10             17         171
  Intergroup/(a)/                                                       13                 -              7          20
  Equity in earnings of unconsolidated investees                         2                12             14          28
  Other                                                                 26                40             11          77
                                                               -----------      ------------     ----------     -------  
   Total revenues and other income                             $     2,090      $     19,080     $      355     $21,525
                                                               ===========      ============     ==========     ======= 
Segment income                                                 $       278      $        896     $       33     $ 1,207
Significant noncash items included in segment income -                                                         
 Depreciation, depletion and amortization/(b)/                         581               272              6         859
Capital expenditures/(c)/                                              839               410              8       1,257
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Intersegment and intergroup revenues and transfers were conducted under
      terms comparable to those with unrelated parties.
/(b)/ Differences between segment totals and group totals represent amounts
      included in administrative expenses and international and domestic oil and
      gas property impairments.
/(c)/ Differences between segment totals and group totals represent amounts
      related to corporate administrative activities.

                                                                            M-11

<PAGE>
 
     The following schedules reconcile segment amounts to amounts reported in
the Marathon Group financial statements:


<TABLE>
<CAPTION> 
(In millions)                                                              2000      1999      1998
----------------------------------------------------------------------------------------------------
<S>                                                                     <C>       <C>       <C>
Revenues and Other Income:                                              
 Revenues and other income of reportable segments                       $35,227   $24,015   $21,525
 Items not allocated to segments:                                       
  Joint venture formation charges                                          (931)        -         -
  Gain on ownership change in MAP                                            12        17       245
  Other                                                                     124       (36)       24
 Elimination of intersegment revenues                                      (573)     (289)     (171)
                                                                        -------   -------   -------
   Total Group revenues and other income                                $33,859   $23,707   $21,623
                                                                        =======   =======   =======    
                                                                                               
                                                                      
Income:                                                                 
 Income for reportable segments                                         $ 2,846   $ 1,290   $ 1,207
 Items not allocated to segments:                                       
  Joint venture formation charges                                          (931)        -         -
  Gain on ownership change in MAP                                            12        17       245
  Administrative expenses                                                  (136)     (108)     (106)
  Inventory market valuation adjustments                                      -       551      (267)
  Other/(a)/                                                               (143)      (37)     (141)
                                                                        -------   -------   -------
   Total Group income from operations                                   $ 1,648   $ 1,713   $   938
--------------------------------------------------------------------------------------------------- 
</TABLE>


/(a)/ Represents in 2000, certain oil and gas property impairments, net gains on
      certain asset sales and reorganization charges. Represents in 1999,
      primarily certain domestic oil and gas property impairments, net losses on
      certain asset sales and costs of a voluntary early retirement program.
      Represents in 1998, certain international oil and gas property
      impairments, certain suspended exploration well write-offs, a gas contract
      settlement and MAP transition charges.

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 and Other Income
                                        ---------------------------------------------
                                              Within          Between
(In millions)                 Year      Geographic Areas  Geographic Areas    Total     Assets/(a)/
--------------------------------------------------------------------------------------------------- 
<S>                           <C>       <C>               <C>                <C>        <C>
United States                 2000           $32,239           $     -        $32,239       $ 6,711
                              1999            22,716                 -         22,716         7,555
                              1998            20,837                 -         20,837         7,659

Canada                        2000               856               899          1,755           940
                              1999               426               521            947         1,112
                              1998               209               368            577         1,094

United Kingdom                2000               567                 -            567         1,698
                              1999               459                 -            459         1,581
                              1998               462                 -            462         1,739

Other Foreign Countries       2000               197               188            385           310
                              1999               106                88            194           735
                              1998               115                52            167           468

Eliminations                  2000                 -            (1,087)        (1,087)            -
                              1999                 -              (609)          (609)            -
                              1998                 -              (420)          (420)            -

  Total                       2000           $33,859           $     -        $33,859       $ 9,659
                              1999            23,707                 -         23,707        10,983
                              1998            21,623                 -         21,623        10,960
--------------------------------------------------------------------------------------------------- 
</TABLE>


/(a)/ Includes property, plant and equipment and investments.
--------------------------------------------------------------------------------

11.  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> 
               2001                                                            $     1     $     94  
               2002                                                                  1           83  
               2003                                                                  1           58  
               2004                                                                  1           50  
               2005                                                                  1          112  
               Later years                                                           5          109  
               Sublease rentals                                                      -          (18) 
                                                                               -------     -------- 
                 Total minimum lease payments                                       10     $    488  
                                                                               -------     ======== 
               Less imputed interest costs                                           3
                                                                               -------
                 Present value of net minimum lease payments                                             
                  included in long-term debt                                   $     7
               ------------------------------------------------------------------------------------ 

<CAPTION> 
                   Operating lease rental expense:                                                       
               (In millions)                                      2000          1999          1998 
               ------------------------------------------------------------------------------------  
               <S>                                                <C>           <C>           <C> 
               Minimum rental                                     $ 156         $ 149         $ 157 
               Contingent rental                                     13            11            10 
               Sublease rentals                                     (13)          (13)           (7)
                                                                  -----         -----        ------
                Net rental expense                                $ 156         $ 147         $ 160  
               ------------------------------------------------------------------------------------  
</TABLE>


M-12

<PAGE>
 
                    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 $104 million
               may be declared immediately due and payable.

--------------------------------------------------------------------------------
12.  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       2000          1999       2000           1999
               ------------------------------------------------------------------------------------------------------ 
               <S>                                                     <C>           <C>        <C>            <C>       
               Specifically attributed debt/(b)/:                                                                    
                Receivables facility                                   $    -        $    -     $  350         $  350
                Sale-leaseback financing and capital leases                 7            15         95            107
                Other                                                       1             1          4              1            
                                                                       ------        ------     ------         ------  
                   Total                                                    8            16        449            458
                Less amount due within one year                             1             1         10              7
                                                                       ------        ------     ------         ------  
                   Total specifically attributed long-term debt        $    7        $   15     $  439         $  451
               ------------------------------------------------------------------------------------------------------ 
               Debt attributed to groups/(c)/                          $2,090        $3,375     $4,036         $3,852
                Less unamortized discount                                  13            23         25             27
                Less amount due within one year                           147            47        277             54
                                                                       ------        ------     ------         ------
                   Total long-term debt attributed to groups           $1,930        $3,305     $3,734         $3,771
               ------------------------------------------------------------------------------------------------------ 
               Total long-term debt due within one year                $  148        $   48     $  287         $   61
               Total long-term debt due after one year                  1,937         3,320      4,173          4,222 
               ------------------------------------------------------------------------------------------------------ 
</TABLE>


               /(a)/ See Note 14, to the USX consolidated financial statements
                     for details of interest rates, maturities and other terms
                     of long-term debt.
               /(b)/ As described in Note 4, certain financial activities are
                     specifically attributed only to the Marathon Group and the
                     U. S. Steel Group.
               /(c)/ Most long-term debt activities of USX Corporation and its
                     wholly owned subsidiaries are attributed to all groups (in
                     total, but not with respect to specific debt issues) based
                     on their respective cash flows (Notes 4, 9 and 13).

--------------------------------------------------------------------------------
13.  Supplemental Cash Flow Information


<TABLE> 
<CAPTION> 
               (In millions)                                                                 2000        1999        1998     
               -------------------------------------------------------------------------------------------------------------  
               <S>                                                                        <C>          <C>          <C>        
               Cash used in operating activities included:                                                                       
                Interest and other financial costs paid (net of amount capitalized)       $   (270)    $   (289)    $   (260)    
                Income taxes paid, including settlements with the                                                                
                 U. S. Steel Group                                                            (468)        (101)        (154)    
               -------------------------------------------------------------------------------------------------------------
               USX debt attributed to all groups - net:                                                                          
                Commercial paper  - issued                                                $  3,362     $  6,282     $      -     
                                  - repayments                                              (3,450)      (6,117)           -     
                Credit agreements - borrowings                                                 437        5,529       17,486     
                                  - repayments                                                (437)      (5,980)     (16,817)
                Other credit arrangements - net                                                150          (95)          55      
                Other debt                - borrowings                                           -          319          671     
                                          - repayments                                         (54)         (87)      (1,053)    
                                                                                          --------     --------     -------- 
                   Total                                                                  $      8     $   (149)    $    342     
               ------------------------------------------------------------------------------------------------------------- 
                Marathon Group activity                                                   $ (1,200)    $   (296)    $    329     
                U. S. Steel Group activity                                                   1,208          147           13     
                                                                                          --------     --------     -------- 
                   Total                                                                  $      8     $   (149)    $    342
               -------------------------------------------------------------------------------------------------------------  
               Noncash investing and financing activities:                                                                       
                Marathon Stock issued for dividend reinvestment and                                                              
                 employee stock plans                                                     $     10     $      4     $      3     
                Marathon Stock issued for Exchangeable Shares                                    -            7           11     
                Investee preferred stock received in conversion of investee loan                 -          142            -     
                Disposal of assets:                                                                                              
                 Exchange of Sakhalin Energy Investment Company Ltd.                           410            -            -     
                 Notes received                                                                  6           19            -     
                Business combinations:                                                                                           
                 Acquisition of Tarragon:                                                                                        
                  Exchangeable Shares issued                                                     -            -           29     
                  Liabilities assumed                                                            -            -          433     
                 Acquisition of Ashland RM&T net assets:                                                                         
                  38% interest in MAP                                                            -            -        1,900     
                  Liabilities assumed                                                            -            -        1,038     
                 Other acquisitions - liabilities assumed                                        -           16            -      
               -------------------------------------------------------------------------------------------------------------  
</TABLE>


                                                                            M-13

<PAGE>
 
--------------------------------------------------------------------------------
14.  Pensions and Other Postretirement Benefits

                    The Marathon Group has noncontributory defined benefit
               pension plans covering substantially all employees. Benefits
               under these plans are based primarily upon years of service and
               final average pensionable earnings. Certain subsidiaries provide
               benefits for employees covered by other plans based primarily
               upon employees' service and career earnings. 

                    The Marathon Group also has defined benefit retiree health
               care and life insurance plans (other benefits) covering most
               employees upon their retirement. Health care benefits are
               provided through comprehensive hospital, surgical and major
               medical benefit provisions or through health maintenance
               organizations, both subject to various cost sharing features.
               Life insurance benefits are provided to certain nonunion and most
               union represented retiree beneficiaries primarily based on
               employees' annual base salary at retirement. Other benefits have 
               not been prefunded.


<TABLE>
<CAPTION>
                                                                        Pension Benefits             Other Benefits     
                                                                     ---------------------       ----------------------    
               (In millions)                                          2000         1999           2000           1999     
               -------------------------------------------------------------------------------------------------------- 
               <S>                                                   <C>          <C>            <C>           <C>        
               Change in benefit obligations                                                                         
               Benefit obligations at January 1                      $   868      $  1,080       $    478      $    597       
               Service cost                                               52            65             14            17      
               Interest cost                                              67            67             37            36      
               Plan amendments                                             6            18              1           (44)     
               Actuarial (gains) losses                                  121          (197)            46          (108)     
               Plan merger and acquisition                                 -            14              -             4      
               Settlements, curtailments and termination benefits        (99)         (122)            22             -      
               Benefits paid                                             (77)          (57)           (23)          (24)     
                                                                     -------      --------       --------      --------       
               Benefit obligations at December 31                    $   938      $    868       $    575      $    478      
               --------------------------------------------------------------------------------------------------------       
               Change in plan assets                                                                                         
               Fair value of plan assets at January 1                $ 1,310      $  1,331  
               Actual return on plan assets                               (8)          136  
               Plan merger and acquisition                                 -            12  
               Employer contributions                                      1             2  
               Trustee distributions/(a)/                                (18)          (16) 
               Settlements paid                                         (134)          (99) 
               Benefits paid from plan assets                            (72)          (56) 
                                                                     -------      --------  
               Fair value of plan assets at December 31              $ 1,079      $  1,310  
               --------------------------------------------------------------------------------------------------------       
               Funded status of plans at December 31                 $   141/(b)/ $    442 /(b)/ $   (575)     $   (478)    
               Unrecognized net gain from transition                     (18)          (26)             -             -     
               Unrecognized prior service costs (credits)                 59            63            (59)          (72)    
               Unrecognized actuarial (gains) losses                     (37)         (306)           115            68     
               Additional minimum liability                              (19)           (8)             -             -     
                                                                     -------      --------       --------      --------       
               Prepaid (accrued) benefit cost                        $   126      $    165       $   (519)     $   (482)       
               --------------------------------------------------------------------------------------------------------       
               /(a)/ Represents transfers of excess pension assets 
                     to fund retiree health care benefits accounts 
                     under Section 420 of the Internal Revenue Code.
               /(b)/ Includes several plans that have accumulated 
                      benefit obligations in excess of plan assets:
                         Aggregate accumulated benefit obligations   $   (34)     $    (24)
                         Aggregate projected benefit obligations         (43)          (37)
                         Aggregate plan assets                             -             -
 
<CAPTION> 
               --------------------------------------------------------------------------------------------------------   
                                                                  Pension Benefits                  Other Benefits
                                                            -----------------------------     -------------------------
               (In millions)                                2000        1999         1998     2000         1999    1998
               --------------------------------------------------------------------------------------------------------   
               <S>                                          <C>         <C>          <C>      <C>         <C>     <C> 
               Components of net periodic                                                                             
                benefit cost (credit)
               Service cost                                 $  52       $  65        $  48    $  14       $  17   $  12   
               Interest cost                                   67          67           57       37          36      31   
               Expected return on plan assets                (117)       (114)        (107)       -           -       -   
               Amortization - net transition gain              (4)         (5)          (5)       -           -       -   
                            - prior service costs (credits)     4           4            3      (10)         (8)     (3)  
                            - actuarial (gains) losses         (9)          1            -        3           7       3   
               Multiemployer and other plans                    5           5            5        -           -       -    
               Settlement and termination (gain) loss          32/(a)/     (7)/(a)/      -       21/(a)/      -       -
                                                            -----       -----        -----    -----       -----   ----- 
               Net periodic benefit cost                    $  30       $  16        $   1    $  65       $  52   $  43
               -------------------------------------------------------------------------------------------------------- 

               /(a)/ Includes voluntary early retirement programs.

<CAPTION> 
                                                                        Pension Benefits             Other Benefits     
                                                                     ---------------------       ----------------------    
                                                                      2000         1999           2000           1999     
               --------------------------------------------------------------------------------------------------------  
               <S>                                                   <C>          <C>            <C>           <C>        
               Weighted average actuarial assumptions                                        
                at December 31:                                                              
               Discount rate                                           7.5%         8.0%           7.5%           8.0%  
               Expected annual return on plan assets                   9.5%         9.5%           n/a            n/a   
               Increase in compensation rate                           5.0%         5.0%           5.0%           5.0%   
               --------------------------------------------------------------------------------------------------------
</TABLE>


M-14

<PAGE>
 
                    For measurement purposes, an 8% annual rate of increase in
               the per capita cost of covered health care benefits was assumed
               for 2001. The rate was assumed to decrease gradually to 5% for
               2007 and remain at that level thereafter.

                    A one-percentage-point change in assumed health care cost
               trend rates would have the following effects:


<TABLE>
<CAPTION>
                                                                                     1-Percentage-      1-Percentage-   
               (In millions)                                                         Point Increase     Point Decrease   
               --------------------------------------------------------------------------------------------------------    
               <S>                                                                   <C>                <C>               
               Effect on total of service and interest cost components                      $     9            $     (7)  
               Effect on other postretirement benefit obligations                                71                 (58)   
               --------------------------------------------------------------------------------------------------------    
</TABLE>
 
 
--------------------------------------------------------------------------------
15.  Dividends

               In accordance with the USX Restated Certificate of Incorporation,
               dividends on the Marathon Stock and Steel Stock are limited to
               the legally available funds of USX. Net losses of either Group,
               as well as dividends and distributions on any class of USX Common
               Stock or series of preferred stock and repurchases of any class
               of USX Common Stock or series of preferred stock at prices in
               excess of par or stated value, will reduce the funds of USX
               legally available for payment of dividends on both classes of
               Common Stock. Subject to this limitation, the Board of Directors
               intends to declare and pay dividends on the Marathon Stock based
               on the financial condition and results of operations 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.

--------------------------------------------------------------------------------
16.  Property, Plant and Equipment


<TABLE> 
<CAPTION> 
               (In millions)                                                December 31            2000         1999
               --------------------------------------------------------------------------------------------------------    
               <S>                                                                              <C>           <C>        
               Production                                                                       $  12,266     $  14,568    
               Refining                                                                             2,800         2,439    
               Marketing                                                                            2,286         2,197    
               Transportation                                                                       1,402         1,374    
               Other                                                                                  312           282    
                                                                                                ---------     ---------  
                   Total                                                                           19,066        20,860    
               Less accumulated depreciation, depletion and amortization                            9,691        10,567    
                                                                                                ---------     ---------    
                   Net                                                                          $   9,375     $  10,293     
               --------------------------------------------------------------------------------------------------------     
</TABLE>
 
 
                    Property, plant and equipment at December 31, 2000 and 1999,
               includes gross assets acquired under capital leases of $8 million
               and $20 million, respectively, with no related amounts in
               accumulated depreciation, depletion and amortization.

                    During 2000, the Marathon Group recorded $193 million of
               impairments of certain E&P segment oil and gas properties,
               primarily located in Canada. The impairments were recorded due to
               reserve revisions as a result of production performance and
               disappointing drilling results. The charge is included in
               depreciation, depletion and amortization.

--------------------------------------------------------------------------------
17.  Common Stockholders' Equity


<TABLE> 
<CAPTION> 
               (In millions, except per share data)                                  2000           1999           1998
               --------------------------------------------------------------------------------------------------------      
               <S>                                                                  <C>            <C>           <C>
               Balance at beginning of year                                         $4,800         $4,312        $3,618
                Net income                                                             432            654           310
                Marathon Stock - issued                                                  9             96           617
                               - repurchased                                          (105)             -             -
                Treasury stock reissued                                                  1              -             -        
                Exchangeable Shares - issued                                             -              -            29
                                    - exchanged for Marathon Stock                       -             (7)          (12)
                Dividends on Marathon Stock
                 (per share $.88 in 2000 and $.84 in 1999 and 1998)                   (274)          (261)         (248)
                Deferred compensation                                                   (5)             -             2
                Accumulated other comprehensive income (loss)/(a)/:                      
                 Foreign currency translation adjustments                                1             (1)            2
                 Minimum pension liability adjustments (Note 14)                       (14)             7            (3)
                 Unrealized holding losses on investments                                -              -            (3)
                                                                                    ------         ------        ------
               Balance at end of year                                               $4,845         $4,800        $4,312 
-----------------------------------------------------------------------------------------------------------------------      
</TABLE>
 

               /(a)/ See page U-7 of the USX consolidated financial statements
                     relative to the annual activity of these adjustments and
                     losses. Total comprehensive income for the Marathon Group
                     for the years 2000, 1999 and 1998 was $419 million, $660
                     million and $306 million, respectively.

                                                                            M-15

<PAGE>
 
--------------------------------------------------------------------------------
18.  Income Taxes

               Income tax provisions and related assets and liabilities
               attributed to the Marathon Group are determined in accordance
               with the USX group tax allocation policy (Note 4).

