1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------ to ------------
USX CORPORATION
- - --------------------------------------------------------------------------------
----
(Exact name of registrant as specified in its charter)
Delaware 1-5153 25-0996816
--------------- ------------ -------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
600 Grant Street, Pittsburgh, PA 15219-4776
- - --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(412) 433-1121
------------------------------
(Registrant's telephone number,
including area code)
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- - ----
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes..X..No.....
Common stock outstanding at April 30, 1994 follows:
USX-Marathon Group - 286,581,527 shares
USX-U. S. Steel Group - 75,459,155 shares
USX-Delhi Group - 9,415,179 shares
2
USX CORPORATION
SEC FORM 10-Q
QUARTER ENDED MARCH 31, 1994
----------------------------
INDEX Page
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PART I - FINANCIAL INFORMATION
A. Consolidated Corporation
Item 1. Financial Statements:
Consolidated Statement of Operations 4
Consolidated Balance Sheet 6
Consolidated Statement of Cash Flows 8
Selected Notes to Consolidated
Financial Statements 9
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends and Ratio of
Earnings to Fixed Charges 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
Financial Statistics 19
B. Marathon Group
Item 1. Financial Statements:
Marathon Group Statement of Operations 20
Marathon Group Balance Sheet 22
Marathon Group Statement of Cash Flows 23
Selected Notes to Financial Statements 24
Item 2. Marathon Group Management's Discussion and
Analysis of Financial Condition and
Results of Operations 28
Supplemental Statistics 32
3
USX CORPORATION
SEC FORM 10-Q
QUARTER ENDED MARCH 31, 1994
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INDEX Page
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PART I - FINANCIAL INFORMATION (Continued)
C. U. S. Steel Group
Item 1. Financial Statements:
U. S. Steel Group Statement of Operations 33
U. S. Steel Group Balance Sheet 35
U. S. Steel Group Statement of Cash Flows 36
Selected Notes to Financial Statements 37
Item 2. U. S. Steel Group Management's Discussion
and Analysis of Financial Condition
and Results of Operations 42
Supplemental Statistics 46
D. Delhi Group
Item 1. Financial Statements:
Delhi Group Statement of Operations 47
Delhi Group Balance Sheet 48
Delhi Group Statement of Cash Flows 49
Selected Notes to Financial Statements 50
Item 2. Delhi Group Management's Discussion and
Analysis of Financial Condition
and Results of Operations 53
Supplemental Statistics 57
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 58
Item 5. Other Information 59
Item 6. Exhibits and Reports on Form 8-K 60
4
Part I - Financial Information
A. Consolidated Corporation
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
------------------------------------------------
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1994 1993*
- - --------------------------------------------------------------------------------
- - ---
SALES $4,273 $4,280
OPERATING COSTS:
Cost of sales (excludes items shown below) 3,194 3,251
Inventory market valuation credits (128) (23)
Selling, general and administrative expenses 55 56
Depreciation, depletion and amortization 258 261
Taxes other than income taxes 657 549
Exploration expenses 33 28
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Total operating costs 4,069 4,122
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OPERATING INCOME 204 158
Other income 28 37
Interest and other financial income 9 6
Interest and other financial costs (117) (118)
------- -------
TOTAL INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 124 83
Less provision for estimated income taxes 49 36
------- -------
TOTAL INCOME BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES 75 47
Cumulative effect of changes in accounting principles - (92)
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NET INCOME (LOSS) 75 (45)
Dividends on preferred stock (7) (4)
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NET INCOME (LOSS) APPLICABLE TO COMMON STOCKS $68 $(49)
======= =======
<FN>
*Restated as a result of the adoption of two new accounting standards.
Selected notes to financial statements appear on pages 9-13.