                  Provisions (credits) for income taxes were:


<TABLE> 
<CAPTION> 
                                    2000                           1999                             1998
                       ------------------------------     ----------------------------     ----------------------------
(In millions)          Current    Deferred      Total     Current    Deferred    Total     Current    Deferred   Total
-----------------------------------------------------------------------------------------------------------------------      
<S>                    <C>        <C>          <C>        <C>        <C>         <C>       <C>        <C>        <C>
Federal                 $  614     $ (144)     $  470     $   191     $  158     $  349     $   83     $   19    $  102     
State and local             53        (46)          7           3         (7)        (4)        30          9        39     
Foreign                     55        (50)          5          25        (46)       (21)         3         (2)        1     
                        ------     ------      ------     -------     ------     ------     ------     ------    ------     
   Total                $  722     $ (240)     $  482     $   219     $  105     $  324     $  116     $   26    $  142      
----------------------------------------------------------------------------------------------------------------------- 
</TABLE>
 
 
                  A reconciliation of federal statutory tax rate (35%) to
                  total provisions follows:


<TABLE> 
<CAPTION> 
               (In millions)                                                          2000          1999         1998
               --------------------------------------------------------------------------------------------------------  
               <S>                                                                  <C>           <C>           <C> 
               Statutory rate applied to income before income taxes                 $   320       $   342       $   158
               Effects of foreign operations:                                            
                Impairment of deferred tax benefits                                     235             -             -         
                Adjustments to foreign valuation allowances                             (30)            -             -
                All other, including foreign tax credits                                (30)          (18)          (26)
               State and local income taxes after federal income tax effects              5            (3)           25
               Credits other than foreign tax credits                                    (7)           (7)           (9)        
               Effects of partially owned companies                                      (5)           (5)           (4)        
               Dispositions of subsidiary investments                                     -             7             - 
               Adjustment of prior years' federal income taxes                          (11)            4            (5)
               Other                                                                      5             4             3
                                                                                    -------       -------       -------         
                  Total provisions                                                  $   482       $   324       $   142
               --------------------------------------------------------------------------------------------------------  
</TABLE>
 

                  Deferred tax assets and liabilities resulted from the
                  following: 


<TABLE> 
<CAPTION> 
               (In millions)                                                   December 31           2000        1999
               --------------------------------------------------------------------------------------------------------
               <S>                                                                                 <C>         <C> 
               Deferred tax assets:                                                                
                State tax loss carryforwards (expiring in 2001 through 2020)                       $     70    $     57  
                Foreign tax loss carryforwards (portion of which expire in 2001 through 2015)           269         408  
                Employee benefits                                                                       246         206  
                Receivables, payables and debt                                                           41          14  
                Expected federal benefit for:                                                                            
                 Crediting certain foreign deferred income taxes                                        315         530  
                 Deducting state deferred income taxes                                                   20          36  
                Contingency and other accruals                                                          155         150  
                Investments in foreign subsidiaries                                                      39          52       
                Investments in subsidiaries and equity investees                                         30          20  
                Other                                                                                    60          34  
                Valuation allowances:                                                                                    
                 Federal                                                                                  -         (30) 
                 State                                                                                  (16)        (11) 
                 Foreign                                                                               (252)       (282) 
                                                                                                   --------    --------   
                  Total deferred tax assets/(a)/                                                        977       1,184  
                                                                                                   --------    --------   
               Deferred tax liabilities:                                                                                 
                Property, plant and equipment                                                         1,642       2,091  
                Inventory                                                                               320         324  
                Prepaid pensions                                                                        119         127  
                Other                                                                                   160         111  
                                                                                                   --------    --------   
                  Total deferred tax liabilities                                                      2,241       2,653  
                                                                                                   --------    --------   
                   Net deferred tax liabilities                                                    $  1,264       1,469   
               --------------------------------------------------------------------------------------------------------
</TABLE>


               /(a)/ USX expects to generate sufficient future taxable income to
                     realize the benefit of the Marathon Group's deferred tax
                     assets. In addition, the ability to realize the benefit of
                     foreign tax credits is based upon certain assumptions
                     concerning future operating conditions (particularly as
                     related to prevailing oil prices), income generated from
                     foreign sources and USX's tax profile in the years that
                     such credits may be claimed. During 2000, the amount of net
                     deferred tax assets expected to be realized was reduced as
                     a result of the change in the amount and timing of future
                     foreign source income due to the exchange of Marathon's
                     interest in Sakhalin Energy Investment Company Ltd. for
                     other oil and gas producing interests. Additionally, gross
                     deferred tax assets and the associated valuation allowance
                     were reduced by a change in management's intent regarding
                     the permanent reinvestment of the earnings from certain
                     foreign subsidiaries.

                    The consolidated tax returns of USX for the years 1990
               through 1997 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.

M-16

<PAGE>
 
                    Pretax income (loss) included $237 million, $66 million and
               $(75) million attributable to foreign sources in 2000, 1999 and
               1998, respectively.

                    Undistributed earnings of certain consolidated foreign
               subsidiaries at December 31, 2000, amounted to $205 million. No
               provision for deferred U.S. income taxes has been made for these
               subsidiaries because the Marathon Group intends to permanently
               reinvest such earnings in those foreign operations. If such
               earnings were not permanently reinvested, a deferred tax
               liability of $72 million would have been required.

--------------------------------------------------------------------------------
19.  Investments and Long-Term Receivables



<TABLE> 
<CAPTION> 
               (In millions)                                          December 31         2000         1999
               --------------------------------------------------------------------------------------------- 
               <S>                                                                       <C>          <C>       
               Equity method investments                                                 $  250       $  658
               Other investments                                                             34           32
               Receivables due after one year                                                54           46
               Deposits of restricted cash                                                   16           20
               Other                                                                          8            6             
                                                                                         ------       ------ 
                 Total                                                                   $  362       $  762
               --------------------------------------------------------------------------------------------- 
</TABLE>
 

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


<TABLE> 
<CAPTION> 
               (In millions)                                              2000           1999           1998
               ---------------------------------------------------------------------------------------------  
               <S>                                                        <C>          <C>           <C> 
               Income data - year: 
                Revenues and other income                                 $  417       $  422        $   347
                Operating income                                             174          152            132
                Net income                                                   123          119             79
               ---------------------------------------------------------------------------------------------  
               Balance sheet data - December 31:                                                          
                Current assets                                            $  328       $  387             
                Noncurrent assets                                          1,247        2,606             
                Current liabilities                                          256          300             
                Noncurrent liabilities                                       650        1,066              
               ---------------------------------------------------------------------------------------------   
</TABLE>

                    Dividends and partnership distributions received from equity
               investees were $46 million in 2000, $44 million in 1999 and $23
               million in 1998.

                    Marathon Group purchases from equity investees totaled $61
               million, $50 million and $64 million in 2000, 1999 and 1998,
               respectively. Marathon Group revenues for sales to USX equity
               investees were $28 million in 2000 and $22 million in 1999 and
               1998.

--------------------------------------------------------------------------------
20.  Inventories


<TABLE> 
<CAPTION> 
               (In millions)                                          December 31       2000         1999  
               ---------------------------------------------------------------------------------------------   
               <S>                                                                     <C>         <C> 
               Crude oil and natural gas liquids                                       $     701   $     729      
               Refined products and merchandise                                            1,069       1,046      
               Supplies and sundry items                                                      97         109      
                                                                                       ---------   ---------      
                   Total (at cost)                                                         1,867       1,884      
               Less inventory market valuation reserve                                         -           -      
                                                                                       ---------   ---------      
                   Net inventory carrying value                                        $   1,867   $   1,884       
               ---------------------------------------------------------------------------------------------    
</TABLE>


                    Inventories of crude oil and refined products are valued by
               the LIFO method. The LIFO method accounted for 92% and 90% of
               total inventory value at December 31, 2000 and 1999,
               respectively. Current acquisition costs were estimated to exceed
               the above inventory values at December 31, by approximately $500
               million and $200 million in 2000 and 1999, respectively. Cost of
               revenues was reduced and income from operations was increased by
               $14 million in 2000 as a result of liquidations of LIFO
               inventories.

                    The inventory market valuation reserve reflects the extent
               that the recorded LIFO cost basis of crude oil and refined
               products inventories exceeds net realizable value. The reserve is
               decreased to reflect increases in market prices and inventory
               turnover and increased to reflect decreases in market prices.
               Changes in the inventory market valuation reserve result in
               noncash charges or credits to costs and expenses. During 2000,
               there were no charges or credits to costs and expenses.

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

                    USX Stock-Based Compensation Plans and Stockholder Rights
               Plan are discussed in Note 17, and Note 19, respectively, to the
               USX consolidated financial statements.

                    The Marathon Group's actual stock-based compensation expense
               (credit) was $5 million in 2000, $(4) million in 1999 and $(3)
               million in 1998. Incremental compensation expense, as determined
               under a fair value model, was not material ($.02 or less per
               share for all years presented). Therefore, pro forma net income
               and earnings per share data have been omitted.

                                                                            M-17

<PAGE>
 
--------------------------------------------------------------------------------
22.  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, by individual balance
               sheet account. As described in Note 4, the Marathon Group's
               specifically attributed financial instruments and the Marathon
               Group's portion of USX's financial instruments attributed to all
               groups are as follows:


<TABLE> 
<CAPTION> 
                                                                                2000              1999
                                                                          ----------------   ---------------
                                                                           Fair   Carrying   Fair   Carrying 
               (In millions)                           December 31         Value   Amount    Value   Amount  
               ---------------------------------------------------------------------------------------------      
               <S>                                                        <C>     <C>        <C>    <C> 
               Financial assets:                                                                              
                Cash and cash equivalents                                 $  340    $  340   $  111   $  111 
                Receivables                                                2,267     2,267    1,887    1,887 
                Investments and long-term receivables                        171       107      166      109 
                                                                          ------    ------   ------   ------ 
                 Total financial assets                                   $2,778    $2,714   $2,164   $2,107 
               ---------------------------------------------------------------------------------------------     
               Financial liabilities:                                                                         
                Notes payable                                             $   80    $   80   $    -   $    - 
                Accounts payable (including intergroup payables)           3,385     3,385    2,751    2,751 
                Accrued interest                                              61        61       92       92 
                Long-term debt (including amounts due within one year)     2,174     2,078    3,443    3,353 
                Preferred stock of subsidiary                                175       184      176      184 
                                                                          ------    ------   ------   ------ 
                 Total financial liabilities                              $5,875    $5,788   $6,462   $6,380  
               ---------------------------------------------------------------------------------------------      
</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 preferred stock
               of subsidiary was based on market prices. Fair value of long-term
               debt instruments was based on market prices where available or
               current borrowing rates available for financings with similar
               terms and maturities.

                    The Marathon Group's only unrecognized financial instruments
               are financial guarantees and commitments to extend credit. 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 financial guarantees, see Note 25.

--------------------------------------------------------------------------------
23.  Intergroup Transactions

               Revenues and purchases - Marathon Group revenues for sales to the
               U. S. Steel Group totaled $60 million, $41 million and $21
               million in 2000, 1999 and 1998, respectively. Marathon Group
               purchases from the U. S. Steel Group totaled $17 million in both
               2000 and 1999 and $2 million in 1998. At December 31, 2000 and
               1999, Marathon Group receivables included $1 million and $5
               million, respectively, related to transactions with the U. S.
               Steel Group. At December 31, 2000 and 1999, Marathon Group
               accounts payable included $2 million related to transactions with
               the U. S. Steel Group. These transactions were conducted under
               terms comparable to those with unrelated parties.

               Income taxes receivable from/payable to the U. S. Steel
               Group - At December 31, 2000 and 1999, amounts receivable or
               payable for income taxes were included in the balance sheet as
               follows:


<TABLE>
<CAPTION> 
               (In millions)                                December 31                   2000         1999    
               ---------------------------------------------------------------------------------------------      
               <S>                                                                        <C>          <C>
               Current:                                                                
                Receivables                                                               $   4        $   1
                Income taxes payable                                                        364           97
               Noncurrent:                                                                                  
                Deferred credits and other liabilities                                       97           97
               ---------------------------------------------------------------------------------------------      
</TABLE>


                    These amounts have been determined in accordance with the
               tax allocation policy described in Note 4. Amounts classified as
               current are settled in cash in the year succeeding that in which
               such amounts are accrued. Noncurrent amounts represent estimates
               of intergroup tax effects of certain issues for years that are
               still under various stages of audit and administrative review.
               Such tax effects are not settled between 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-18

<PAGE>
 
--------------------------------------------------------------------------------
24.  Derivative Instruments


               The Marathon Group remains at risk for possible changes in the
               market value of derivative instruments; 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.

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


<TABLE>
<CAPTION>
                                                                                      Recognized
                                                  Fair                 Carrying        Trading       Recorded
                                                 Value                  Amount         Gain or       Deferred     Aggregate
                                                 Assets                 Assets        (Loss) for      Gain or     Contract
(In millions)                                (Liabilities)/(a)(b)/   (Liabilities)     the Year       (Loss)       Values/(c)/
------------------------------------------------------------------------------------------------------------------------------ 
<S>                                          <C>                     <C>              <C>            <C>          <C>
December 31, 2000:
Exchange-traded commodity futures:
 Trading                                     $          -            $          -     $      (19)    $      -     $       -
 Other than trading                                     -                       -              -            7           897
Exchange-traded commodity options:                                                                                         
 Trading                                                -                       -              -            -             -
 Other than trading                                    (6)/(d)/                (6)             -           (1)          971
OTC commodity swaps/(e)/:                                                                                                  
 Trading                                                -                       -              -            -             -
 Other than trading                                    35 /(f)/                35              -           25           408
OTC commodity options:                                                                                                     
 Trading                                                -                       -              -            -             -
 Other than trading                                   (52)/(g)/               (52)             -          (40)           94 
                                             ------------            ------------     ----------     --------     ---------  
   Total commodities                         $        (23)           $        (23)    $      (19)    $     (9)    $   2,370
                                             ============            ============     ==========     ========     =========
Forward exchange contracts/(h)/:
   - receivable                              $         14            $         14     $        -     $      -     $      14
------------------------------------------------------------------------------------------------------------------------------  
December 31, 1999:
Exchange-traded commodity futures:
 Trading                                     $          -            $          -     $        4     $      -     $       8 
 Other than trading                                     -                       -              -           28           344
Exchange-traded commodity options:                                                                                          
 Trading                                                -                       -              4            -           179
 Other than trading                                    (6)/(d)/                (6)             -          (10)        1,262
OTC commodity swaps:                                                                                                        
 Trading                                                -                       -              -            -             -
 Other than trading                                     3 /(f)/                 3              -            2           156
OTC commodity options:                                                                                                      
 Trading                                                -                       -              -            -             -
 Other than trading                                     4 /(g)/                 4              -            5           238 
                                             ------------            ------------     ----------     --------     ---------  
   Total commodities                         $          1            $          1     $        8     $     25     $   2,187
                                             ============            ============     ==========     ========     =========
Forward exchange contracts:
   - receivable                              $         52            $         52     $        -     $      -     $      51
------------------------------------------------------------------------------------------------------------------------------  
</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
      forward 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)/ The aggregate average fair value of all trading activities for the years
      2000 and 1999 were $(5) million and $3 million, respectively. Detail by
      class of instrument was not available.
/(c)/ 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.
/(d)/ Includes fair values as of December 31, 2000 and 1999, for assets of $10
      million and $11 million and for liabilities of $(16) million and $(17)
      million, respectively.
/(e)/ The OTC swap arrangements vary in duration with certain contracts
      extending into 2008.
/(f)/ Includes fair values as of December 31, 2000 and 1999, for assets of $84
      million and $8 million and for liabilities of $(49) million and $(5)
      million, respectively.
/(g)/ Includes fair values as of December 31, 2000 and 1999, for assets of $1
      million and $5 million and for liabilities of $(53) million and $(1)
      million, respectively.
/(h)/ The forward exchange contracts relating to USX's foreign operations have
      various maturities ending in March 2001.

--------------------------------------------------------------------------------
25.  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.

                                                                            M-19

<PAGE>
 
               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, 2000 and 1999, accrued
               liabilities for remediation totaled $75 million and $69 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 $57 million at December 31, 2000, and $52
               million at December 31, 1999.

                    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
               2000 and 1999, such capital expenditures totaled $73 million and
               $46 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, 2000 and 1999, accrued liabilities for
               platform abandonment and dismantlement totaled $162 million and
               $152 million, respectively.

               Guarantees -

                    Guarantees by USX and its consolidated subsidiaries of the
               liabilities of unconsolidated entities of the Marathon Group
               totaled $131 million at December 31, 1999. There were no
               guarantees at December 31, 2000.

                    At December 31, 2000 and 1999, the Marathon Group's pro rata
               share of obligations of LOOP LLC and various pipeline investees
               secured by throughput and deficiency agreements totaled $119
               million and $146 million, respectively. Under the agreements, the
               Marathon Group is required to advance funds if the investees are
               unable to service debt. Any such advances are prepayments of
               future transportation charges.

               Commitments -

                    At December 31, 2000 and 1999, the Marathon Group's contract
               commitments to acquire property, plant and equipment and long-
               term investments totaled $457 million and $485 million,
               respectively.

                    The Marathon Group is a party to a 15-year transportation
               services agreement with a natural gas transmission company. The
               contract requires the Marathon Group to pay minimum annual demand
               charges of approximately $5 million starting in December 2000 and
               concluding in 2015. The payments are required even if the
               transportation facility is not utilized. Demand charges paid in
               2000 were less than $1 million.

--------------------------------------------------------------------------------
26.  Joint Venture Formation

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

                    As a result of the agreement to form this joint venture,
               Marathon recognized a pretax charge of $931 million in the fourth
               quarter 2000, which is included in net gains (losses) on disposal
               of assets, and reclassified the remaining book value associated
               with the Yates Field from property, plant and equipment to assets
               held for sale. Upon completion of this transaction in January
               2001, the book value will be transferred from assets held for
               sale to investments and long-term receivables.

--------------------------------------------------------------------------------
27.  Subsequent Event - Business Combination

               On February 7, 2001, Marathon acquired 87% of the outstanding
               common stock of Pennaco Energy Inc., a natural gas producer.
               Marathon plans to acquire the remaining Pennaco shares through a
               merger in which each share of Pennaco common stock, not purchased
               in the offer and not held by stockholders who have properly
               exercised dissenters rights under Delaware law, will be converted
               into the right to receive the tender offer price in cash, without
               interest. The purchase price is expected to approximate $500
               million. The acquisition will be accounted for using the purchase
               method of accounting.

M-20

<PAGE>
 
Selected Quarterly Financial Data (Unaudited)


<TABLE> 
<CAPTION> 
                                                     2000                                              1999       
                                ----------------------------------------------    -----------------------------------------------
(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 and other income:                                                                                      
 Revenues/(a)/                  $ 8,899      $9,169     $ 8,680       $7,739       $7,250     $6,312     $5,324     $  4,704
 Other income (loss)               (833)         59          30          116           45         27         34           11
                                -------     -------     -------       -------      -------    -------    -------     --------
     Total                        8,066       9,228       8,710        7,855        7,295      6,339      5,358        4,715
Income (loss) from operations      (466)        729         860          525          350        561        399          403
 Includes:                                                                                                      
   Joint venture                                                                                                
     formation charges             (931)          -           -            -            -          -          -            -
   Inventory market                                                                                             
     valuation credits                -           -           -            -            -        136         66          349
Net income (loss)                  (310)        121         367          254          171        230        134          119
---------------------------------------------------------------------------------------------------------------------------------
Marathon Stock data:                                                                                            
--------------------                                                                                    
Net income (loss) per share -      
 Basic and diluted              $ (1.00)     $  .38      $ 1.18       $  .81       $  .55     $  .74     $  .43     $    .38
Dividends paid per share            .23         .23         .21          .21          .21        .21        .21          .21
Price range of Marathon
 Stock/(b)/:
 - Low                               25-1/4      23-1/2      22-13/16     20-11/16     23-5/8     28-1/2     25-13/16     19-5/8
 - High                              30-3/8      29-5/8      29-3/16      27-1/2       30-5/8     33-7/8     32-3/4       31-3/8
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Certain items have been reclassified between revenues and cost of
      revenues, primarily to give effect to new accounting standards as
      disclosed in Note 3 of the Notes to Financial Statements. Amounts
      reclassified in the first, second and third quarters of 2000 were $(106)
      million, $(183) million and $(59) million, respectively, and for the
      first, second, third and fourth quarters of 1999 were $(136) million,
      $(123) million, $(151) million and $(210) million, respectively.
/(b)/ Composite tape.