5
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
--------------------------------------------------------
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1994 1993*
- - --------------------------------------------------------------------------------
- - ---
APPLICABLE TO MARATHON STOCK
Total income before cumulative effect of
changes in accounting principles $109 $29
- Per share - primary and fully diluted .38 .10
Cumulative effect of changes in accounting principles - (23)
- Per share - primary and fully diluted - (.08)
Net income 109 6
- Per share - primary and fully diluted .38 .02
Dividends paid per share .17 .17
Weighted average shares, in thousands
- primary 286,582 286,610
- fully diluted 292,829 286,612
APPLICABLE TO STEEL STOCK
Total income (loss) before cumulative effect of
change in accounting principle $(41) $8
- Per share - primary and fully diluted (.56) .13
Cumulative effect of change in accounting principle - (69)
- Per share - primary and fully diluted - (1.16)
Net loss (41) (61)
- Per share - primary and fully diluted (.56) (1.03)
Dividends paid per share .25 .25
Weighted average shares, in thousands
- primary 73,598 59,978
- fully diluted 73,598 59,981
APPLICABLE TO OUTSTANDING DELHI STOCK
Net income $- $6
- Per share - primary and fully diluted .03 .62
Dividends paid per share .05 .05
Weighted average shares, in thousands
- primary and fully diluted 9,332 9,006
<FN>
*Restated as a result of the adoption of two new accounting standards.
Selected notes to financial statements appear on pages 9-13.
6
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Unaudited)
----------------------------------------
ASSETS
March 31 December 31
(Dollars in millions) 1994 1993
- - --------------------------------------------------------------------------------
- - ----
Current assets:
Cash and cash equivalents $137 $268
Receivables, less allowance for doubtful
accounts of $8 and $9 844 932
Inventories 1,663 1,626
Deferred income tax benefits 262 258
Other current assets 94 96
------- -------
Total current assets 3,000 3,180
Long-term receivables and other investments,
less reserves of $22 and $22 939 948
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$13,997 and $13,938 11,488 11,603
Prepaid pensions 1,383 1,347
Other noncurrent assets 301 296
------- -------
Total assets $17,111 $17,374
======= =======
<FN>
Selected notes to financial statements appear on pages 9-13.
7
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Continued) (Unaudited)
--------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31
(Dollars in millions) 1994 1993
- - --------------------------------------------------------------------------------
- - ----
LIABILITIES
Current liabilities:
Notes payable $26 $1
Accounts payable 1,621 2,237
Payroll and benefits payable 417 436
Accrued taxes 532 483
Accrued interest 92 142
Long-term debt due within one year 40 35
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Total current liabilities 2,728 3,334
Long-term debt, less unamortized discount 5,695 5,888
Long-term deferred income taxes 928 883
Employee benefits 2,826 2,802
Deferred credits and other liabilities 615 603
Preferred stock of consolidated subsidiary 250 -
------- -------
Total liabilities 13,042 13,510
STOCKHOLDERS' EQUITY
Preferred stocks:
Adjustable Rate Cumulative issued -
2,099,970 shares and 2,099,970 shares 105 105
6.50% Cumulative Convertible issued -
6,900,000 shares and 6,900,000 shares
($345 liquidation preference) 7 7
Common stocks:
Marathon Stock issued - 286,612,794 shares and
286,612,805 shares 287 287
Steel Stock issued - 75,441,149 shares and
70,328,685 shares 75 70
Delhi Stock issued - 9,366,673 shares and
9,282,870 shares 9 9
Treasury common stock, at cost:
Marathon Stock - 31,266 shares and 31,266 shares (1) (1)
Additional paid-in capital 4,366 4,240
Accumulated deficit (756) (831)
Other equity adjustments (23) (22)
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Total stockholders' equity 4,069 3,864
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Total liabilities and stockholders' equity $17,111 $17,374
======= =======
<FN>
Selected notes to financial statements appear on pages 9-13.
8
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
Three Months Ended
March 31
(Dollars in millions) 1994 1993*
- - --------------------------------------------------------------------------------
- - ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income (loss) $75 $(45)
Adjustments to reconcile to net cash provided from
(used in) operating activities:
Accounting principles changes - 92
Depreciation, depletion and amortization 258 261
Exploratory dry well costs 16 8
Inventory market valuation credits (128) (23)
Pensions (49) (71)
Postretirement benefits other than pensions 24 56
Deferred income taxes 43 11
Gain on disposal of assets (24) (46)
B&LE litigation (360) -
Changes in:
Current receivables - sold (5) 29
- operating turnover 94 (32)
Inventories 91 2
Current accounts payable and accrued expenses (270) (74)
All other items - net 29 (17)
---- ----
Net cash provided from (used in) operating activities (206) 151
---- ----
INVESTING ACTIVITIES:
Capital expenditures (162) (206)
Disposal of assets 31 78
All other items - net 6 (33)
---- ----
Net cash used in investing activities (125) (161)
---- ----
FINANCING ACTIVITIES:
Commercial paper and revolving credit arrangements-net 25 (413)
Other debt - borrowings 449 202
- repayments (647) (4)
Issuance of preferred stock of consolidated subsidiary 242 -
Preferred stock issued - 336
Common stock issued 206 7
Dividends paid (75) (66)
---- ----
Net cash provided from financing activities 200 62
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (131) 52
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 268 57
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $137 $109
==== ====
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(204) $(135)
Income taxes (paid) refunded 27 (6)
<FN>
*Restated as a result of the adoption of two new accounting standards.