Principal Unconsolidated Investees (Unaudited)


<TABLE> 
<CAPTION> 
                                                            December 31, 2000
        Company                                Country         Ownership           Activity
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>                  <C>
CLAM Petroleum B.V.                          Netherlands         50%             Oil & Gas Production
Kenai LNG Corporation                        United States       30%             Natural Gas Liquification
LOCAP, Inc.                                  United States       50%  /(a)/      Pipeline & Storage Facilities
LOOP LLC                                     United States       47%  /(a)/      Offshore Oil Port
Manta Ray Offshore Gathering Company, LLC    United States       24%             Natural Gas Transmission
Minnesota Pipe Line Company                  United States       33%  /(a)/      Pipeline Facility
Nautilus Pipeline Company, LLC               United States       24%             Natural Gas Transmission
Odyssey Pipeline LLC                         United States       29%             Pipeline Facility
Poseidon Oil Pipeline Company, LLC           United States       28%             Crude Oil Transportation
----------------------------------------------------------------------------------------------------------------
</TABLE>


/(a)/ Represents the ownership of MAP.



Supplementary Information on Oil and Gas Producing Activities (Unaudited)

See the USX consolidated financial statements for Supplementary Information on
Oil and Gas Producing Activities relating to the Marathon Group, pages U-30
through U-34.

                                                                            M-21

<PAGE>

Five-Year Operating Summary 


<TABLE>
<CAPTION> 
                                                                               2000      1999      1998      1997      1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>        <C>      <C>       <C>       <C> 
      Net Liquid Hydrocarbon Production (thousands of barrels per day)
       United States (by region)
        Alaska                                                                    -         -         -         -         8
        Gulf Coast                                                               62        74        55        29        30
        Southern                                                                  5         5         6         8         9
        Central                                                                   4         4         4         5         4
        Mid-Continent                                                            34        38        44        46        45
        Rocky Mountain                                                           26        24        26        27        26
                                                                             ----------------------------------------------- 
          Total United States                                                   131       145       135       115       122
                                                                             ----------------------------------------------- 
       International
        Canada                                                                   19        17         6         -         -
        Egypt                                                                     1         5         8         8         8
        Gabon                                                                    16         9         5         -         -
        Norway                                                                    -         -         1         2         3
        United Kingdom                                                           29        31        41        39        48
                                                                             ----------------------------------------------- 
          Total International                                                    65        62        61        49        59
                                                                             ----------------------------------------------- 
           Consolidated                                                         196       207       196       164       181
       Equity investee/(a)/                                                      11         1         -         -         -
                                                                             ----------------------------------------------- 
           Total                                                                207       208       196       164       181
       Natural gas liquids included in above                                     22        19        17        17        17
----------------------------------------------------------------------------------------------------------------------------
      Net Natural Gas Production (millions of cubic feet per day)
       United States (by region) 
        Alaska                                                                  160       148       144       151       145
        Gulf Coast                                                               88       107        84        78        88
        Southern                                                                147       178       208       189       161
        Central                                                                 156       134       117       119       109
        Mid-Continent                                                           133       129       125       125       122
        Rocky Mountain                                                           47        59        66        60        51
                                                                             ----------------------------------------------- 
          Total United States                                                   731       755       744       722       676
                                                                             ----------------------------------------------- 
       International
        Canada                                                                  143       150        65         -         -
        Egypt                                                                     -        13        16        11        13
        Ireland                                                                 115       132       168       228       259
        Norway                                                                    -        26        27        54        87
        United Kingdom - equity                                                 212       168       165       130       140
                       - other/(b)/                                              11        16        23        32        32
                                                                             ----------------------------------------------- 
          Total International                                                   481       505       464       455       531
                                                                             ----------------------------------------------- 
           Consolidated                                                       1,212     1,260     1,208     1,177     1,207
       Equity investee/(c)/                                                      29        36        33        42        45
                                                                             ----------------------------------------------- 
           Total                                                              1,241     1,296     1,241     1,219     1,252 
----------------------------------------------------------------------------------------------------------------------------
      Average Sales Prices                                                                                                  
       Liquid Hydrocarbons (dollars per barrel)/(d)(e)/                                                                     
        United States                                                        $25.11    $15.44    $10.42    $16.88    $18.58 
        International                                                         26.54     16.90     12.24     18.77     20.34 
       Natural Gas (dollars per thousand cubic feet)/(d)(e)/                                                                
        United States                                                        $ 3.30    $ 1.90    $ 1.79    $ 2.20    $ 2.09 
        International                                                          2.76      1.90      1.94      2.00      1.97 
----------------------------------------------------------------------------------------------------------------------------
      Net Proved Reserves at year-end (developed and undeveloped)
       Liquid Hydrocarbons (millions of barrels)                                                                            
        United States                                                           458       520       549       590       570 
        International                                                           259       277       316       187       203 
                                                                             -----------------------------------------------
          Consolidated                                                          717       797       865       777       773 
        Equity investee/(a)/                                                      -        77        80        82         - 
                                                                             -----------------------------------------------
           Total                                                                717       874       945       859       773 
       Developed reserves as % of total net reserves                             76%       81%       71%       77%       80%
----------------------------------------------------------------------------------------------------------------------------
       Natural Gas (billions of cubic feet)                                                                                 
        United States                                                         1,914     2,057     2,163     2,232     2,251 
        International                                                         1,091     1,607     1,796     1,071     1,199 
                                                                             -----------------------------------------------
          Consolidated                                                        3,005     3,664     3,959     3,303     3,450 
        Equity investee/(c)/                                                     89       123       110       111       132 
                                                                             -----------------------------------------------
           Total                                                              3,094     3,787     4,069     3,414     3,582 
       Developed reserves as % of total net reserves                             78%       75%       79%       83%       83%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

M-22

<PAGE>
 
     Five-Year Operating Summary  continued      
                                                 

<TABLE>                                     
<CAPTION>                                   
                                                                               2000/(a)/   1999/(a)/   1998/(a)/   1997     1996 
     --------------------------------------------------------------------------------------------------------------------------- 
     <S>                                                                       <C>         <C>         <C>         <C>      <C>  
     U.S. Refinery Operations (thousands of barrels per day)                                                                     
           In-use crude oil capacity at year-end                                  935         935         935       575      570 
           Refinery runs - crude oil refined                                      900         888         894       525      511 
                         - other charge and blend stocks                          141         139         127        99       96 
           In-use crude oil capacity utilization rate                              96%         95%         96%       92%      90%
     --------------------------------------------------------------------------------------------------------------------------- 
     Source of Crude Processed (thousands of barrels per day)                                                                    
           United States                                                          400         349         317       202      229 
           Canada                                                                 102          92          98        24       18 
           Middle East and Africa                                                 346         363         394       241      193 
           Other International                                                     52          84          85        58       73 
                                                                              -------------------------------------------------- 
                 Total                                                            900         888         894       525      513 
     --------------------------------------------------------------------------------------------------------------------------- 
     Refined Product Yields (thousands of barrels per day)                                                                       
           Gasoline                                                               552         566         545       353      345 
           Distillates                                                            278         261         270       154      155 
           Propane                                                                 20          22          21        13       13 
           Feedstocks and special products                                         74          66          64        36       35 
           Heavy fuel oil                                                          43          43          49        35       30 
           Asphalt                                                                 74          69          68        39       36 
                                                                              -------------------------------------------------- 
                 Total                                                          1,041       1,027       1,017       630      614 
     --------------------------------------------------------------------------------------------------------------------------- 
     Refined Products Yields (% breakdown)                                                                                       
           Gasoline                                                                53%         55%         54%       56%      56%
           Distillates                                                             27          25          27        24       25 
           Other products                                                          20          20          19        20       19 
                                                                              -------------------------------------------------- 
                 Total                                                            100%        100%        100%      100%     100%
     --------------------------------------------------------------------------------------------------------------------------- 
     U.S. Refined Product Sales Volumes (thousands of barrels per day)                                                           
           Gasoline                                                               746         714         671       452      468 
           Distillates                                                            352         331         318       198      192 
           Propane                                                                 21          23          21        12       12 
           Feedstocks and special products                                         69          66          67        40       37 
           Heavy fuel oil                                                          43          43          49        34       31 
           Asphalt                                                                 75          74          72        39       35 
                                                                              -------------------------------------------------- 
                 Total                                                          1,306       1,251       1,198       775      775 
           Matching buy/sell volumes included in above                             52          45          39        51       71 
     --------------------------------------------------------------------------------------------------------------------------- 
     Refined Products Sales Volumes by Class of Trade                                                                            
     (as a % of total sales volumes)                                                                                             
           Wholesale - independent private-brand                                                                                 
                       marketers and consumers                                     65%         66%         65%       61%      62%
           Marathon and Ashland brand jobbers and dealers                          12          11          11        13       13 
           Speedway SuperAmerica retail outlets                                    23          23          24        26       25 
                                                                              -------------------------------------------------- 
                 Total                                                            100%        100%        100%      100%     100%
     --------------------------------------------------------------------------------------------------------------------------- 
     Refined Products (dollars per barrel)                                                                                       
           Average sales price                                                $ 38.24     $ 24.59     $ 20.65   $ 26.38  $ 27.43 
           Average cost of crude oil throughput                                 29.07       18.66       13.02     19.00    21.94 
     --------------------------------------------------------------------------------------------------------------------------- 
     Petroleum Inventories at year-end (thousands of barrels)                                                                    
           Crude oil, raw materials and natural gas liquids                    33,720      34,255      35,630    19,351   20,047 
           Refined products                                                    34,386      32,853      32,334    20,598   21,283 
     --------------------------------------------------------------------------------------------------------------------------- 
     U.S. Refined Product Marketing Outlets at year-end                                                                          
           MAP operated terminals                                                  91          93          88        51       51 
           Retail - Marathon and Ashland brand outlets                          3,728       3,482       3,117     2,465    2,392 
                  - Speedway SuperAmerica outlets                               2,242       2,433       2,257     1,544    1,592 
     --------------------------------------------------------------------------------------------------------------------------- 
     Pipelines (miles of common carrier pipelines)/(b)/                                                                          
           Crude Oil - gathering lines                                            419         557       2,827     1,003    1,052 
                     - trunklines                                               4,623       4,720       4,859     2,665    2,665 
           Products  - trunklines                                               2,834       2,856       2,861     2,310    2,310 
                                                                              -------------------------------------------------- 
                 Total                                                          7,876       8,133      10,547     5,978    6,027 
     --------------------------------------------------------------------------------------------------------------------------- 
     Pipeline Barrels Handled (millions)/(c)/                                                                                    
           Crude Oil - gathering lines                                           22.7        30.4        47.8      43.9     43.2 
                     - trunklines                                               563.6       545.7       571.9     369.6    378.7 
           Products  - trunklines                                               329.7       331.9       329.7     262.4    274.8 
                                                                              -------------------------------------------------- 
                 Total                                                          916.0       908.0       949.4     675.9    696.7 
     --------------------------------------------------------------------------------------------------------------------------- 
     River Operations                                                                                                            
           Barges   - owned/leased                                                158         169         169         -        - 
           Boats    - owned/leased                                                  6           8           8         -        - 
     --------------------------------------------------------------------------------------------------------------------------- 
</TABLE>
                                                                
                                                                             
     /(a)/ 1998-2000 statistics include 100% of MAP and should be considered 
           when compared to prior periods.                                   
     /(b)/ Pipelines for downstream operations also include non-common       
           carrier, leased and equity investees.                             
     /(c)/ Pipeline barrels handled on owned common carrier pipelines,       
           excluding equity investees.                                       

                                                                            M-23

<PAGE>
 
     Five-Year Financial Summary   
                                   

<TABLE>                       
<CAPTION>                     
     (Dollars in millions, except as noted)                                 2000      1999      1998      1997      1996  
     ---------------------------------------------------------------------------------------------------------------------
     <S>                                                                   <C>       <C>       <C>       <C>       <C>    
     Revenues and Other Income                                                                                                     
      Revenues by product:                                                                                                         
       Refined products                                                    $22,514   $15,181   $12,852   $10,300   $10,437         
       Merchandise                                                           2,441     2,194     1,941     1,099     1,051         
       Liquid hydrocarbons                                                   6,856     4,587     5,023     2,755     3,166         
       Natural gas                                                           2,518     1,429     1,187     1,368     1,222         
       Transportation and other products                                       158       199       271       167       180         
      Gain on ownership change in MAP                                           12        17       245         -         -         
      Other/(a)/                                                              (640)      100       104        86        97         
                                                                           -----------------------------------------------         
         Total revenues and other income/(b)/                              $33,859   $23,707   $21,623   $15,775   $16,153         
     ---------------------------------------------------------------------------------------------------------------------
     Income From Operations                                                                                                        
      Exploration and production (E&P)                                                                                             
       Domestic                                                            $ 1,115   $   494   $   190   $   500   $   547         
       International                                                           420       124        88       273       353         
                                                                           -----------------------------------------------         
        Income for E&P reportable segment                                    1,535       618       278       773       900         
      Refining, marketing and transportation                                 1,273       611       896       563       249         
      Other energy related businesses                                           38        61        33        48        57         
                                                                           -----------------------------------------------         
        Income for reportable segments                                       2,846     1,290     1,207     1,384     1,206         
      Items not allocated to reportable segments:                                                                                  
       Administrative expenses                                                (136)     (108)     (106)     (168)     (133)        
       Joint venture formation charges                                        (931)        -         -         -         -         
       Inventory market valuation adjustments                                    -       551      (267)     (284)      209         
       Gain on ownership change & transition                                                                                       
        charges - MAP                                                           12        17       223         -         -         
       Int'l. & domestic oil & gas impairments &                                                                                   
        gas contract settlement                                               (197)      (16)     (119)        -         -         
       Other items                                                              54       (21)        -         -        14         
                                                                           -----------------------------------------------         
         Income from operations                                              1,648     1,713       938       932     1,296         
      Minority interest in income of MAP                                       498       447       249         -         -         
      Net interest and other financial costs                                   236       288       237       260       305         
      Provision for income taxes                                               482       324       142       216       320         
                                                                           -----------------------------------------------         
     Income Before Extraordinary Loss                                      $   432   $   654   $   310   $   456   $   671         
      Per common share - basic (in dollars)                                   1.39      2.11      1.06      1.59      2.33         
                       - diluted (in dollars)                                 1.39      2.11      1.05      1.58      2.31         
     ---------------------------------------------------------------------------------------------------------------------
     Net Income                                                            $   432   $   654   $   310   $   456   $   664         
      Per common share - basic (in dollars)                                   1.39      2.11      1.06      1.59      2.31         
                       - diluted (in dollars)                                 1.39      2.11      1.05      1.58      2.29         
     ---------------------------------------------------------------------------------------------------------------------
     Balance Sheet Position at year-end                                                                                            
      Current assets                                                       $ 4,985   $ 4,081   $ 2,976   $ 2,018   $ 2,046         
      Net property, plant and equipment                                      9,375    10,293    10,429     7,566     7,298         
      Total assets                                                          15,232    15,674    14,544    10,565    10,151         
      Short-term debt                                                          228        48       191       525       323         
      Other current liabilities                                              3,784     3,096     2,419     1,737     1,819         
      Long-term debt                                                         1,937     3,320     3,456     2,476     2,642         
      Minority interest in MAP                                               1,840     1,753     1,590         -         -         
      Common stockholders' equity                                            4,845     4,800     4,312     3,618     3,340         
       Per share (in dollars)                                                15.70     15.38     13.95     12.53     11.62         
     --------------------------------------------------------------------------------------------------------------------- 
     Cash Flow Data                                                                                                                
      Net cash from operating activities                                   $ 3,158   $ 2,016   $ 1,642   $ 1,246   $ 1,503         
      Capital expenditures                                                   1,425     1,378     1,270     1,038       751         
      Disposal of assets                                                       539       356        65        60       282         
      Dividends paid                                                           274       257       246       219       201         
     --------------------------------------------------------------------------------------------------------------------- 
     Employee Data/(c)/                                                                                                            
      Marathon Group:                                                                                                              
       Total employment costs                                              $ 1,474   $ 1,421   $ 1,054   $   854   $   790         
       Average number of employees                                          31,515    33,086    24,344    20,695    20,461         
       Number of pensioners at year-end                                      3,255     3,402     3,378     3,099     3,203         
      Speedway SuperAmerica LLC (SSA):                                                                                             
      (Included in Marathon Group totals)                                                                                          
       Total employment costs                                              $   489   $   452   $   283   $   263   $   241         
       Average number of employees                                          21,649    22,801    12,831    12,816    12,474         
       Number of pensioners at year-end                                        211       209       212       215       207         
     --------------------------------------------------------------------------------------------------------------------- 
     Stockholder Data at year-end                                                                                                  
      Number of common shares                                                                                                      
      outstanding (in millions)                                              308.3     311.8     308.5     288.8     287.5         
      Registered shareholders (in thousands)                                  65.0      71.4      77.3      84.0      92.1         
      Market price of common stock                                         $27.750   $24.688   $30.125   $33.750   $23.875          
     --------------------------------------------------------------------------------------------------------------------- 
</TABLE>


     /(a)/ Includes dividend and investee income, net gains (losses) on disposal
           of assets and other income.
     /(b)/ 1996-1999 reclassified to conform to 2000 classifications. 
     /(c)/ Employee Data for 1998 includes Ashland employees from the date of
           their payroll transfer to MAP, which occurred at various times
           throughout 1998. These employees were contracted to MAP in 1998,
           prior to their payroll transfer.

M-24

<PAGE>
 
 
    Management's Discussion and Analysis       
                                                
          The Marathon Group includes Marathon Oil Company ("Marathon") and
     certain other subsidiaries of USX Corporation ("USX"), which are engaged in
     worldwide exploration and production of crude oil and natural gas; domestic
     refining, marketing and transportation of petroleum products primarily
     through Marathon Ashland Petroleum LLC ("MAP"), owned 62 percent by
     Marathon; and other energy related businesses. The Management's Discussion
     and Analysis should be read in conjunction with the Marathon Group's
     Financial Statements and Notes to Financial Statements.

          The Marathon Group's 2000 financial performance was primarily affected
     by the strong recovery in worldwide liquid hydrocarbon and natural gas
     prices and stronger refining margins. During 2000, Marathon focused on the
     acquisition of assets with a strong strategic fit, the disposal of non-core
     properties, and workforce reductions through a voluntary early retirement
     program.
     