Selected notes to financial statements appear on pages 9-13.
9
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited but,
in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments
are of a normal recurring nature unless disclosed otherwise. These
financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Additional information is contained in the USX Annual Report
on Form 10-K for the year ended December 31, 1993. Financial data for the
first quarter of 1993 has been restated to reflect the adoption of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (SFAS No. 112), and Emerging Issues Task Force
Consensus No. 93-14, "Accounting for Multiple-Year Retrospectively Rated
Insurance Contracts" (EITF No. 93-14) (see Note 7).
2. The method of calculating net income (loss) per share for the Marathon
Stock, Steel Stock and Delhi Stock reflects the USX Board of Directors'
intent that the separately reported earnings and surplus of the Marathon
Group, the U. S. Steel Group and the Delhi Group, as determined consistent
with the USX Certificate of Incorporation, are available for payment of
dividends to the respective classes of stock, although legally available
funds and liquidation preferences of these classes of stock do not
necessarily correspond with these amounts. The financial statements of the
Marathon Group, the U. S. Steel Group and the Delhi Group, taken together,
include all accounts which comprise the corresponding consolidated
financial statements of USX.
Primary net income (loss) per share is calculated by adjusting net income
(loss) for dividend requirements of preferred stock and, in the case of
Delhi Stock, for the income applicable to the Retained Interest; and is
based on the weighted average number of common shares outstanding plus
common stock equivalents, provided they are not antidilutive. Common stock
equivalents result from assumed exercise of stock options and surrender of
stock appreciation rights associated with stock options where applicable.
Fully diluted net income (loss) per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options and surrender of stock appreciation rights, provided, in each
case, the effect is not antidilutive.
10
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
3. Inventories are carried at lower of cost or market. Cost of inventories is
determined primarily under the last-in, first-out (LIFO) method.
(In millions)
---------------------------
March 31 December 31
1994 1993
--------- -----------
Raw materials $573 $637
Semi-finished products 323 329
Finished products 892 921
Supplies and sundry items 186 178
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Total 1,974 2,065
Less inventory market valuation reserve 311 439
------ ------
Net inventory carrying value $1,663 $1,626
====== ======
The inventory market valuation reserve reflects the extent that the
recorded cost of crude oil and refined products inventories exceeds net
realizable value. The reserve is decreased to reflect increases in market
prices and inventory turnover and increased to reflect decreases in market
prices. Changes in the inventory market valuation reserve resulted in a
$128 million and $23 million credit to operating income in the first
quarter of 1994 and 1993, respectively.
Cost of sales was reduced and operating income was increased by $14 million
in the first quarter of 1993 as a result of liquidations of LIFO
inventories (immaterial in the 1994 period).
4. Operating income included net periodic pension credits of $30 million and
$53 million in the first quarter of 1994 and 1993, respectively. These
pension credits are primarily noncash and for the most part are included in
selling, general and administrative expenses. The expected long-term rate
of return on plan assets, which is reflected in the calculation of net
periodic pension credits, was reduced to 9% in 1994 from 10% in 1993.
5. Other income in the first quarter of 1994 included a pretax gain of $24
million from disposal of assets, primarily related to the sale of certain
domestic oil and gas production properties. Other income in the first
quarter of 1993 included a pretax gain of $46 million from disposal of
assets, including the sale of an investment in an insurance company.
6. The provision for estimated income taxes for the periods reported is based
on tax rates and amounts which recognize management's best estimate of
current and deferred tax assets and liabilities.
7. In 1993, USX adopted SFAS No. 112 and EITF No. 93-14. The cumulative
effect of these changes in accounting principles decreased first quarter
1993 net income by $86 million, net of $50 million income tax effect, for
SFAS No. 112; and $6 million, net of $3 million income tax effect, for EITF
No. 93-14.
11
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
8. In the first quarter of 1994, USX issued $300 million in aggregate
principal amount of 7.20% Notes due 2004 and $150 million in aggregate
principal amount of LIBOR-based Floating Rate Notes Due 1996. In the first
quarter of 1994, an aggregate principal amount of $57 million of Marathon's
7% Monthly Interest Guaranteed Notes Due 2002 was issued in exchange for an
equivalent principal amount of its 9-1/2% Guaranteed Notes Due 1994. The
$642 million balance of Marathon's 9-1/2% Guaranteed Notes Due 1994 was
paid in the first quarter of 1994.
At March 31, 1994, USX had outstanding borrowings of $500 million against
credit agreements, leaving $1,675 million of available unused committed
credit lines. In addition, USX had $185 million of available unused short-
term lines of credit, which require maintenance of compensating balances of
3%. In the event of a change in control of USX, debt obligations totaling
$4,310 million at March 31, 1994, may be declared immediately due and
payable.
9. In the first quarter of 1994, USX sold 5,000,000 shares of Steel Stock to
the public for net proceeds of $201 million. In addition, USX Capital LLC,
a wholly owned subsidiary of USX, sold $250 million of 8-3/4% Cumulative
Monthly Income Preferred Shares (MIPS). The financial costs of the MIPS
are included in interest and other financial costs.
10. USX has entered into agreements to sell certain accounts receivable subject
to limited recourse. Payments are collected from the sold accounts
receivable; the collections are reinvested in new accounts receivable for
the buyers; and a yield based on defined short-term market rates is
transferred to the buyers. At March 31, 1994, the balance of sold accounts
receivable that had not been collected was $735 million. Buyers have
collection rights to recover payments from an amount of outstanding
receivables equal to 120% of the outstanding receivables purchased on a
nonrecourse basis; such overcollateralization cannot exceed $150 million.
In the event of a change in control of USX, as defined in the agreements,
USX may be required to forward all payments collected on sold accounts
receivable to the buyers.
Prior to 1993, USX Credit, a division of USX, sold certain of its loans
receivable subject to limited recourse. USX Credit continues to collect
payments from the loans and transfer to the buyers principal collected plus
yield based on defined short-term market rates. At March 31, 1994, the
balance of sold loans receivable subject to recourse was $187 million. As
of March 31, 1994, USX Credit had outstanding loan commitments of $28
million. USX Credit is not actively seeking new loans at this time. In
the event of a change in control of USX, as defined in the agreement, USX
may be required to provide cash collateral in the amount of the uncollected
loans receivable to assure compliance with the limited recourse provisions.
11. USX is the subject of, or a 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. See
discussion of Liquidity and
12
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
11. (Continued)
Capital Resources in USX Consolidated Management's Discussion and Analysis
of Financial Condition and Results of Operations.
In the first quarter of 1994, USX paid $360 million in judgments against
the Bessemer & Lake Erie Railroad (B&LE) in the Lower Lake Erie Iron Ore
Antitrust Litigation (MDL-587). Two other plaintiffs in this case have had
their damage claims remanded for retrial. A new trial may result in awards
more or less than the original asserted claims of $8 million and would be
subject to trebling.
In June 1990, following judgments entered on behalf of plaintiffs in MDL-
587, Armco Steel (presently, AK Steel) filed federal antitrust claims
against the B&LE and other railroads in the
Federal District Court of the District of Columbia. B&LE successfully
challenged the actions for lack of jurisdiction and venue, and the case was
transferred to the Federal District Court for the Northern District of
Ohio. Other defendant railroads settled with Armco, leaving B&LE as the
only remaining defendant. On April 7, 1993, B&LE's motion to dismiss the
federal antitrust claims on grounds of statute of limitations was granted.
Subsequently, Armco refiled its claims under the Ohio Valentine Act.
B&LE's motions for summary judgment on time bar issues and for change of
venue are pending. No discovery has been taken on the merits of Armco's
claims, but if Armco survives the present and possibly further pretrial
motions and the case proceeds to trial on the merits, Armco's claimed
damages are likely to be substantial. The B&LE was a wholly owned
subsidiary of USX throughout the period the alleged conduct occurred. It
is now a subsidiary of Transtar in which USX has a 46% equity interest. It
is USX's position that the Armco case was not an excluded liability in the
sale of USX's transportation units to Transtar in 1988, and that USX
therefore is not obligated to reimburse Transtar for any judgments rendered
in the Armco case; however, this position is being disputed by Transtar and
The Blackstone Group, the ultimate owner of 53% of Transtar's outstanding
shares.