          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",
     "targets" or similar words indicating that future outcomes are uncertain.
     In accordance with "safe harbor" provisions of the Private Securities
     Litigation Reform Act of 1995, these statements are accompanied by
     cautionary language identifying important factors, though not necessarily
     all such factors, that could cause future outcomes to differ materially
     from those set forth in forward-looking statements. For additional risk
     factors affecting the businesses of the Marathon Group, see Supplementary
     Data - Disclosures About Forward-Looking Statements in USX's 2000 Form 10-
     K.

Management's Discussion and Analysis of Income and Operations 
                                                              
          Revenues and Other Income for each of the last three years are
     summarized in the following table:


<TABLE> 
<CAPTION> 
     (Dollars in millions)                                                                        2000      1999      1998  
     -----------------------------------------------------------------------------------------------------------------------
     <S>                                                                                       <C>       <C>       <C> 
     Exploration & production ("E&P")                                                          $ 4,694   $ 3,105   $ 2,090 
     Refining, marketing & transportation ("RM&T")/(a)/                                         28,849    20,076    19,080 
     Other energy related businesses/(b)/                                                        1,684       834       355 
                                                                                               -------   -------   ------- 
       Revenues and other income of reportable segments                                         35,227    24,015    21,525 
     Revenues and other income not allocated to segments:                                                                  
       Joint venture formation charges/(c)/                                                       (931)        -         - 
       Gain on ownership change in MAP                                                              12        17       245 
       Other/(d)/                                                                                  124       (36)       24 
     Elimination of intersegment revenues                                                         (573)     (289)     (171)
                                                                                               -------   -------   ------- 
           Total Group revenues and other income                                               $33,859   $23,707   $21,623 
                                                                                               =======   =======   ======= 
     
     Items included in both revenues and costs and expenses, resulting in no effect on income:                             

         Consumer excise taxes on petroleum products and merchandise                           $ 4,344   $ 3,973   $ 3,824 
     --------------------------------------------------------------------------------------------------------------------- 
</TABLE>
    

     /(a)/ Amounts include 100 percent of MAP.       
     /(b)/ Includes domestic natural gas and crude oil marketing and
           transportation, and power generation.
     /(c)/ Represents a pretax charge related to the joint venture formation
           between Marathon and Kinder Morgan Energy Partners, L.P.
     /(d)/ Represents net gains/(losses) on certain asset sales.    

           E&P segment revenues increased by $1,589 million in 2000 from 1999
      following an increase of $1,015 million in 1999 from 1998. The increase in
      2000 was primarily due to higher worldwide liquid hydrocarbon and natural
      gas prices, partially offset by lower domestic liquid hydrocarbon and
      worldwide natural gas production. The increase in 1999 was primarily due
      to higher worldwide liquid hydrocarbon prices, increased domestic liquid
      hydrocarbon production and higher E&P crude oil buy/sell volumes.

           RM&T segment revenues increased by $8,773 million in 2000 from 1999
      following an increase of $996 million in 1999 from 1998. The increase in
      2000 primarily reflected higher refined product prices and increased
      refined product sales volumes. The increase in 1999 was mainly due to
      higher refined

                                                                            M-25

<PAGE>
 
     Management's Discussion and Analysis continued

     product prices, increased volumes of refined product sales and higher
     merchandise sales, partially offset by reduced crude oil sales revenues
     following the sale of Scurlock Permian LLC.

          Other energy related businesses segment revenues increased by $850
     million in 2000 from 1999 following an increase of $479 million in 1999
     from 1998. The increase in 2000 reflected higher natural gas and crude oil
     resale activity accompanied by higher crude oil and natural gas prices. The
     increase in 1999 was primarily due to increased crude oil and natural gas
     purchase and resale activity.

          For additional discussion of revenues, see Note 10 to the Marathon
     Group Financial Statements.

          Income from operations for each of the last three years is summarized
     in the following table:


<TABLE>
<CAPTION> 
     (Dollars in millions)                                               2000        1999        1998
     ------------------------------------------------------------------------------------------------
     <S>                                                               <C>         <C>         <C>
     E&P                                                                                     
       Domestic                                                        $1,115      $  494      $  190
       International                                                      420         124          88
                                                                       ------      ------      ------
          Income of E&P reportable segment                              1,535         618         278
     RM&T/(a)/                                                          1,273         611         896
     Other energy related businesses                                       38          61          33
                                                                       ------      ------      ------
         Income for reportable segments                                 2,846       1,290       1,207
     Items not allocated to reportable segments:                                             
         Joint venture formation charges/(b)/                            (931)          -           -
         Administrative expenses/(c)/                                    (136)       (108)       (106)
         IMV reserve adjustment/(d)/                                        -         551        (267)
         Gain on ownership change & transition charges - MAP/(e)/          12          17         223
         Impairment of oil and gas properties, assets held for sale,  
             and gas contract settlement/(f)/                            (197)        (16)       (119)
         Gain/(loss) on disposal of assets/(g)/                           124         (36)          -
         Reorganization charges including pension settlement                                 
            (loss)/gain & benefit accruals/(h)/                           (70)         15           -
                                                                       ------      ------      ------
            Total income from operations                               $1,648      $1,713      $  938
     ------------------------------------------------------------------------------------------------
</TABLE>


     /(a)/ Amounts include 100 percent of MAP.

     /(b)/ Represents a pretax charge related to the joint venture formation
           between Marathon and Kinder Morgan Energy Partners, L.P.

     /(c)/ Includes the portion of the Marathon Group's administrative costs not
           charged to the operating segments and the portion of USX corporate
           general and administrative costs allocated to the Marathon Group.

     /(d)/ The inventory market valuation ("IMV") reserve reflects the extent to
           which the recorded LIFO cost basis of crude oil and refined products
           inventories exceeds net realizable value. For additional discussion
           of the IMV, see Note 20 to the Marathon Group Financial Statements.

     /(e)/ The gain on ownership change and one-time transition charges in 1998
           relate to the formation of MAP. For additional discussion of the gain
           on ownership change in MAP, see Note 5 to the Marathon Group
           Financial Statements.

     /(f)/ Represents in 2000, an impairment of certain oil and gas properties,
           primarily in Canada, and assets held for sale. Represents in 1999, an
           impairment of certain domestic properties. Represents in 1998, a
           write-off of certain non-revenue producing international investments
           and several exploratory wells which had encountered hydrocarbons but
           had been suspended pending further evaluation. It also includes in
           1998 a gain from the resolution of a contract dispute with a
           purchaser of Marathon's natural gas production from certain domestic
           properties.

     /(g)/ The net gain in 2000 represents a gain on the disposition of
           Angus/Stellaria, a gain on the Sakhalin exchange, a gain on the sale
           of Speedway SuperAmerica LLC ("SSA") non-core stores, and a loss on
           the sale of the Howard Glasscock field. The net loss in 1999
           represents a loss on the sale of Scurlock Permian LLC, certain
           domestic production properties, Carnegie Natural Gas Company and
           affiliated subsidiaries and a gain on certain Egyptian properties.

     /(h)/ Amounts in 2000 and 1999 represent pension settlement gains/(losses)
           and various benefit accruals resulting from retirement plan
           settlements, the voluntary early retirement program, and
           reorganization charges.
M-26

<PAGE>
 
     Management's Discussion and Analysis continued


          Income for reportable segments increased by $1,556 million in 2000
     from 1999, mainly due to higher worldwide liquid hydrocarbon and natural
     gas prices, and higher refined product margins, partially offset by
     decreased natural gas volumes. Income for reportable segments increased by
     $83 million in 1999 from 1998, mainly due to higher worldwide liquid
     hydrocarbon prices, partially offset by lower refined product margins.
     Income from operations includes 100 percent of MAP beginning in 1998, and
     results from Marathon Canada Limited (formerly known as Tarragon)
     commencing August 12, 1998.

                      Average Volumes and Selling Prices


<TABLE> 
<CAPTION> 
                                                                                            2000    1999    1998
     ----------------------------------------------------------------------------------------------------------- 
     <S>                                                                                  <C>       <C>     <C> 
     (thousands of barrels per day)                                                                
     Net liquids production/(a)/           - U.S.                                           131     145      135          
                                           - International/(b)/                              65      62       61          
                                                                                         ------  ------   ------          
                                           - Total consolidated                             196     207      196          
                                           - Equity investees/(c)/                           11       1        -         
                                                                                         ------  ------   ------          
                                           - Worldwide                                      207     208      196          
     (millions of cubic feet per day)                                                                        
     Net natural gas production            - U.S.                                           731     755      744          
                                           - International - equity                         470     489      441          
                                           - International - other/(d)/                      11      16       23          
                                                                                         ------  ------   ------          
                                           - Total consolidated                           1,212   1,260    1,208          
                                           - Equity investee/(e)/                            29      36       33          
                                                                                         ------  ------   ------          
                                           - Worldwide                                    1,241   1,296    1,241          
     ----------------------------------------------------------------------------------------------------------- 
     (dollars per barrel)                                                                                    
     Liquid hydrocarbons/(a)(f)/           - U.S.                                        $25.11  $15.44   $10.42          
                                           - International                                26.54   16.90    12.24          
     (dollars per mcf)                                                                                       
     Natural gas/(f)/                      - U.S.                                        $ 3.30  $ 1.90   $ 1.79          
                                           - International - equity                        2.76    1.90     1.94          
     (thousands of barrels per day)                                                                     
     Refined products sold/(g)/                                                           1,306   1,251    1,198          
          Matching buy/sell volumes included in above                                        52      45       39           
     -----------------------------------------------------------------------------------------------------------
</TABLE>


     /(a)/ Includes crude oil, condensate and natural gas liquids.
     /(b)/ Represents equity tanker liftings, truck deliveries and direct
           deliveries.
     /(c)/ Represents Marathon's equity interest in Sakhalin Energy Investment
           Company Ltd. ("Sakhalin Energy") and CLAM Petroleum B.V. ("CLAM") for
           2000 and 1999.
     /(d)/ Represents gas acquired for injection and subsequent resale.
     /(e)/ Represents Marathon's equity interest in CLAM.
     /(f)/ Prices exclude gains/losses from hedging activities, equity investees
           and purchase/resale gas.
     /(g)/ Refined products sold and matching buy/sell volumes include 100
           percent of MAP.

           Domestic E&P income increased by $621 million in 2000 from 1999
     following an increase of $304 million in 1999 from 1998. The increase in
     2000 was primarily due to higher liquid hydrocarbon and natural gas prices,
     partially offset by lower liquid hydrocarbon and natural gas volumes due to
     natural field declines and asset sales, and derivative losses from other
     than trading activities.

           The increase in 1999 was primarily due to higher liquid hydrocarbon
     and natural gas prices, increased liquid hydrocarbon volumes resulting from
     new production in the Gulf of Mexico and lower exploration expense.

           International E&P income increased by $296 million in 2000 from 1999
     following an increase of $36 million in 1999 from 1998. The increase in
     2000 was mainly due to higher liquid hydrocarbon and natural gas prices,
     higher liquid hydrocarbon liftings, primarily in Russia and Gabon, and
     lower dry well expense, partially offset by lower natural gas volumes.

           The increase in 1999 was primarily due to higher liquid hydrocarbon
     prices, partially offset by lower liquid hydrocarbon and natural gas
     production in Europe and higher exploration expense.

                                                                            M-27

<PAGE>
 
     Management's Discussion and Analysis continued

          RM&T segment income increased by $662 million in 2000 from 1999
     following a decrease of $285 million in 1999 from 1998. The increase in
     2000 was primarily due to higher refined product margins, partially offset
     by higher operating expenses for SSA, higher administrative expenses
     including increased variable pay plan costs, and higher transportation
     costs.

          The decrease in 1999 was primarily due to lower refined product
     margins, partially offset by recognized mark-to-market derivative gains,
     increased refined product sales volumes, higher merchandise sales at SSA
     and the realization of additional operating efficiencies as a result of
     forming MAP.

          Other energy related businesses segment income decreased by $23
     million in 2000 from 1999 following an increase of $28 million in 1999 from
     1998. The decrease in 2000 was primarily a result of derivative losses from
     other than trading activities and lower equity earnings as a result of
     decreased pipeline throughput. The increase in 1999 was primarily due to
     higher equity earnings as a result of increased pipeline throughput and a
     reversal of abandonment accruals of $10 million in 1999.

          Items not allocated to reportable segments: IMV reserve adjustment -
     When U. S. Steel Corporation acquired Marathon Oil Company in March 1982,
     crude oil and refined product prices were at historically high levels. In
     applying the purchase method of accounting, the Marathon Group's crude oil
     and refined product inventories were revalued by reference to current
     prices at the time of acquisition, and this became the new LIFO cost basis
     of the inventories. Generally accepted accounting principles require that
     inventories be carried at lower of cost or market. Accordingly, the
     Marathon Group has established an IMV reserve to reduce the cost basis of
     its inventories to net realizable value. Quarterly adjustments to the IMV
     reserve result in noncash charges or credits to income from operations.

          When Marathon acquired the crude oil and refined product inventories
     associated with Ashland's RM&T operations on January 1, 1998, the Marathon
     Group established a new LIFO cost basis for those inventories. The
     acquisition cost of these inventories lowered the overall average cost of
     the Marathon Group's combined RM&T inventories. As a result, the price
     threshold at which an IMV reserve will be recorded was also lowered.

          These adjustments affect the comparability of financial results from
     period to period as well as comparisons with other energy companies, many
     of which do not have such adjustments. Therefore, the Marathon Group
     reports separately the effects of the IMV reserve adjustments on financial
     results. In management's opinion, the effects of such adjustments should be
     considered separately when evaluating operating performance.

          In 1999, the IMV reserve adjustment resulted in a credit to income
     from operations of $551 million compared to a charge of $267 million in
     1998, or a change of $818 million. The favorable 1999 IMV reserve
     adjustment, which is almost entirely recorded by MAP, was primarily due to
     the significant increase in refined product prices experienced during 1999.
     For additional discussion of the IMV reserve, see Note 20 to the Marathon
     Group Financial Statements.

          Joint venture formation charges represent a pretax charge of $931
     million in 2000 related to the joint venture formation between Marathon and
     Kinder Morgan Energy Partners, L.P. The formation of the joint venture
     included contribution of interests in the Yates and SACROC assets. Marathon
     holds an 85 percent economic interest in the combined entity which
     commenced operations in January 2001.

          Impairment of oil and gas properties, assets held for sale, and gas
     contract settlement includes in 2000, the impairments of certain oil and
     gas properties primarily in Canada and assets held for sale totaling $197
     million. In 1999, the $16 million charge relates to the impairment of
     certain domestic properties. In 1998, the $119 million charge relates to a
     write-off of certain non-revenue producing international investments and
     several exploratory wells, partially offset by a gain from the resolution
     of a contract dispute with a purchaser of Marathon's natural gas production
     from certain domestic properties.

          Gain/(loss) on disposal of assets represents in 2000 a net gain on the
     sale of Marathon's interest in the Angus/Stellaria development in the Gulf
     of Mexico, a gain on the Sakhalin exchange, a loss on the sale of the
     Howard Glasscock Field, and a gain on the sale of non-core SSA stores. In
     1999,

M-28

<PAGE>
 
     Management's Discussion and Analysis continued
     
                                                   
     the net loss represents losses on the sale of Scurlock Permian LLC, certain
     domestic production properties, Carnegie Natural Gas Company and affiliated
     subsidiaries and a gain on certain Egyptian properties.
     
          Reorganization charges including pension settlement (loss)/gain and
     benefit accruals represent charges related to a reorganization program
     initiated by Marathon for its upstream business during 2000.
                                                                              
          Net interest and other financial costs decreased by $52 million in
     2000 from 1999, following an increase of $51 million in 1999 from 1998. The
     decrease in 2000 was primarily due to lower average debt levels and
     increased interest income. The increase in 1999 was primarily due to lower
     interest income and lower capitalized interest on upstream projects. For
     additional details, see Note 6 to the Marathon Group Financial Statements.
                                                                        
          The minority interest in income of MAP, which represents Ashland's 38
     percent ownership interest, increased by $51 million in 2000 from 1999,
     primarily due to much higher RM&T segment income and the absence of the
     favorable 1999 IMV reserve adjustment, as discussed above.

          The provision for income taxes of $482 million in 2000 included a $235
     million one-time, noncash deferred tax charge as a result of the change in
     the amount and timing of future foreign source income due to the exchange
     of Marathon's interest in Sakhalin Energy Investment Company Ltd. for other
     oil and gas producing interests. The 1999 income tax provision included a
     $23 million favorable adjustment to deferred federal income taxes related
     to the outcome of a United States Tax Court case. For additional discussion
     of income taxes, see Note 18 to the Marathon Group Financial Statements.
     
          Net income decreased by $222 million in 2000 from 1999, following an
     increase of $344 million in 1999 from 1998, primarily reflecting the
     factors discussed above.

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

          Current assets increased $904 million from year-end 1999, primarily
     due to an increase in cash, receivables, and assets held for sale. The
     increase in assets held for sale was mainly due to the reclassification of
     the Yates field from property, plant, and equipment. The receivables
     increase was mainly due to higher year-end commodity prices.

          Current liabilities increased $868 million from year-end 1999,
     primarily due to an increase in accounts payable due to higher year-end
     commodity prices and the recording of an intergroup income tax payable.

          Investments and long-term receivables decreased $400 million from 
     year-end 1999, primarily due to the exchange of Marathon's interest in
     Sakhalin Energy Investment Company Ltd.

          Net property, plant and equipment decreased $918 million from year-end
     1999, primarily due to the impairment and reclassification of assets held
     for sale, the impairment of reserves, and the sale of certain domestic
     production properties. This was partially offset by increases from
     properties received from the Sakhalin exchange. Net property, plant and
     equipment for each of the last three years is summarized in the following
     table:


     (Dollars in millions)                         2000     1999     1998
     --------------------------------------------------------------------
     E&P                                 
      Domestic                                   $2,229  $ 3,435  $ 3,688
      International                               2,924    2,987    3,027
                                                 ------  -------  -------
       Total E&P                                  5,153    6,422    6,715
     RM&T/(a)/                                    4,035    3,712    3,517
     Other/(b)/                                     187      159      197
                                                 ------  -------  -------
         Total                                   $9,375  $10,293  $10,429
     --------------------------------------------------------------------

     /(a)/  Amounts include 100 percent of MAP.
     /(b)/  Includes other energy related businesses and other
            miscellaneous corporate net property, plant and equipment.

            Total long-term debt and notes payable at December 31, 2000 were
     $2,165 million, a decrease of $1,203 million from year-end 1999. This
     decrease in debt is mainly due to higher cash flow provided from operating
     activities. Most of the debt is a direct obligation of, or is guaranteed
     by, USX. 

                                                                            M-29

<PAGE>
 
Management's Discussion and Analysis continued


   Stockholders' equity increased $45 million from year-end 1999, mainly
reflecting net income of $432 million offset by dividends declared of $274
million and Marathon Stock repurchases of $105 million. In July 2000, the USX
Board of Directors authorized spending up to $450 million to repurchase shares
of Marathon Stock. This repurchase program will continue from time to time as
the Corporation's financial condition and market conditions warrant.

     Net cash provided from operating activities totaled $3,158 million in 2000,
compared with $2,016 million in 1999 and $1,642 million in 1998. Net cash from
operating activities increased $1,142 million in 2000 from 1999 and increased
$374 million in 1999 from 1998. The increase in 2000 mainly reflects the
favorable effects of improved net income (excluding noncash items) and net
favorable working capital changes, including an increased allocation for income
tax payments and an income tax settlement with the Steel Group in accordance
with the group tax allocation policy. The increase in 1999 mainly reflected
favorable working capital changes.