On November 3, 1992, the United States District Court for the District of
Utah Central Division issued a Memorandum Opinion and Order in Pickering v.
USX relating to pension and compensation claims by approximately 1,900
employees of USX's former Geneva (Utah) Works. Although the court
dismissed a number of the claims by the plaintiffs, it found that USX had
violated the Employee Retirement Income Security Act by interfering with
the accrual of pension benefits of certain employees and amending a benefit
plan to reduce the accrual of future benefits without proper notice to plan
participants. Further proceedings were held to determine damages and,
pending the court's determinations, USX may appeal. Plaintiffs' counsel
has been reported as estimating plaintiffs' anticipated recovery to be in
excess of $100 million. USX believes actual damages will be substantially
less than plaintiffs' estimates. In the first quarter of 1994, USX entered
into settlement agreements with 208 plaintiffs providing for releases of
liability against USX and the aggregate payment of approximately $1 million
by USX. A joint motion to dismiss these plaintiffs from the case with
prejudice is in the process of being prepared.
13
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
11. (Continued)
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. 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
these accruals coincides with completion of a feasibility study or the
commitment to a formal plan of action. At March 31, 1994, accrued
liabilities for remediation, platform abandonment and mine reclamation
totaled $319 million. It is not presently possible to estimate the
ultimate amount of all remediation costs that might be incurred or the
penalties that may be imposed.
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 1993 and 1992, such capital expenditures totaled $181
million and $294 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.
By reason of Executive Orders and related regulations under which the U.S.
Government is continuing economic sanctions against Libya, USX was required
to discontinue performing its Libyan petroleum contracts on June 30, 1986.
In June 1989, the Department of the Treasury authorized USX to resume
performing under those contracts. Pursuant to that authorization, USX has
engaged the Libyan National Oil Company and the Secretary of Petroleum in
continuing negotiations to determine when and on what basis they are
willing to allow USX to resume realizing revenue from USX's investment of
$108 million in Libya. USX is uncertain when these negotiations can be
completed or how the negotiations will be affected by the United Nations
sanctions against Libya.
Guarantees by USX of the liabilities of affiliated and other entities
totaled $220 million at March 31, 1994. In the event that any defaults of
guaranteed liabilities occur, USX has access to its interest in the assets
of most of the affiliates to reduce losses resulting from these guarantees.
As of March 31, 1994, the largest guarantee for a single affiliate was $96
million.
At March 31, 1994, USX's pro rata share of obligations of LOOP INC. and
various pipeline affiliates secured by throughput and deficiency agreements
totaled $204 million. Under the agreements, USX is required to advance
funds if the affiliates are unable to service debt. Any such advances are
prepayments of future transportation charges.
Contract commitments for capital expenditures for property, plant and
equipment at March 31, 1994, totaled $505 million compared with $389
million at December 31, 1993.
14
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
TOTAL ENTERPRISE BASIS - (Unaudited)
----------------------------------------------------------
(Dollars in Millions)
Three Months Ended
March 31 Year Ended December 31
------------------ -------------------------------------------------------
1994 1993* 1993 1992 1991 1990 1989
---- ----- ---- ---- ---- ---- ----
1.66 1.51 (a) (b) (c) 2.69 2.33
==== ===== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover combined fixed charges and preferred stock
dividends by $325 million.
(b) Earnings did not cover combined fixed charges and preferred stock
dividends by $211 million.
(c) Earnings did not cover combined fixed charges and preferred stock
dividends by $696 million.
*Restated as a result of the adoption of two new accounting standards.
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TOTAL ENTERPRISE BASIS - (Unaudited)
-------------------------------------------------
(Dollars in Millions)
Three Months Ended
March 31 Year Ended December 31
------------------ -------------------------------------------------------
1994 1993* 1993 1992 1991 1990 1989
---- ----- ---- ---- ---- ---- ----
1.79 1.58 (a) (b) (c) 2.80 2.57
==== ===== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover fixed charges by $281 million.
(b) Earnings did not cover fixed charges by $197 million.