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

Dollars in millions)                                    2000    1999    1998  
----------------------------------------------------------------------------
E&P                                                                           
 Domestic                                              $  516  $  356  $  652 
 International/(a)/                                       226     388     187 
                                                       ------  ------  ------ 
    Total E&P                                             742     744     839 
RM&T/(b)/                                                 656     612     410 
Other/(c)/                                                 27      22      21 
                                                       ------  ------  ------ 
    Total                                              $1,425  $1,378  $1,270 
-----------------------------------------------------------------------------
/(a)/ Amount for 1998 excludes the Tarragon acquisition.                     
/(b)/ Amounts include 100 percent of MAP.                                    
/(c)/ Includes other energy related businesses and other miscellaneous 
      corporate capital expenditures.                                
                                                                               
     During 2000, domestic E&P capital spending mainly included the completion
of the Viosca Knoll Block 786 (Petronius) development in the Gulf of Mexico,
various producing property acquisitions, and natural gas developments in East
Texas and other gas basins throughout the western United States. International
E&P projects included the completion of the Tchatamba West development, located
offshore Gabon, and continued oil and natural gas developments in Canada. RM&T
spending by MAP primarily consisted of refinery modifications, including the
initiation of the delayed coker unit project at the Garyville refinery, and
upgrades and expansions of retail marketing outlets. Contract commitments for
property, plant and equipment acquisitions and long-term investments at year-end
2000 were $457 million, compared with $485 million at year-end 1999.
                                                                               
     Capital expenditures in 2001 are expected to be approximately $1.5 billion,
which is consistent with 2000 levels. Domestic E&P projects planned for 2001
will focus on gas projects and include various producing property acquisitions.
Planned capital expenditures in 2001 do not include the capital requirements
related to the acquisition of Pennaco Energy, Inc. ("Pennaco"). International
E&P projects include the continued development of the Foinaven area in the U.K.
Atlantic Margin and continued oil and natural gas developments in Canada. RM&T
spending by MAP will primarily consist of refinery improvements, including the
completion of the delayed coker unit project at the Garyville refinery, upgrades
and expansions of retail marketing outlets, and expansion and enhancement of
logistics systems. Other Marathon spending will include funds for development
and installation of SAP software, which is an enterprise resource planning
system that will allow the integration of processes among business units and
with outside enterprises.

     Investments in investees were $65 million in 2000, compared with $59
million in 1999. The amounts in both periods mainly reflected development
spending for the Sakhalin II project in Russia.

     Loans and advances to investees were $6 million in 2000, compared with $70
million in 1999. Cash outflows in both periods primarily reflected funding
provided to equity investees for capital projects. In 2000, the cash outflow was
primarily related to the Centennial Pipeline project, and in 1999, the outflow
was primarily related to the Sakhalin II project.

M-30

<PAGE>
 
             Management's Discussion and Analysis continued 

                Repayments of loans and advances to investees were $10 million
             in 2000, compared with $1 million in 1999. The 2000 amount
             primarily was a result of repayments by a foreign power subsidiary
             of advances made by Marathon.

                The above statements with respect to future capital expenditures
             and investments are forward-looking statements, reflecting
             management's best estimates, based on information currently
             available. To the extent this information proves to be inaccurate,
             the timing and levels of future spending could differ materially
             from those included in the forward-looking statements. Factors that
             could cause future capital expenditures to differ materially from
             present expectations include price volatility, worldwide supply and
             demand for petroleum products, general worldwide economic
             conditions, levels of cash flow from operations, available business
             opportunities, unforeseen hazards such as weather conditions,
             and/or delays in obtaining government or partner approvals.

                The acquisition of Tarragon Oil and Gas Limited in 1998 included
             cash payments of $686 million. For further discussion of Tarragon,
             see Note 5 to the Marathon Group Financial Statements.

                Cash from disposal of assets was $539 million in 2000, compared
             with $356 million in 1999 and $65 million in 1998. Proceeds in 2000
             were mainly from the Sakhalin exchange, the disposition of
             Marathon's interest in the Angus/Stellaria development in the Gulf
             of Mexico, the sale of non-core SSA stores and other domestic
             production properties. Proceeds in 1999 were mainly from the sale
             of Scurlock Permian LLC, over 150 non-strategic domestic and
             international production properties and Carnegie Natural Gas
             Company and affiliated subsidiaries. Proceeds in 1998 were mainly
             from the sales of domestic production properties and equipment.

                The net change in restricted cash was a net withdrawal of $3
             million in 2000 compared to a net withdrawal of $1 million in 1999.
             Restricted cash in both periods primarily reflected the net effects
             of cash deposited and withdrawn from domestic production property
             dispositions and acquisitions.

                Net cash changes related to financial obligations, which consist
             of the Marathon Group's portion of USX debt and preferred stock of
             a subsidiary attributed to both groups, as well as debt
             specifically attributed to the Marathon Group, decreased by $1,206
             million in 2000. Financial obligations decreased primarily because
             cash from operating activities and asset sales exceeded capital
             expenditures, distributions to the minority shareholder of MAP and
             dividend payments. For further details, see Management's Discussion
             and Analysis of USX Consolidated Financial Condition, Cash Flows
             and Liquidity.

                Marathon Stock repurchased was $105 million in 2000. In July
             2000, the USX Board of Directors authorized spending up to $450
             million to repurchase shares of Marathon Stock. This repurchase
             program will continue from time to time as the Corporation's
             financial condition and market conditions warrant.

                Distributions to minority shareholder of MAP were $420 million
             in 2000, compared with $400 million in 1999. The 1999 amount
             included a distribution of $103 million in the first quarter 1999,
             which related to fourth quarter 1998 MAP activity.

             Derivative Instruments

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

             Liquidity

                For discussion of USX's liquidity and capital resources, see
             Management's Discussion and Analysis of USX Consolidated Financial
             Condition, Cash Flows and Liquidity.

Management's Discussion and Analysis of Environmental Matters, Litigation and
Contingencies

                The Marathon Group has incurred and will continue to incur
             substantial capital, operating and maintenance, and remediation
             expenditures as a result of environmental laws and regulations. To
             the extent these expenditures, as with all costs, are not
             ultimately reflected in the prices of the Marathon Group's products
             and services, operating results will be adversely affected. The
             Marathon Group believes that substantially all of its competitors
             are subject to similar environmental laws and

                                                                            M-31

<PAGE>
 
     Management's Discussion and Analysis continued

     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, power business or the
     marine transportation of crude oil and refined products.

          Marathon Group environmental expenditures for each of the last three
     years were/(a)/:

     (Dollars in millions)                            2000    1999    1998
     ---------------------------------------------------------------------------
     Capital                                         $  73   $  46   $  83 /(b)/
     Compliance                                                   
      Operating & maintenance                          139     117     126
      Remediation/(c)/                                  30      25      10
                                                     -----   -----   -----
          Total                                      $ 242   $ 188   $ 219
     ---------------------------------------------------------------------------

     /(a)/ Amounts are determined based on American Petroleum Institute survey
           guidelines and include 100 percent of MAP.
     /(b)/ Reclassified to conform to 1999 classifications.
     /(c)/ These amounts include spending charged against remediation reserves,
           net of recoveries, where permissible, but do not include noncash
           provisions recorded for environmental remediation.

          The Marathon Group's environmental capital expenditures accounted for
     five percent of total capital expenditures in 2000, three percent in 1999,
     and seven percent in 1998 (excluding the acquisition of Tarragon).

          During 1998 through 2000, compliance expenditures represented one
     percent 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 13 waste sites related to the Marathon Group under the
     Comprehensive Environmental Response, Compensation and Liability Act
     ("CERCLA") as of December 31, 2000. In addition, there are 6 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 115 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.
     Of these sites, 15 were associated with properties conveyed to MAP by
     Ashland for which Ashland has retained liability for all costs associated
     with remediation.

          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 25 to the Marathon Group Financial
     Statements.

          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 2001. The
     Marathon Group's environmental capital expenditures are expected to be
     approximately $100 million in 2001. Predictions beyond 2001 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

M-32

<PAGE>
 
     Management's Discussion and Analysis continued


     technologies, among other matters. Based upon currently identified
     projects, the Marathon Group anticipates that environmental capital
     expenditures will be approximately $92 million in 2002; 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.

          New Tier II Fuels regulations were proposed in late 1999. The gasoline
     rules, which were finalized by the U.S. Environmental Protection Agency
     ("EPA") in February 2000, and the diesel fuel rule which was finalized in
     January 2001, require substantially reduced sulfur levels. The combined
     capital cost to achieve compliance with the gasoline and diesel regulations
     could amount to approximately $700 million between 2003 and 2005. This is a
     forward-looking statement and can only be a broad-based estimate due to the
     ongoing evolution of regulatory requirements. Some factors (among others)
     that could potentially affect gasoline and diesel fuel compliance costs
     include obtaining the necessary construction and environmental permits,
     operating considerations, and unforeseen hazards such as weather
     conditions.

          In October 1998, the National Enforcement Investigations Center and
     Region V of the EPA conducted a multi-media inspection of MAP's Detroit
     refinery. Subsequently, in November 1998, Region V conducted a multi-media
     inspection of MAP's Robinson refinery. These inspections covered compliance
     with the Clean Air Act (New Source Performance Standards, Prevention of
     Significant Deterioration, and the National Emission Standards for
     Hazardous Air Pollutants for Benzene), the Clean Water Act (permit
     exceedances for the Waste Water Treatment Plant), reporting obligations
     under the Emergency Planning and Community Right to Know Act and the
     handling of process waste. MAP has been advised, in ongoing discussions
     with the EPA, as to certain compliance issues regarding MAP's Detroit and
     Robinson refineries. Thus far, MAP has been served with two Notices of
     Violation ("NOV") and three Findings of Violation in connection with the
     multi-media inspections at its Detroit refinery. The Detroit notices allege
     violations of the Michigan State Air Pollution Regulations, the EPA New
     Source Performance Standards and National Emission Standards for Hazardous
     Air Pollutants for Benzene. On March 6, 2000, MAP received its first NOV
     arising out of the multi-media inspection of the Robinson refinery
     conducted in November 1998. The NOV is for alleged Resource Conservation
     and Recovery Act (hazardous waste) violations.

          MAP has responded to information requests from the EPA regarding New
     Source Review ("NSR") compliance at its Garyville and Texas City
     refineries. In addition, the scope of the EPA's 1998 multi-media
     inspections of the Detroit and Robinson refineries included NSR compliance.
     NSR requires new major stationary sources and major modifications at
     existing major stationary sources to obtain permits, perform air quality
     analysis and install stringent air pollution control equipment at affected
     facilities. The current EPA initiative appears to target many items that
     the industry has historically considered routine repair, replacement and
     maintenance or other activity exempted from the NSR requirements. MAP is
     engaged in ongoing discussions with the EPA on these issues concerning all
     of MAP's refineries.

          While MAP has not been notified of any formal findings or violations
     resulting from either the information requests or inspections regarding NSR
     compliance, MAP has been informed during discussions with the EPA of
     potential non-compliance concerns of the EPA based on these inspections and
     other information identified by the EPA. Recently, discussions with the EPA
     have included commitment to some specific control technologies and
     implementation schedules, but not penalties. In addition, MAP anticipates
     that some or all of the non-NSR related issues arising from the multi-media
     inspections may also be resolved as part of the current discussions with
     the EPA. A negotiated resolution with the EPA could result in increased
     environmental capital expenditures in future years, in addition to as yet,
     undetermined penalties.

          During 1999 an EPA advisory panel on oxygenate use in gasoline issued
     recommendations to the EPA, calling for the improved protection of drinking
     water from methyl tertiary butyl ether ("MTBE") impacts, a substantial
     reduction in the use of MTBE, and action by Congress to remove the
     oxygenate requirements for reformulated gasoline under the Clean Air Act.
     The panel reviewed public health and environmental issues that have been
     raised by the use of MTBE in gasoline, and specifically by the discovery of
     MTBE in water supplies. State and federal environmental regulatory agencies
     could implement the majority of the recommendations, while some would
     require Congressional legislative action. California has acted to ban MTBE
     use by December 31, 2002 and has requested a waiver from

                                                                            M-33

<PAGE>
 
     Management's Discussion and Analysis continued


     the EPA of California state oxygenate requirements. In addition, a number
     of states have passed laws which limit or require the phase out of MTBE in
     gasoline, including states in MAP's marketing area such as Michigan and
     Minnesota. Many other states are considering bills which require similar
     limitations or the phase out of MTBE.

          MAP has a non-material investment in MTBE units at its Robinson,
     Catlettsburg and Detroit refineries. Approximately seven percent of MAP's
     refinery gasoline production includes MTBE. Potential phase-outs or
     restrictions on the use of MTBE would not be expected to have a material
     impact on MAP and its operations, although it is not possible to reach any
     conclusions until further federal or state actions, if any, are taken.

          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 25 to the Marathon
     Group Financial Statements. The ultimate resolution of these contingencies
     could, individually or in the aggregate, be material to the Marathon Group
     financial statements. However, management believes that USX will remain a
     viable and competitive enterprise even though it is possible that these
     contingencies could be resolved unfavorably to the Marathon Group. See
     Management's Discussion and Analysis of USX Consolidated Financial
     Condition, Cash Flows and Liquidity.

     Outlook

          The outlook regarding the results of operations for the Marathon
     Group's upstream segment is largely dependent upon future prices and
     volumes of liquid hydrocarbons and natural gas. Prices have historically
     been volatile and have frequently been affected by unpredictable changes in
     supply and demand resulting from fluctuations in worldwide economic
     activity and political developments in the world's major oil and gas
     producing and consuming areas. Any significant decline in 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.

          At year-end 2000, Marathon revised its estimate of proved developed
     and undeveloped oil and gas reserves downward by 167 million barrels of oil
     equivalent ("BOE"). These revisions were principally in Canada, the North
     Sea and United States and are the result of production performance and
     disappointing drilling results.

          BOE is a combined measure of worldwide liquid hydrocarbon and natural
     gas production, measured in barrels per day and cubic feet per day,
     respectively. For purposes of determining BOE, natural gas volumes are
     converted to approximate liquid hydrocarbon barrels by dividing the natural
     gas volumes expressed in thousands of cubic feet ("mcf") by 6. The liquid
     hydrocarbon volume is added to the barrel equivalent of gas volume to
     obtain BOE. Marathon intends to disclose total production estimates on a
     BOE basis from this point forward.

          In 2001, worldwide production is expected to average 430,000 BOE per
     day, split evenly between liquid hydrocarbons and natural gas, including
     production from Marathon's share of investees and future acquisitions.

          On December 28, 2000, Marathon signed a definitive agreement to form a
     joint venture with Kinder Morgan Energy Partners, L.P., which commenced
     operations in January 2001. The formation of the joint venture included
     contribution of interests in the Yates and SACROC assets. This transaction
     will allow Marathon to expand its interests in the Permian Basin and will
     improve access to materials for use in enhanced recovery techniques in the
     Yates Field. Marathon holds an 85 percent economic interest in the combined
     entity, which will be accounted for under the equity method of accounting.

          On December 22, 2000, Marathon announced its plans to acquire Pennaco.
     This acquisition will enhance Marathon's presence in a core area, the North
     American gas market, and will provide an opportunity for possible new
     reserves to be developed. The tender offer expired on February 5, 2001 at
     12:00 midnight, Eastern time. Marathon acquired approximately 17.6 million
     shares of Pennaco common stock which were validly tendered and not
     withdrawn in the offer, representing approximately 87 percent of the
     outstanding Pennaco shares.

M-34

<PAGE>
 
     Management's Discussion and Analysis continued


          Marathon plans to acquire the remaining Pennaco shares through a
     merger in which each share of Pennaco common stock, not purchased in the
     offer and not held by stockholders who have properly exercised dissenters
     rights under Delaware law, will be converted into the right to receive the
     tender offer price in cash, without interest.

          Marathon plans to drill six deepwater Gulf of Mexico exploratory wells
     in 2001. To support this increased drilling activity, Marathon has
     contracted two new deepwater rigs, capable of drilling in water depths
     beyond 6,500 feet.

          Other major upstream projects, which are currently underway or under
     evaluation and are expected to improve future income streams, include the
     Mississippi Canyon Block 348 in the Gulf of Mexico and various North
     American natural gas fields. Also, Marathon expects continued development
     in the Foinaven area in the U.K. Atlantic Margin. Marathon acquired an
     interest in this location through the exchange of its Sakhalin interests
     with Shell Oil in the fourth quarter of 2000

          Marathon E&P is currently on target for achieving $150 million in
     annual repeatable pre-tax operating efficiencies by year-end 2001. Marathon
     initiated a reorganization program for its upstream business units which
     will contribute to an overall workforce reduction of 24% compared to 1999
     levels. In addition, regional production offices in Lafayette, Louisiana
     and Tyler, Texas have been closed along with the Petroleum Technology
     Center in Littleton, Colorado.

          The above discussion includes forward-looking statements with respect
     to 2001 worldwide liquid hydrocarbon production and natural gas volumes,
     the acquisition of Pennaco, commencement of upstream projects, and the Gulf
     of Mexico drilling program. Some factors that could potentially affect
     worldwide liquid hydrocarbon production/gas volumes, upstream projects, and
     the drilling program include: pricing, worldwide supply and demand for
     petroleum products, amount of capital available for exploration and
     development, regulatory constraints, reserve estimates, reserve replacement
     rates, production decline rates of mature fields, timing of commencing
     production from new wells, timing and results of future development
     drilling, drilling rig availability, the completion of the merger with
     Pennaco, future acquisitions of producing properties, and other geological,
     operating and economic 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 timing and economics of projects. A factor that could affect the
     Pennaco acquisition is successful completion of the merger. These factors
     (among others) could cause actual results to differ materially from those
     set forth in the forward-looking statements.

          Downstream income of the Marathon Group is largely dependent upon
     refined product margins, which reflect the difference between the selling
     prices of refined products and the cost of raw materials refined and
     manufacturing costs. Refined product margins have been historically
     volatile and vary with the level of economic activity in the various
     marketing areas, the regulatory climate, crude oil costs, manufacturing
     costs, logistical limitations and the available supply of crude oil and
     refined products.

          In 2000, MAP, CMS Energy Corporation, and TEPPCO Partners, L.P. formed
     a limited liability company with equal ownership to operate an interstate
     refined petroleum products pipeline extending from the U.S. Gulf of Mexico
     to the Midwest. The new company plans to build a 74-mile, 24-inch diameter
     pipeline connecting TEPPCO's facility in Beaumont, Texas, with an existing
     720-mile, 26-inch diameter pipeline extending from Longville, Louisiana to
     Bourbon, Illinois. In addition, a two million barrel terminal storage
     facility will be constructed. The system will be called Centennial Pipeline
     and will connect with existing MAP transportation assets and other common
     carrier lines. Construction is expected to be completed in the fourth
     quarter of 2001.

          A MAP subsidiary, Ohio River Pipe Line LLC ("ORPL"), plans to build a
     pipeline from Kenova, West Virginia to Columbus, Ohio. ORPL is a common
     carrier pipeline company and the pipeline will be an interstate common
     carrier pipeline. The pipeline is expected to initially move about 50,000
     bpd of refined petroleum into the central Ohio region. The pipeline is
     currently expected to be operational in mid-2002. The startup of this
     pipeline is largely dependent on obtaining the final regulatory approvals,
     obtaining the necessary rights-of-way, of which approximately 95 percent
     have been obtained to date, and completion of construction. ORPL is still
     negotiating with a few landowners to obtain the

                                                                            M-35

<PAGE>
 
     Management's Discussion and Analysis continued


     remaining rights-of-way. Where necessary, ORPL has filed condemnation
     actions to acquire some rights-of-way. These actions are at various stages
     of litigation and appeal with several recent decisions supporting ORPL's
     use of eminent domain.

          MAP is constructing a delayed coker unit at its Garyville, Louisiana
     refinery. This unit will allow for the use of heavier, lower cost crude and
     reduce the production of heavy fuel oil. To supply this new unit, MAP
     reached an agreement with P.M.I. Comercio Internacional, S.A. de C.V.,
     (PMI), an affiliate of Petroleos Mexicanos, (PEMEX), to purchase
     approximately 90,000 bpd of heavy Mayan crude oil. This is a multi-year
     contract, which will begin upon completion of the delayed coker unit which
     is scheduled in the fall of 2001. In addition, a project to increase light
     product output is underway at MAP's Robinson, Illinois refinery and is
     expected to be completed in the second quarter of 2001.

          MAP initiated a program for 2000 to dispose of approximately 270 non-
     core SSA retail outlets in the Midwest and Southeast. At the end of this
     program through December 31, 2000, 159 stores, which comprise about 7
     percent of MAP's owned and operated SSA retail network, had been sold. MAP
     will continue to sell additional SSA stores as part of its ongoing store
     development process.

          The above discussion includes forward-looking statements with respect
     to pipeline and refinery improvement projects. Some factors that could
     potentially cause actual results to differ materially from present
     expectations include the price of petroleum products, levels of cash flow
     from operations, obtaining the necessary construction and environmental
     permits, unforeseen hazards such as weather conditions, obtaining the
     necessary rights-of-way, outcome of pending litigation, and regulatory
     approval constraints. These factors (among others) could cause actual
     results to differ materially from those set forth in the forward-looking
     statements.

     Accounting Standards

          In the fourth quarter of 2000, USX adopted the following accounting
     pronouncements primarily related to the classification of items in the
     statement of operations. The adoption of these new pronouncements had no
     net effect on the financial position or results of operations of the
     Marathon Group, although they required reclassifications of certain amounts
     in the statement of operations, including all prior periods presented.

          .    In December 1999, the Securities and Exchange Commission ("SEC")
               issued Staff Accounting Bulletin No. 101 (SAB 101) "Revenue
               Recognition in Financial Statements", which summarizes the SEC
               staff's interpretations of generally accepted accounting
               principles related to revenue recognition and classification.

          .    In 2000, the Emerging Issues Task Force of the Financial
               Accounting Standards Board (EITF) issued EITF Consensus No. 99-19
               "Reporting Revenue Gross as a Principal versus Net as an Agent",
               which addresses whether certain items should be reported as a
               reduction of revenue or as a component of both revenues and cost
               of revenues, and EITF Consensus No. 00-10 "Accounting for
               Shipping and Handling Fees and Costs", which addresses the
               classification of costs incurred for shipping goods to customers.

          In June 1998, the Financial Accounting Standards Board issued
     Statement of Financial Accounting Standards No. 133, "Accounting for
     Derivative Instruments and Hedging Activities: (SFAS No. 133), which later
     was amended by SFAS Nos. 137 and 138. This Standard requires recognition of
     all derivatives as either assets or liabilities at fair value. Changes in
     fair value will be reflected in either current period net income or other
     comprehensive income, depending on the designation of the derivative
     instrument. The Marathon Group may elect not to designate a derivative
     instrument as a hedge even if the strategy would be expected to qualify for
     hedge accounting treatment. The adoption of SFAS No. 133 will change the
     timing of recognition for derivative gains and losses as compared to
     previous accounting standards.

          The Marathon Group will adopt the Standard effective January 1, 2001.
     The transition adjustment resulting from the adoption of SFAS No. 133 will
     be reported as a cumulative effect of a change in accounting principle. The
     unfavorable cumulative effect on net income, net of tax, is expected to
     approximate $9 million. The unfavorable cumulative effect on other
     comprehensive income, net of tax, will approximate $7 million. The amounts
     reported as other comprehensive income will be reflected in net income when
     the anticipated physical transactions are consummated. It is not possible
     to estimate the effect that this Standard will have on future results of
     operations.

M-36

<PAGE>
 
     Quantitative and Qualitative Disclosures About Market Risk 


     Management Opinion Concerning Derivative Instruments

          USX uses commodity-based and foreign currency derivative instruments
     to manage its price risk. Management has authorized the use of futures,
     forwards, swaps and options to manage exposure to price fluctuations
     related to the purchase, production or sale of crude oil, natural gas,
     refined products, and nonferrous metals. For transactions that qualify for
     hedge accounting, the resulting gains or losses are deferred and
     subsequently recognized in income from operations, in the same period as
     the underlying physical transaction. Derivative instruments used for
     trading and other activities are marked-to-market and the resulting gains
     or losses are recognized in the current period in income from operations.
     While USX's 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
     that assume price risk.

          Management believes that use of derivative instruments along with risk
     assessment procedures and internal controls does not expose the Marathon
     Group to material risk. The use of derivative instruments could materially
     affect the Marathon Group's results of operations in particular quarterly
     or annual periods. However, management believes that use of these
     instruments will not have a material adverse effect on financial position
     or liquidity. For a summary of accounting policies related to derivative
     instruments, see Note 2 to the Marathon Group Financial Statements.

     Commodity Price Risk and Related Risks

          In the normal course of its business, the Marathon Group is exposed to
     market risk or price fluctuations related to the purchase, production or
     sale of crude oil, natural gas and refined products. To a lesser extent,
     the Marathon Group is exposed to the risk of price fluctuations on natural
     gas liquids and petroleum feedstocks used as raw materials.

          The Marathon Group's market risk strategy has generally been to obtain
     competitive prices for its products and services and allow operating
     results to reflect market price movements dictated by supply and demand.
     However, the Marathon Group uses fixed-price contracts and derivative
     commodity instruments to manage a relatively small portion of its commodity
     price risk. The Marathon Group uses fixed-price contracts for portions of
     its natural gas production to manage exposure to fluctuations in natural
     gas prices. Certain derivative commodity instruments have the effect of
     restoring the equity portion of fixed-price sales of natural gas to
     variable market-based pricing. These instruments are used as part of the
     Marathon Group's overall risk management programs.

                                                                            M-37

<PAGE>
 
          Quantitative and Qualitative Disclosures About Market Risk continued


               Sensitivity analyses of the incremental effects on pretax income
     of hypothetical 10% and 25% changes in commodity prices for open derivative
     commodity instruments as of December 31, 2000 and December 31, 1999, are
     provided in the following table:/(a)/


<TABLE> 
<CAPTION> 
     (Dollars in millions)
     ------------------------------------------------------------------------------------------   
                                                              Incremental Decrease in   
                                                              Pretax Income Assuming a  
                                                                 Hypothetical Price     
                                                                   Change of/(a)/        
                                                          2000                    1999           
     Derivative Commodity Instruments                10%         25%          10%        25%     
     -------------------------------------------------------------------------------------------    
     <S>                                          <C>       <C>             <C>      <C>                
     Marathon Group/(b)(c)/:                                                                            
       Crude oil/(d)/                                                                                   
         Trading                                  $     -   $    -  /(e)/   $  1.3   $ 7.7 /(e)/        
         Other than trading                           9.1     27.2  /(e)/     16.5    54.0 /(e)/        
       Natural gas/(d)/                                                                                 
         Trading                                        -        -  /(e)/        -       - /(f)/        
         Other than trading                          20.2     50.6  /(e)/      4.7    16.8 /(f)/        
       Refined products/(d)/                                                                            
         Trading                                        -        -  /(e)/        -       - /(e)/        
         Other than trading                           6.1     16.5  /(e)/      8.4    23.8 /(e)/        
     -------------------------------------------------------------------------------------------    
</TABLE>
 

     /(a)/ Gains and losses on derivative commodity instruments are generally
           offset by price changes in the underlying commodity. Effects of these
           offsets are not reflected in the sensitivity analyses. Amounts
           reflect the estimated incremental effect on pretax income of
           hypothetical 10% and 25% changes in closing commodity prices for each
           open contract position at December 31, 2000 and December 31, 1999.
           Marathon Group management evaluates their portfolio of derivative
           commodity instruments on an ongoing basis and adds or revises
           strategies to reflect anticipated market conditions and changes in
           risk profiles. Changes to the portfolio subsequent to December 31,
           2000, would cause future pretax income effects to differ from those
           presented in the table.
     /(b)/ The number of net open contracts varied throughout 2000, from a low
           of 12,252 contracts at July 5, to a high of 34,554 contracts at
           October 25, and averaged 21,875 for the year. The derivative
           commodity instruments used and hedging positions taken also varied
           throughout 2000, and will continue to vary in the future. Because of
           these variations in the composition of the portfolio over time, the
           number of open contracts, by itself, cannot be used to predict future
           income effects.
     /(c)/ The calculation of sensitivity amounts for basis swaps assumes that
           the physical and paper indices are perfectly correlated. Gains and
           losses on options are based on changes in intrinsic value only.
     /(d)/ The direction of the price change used in calculating the sensitivity
           amount for each commodity reflects that which would result in the
           largest incremental decrease in pretax income when applied to the
           derivative commodity instruments used to hedge that commodity.
     /(e)/ Price increase.
     /(f)/ Price decrease.

               In total, Marathon's exploration and production operations
     recorded net pretax other than trading activity losses of approximately $34
     million in 2000, gains of $3 million in 1999 and losses of $3 million in
     1998.

               Marathon's refining, marketing and transportation operations
     generally use derivative commodity instruments to lock-in costs of certain
     crude oil and other feedstocks, to protect carrying values of inventories
     and to protect margins on fixed-price sales of refined products. Marathon's
     refining, marketing and transportation operations recorded net pretax other
     than trading activity losses, net of the 38% minority interest in MAP, of
     approximately $116 million in 2000, and net pretax other than trading
     activity gains, net of the 38% minority interest in MAP, of $8 million in
     1999 and $28 million in 1998. Marathon's refining, marketing and
     transportation operations used derivative instruments for trading
     activities and recorded net pretax trading activity losses, net of the 38%
     minority interest in MAP, of $11 million in 2000 and net pretax trading
     activity gains, net of the 38% minority interest in MAP, of $5 million in
     1999.

               The Marathon Group is subject to basis risk, caused by factors
     that affect the relationship between commodity futures prices reflected in
     derivative commodity instruments and the cash market price of the
     underlying commodity. Natural gas transaction prices are frequently based
     on industry reference prices that may vary from prices experienced in local
     markets. For example, New York Mercantile Exchange ("NYMEX") contracts for
     natural gas are priced at Louisiana's Henry Hub, while the underlying
     quantities of natural gas may be produced and sold in the Western United
     States at prices

M-38

<PAGE>
 
     Quantitative and Qualitative Disclosures About Market Risk continued


     that do not move in strict correlation with NYMEX prices. To the extent
     that commodity price changes in one region are not reflected in other
     regions, derivative commodity instruments may no longer provide the
     expected hedge, resulting in increased exposure to basis risk. These
     regional price differences could yield favorable or unfavorable results.
     OTC transactions are being used to manage exposure to a portion of basis
     risk.

          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, liquidity risk exposure is
     relatively low for exchange-traded transactions.

     Interest Rate Risk

          USX is subject to the effects of interest rate fluctuations on certain
     of its non-derivative financial instruments. A sensitivity analysis of the
     projected incremental effect of a hypothetical 10% decrease in year-end
     2000 and 1999 interest rates on the fair value of the Marathon Group's
     specifically attributed non-derivative financial instruments and the
     Marathon Group's portion of USX's non-derivative financial instruments
     attributed to both groups, is provided in the following table:


<TABLE>
<CAPTION>
     (Dollars in millions)
     ----------------------------------------------------------------------------------------------- 
     As of December 31,                                     2000                      1999
                                                               Incremental              Incremental
                                                               Increase in              Increase in
                                                     Fair          Fair       Fair          Fair
     Non-Derivative Financial Instruments/(a)/      Value/(b)/  Value/(c)/   Value/(b)/  Value/(c)/
     -----------------------------------------------------------------------------------------------
     <S>                                            <C>          <C>         <C>         <C>  
     Financial assets:
      Investments and long-term receivables/(d)/       $  171   $        -      $  166         $  -

     Financial liabilities:
      Long-term debt/(e)(f)/                           $2,174   $       86      $3,443         $144
      Preferred stock of subsidiary/(g)/                  175           15         176           16
                                                       ------   ----------  ----------  -----------
       Total liabilities                               $2,349   $      101      $3,619         $160
     -----------------------------------------------------------------------------------------------
</TABLE>


     /(a)/ Fair values of cash and cash equivalents, receivables, notes payable,
           accounts payable and accrued interest, approximate carrying value and
           are relatively insensitive to changes in interest rates due to the
           short-term maturity of the instruments. Accordingly, these
           instruments are excluded from the table.
     /(b)/ See Note 22 to the Marathon Group Financial Statements for carrying
           value of instruments.
     /(c)/ Reflects, by class of financial instrument, the estimated incremental
           effect of a hypothetical 10% decrease in interest rates at December
           31, 2000 and December 31, 1999, on the fair value of USX's non-
           derivative financial instruments. For financial liabilities, this
           assumes a 10% decrease in the weighted average yield to maturity of
           USX's long-term debt at December 31, 2000 and December 31, 1999.
     /(d)/ For additional information, see Note 19 to the Marathon Group
           Financial Statements.
     /(e)/ Includes amounts due within one year.
     /(f)/ Fair value was based on market prices where available, or current
           borrowing rates for financings with similar terms and maturities. For
           additional information, see Note 12 to the Marathon Group Financial
           Statements.
     /(g)/ See Note 22 to the USX Consolidated Financial Statements.
              
               At December 31, 2000, USX's portfolio of long-term debt was
     comprised primarily of fixed-rate instruments. Therefore, the fair value of
     the portfolio is relatively sensitive to effects of interest rate
     fluctuations. This sensitivity is illustrated by the $86 million increase
     in the fair value of long-term debt assuming a hypothetical 10% decrease in
     interest rates. However, USX's sensitivity to interest rate declines and
     corresponding increases in the fair value of its debt portfolio would
     unfavorably affect USX's results and cash flows only to the extent that USX
     elected to repurchase or otherwise retire all or a portion of its fixed-
     rate debt portfolio at prices above carrying value.

     Foreign Currency Exchange Rate Risk

          USX is subject to the risk of price fluctuations related to
     anticipated revenues and operating costs, firm commitments for capital
     expenditures and existing assets or liabilities denominated in currencies
     other than U.S. dollars. USX has not generally used derivative instruments
     to manage this risk. However, USX has made limited use of forward currency
     contracts to manage exposure to certain currency price fluctuations. At
     December 31, 2000, USX had open Canadian dollar forward purchase

                                                                            M-39

<PAGE>
 
     Quantitative and Qualitative Disclosures About Market Risk continued


     contracts with a total carrying value of approximately $14 million compared
     to $52 million at December 31, 1999. A 10% increase in the December 31,
     2000, Canadian dollar to U.S. dollar forward rate, would result in a charge
     to income of approximately $1 million. Last year, a 10% increase in the
     December 31, 1999, Canadian dollar to U.S. dollar forward rate, would have
     resulted in a charge to income of $5 million. The entire amount of these
     contracts is attributed to the Marathon Group.

     Equity Price Risk

          At December 31, 2000, the Marathon Group had no material exposure to
     equity price risk.

     Safe Harbor

          The Marathon Group's quantitative and qualitative disclosures about
     market risk include forward-looking statements with respect to management's
     opinion about risks associated with the Marathon Group's use of derivative
     instruments. These statements are based on certain assumptions with respect
     to market prices and industry supply of and demand for crude oil, natural
     gas, refined products and other feedstocks. To the extent that these
     assumptions prove to be inaccurate, future outcomes with respect to the
     Marathon Group's hedging programs may differ materially from those
     discussed in the forward-looking statements.

M-40

<PAGE>
 
          U. S. Steel Group

                Index to Financial Statements, Supplementary Data,
                Management's Discussion and Analysis, and Quantitative and
                Qualitative Disclosures About Market Risk 


<TABLE> 
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Management's Report....................................................... S-1
Audited Financial Statements:
 Report of Independent Accountants........................................ S-1
 Statement of Operations.................................................. S-2
 Balance Sheet............................................................ S-3
 Statement of Cash Flows.................................................. S-4
 Notes to Financial Statements............................................ S-5
Selected Quarterly Financial Data......................................... S-22
Principal Unconsolidated Affiliates....................................... S-22
Supplementary Information................................................. S-22
Five-Year Operating Summary............................................... S-23
Five-Year Financial Summary............................................... S-24
Management's Discussion and Analysis...................................... S-25
Quantitative and Qualitative Disclosures About Market Risk................ S-38
</TABLE>


<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 accounting principles
               generally accepted in the United States. 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        Larry G. Schultz
               Chairman, Board of Directors &    Vice Chairman &            Vice President-
               Chief Executive Officer           Chief Financial Officer    Accounting
</TABLE>
 


               Report of Independent Accountants

               To the Stockholders of USX Corporation:

               In our opinion, the accompanying financial statements appearing
               on pages S-2 through S-21 present fairly, in all material
               respects, the financial position of the U. S. Steel Group at
               December 31, 2000 and 1999, and the results of its operations and
               its cash flows for each of the three years in the period ended
               December 31, 2000, in conformity with accounting principles
               generally accepted in the United States of America. 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 auditing standards generally
               accepted in the United States of America, 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 our opinion.

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

               PricewaterhouseCoopers LLP
               600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
               February 7, 2001


                                                                             S-1

<PAGE>

               Statement of Operations
 

<TABLE>
<CAPTION> 
               (Dollars in millions)                                                           2000          1999          1998
               ------------------------------------------------------------------------------------------------------------------
               <S>                                                                          <C>            <C>           <C>   
               Revenues and other income:                                                                                        
                 Revenues                                                                    $6,090        $5,536        $6,378  
                 Income (loss) from investees                                                    (8)          (89)           46  
                 Net gains on disposal of assets                                                 46            21            54  
                 Other income (loss)                                                              4             2            (1) 
                                                                                             ------        ------        ------  
                     Total revenues and other income                                          6,132         5,470         6,477  
                                                                                             ------        ------        ------  
               Costs and expenses:                                                                                               
                 Cost of revenues (excludes items shown below)                                5,656         5,084         5,604  
                 Selling, general and administrative expenses (credits) (Note 12)              (223)         (283)         (201) 
                 Depreciation, depletion and amortization                                       360           304           283  
                 Taxes other than income taxes                                                  235           215           212  
                                                                                             ------        ------        ------  
                     Total costs and expenses                                                 6,028         5,320         5,898  
                                                                                             ------        ------        ------  
               Income from operations                                                           104           150           579  
               Net interest and other financial costs (Note 7)                                  105            74            42  
                                                                                             ------        ------        ------  
               Income (loss) before income taxes and extraordinary losses                        (1)           76           537  
               Provision for income taxes (Note 15)                                              20            25           173  
                                                                                             ------        ------        ------  
               Income (loss) before extraordinary losses                                        (21)           51           364  
               Extraordinary losses (Note 6)                                                      -             7             -  
                                                                                             ------        ------        ------  
               Net income (loss)                                                                (21)           44           364  
               Dividends on preferred stock                                                       8             9             9  
                                                                                             ------        ------        ------  
               Net income (loss) applicable to Steel Stock                                   $  (29)       $   35        $  355  
               ----------------------------------------------------------------------------------------------------------------  
</TABLE>
 

               Income Per Common Share Applicable to Steel Stock 


<TABLE> 
<CAPTION> 
                                                                                               2000          1999        1998    
               ----------------------------------------------------------------------------------------------------------------  
               <S>                                                                           <C>           <C>           <C> 
               Basic:                                                                                                            
                 Income (loss) before extraordinary losses                                   $ (.33)       $  .48        $ 4.05  
                 Extraordinary losses                                                             -           .08             -  
                                                                                              -----         -----        ------  
                 Net income (loss)                                                           $ (.33)       $  .40        $ 4.05  
               Diluted:                                                                                                          
                 Income (loss) before extraordinary losses                                   $ (.33)       $  .48        $ 3.92  
                 Extraordinary losses                                                             -           .08             -  
                                                                                              -----         -----        ------  
                 Net income (loss)                                                           $ (.33)       $  .40        $ 3.92  
               ----------------------------------------------------------------------------------------------------------------   
</TABLE>


               See Note 21, for a description and computation of income per
               common share.
               