(c) Earnings did not cover fixed charges by $681 million.
*Restated as a result of the adoption of two new accounting standards.
15
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following discussion should be read in conjunction with the first
quarter 1994 USX consolidated financial statements and selected notes.
Results of Operations
- - ---------------------
USX had net income of $75 million in the first quarter of 1994. For the
first quarter of 1993, USX reported a net loss of $45 million, as restated to
reflect the unfavorable $92 million cumulative effect of changes in accounting
principles.
See the Consolidated Statement of Operations - Income per Common Share for
comparative amounts applicable to the classes of common stock.
Sales in the first quarter of 1994 totaled $4.3 billion, virtually
unchanged from the first quarter of 1993. A 7% decline in sales for the
Marathon Group was offset by increases of 15% and 18%, respectively, in sales
for the U. S. Steel Group and the Delhi Group. Matching buy/sell transactions
and excise taxes are included in both sales and operating costs, resulting in no
effect on operating income. Higher excise taxes were the predominant factor in
the increase in taxes other than income taxes which totaled $657 million in the
first quarter of 1994, compared with $549 million in the first quarter of 1993.
USX had operating income of $204 million in the first quarter of 1994
compared with restated operating income of $158 million in the same period in
1993. First quarter operating income included favorable noncash effects of $128
million in 1994 and $23 million in 1993 resulting from decreases in the
inventory market valuation reserve. Excluding the effects of these adjustments
to the inventory market valuation reserve, operating income in the first quarter
of 1994 decreased $59 million from the same period in 1993. This reflected
decreases of $59 million and $15 million, respectively, in operating income for
the U. S. Steel Group and the Delhi Group, partially offset by a $15 million
improvement in operating income for the Marathon Group.
Other income in the first quarter of 1994 included a pretax gain of $24
million from the disposal of assets, primarily related to the sale of certain
domestic oil and gas production properties. Other income in the first quarter
of 1993 included a pretax gain of $46 million from the disposal of assets,
including the sale of an investment in an insurance company.
Group Results
- - -------------
See Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Marathon Group, the U. S. Steel Group and the Delhi Group.
Operating Statistics
- - --------------------
For details, see Supplemental Statistics table for the Marathon Group, the
U. S. Steel Group and the Delhi Group.
Dividends to Stockholders
- - -------------------------
On April 26, 1994, USX's Board of Directors (the "Board") declared
dividends of 17 cents per share on Marathon Stock, 25 cents per share on Steel
Stock and five cents per share on Delhi Stock, all payable June 10, 1994, to
stockholders of record at the close of business on May 6, 1994.
16
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Board also declared a dividend of $0.8125 per share on USX
Corporation's 6.50% Cumulative Convertible Preferred Stock and $0.9375 per share
on USX Corporation's Adjustable Rate Cumulative Preferred Stock, in each case
payable June 30, 1994, to stockholders of record at the close of business on
May 31, 1994.
FINANCIAL CONDITION
- - -------------------
Liquidity and Capital Resources
- - --------------------------------
At March 31, 1994, cash and cash equivalents totaled $137 million compared
with $268 million at December 31, 1993.
Net cash used in operating activities totaled $206 million in the first
quarter of 1994 compared with net cash provided from operating activities of
$151 million in the first quarter of 1993. The unfavorable change primarily
reflected payments of $360 million in the first quarter of 1994 related to the
Lower Lake Erie Iron Ore Antitrust Litigation against the Bessemer & Lake Erie
Railroad. In addition, net cash provided from operating activities in the first
quarter of 1993 benefited from a $69 million favorable effect from the use of
available funds from previously established insurance reserves to pay for
certain active and retired employee insurance benefits.
Cash from the disposal of assets totaled $31 million in the first quarter
of 1994 compared with $78 million in the same period in 1993. First quarter
1994 proceeds primarily reflected the sale of certain domestic oil and gas
production properties. Proceeds in the first quarter of 1993 mainly reflected
the sales of an investment in an insurance company and of various domestic oil
and gas production properties.
USX's total long-term debt and notes payable at March 31, 1994, was $5.8
billion, down $163 million from December 31, 1993. At March 31, 1994, USX had
outstanding borrowings of $500 million against credit agreements, leaving $1,675
million of available unused committed credit lines. In addition, USX had $185
million of available unused short-term lines of credit, which require
maintenance of compensating balances of 3%.