               The accompanying notes are an integral part of these financial
               statements.

S-2

<PAGE>
 
             Balance Sheet                 


<TABLE>
<CAPTION>
            (Dollars in millions)                                                   December 31         2000         1999
            ------------------------------------------------------------------------------------------------------------- 
            <S>                                                                                      <C>          <C> 
             Assets

             Current assets:
              Cash and cash equivalents                                                               $   219      $    22
              Receivables, less allowance for doubtful accounts
               of $57 and $10                                                                             627          488
              Receivables subject to a security interest (Note 11)                                        350          350
              Income taxes receivable (Note 13)                                                           364           97
              Inventories (Note 14)                                                                       946          743
              Deferred income tax benefits (Note 15)                                                      201          281
              Other current assets                                                                         10           -
                                                                                                      -------      -------  
                 Total current assets                                                                   2,717        1,981

             Investments and long-term receivables,
              less reserves of $28 and $3 (Notes 13 and 16)                                               536          572
             Property, plant and equipment - net (Note 23)                                              2,739        2,516
             Prepaid pensions (Note 12)                                                                 2,672        2,404
             Other noncurrent assets                                                                       47           52
                                                                                                      -------      -------  
                 Total assets                                                                          $8,711       $7,525
             ------------------------------------------------------------------------------------------------------------- 
             Liabilities

             Current liabilities:
              Notes payable                                                                            $   70       $    -

              Accounts payable                                                                            760          757
              Payroll and benefits payable                                                                202          322
              Accrued taxes                                                                               173          177
              Accrued interest                                                                             47           15
              Long-term debt due within one year (Note 11)                                                139           13
                                                                                                      -------      -------  
                 Total current liabilities                                                              1,391        1,284

             Long-term debt (Note 11)                                                                   2,236          902
             Deferred income taxes (Note 15)                                                              666          348
             Employee benefits (Note 12)                                                                1,767        2,245
             Deferred credits and other liabilities                                                       483          441
             Preferred stock of subsidiary (Note 10)                                                       66           66
             USX obligated mandatorily redeemable convertible preferred
              securities of a subsidiary trust holding solely junior subordinated
              convertible debentures of USX (Note 18)                                                     183          183
 
             Stockholders' Equity (Note 19)

             Preferred stock                                                                                2            3
             Common stockholders' equity                                                                1,917        2,053
                                                                                                      -------      -------  
                 Total stockholders' equity                                                             1,919        2,056
                                                                                                      -------      -------  
                 Total liabilities and stockholders' equity                                           $ 8,711      $ 7,525
             -------------------------------------------------------------------------------------------------------------
</TABLE>


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

                                                                             S-3

<PAGE>

               Statement of Cash Flows 
 

<TABLE>
<CAPTION>
               (Dollars in millions)                                                           2000          1999          1998
               ----------------------------------------------------------------------------------------------------------------- 
               <S>                                                                           <C>            <C>           <C>    
               Increase (decrease) in cash and cash equivalents                                                                  
               Operating activities:                                                                                              
                                                                                                                                 
               Net income (loss)                                                             $  (21)        $  44         $ 364   
               Adjustments to reconcile to net cash provided                                                                     
                from (used in) operating activities:                                                                             
                 Extraordinary losses                                                             -             7             -   
                 Depreciation, depletion and amortization                                       360           304           283   
                 Pensions and other postretirement benefits                                    (847)         (256)         (215)  
                 Deferred income taxes                                                          389           107           158   
                 Net gains on disposal of assets                                                (46)          (21)          (54)  
                 Changes in:      Current receivables- sold                                       -          (320)          (30)  
                                                     - operating turnover                      (263)         (242)          232   
                                  Inventories                                                   (63)          (14)            7   
                                  Current accounts payable and accrued expenses                (262)          239          (285)  
                 All other - net                                                                126            72           (80)  
                                                                                             ------   -----------   -----------   
                   Net cash provided from (used in) operating activities                       (627)          (80)          380   
                                                                                             ------   -----------   -----------   
               Investing activities:                                                                                              
                                                                                                                                 
               Capital expenditures                                                            (244)         (287)         (310)  
               Acquisition of U. S. Steel Kosice s.r.o., net of cash acquired of $59            (10)            -             -   
               Disposal of assets                                                                21            10            21   
               Restricted cash - withdrawals                                                      2            15            35   
                               - deposits                                                        (2)          (17)          (35)  
               Investees - investments                                                          (35)          (15)          (73)  
                         - loans and advances                                                   (10)            -            (1)  
               All other - net                                                                    8             -            14   
                                                                                             ------   -----------   -----------   
                   Net cash used in investing activities                                       (270)         (294)         (349)  
                                                                                             ------   -----------   -----------   
               Financing activities (Note 10):                                                                                   
               Increase in U. S. Steel                                                                                            
                Group's portion of USX consolidated debt                                                                          
                                                                                              1,208           147            13   
               Specifically attributed debt:                                                                                      
                Borrowings                                                                        -           350             -   
                Repayments                                                                       (6)          (11)           (4)  
               Steel Stock issued                                                                 -             -            55   
               Preferred stock repurchased                                                      (12)           (2)           (8)  
               Dividends paid                                                                   (97)          (97)          (96)  
                                                                                             ------   -----------   -----------   
                   Net cash provided from (used in) financing activities                      1,093           387           (40)  
                                                                                             ------   -----------   -----------   
               Effect of exchange rate changes on cash                                            1             -             -   
                                                                                             ------   -----------   -----------   
               Net increase (decrease) in cash and cash equivalents                             197            13            (9)  
                                                                                                                                 
               Cash and cash equivalents at beginning of year                                    22             9            18   
                                                                                             ------   -----------   -----------   
               Cash and cash equivalents at end of year                                      $  219         $  22         $   9  
               -----------------------------------------------------------------------------------------------------------------
</TABLE>


               See Note 9, for supplemental cash flow information. 
               The accompanying notes are an integral part of these financial
               statements.

S-4

<PAGE>
 
             Notes to Financial Statements

1. Basis of Presentation

             USX Corporation (USX) has two classes of common stock: USX - U. S.
             Steel Group Common Stock (Steel Stock) and USX - Marathon Group
             Common Stock (Marathon Stock), which are intended to reflect the
             performance of the U. S. Steel Group and the Marathon Group,
             respectively.

                    The financial statements of the U. S. Steel Group include
             the financial position, results of operations and cash flows for
             all businesses of USX other than the businesses, assets and
             liabilities included in the Marathon Group, and a portion of the
             corporate assets and liabilities and related transactions which are
             not separately identified with ongoing operating units of USX. The
             U. S. Steel Group financial statements are prepared using the
             amounts included in the USX consolidated financial statements. For
             a description of the U. S. Steel Group's operating segments, see
             Note 8.

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

--------------------------------------------------------------------------------
2. Summary of Principal Accounting Policies

             Principles applied in consolidation - These financial statements
             include the accounts of the U. S. Steel Group. The U. S. Steel
             Group and the Marathon Group financial statements, taken together,
             comprise all of the accounts included in the USX consolidated
             financial statements.

                    Investments in entities over which the U. S. Steel Group has
             significant influence are accounted for using the equity method of
             accounting and are carried at the U. S. Steel Group's share of net
             assets plus loans and advances.

                    Investments in companies whose stock is publicly traded are
             carried generally at market value. The difference between the cost
             of these investments and market value is recorded in other
             comprehensive income (net of tax). Investments in companies whose
             stock has no readily determinable fair value are carried at cost.

                    Income from investees includes the U. S. Steel Group's
             proportionate share of income from equity method investments. Also,
             gains or losses from a change in ownership of an unconsolidated
             investee are recognized in the period of change.

             Use of estimates - Generally accepted accounting principles require
             management to make estimates and assumptions that affect the
             reported amounts of assets and liabilities, the disclosure of
             contingent assets and liabilities at year-end and the reported
             amounts of revenues and expenses during the year. Significant items
             subject to such estimates and assumptions include the carrying
             value of long-lived assets; valuation allowances for receivables,
             inventories and deferred income tax assets; environmental
             liabilities; liabilities for potential tax deficiencies and
             potential litigation claims and settlements; and assets and
             obligations related to employee benefits. Additionally, certain
             estimated liabilities are recorded when management commits to a
             plan to close an operating facility or to exit a business activity.
             Actual results could differ from the estimates and assumptions
             used. 

                                                                             S-5

<PAGE>
 
             Revenue recognition - Revenues are recognized generally when
             products are shipped or services are provided to customers, the
             sales price is fixed and determinable, and collectibility is
             reasonably assured. Costs associated with revenues, including
             shipping and other transportation costs, are recorded in cost of
             revenues.

             Cash and cash equivalents - Cash and cash equivalents include cash
             on hand and on deposit and investments in 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 uses commodity-based
             derivative instruments to manage its exposure to price risk.
             Management is authorized to use futures, forwards, swaps and
             options related to the purchase of natural gas, refined products
             and nonferrous metals used in steel operations. Recorded deferred
             gains or losses are reflected within other current and noncurrent
             assets or accounts payable and deferred credits and other
             liabilities, as appropriate.

             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 for domestic steel
             producing assets 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.

                       The U. S. Steel Group evaluates impairment of its long-
             lived assets on an individual asset basis or by logical groupings
             of assets. Assets deemed to be impaired are written down to their
             fair value, including any related goodwill, using discounted future
             cash flows and, if available, comparable market values.

                       When long-lived assets depreciated on an individual basis
             are sold or otherwise disposed of, any gains or losses are
             reflected in income. Gains on disposal of long-lived assets are
             recognized when earned, which is generally at the time of closing.
             If a loss on disposal is expected, such losses are recognized when
             long-lived assets are reclassified as assets held for sale.
             Proceeds from disposal of long-lived assets depreciated on a group
             basis are credited to accumulated depreciation, depletion and
             amortization with no immediate effect on income.

             Major maintenance activities - The U. S. Steel Group incurs planned
             major maintenance costs primarily for blast furnace relines. Such
             costs are separately capitalized in property, plant and equipment
             and are amortized over their estimated useful life, which is
             generally the period until the next scheduled reline.

             Environmental remediation - The U. S. Steel Group provides for
             remediation costs and penalties when the responsibility to
             remediate is probable and the amount of associated costs is
             reasonably determinable. Generally, the timing of remediation
             accruals coincides with completion of a feasibility study or the
             commitment to a formal plan of action. Remediation liabilities are
             accrued based on estimates of known environmental exposure and are
             discounted in certain instances.

             Postemployment benefits - The U. S. Steel Group recognizes an
             obligation to provide postemployment benefits, primarily for
             disability-related claims covering indemnity and medical payments
             to certain employees. 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 2000 classifications.

S-6

<PAGE>
 
________________________________________________________________________________
3. New Accounting Standards

             In the fourth quarter of 2000, USX adopted the following accounting
             pronouncements primarily related to the classification of items in
             the financial statements. The adoption of these new pronouncements
             had no net effect on the financial position or results of
             operations of the U. S. Steel Group, although they required
             reclassifications of certain amounts in the financial statements,
             including all prior periods presented.

              .   In December 1999, the Securities and Exchange Commission (SEC)
                  issued Staff Accounting Bulletin No. 101 (SAB 101) "Revenue
                  Recognition in Financial Statements," which summarizes the SEC
                  staff's interpretations of generally accepted accounting
                  principles related to revenue recognition and classification.

              .   In 2000, the Emerging Issues Task Force of the Financial
                  Accounting Standards Board (EITF) issued EITF Consensus No.
                  99-19 "Reporting Revenue Gross as a Principal versus Net as an
                  Agent," which addresses whether certain items should be
                  reported as a reduction of revenue or as a component of both
                  revenues and cost of revenues, and EITF Consensus No. 00-10
                  "Accounting for Shipping and Handling Fees and Costs," which
                  addresses the classification of costs incurred for shipping
                  goods to customers.

              .   In September 2000, the Financial Accounting Standards Board
                  issued Statement of Financial Accounting Standards No. 140,
                  "Accounting for Transfers and Servicing of Financial Assets
                  and Extinguishments of Liabilities" (SFAS 140). SFAS 140
                  revises the standards for accounting for securitizations and
                  other transfers of financial assets and collateral and
                  requires certain disclosures. USX adopted certain recognition
                  and reclassification provisions of SFAS 140, which were
                  effective for fiscal years ending after December 15, 2000. The
                  remaining provisions of SFAS 140 are effective after March 31,
                  2001.

              In June 1998, the Financial Accounting Standards Board issued
             Statement of Financial Accounting Standards No. 133, "Accounting
             for Derivative Instruments and Hedging Activities" (SFAS No. 133),
             which later was amended by SFAS Nos. 137 and 138. This Standard
             requires recognition of all derivatives as either assets or
             liabilities at fair value. Changes in fair value will be reflected
             in either current period net income or other comprehensive income,
             depending on the designation of the derivative instrument. The 
             U. S. Steel Group may elect not to designate a derivative
             instrument as a hedge even if the strategy would be expected to
             qualify for hedge accounting treatment. The adoption of SFAS No.
             133 will change the timing of recognition for derivative gains and
             losses as compared to previous accounting standards.

              The U. S. Steel Group will adopt the Standard effective January 1,
             2001. The transition adjustment resulting from the adoption of SFAS
             No. 133 will be reported as a cumulative effect of a change in
             accounting principle. The transition adjustment for the U. S. Steel
             Group is expected to be immaterial. The amounts reported as other
             comprehensive income will be reflected in net income when the
             anticipated physical transactions are consummated. It is not
             possible to estimate the effect that this Standard will have on
             future results of operations.

________________________________________________________________________________
4. Corporate Activities

             Financial activities - As a matter of policy, USX manages most
             financial activities on a centralized, consolidated basis. Such
             financial activities include the investment of surplus cash; the
             issuance, repayment and repurchase of short-term and long-term
             debt; the issuance, repurchase and redemption of preferred stock;
             and the issuance and repurchase of common stock. Transactions
             related primarily to invested cash, short-term and long-term debt
             (including convertible debt), related net interest and other
             financial costs, and preferred stock and related dividends are
             attributed to the U. S. Steel Group and the Marathon Group based
             upon the cash flows of each group for the periods presented and the
             initial capital structure of each group. Most financing
             transactions are attributed to and reflected in the financial
             statements of the groups. See Note 10, for the U. S. Steel Group's
             portion of USX's financial activities attributed to the groups.
             However, transactions such as leases, certain collateralized
             financings, certain indexed debt instruments, financial activities
             of consolidated entities which are less than wholly owned by USX
             and transactions related to securities convertible solely into any
             one class of common stock are or will be specifically attributed to
             and reflected in their entirety in the financial statements of the
             group to which they relate.

                                                                             S-7

<PAGE>
 
             Corporate general and administrative costs - Corporate general and
             administrative costs are allocated to the U. S. Steel Group and the
             Marathon 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 revenues.
             The costs allocated to the U. S. Steel Group were $25 million in
             2000, $17 million in 1999 and $24 million in 1998, and primarily
             consist of employment costs including pension effects, professional
             services, facilities and other related costs associated with
             corporate activities.

             Income taxes - All members of the USX affiliated group are included
             in the consolidated United States federal income tax return filed
             by USX. Accordingly, the provision for federal income taxes and the
             related payments or refunds of tax are determined on a consolidated
             basis. The consolidated provision and the related tax payments or
             refunds have been reflected in the U. S. Steel Group and the
             Marathon 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 between the U. S. Steel Group and the Marathon Group for
             group financial statement purposes, based principally upon the
             financial income, taxable income, credits, preferences and other
             amounts directly related to the respective groups.

                 For tax provision and settlement purposes, tax benefits
             resulting from attributes (principally net operating losses and
             various tax credits), which cannot be utilized by one of the groups
             on a separate return basis but which can be utilized on a
             consolidated basis in that year or in a carryback year, are
             allocated to the group that generated the attributes. To the extent
             that one of the groups is allocated a consolidated tax attribute
             which, as a result of expiration or otherwise, is not ultimately
             utilized on the consolidated tax return, the prior years'
             allocation of such attribute is adjusted such that the effect of
             the expiration is borne by the group that generated the attribute.
             Also, if a tax attribute cannot be utilized on a consolidated basis
             in the year generated or in a carryback year, the prior years'
             allocation of such consolidated tax effects is adjusted in a
             subsequent year to the extent necessary to allocate the tax
             benefits to the group that would have realized the tax benefits on
             a separate return basis. As a result, the allocated group amounts
             of taxes payable or refundable are not necessarily comparable to
             those that would have resulted if the groups had filed separate tax
             returns.

________________________________________________________________________________
5. Business Combination

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

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

                 VSZ did not provide historical carve-out financial information
             for its steel activities prepared in accordance with generally
             accepted accounting principles in the United States. USX was unable
             to fully determine the effects of transfer pricing, intercompany
             eliminations and expense allocations in order to prepare such 
             carve-out information from Slovak statutory reports and VSZ
             internal records. USX broadly estimates that the unaudited pro
             forma effect on its 2000 and 1999 revenues, giving effect to the
             acquisition as if it had been consummated at the beginning of those
             periods, would have been to increase revenues in each period by
             approximately $1 billion. USX cannot determine the unaudited pro
             forma effect on its 2000 and 1999 net income. In any event,
             historical pro forma information is not necessarily indicative of
             future results of operations.

S-8

<PAGE>
 
________________________________________________________________________________
6. Extraordinary Losses

             In 1999, USX irrevocably deposited with a trustee the entire 5.5
             million common shares it owned in RTI International Metals, Inc.
             (RTI). The deposit of the shares resulted in the satisfaction of
             USX's obligation under its 6 3/4% Exchangeable Notes (indexed debt)
             due February 1, 2000. Under the terms of the indenture, the trustee
             exchanged one RTI share for each note at maturity. All shares were
             required for satisfaction of the indexed debt; therefore, none
             reverted back to USX.

                 As a result of the above transaction, USX recorded in 1999 an
             extraordinary loss of $5 million, net of a $3 million income tax
             benefit, representing prepaid interest expense and the write-off of
             unamortized debt issue costs, and a pretax charge of $22 million,
             representing the difference between the carrying value of the
             investment in RTI and the carrying value of the indexed debt, which
             is included in net gains on disposal of assets. Since USX's
             investment in RTI was attributed to the U. S. Steel Group, the
             indexed debt was also attributed to the U. S. Steel Group.

                 In 1999, Republic Technologies International, LLC, an equity
             investee of USX, recorded an extraordinary loss related to the
             early extinguishment of debt. As a result, the U. S. Steel Group
             recorded an extraordinary loss of $2 million, net of a $1 million
             income tax benefit, representing its share of the extraordinary
             loss.

________________________________________________________________________________
7. Other Items


<TABLE> 
<CAPTION> 
             (In millions)                                            2000   1999    1998
             ----------------------------------------------------------------------------
             <S>                                                     <C>    <C>     <C>   
             Net interest and other financial costs

               Interest and other financial income/(a)/:
                 Interest income                                     $   3  $   1   $   5
                 Other                                                   7      -       -
                                                                     -----  -----   -----
                  Total                                                 10      1       5
                                                                     -----  -----   -----
               Interest and other financial costs/(a)/:
                 Interest incurred                                      88     45      40
                 Less interest capitalized                               3      6       6
                                                                     -----  -----   -----
                  Net interest                                          85     39      34
                 Interest on tax issues                                 11     15      16
                 Financial costs on trust preferred securities          13     13      13
                 Financial costs on preferred stock of subsidiary        5      5       5
                 Amortization of discounts                               1      1       2
                 Expenses on sales of accounts receivable                -     15      21
                 Adjustment to settlement value of indexed debt          -    (13)    (44)
                                                                     -----  -----   -----
                  Total                                                115     75      47
                                                                     -----  -----   -----
               Net interest and other financial costs/(a)/           $ 105  $  74   $  42
</TABLE>

             -------------------------------------------------------------------
             /(a)/  See Note 4, for discussion of USX net interest and other
             financial costs attributable to the U. S. Steel Group.
             -------------------------------------------------------------------
    
             Foreign currency transactions

               For 2000, the aggregate foreign currency transaction gain
               included in determining net income was $7 million. There were no
               foreign currency transaction gains or losses in 1999 and 1998.

________________________________________________________________________________
8. Segment Information

             The U. S. Steel Group consists of two reportable operating
             segments: 1) Domestic Steel and 2) U. S. Steel Kosice (USSK).
             Domestic Steel includes the United States operations of U. S.
             Steel, while USSK includes the U. S. Steel Kosice operations in the
             Slovak Republic. Domestic Steel is engaged in the domestic
             production and sale of steel mill products, coke and taconite
             pellets; the management of mineral resources; coal mining;
             engineering and consulting services; and real estate development
             and management. USSK is engaged in the production and sale of steel
             mill products and coke and primarily serves European markets.

                 Segment income represents income from operations allocable to
             both operating segments and does not include net interest and other
             financial costs and provisions for income taxes. Additionally, the
             following items are not allocated to operating segments:

                   . Net pension credits associated with pension plan assets and
                     liabilities

                   . Certain costs related to former U. S. Steel Group business
                     activities

                   . USX corporate general and administrative costs. These costs
                     primarily consist of employment costs including pension
                     effects, professional services, facilities and other
                     related costs associated with corporate activities.

                   . Certain other items not allocated to operating segments for
                     business performance reporting purposes (see reconcilement
                     schedule on S-10)

                 Information on assets by segment is not provided as it is not
             reviewed by the chief operating decision maker.

                                                                             S-9

<PAGE>
 
                       The following represents the operations of the U. S.
             Steel Group:


<TABLE>
<CAPTION>
             (In millions)                                             Domestic Steel   USSK   Total
             --------------------------------------------------------------------------------------- 
             <S>                                                       <C>              <C>   <C>
             2000
             Revenues and other income:
              Customer                                                         $5,981    $92  $6,073
              Intergroup/(a)/                                                      17      -      17
              Equity in losses of unconsolidated investees                         (8)     -      (8)
              Other                                                                50      -      50
                                                                               ------   ----  ------
                Total revenues and other income                                $6,040    $92  $6,132
                                                                               ======   ====  ======
             Segment income                                                    $   23    $ 2  $   25
             Significant noncash items included in segment income -
              Depreciation, depletion and amortization/(b)/                       285      4     289
             Capital expenditures                                                 239      5     244
             --------------------------------------------------------------------------------------- 
             1999
             Revenues and other income:
              Customer                                                         $5,519    $ -  $5,519
              Intergroup/(a)/                                                      17      -      17
              Equity in losses of unconsolidated investees                        (43)     -     (43)
              Other                                                                46      -      46
                                                                               ------   ----  ------
                Total revenues and other income                                $5,539    $ -  $5,539
                                                                               ======   ====  ======
             Segment income                                                    $   91    $ -  $   91
             Significant noncash items included in segment income -
              Depreciation, depletion and amortization                            304      -     304
             Capital expenditures/(c)/                                            286      -     286
             --------------------------------------------------------------------------------------- 
             1998
             Revenues and other income:
              Customer                                                         $6,374    $ -  $6,374
              Intergroup/(a)/                                                       2      -       2
              Equity in earnings of unconsolidated investees                       46      -      46
              Other                                                                55      -      55
                                                                               ------   ----  ------
                Total revenues and other income                                $6,477    $ -  $6,477
                                                                               ======   ====  ======
             Segment income                                                    $  517    $ -  $  517
             Significant noncash items included in segment income -
              Depreciation, depletion and amortization                            283      -     283
             Capital expenditures/(c)/                                            305      -     305
             --------------------------------------------------------------------------------------- 
</TABLE>

             /(a)/  Intergroup revenues and transfers were conducted under terms
                    comparable to those with unrelated parties.
             /(b)/  Difference between segment total and group total represents
                    amounts for impairment of coal assets.
             /(c)/  Differences between segment total and group total represent
                    amounts related to corporate administrative activities.

                       The following schedules reconcile segment amounts to
             amounts reported in the U. S. Steel Group's financial statements:
             

<TABLE>
<CAPTION> 
             (In millions)                                                            2000     1999     1998           
             -----------------------------------------------------------------------------------------------  
             <S>                                                                    <C>      <C>      <C> 
             Revenues and Other Income:                                                                     
              Revenues and other income of reportable segments                      $6,132   $5,539   $6,477
              Items not allocated to segments:                                                              
               Impairment and other costs related to an                                                     
                investment in an equity investee                                         -      (47)       -
               Loss on investment in RTI stock used                                                         
                to satisfy indexed debt obligations                                      -      (22)       -
                                                                                    ------   ------   ------
                 Total Group revenues and other income                              $6,132   $5,470   $6,477
                                                                                    ======   ======   ======
             Income:                                                                                        
              Income for reportable segments                                        $   25   $   91   $  517
              Items not allocated to segments:                                                              
               Impairment of coal assets                                               (71)       -        -
               Impairment and other costs related to an                                                     
                investment in an equity investee                                         -      (47)       -
               Loss on investment in RTI stock used                                                         
                to satisfy indexed debt obligations                                      -      (22)       -
               Administrative expenses                                                 (25)     (17)     (24)
               Net pension credits                                                     266      228      186
               Costs related to former businesses activities                           (91)     (83)    (100)
                                                                                    ------   ------   ------
                 Total Group income from operations                                 $  104   $  150   $  579 
             -----------------------------------------------------------------------------------------------  
</TABLE>


S-10

<PAGE>
 

<TABLE>
<CAPTION>
             Revenues by Product:
             (In millions)                                              2000    1999    1998
             ------------------------------------------------------------------------------- 
             <S>                                                      <C>     <C>     <C> 
             Sheet and semi-finished steel products                   $3,288  $3,433  $3,598
             Tubular, plate and tin mill products                      1,731   1,140   1,546
             Raw materials (coal, coke and iron ore)                     626     549     744
             Other/(a)/                                                  445     414     490
             ------------------------------------------------------------------------------- 
</TABLE>


             /(a)/  Includes revenue from the sale of steel production by-
                    products, engineering and consulting services, real estate
                    development and resource management.

             Geographic Area:
                 The information below summarizes the operations in different
             geographic areas.


<TABLE> 
<CAPTION> 
                                                          Revenues and Other Income
                                                     ----------------------------------  
                                                       Within         Between
                                                     Geographic     Geographic
             (In millions)                  Year        Areas          Areas      Total   Assets/(a)/
             ----------------------------------------------------------------------------------------   
             <S>                            <C>      <C>            <C>          <C>      <C>        
             United States                  2000       $6,027        $     -     $6,027       $2,745    
                                            1999        5,452              -      5,452        2,889 
                                            1998        6,460              -      6,460        3,043 

             Slovak Republic                2000           95              -         95          376 
                                            1999            3              -          3           60 
                                            1998            6              -          6           66 

             Other Foreign Countries        2000           10              -         10           10 
                                            1999           15              -         15            3 
                                            1998           11              -         11            3 

             Total                          2000       $6,132        $     -     $6,132       $3,131 
                                            1999        5,470              -      5,470        2,952
                                            1998        6,477              -      6,477        3,112 
             ----------------------------------------------------------------------------------------   
</TABLE>


             /(a)/ Includes property, plant and equipment and investments.

________________________________________________________________________________
9. Supplemental Cash Flow Information


<TABLE> 
<CAPTION> 
             (In millions)                                                            2000          1999          1998
             --------------------------------------------------------------------------------------------------------- 
             <S>                                                                   <C>           <C>          <C> 
             Cash provided from (used in) operating activities included:
              Interest and other financial costs paid
               (net of amount capitalized)                                         $   (71)      $   (77)     $    (76)
              Income taxes refunded (paid), including
               settlements with the Marathon Group                                      81             3           (29)
             ---------------------------------------------------------------------------------------------------------  
             USX debt attributed to all groups - net:
              Commercial paper:
               Issued                                                              $ 3,362       $ 6,282      $      -
               Repayments                                                           (3,450)       (6,117)            -
              Credit agreements:
               Borrowings                                                              437         5,529        17,486
               Repayments                                                             (437)       (5,980)      (16,817)
              Other credit arrangements - net                                          150           (95)           55
              Other debt:
               Borrowings                                                                -           319           671
               Repayments                                                              (54)          (87)       (1,053)
                                                                                   -------       -------      --------
                 Total                                                             $     8       $  (149)     $    342
             ---------------------------------------------------------------------------------------------------------  
              U. S. Steel Group activity                                           $ 1,208       $   147      $     13
              Marathon Group activity                                               (1,200)         (296)          329
                                                                                   -------       -------      --------
                 Total                                                             $     8       $  (149)     $    342
             ---------------------------------------------------------------------------------------------------------  
             Noncash investing and financing activities:
              Steel Stock issued for dividend reinvestment and
               employee stock plans                                                $     5       $     2      $      2
              Disposal of assets:
               Deposit of RTI common shares in satisfaction of indexed debt              -            56             -
               Interest in USS/Kobe contributed to Republic                              -            40             -
               Other disposals of assets - notes or common stock received               14             1             2
              Business combinations:
               Acquisition of USSK:
                Liabilities assumed                                                    568             -             -
                Contingent consideration payable at present value                       21             -             -
                Investee liabilities consolidated in step acquisition                    3             -             -
               Other acquisitions:
                Liabilities assumed                                                      -            26             -
                Investee liabilities consolidated in step acquisition                    -            26             -
             --------------------------------------------------------------------------------------------------------- 
</TABLE>


                                                                            S-11

<PAGE>
 
--------------------------------------------------------------------------------
10. Financial Activities Attributed to Groups

             The following is the portion of USX financial activities attributed
             to the U. S. Steel Group. These amounts exclude amounts
             specifically attributed to the U. S. Steel Group.


<TABLE>
<CAPTION>
                                                                             U. S. Steel Group       Consolidated USX/(a)/
                                                                        -------------------------  ------------------------
             (In millions)                      December 31                   2000         1999        2000         1999
             -------------------------------------------------------------------------------------------------------------- 
             <S>                                                            <C>          <C>        <C>         <C>     
             Cash and cash equivalents                                      $   171        $   1      $   364     $      9
             Other noncurrent assets                                              3            1            7            8
                                                                             ------        -----       ------     --------
               Total assets                                                 $   174        $   2      $   371     $     17
             --------------------------------------------------------------------------------------------------------------    
             Notes payable                                                  $    70        $   -      $   150     $      -
             Accrued interest                                                    45           13           95           95
             Long-term debt due within one year (Note 11)                       130            7          277           54
             Long-term debt (Note 11)                                         1,804          466        3,734        3,771
             Preferred stock of subsidiary                                       66           66          250          250
                                                                             ------        -----       ------     --------
               Total liabilities                                            $ 2,115        $ 552      $ 4,506     $  4,170
             -------------------------------------------------------------------------------------------------------------- 

<CAPTION> 
                                                                           U. S. Steel  Group/(b)/      Consolidated USX
                                                                           ------------------        ----------------------
             (In millions)                                                 2000   1999   1998        2000    1999      1998
             -------------------------------------------------------------------------------------------------------------- 
             <S>                                                          <C>    <C>    <C>         <C>     <C>     <C>  
             Net interest and other financial costs (Note 7)              $  59  $  39  $  29       $ 309   $ 334    $  324
             --------------------------------------------------------------------------------------------------------------    
</TABLE>
 

             /(a)/  For details of USX long-term debt and preferred stock of
                    subsidiary, see Notes 14 and 22, respectively, to the USX
                    consolidated financial statements.
             /(b)/  The U. S. Steel Group's net interest and other financial
                    costs reflect weighted average effects of all financial
                    activities attributed to all groups.

------------------------------------------------------------------------------- 
11. 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           2000        1999       2000         1999
             --------------------------------------------------------------------------------------------------------------------
             <S>                                                                      <C>          <C>       <C>           <C>  
             Specifically attributed debt/(b)/:                                                                     
              Receivables facility                                                    $  350       $ 350     $  350        $  350
              Sale-leaseback financing and capital leases                                 88          92         95           107
              Other                                                                        3           -          4             1
                                                                                      ------       ------    ------        ------
               Total                                                                     441         442        449           458
              Less amount due within one year                                              9           6         10             7
                                                                                      ------       ------    ------        ------
               Total specifically attributed long-term debt                           $  432       $ 436     $  439        $  451
             -------------------------------------------------------------------------------------------------------------------- 
             Debt attributed to groups/(c)/                                           $1,946       $ 477     $4,036        $3,852
              Less unamortized discount                                                   12           4         25            27
              Less amount due within one year                                            130           7        277            54
                                                                                      ------       ------    ------        ------
               Total long-term debt attributed to groups                              $1,804       $ 466     $3,734        $3,771
             -------------------------------------------------------------------------------------------------------------------- 
             Total long-term debt due within one year                                 $  139       $  13     $  287        $   61
             Total long-term debt due after one year                                   2,236         902      4,173         4,222
             -------------------------------------------------------------------------------------------------------------------- 
</TABLE>
 

             /(a)/  See Note 14, to the USX consolidated financial statements
                    for details of interest rates, maturities and other terms of
                    long-term debt.
             /(b)/  As described in Note 4, certain financial activities are
                    specifically attributed only to the U. S. Steel Group and
                    the Marathon Group.
             /(c)/  Most long-term debt activities of USX Corporation and its
                    wholly owned subsidiaries are attributed to all groups (in
                    total, but not with respect to specific debt issues) based
                    on their respective cash flows (Notes 4, 9 and 10).

S-12

<PAGE>
 
--------------------------------------------------------------------------------
12. Pensions and Other Postretirement Benefits

             The U. S. Steel Group has noncontributory defined benefit pension
             plans covering substantially all U.S. 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 are
             also provided to most U.S. salaried employees based upon a percent
             of total career pensionable earnings. Certain of these plans
             provide benefits to USX corporate employees, and the related costs
             or credits for such employees are allocated to all groups (Note 4).
             The U. S. Steel Group also participates in multiemployer plans,
             most of which are defined benefit plans associated with coal
             operations.

                       The U. S. Steel Group also has defined benefit retiree
             health care and life insurance plans (other benefits) covering most
             U.S. employees upon their retirement. Health care benefits are
             provided through comprehensive hospital, surgical and major medical
             benefit provisions or through health maintenance organizations,
             both subject to various cost sharing features. Life insurance
             benefits are provided to nonunion retiree beneficiaries primarily
             based on employees' annual base salary at retirement. These plans
             provide benefits to USX corporate employees, and the related costs
             for such employees are allocated to all groups (Note 4). For U.S.
             union retirees, benefits are provided for the most part based on
             fixed amounts negotiated in labor contracts with the appropriate
             unions.


<TABLE>
<CAPTION>
                                                                        Pension Benefits                     Other Benefits
                                                                   -------------------------          ---------------------------
             (In millions)                                           2000             1999               2000              1999
             --------------------------------------------------------------------------------------------------------------------
             <S>                                                   <C>              <C>                <C>               <C>   
             Change in benefit obligations
             Benefit obligations at January 1                      $ 6,716          $ 7,549            $ 1,896           $ 2,113
             Service cost                                               76               87                 12                15
             Interest cost                                             505              473                147               133
             Plan amendments                                             -              381/(a)/             -                14
             Actuarial (gains) losses                                  430             (822)               260              (225)
             Plan merger and acquisition                                 -               42                  -                 7
             Settlements, curtailments and termination benefits          -             (207)                 -                 -
             Benefits paid                                            (806)            (787)              (166)             (161)
                                                                   -------          -------            --------          -------- 
             Benefit obligations at December 31                    $ 6,921          $ 6,716            $ 2,149           $ 1,896
             --------------------------------------------------------------------------------------------------------------------
             Change in plan assets                                                                                  
             Fair value of plan assets at January 1                $ 9,995          $10,243            $   281           $   265
             Actual return on plan assets                              139              729                 26                20
             Acquisition                                                (1)              26                  -                 1
             Employer contributions                                      -                -                576/(b)/           34
             Trustee distributions/(c)/                                (16)             (14)                 -                 -
             Settlements paid                                            -             (207)                 -                 -
             Benefits paid from plan assets                           (805)            (782)               (41)              (39)
                                                                   -------          -------            --------          -------- 
             Fair value of plan assets at December 31              $ 9,312          $ 9,995            $   842           $   281
             ---------------------------------------------------------------------------------------------------------------------
             Funded status of plans at December 31                 $ 2,391/(d)/     $ 3,279/(d)/       $(1,307)          $(1,615)
             Unrecognized net gain from transition                      (2)             (69)                 -                 -
             Unrecognized prior service cost                           719              817                 12                19
             Unrecognized actuarial gains                             (462)          (1,639)              (241)             (526)
             Additional minimum liability                              (19)             (16)                 -                 -
                                                                   -------          -------            --------          -------- 
             Prepaid (accrued) benefit cost                        $ 2,627          $ 2,372            $(1,536)          $(2,122)
             --------------------------------------------------------------------------------------------------------------------
</TABLE>


             /(a)/  Results primarily from a five-year labor contract with the
                    United Steelworkers of America ratified in August 1999.
             /(b)/  Includes contributions of $530 million to a Voluntary
                    Employee Benefit Association trust, comprised of $30 million
                    in contractual requirements and an elective contribution of
                    $500 million. Also includes a $30 million elective
                    contribution to the non-union retiree life insurance trust.
             /(c)/  Represents transfers of excess pension assets to fund
                    retiree health care benefits accounts under Section 420 of
                    the Internal Revenue Code.
             /(d)/  Includes a plan that has accumulated benefit
                    obligations in excess of plan assets:
                     Aggregate accumulated benefit obligations    $(40)  $(29)
                     Aggregate projected benefit obligations       (49)   (39)
                     Aggregate plan assets                           -      -
             -------------------------------------------------------------------