In February 1994, USX issued $300 million in aggregate principal amount of
7.20% Notes Due 2004 and $150 million in aggregate principal amount of LIBOR-
based Floating Rate Notes Due 1996. In March 1994, an aggregate principal
amount of $57 million of Marathon's 7% Monthly Interest Guaranteed Notes Due
2002 was issued in exchange for an equivalent principal amount of its 9-1/2%
Guaranteed Notes Due 1994 ("Marathon 9-1/2% Notes"). The $642 million balance
of Marathon 9-1/2% Notes was paid in March 1994. In March 1994, USX filed with
the Securities and Exchange Commission a shelf registration statement which
became effective April 8, 1994 and allows USX to offer and issue unsecured debt
securities in an aggregate principal amount of up to $750 million in one or more
separate series on terms to be determined at the time of sale.
In February 1994, USX sold 5,000,000 shares of Steel Stock to the public
for net proceeds of $201 million.
17
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
In March 1994, USX Capital LLC, a wholly owned subsidiary of USX, sold $250
million of 8-3/4% Cumulative Monthly Income Preferred Shares.
In April 1994, settlement agreements were reached with two states relating
to state tax issues. Settlement payments in excess of $120 million were made in
April 1994. As a result of these settlements and ongoing negotiations with
various tax jurisdictions, a net favorable adjustment to income is expected to
be made in the second quarter of 1994. The amount of this adjustment has not
yet been determined.
USX believes that its short-term and long-term liquidity is adequate to
satisfy its obligations as of March 31, 1994, 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
balance of 1994 and years 1995 and 1996 and amounts which may ultimately be paid
in connection with contingencies are expected to be financed by a combination of
internally generated funds, proceeds from the sale of stock, future borrowings
and other external financing sources.
Capital Expenditures
- - --------------------
Capital expenditures for property, plant, and equipment in the first
quarter of 1994 were $162 million compared with $206 million in the same period
in 1993. The decline primarily reflected lower spending for the Marathon Group
mainly reflecting decreased expenditures for development of the East Brae Field
and SAGE system in the United Kingdom. For further details, see the Financial
Statistics table.
For the year 1994, capital expenditures are expected to total approximately
$1.1 billion. The decrease from 1993 of approximately $50 million is expected
to result mainly from lower spending for the Marathon Group, partially offset by
higher spending for the U. S. Steel Group. For details, see discussion of
Capital Expenditures for the Marathon Group, the U. S. Steel Group and the Delhi
Group. Contract commitments for capital expenditures at March 31, 1994, were
$505 million, compared with $389 million at year-end 1993.
Environmental Matters, Contingencies and Commitments
- - ---------------------------------------------------
USX 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 increased primarily
due to required product reformulation and process changes in order to meet Clean
Air Act obligations, although ongoing compliance costs have also been
significant. To the extent these expenditures, as with all costs, are not
ultimately reflected in the prices of 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 and the Delhi 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 their operating
facilities, their production processes and the specific products and services
they provide.
18
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX has been notified that it is a potentially responsible party ("PRP") at
55 waste sites under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") as of March 31, 1994. In addition, there are 52
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 or make any judgment as to the amount
thereof. There are also 68 additional sites, excluding retail gasoline
stations, where state governmental agencies or private parties are seeking
remediation under state environmental laws through discussions or litigation.
At many of these sites, USX is one of a number of parties involved and the total
cost of remediation, as well as USX's share thereof, is frequently dependent
upon the outcome of investigations and remedial studies. The number of waste
sites in and of itself does not necessarily represent a relevant measure of
liability because the nature and extent of environmental concerns vary from site
to site, and USX's share of responsibility varies significantly.
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.
USX is the subject of, or a 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 (see Note 11 to the
consolidated financial statements for a discussion of certain of these 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. See discussion of Liquidity and Capital Resources herein.
19
USX CORPORATION
FINANCIAL STATISTICS
--------------------
($'s in Millions)
First Quarter
Ended
March 31
----------------
1994 1993
---- ----
SALES
Marathon Group $2,747 $2,954
U. S. Steel Group 1,384 1,208
Delhi Group 154 131
Eliminations (12) (13)
------ ------
Total $4,273 $4,280
OPERATING INCOME (LOSS)
Marathon Group $226 $106
U. S. Steel Group (24) 35
Delhi Group 2 17
----- -----
Total $204 $158
CAPITAL EXPENDITURES
Marathon Group $113 $166
U. S. Steel Group 44 36
Delhi Group 5 4
----- -----
Total $162 $206
20
Part I - Financial Information (Continued):
B. Marathon Group
MARATHON GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
--------------------------------------------
First Quarter
Ended
March 31
(Dollars in millions, except per share amounts) 1994 1993*
- - --------------------------------------------------------------------------------
- - ---
SALES $2,747 $2,954
OPERATING COSTS:
Cost of sales (excludes items shown below) 1,770 2,090
Inventory market valuation credits (128) (23)
Selling, general and administrative expenses 78 82
Depreciation, depletion and amortization 171 175
Taxes other than income taxes 597 496
Exploration expenses 33 28
------- -------
Total operating costs 2,521 2,848
------- -------
OPERATING INCOME 226 106
Other income 22 10
Interest and other financial income 7 2
Interest and other financial costs (77) (68)
------- -------
TOTAL INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 178 50
Less provision for estimated income taxes 68 19
------- -------
TOTAL INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 110 31
Cumulative effect of changes in
accounting principles - (23)
------- -------
NET INCOME 110 8
Dividends on preferred stock (1) (2)
------- -------
NET INCOME APPLICABLE TO MARATHON STOCK $109 $6
======= =======
<FN>
*Restated as a result of the adoption of two new accounting standards.
Selected notes to financial statements appear on pages 24-27.
21
MARATHON GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
-----------------------------------------------
First Quarter
Ended
March 31
(Dollars in millions, except per share amounts) 1994 1993*
- - --------------------------------------------------------------------------------
- - ---
PER COMMON SHARE DATA:
Weighted average shares, in thousands:
- Primary 286,582 286,610
- Fully diluted 292,829 286,612
Primary and fully diluted:
Total income before cumulative effect
of changes in accounting principles applicable
to Marathon Stock $.38 $.10
Cumulative effect of changes in accounting
principles - (.08)
Net income applicable to Marathon Stock .38 .02
<FN>
*Restated as a result of the adoption of two new accounting standards.
Selected notes to financial statements appear on pages 24-27.
22
MARATHON GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
----------------------------------------
March 31 December 31
(Dollars in millions) 1994 1993
- - --------------------------------------------------------------------------------
- - ----
ASSETS
Current assets:
Cash and cash equivalents $89 $185
Receivables, less allowance for doubtful
accounts of $3 and $3 331 337
Inventories 1,026 987
Other current assets 88 89
------- -------
Total current assets 1,534 1,598
Long-term receivables and other investments 311 317
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$7,467 and $7,463 8,346 8,428
Prepaid pensions 266 263
Other noncurrent assets 203 200
------- -------
Total assets $10,660 $10,806
======= =======
LIABILITIES
Current liabilities:
Notes payable $19 $1
Accounts payable 909 1,109
Payable to the U. S. Steel Group 13 13
Payroll and benefits payable 76 85
Accrued taxes 316 294
Deferred income taxes 40 37
Accrued interest 66 106
Long-term debt due within one year 27 23
------- -------
Total current liabilities 1,466 1,668
Long-term debt, less unamortized discount 4,013 4,239
Long-term deferred income tax 1,268 1,223
Employee benefits 308 306
Deferred credits and other liabilities 254 260
Preferred stock of consolidated subsidiary 182 -
------- -------
Total liabilities 7,491 7,696
STOCKHOLDERS' EQUITY
Preferred stock 78 78
Common stockholders' equity 3,091 3,032
------- -------
Total stockholders' equity 3,169 3,110
------- -------
Total liabilities and stockholders' equity $10,660 $10,806
======= =======
<FN>
Selected notes to financial statements appear on pages 24-27.
23
MARATHON GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
Three Months Ended
March 31
(Dollars in millions) 1994 1993*
- - --------------------------------------------------------------------------------
- - ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $110 $8
Adjustments to reconcile to net cash provided from
operating activities:
Accounting principles changes - 23
Depreciation, depletion and amortization 171 175
Exploratory dry well costs 16 8
Inventory market valuation credits (128) (23)
Pensions (8) (8)
Postretirement benefits other than pensions 4 6
Deferred income taxes 47 7
Gain on disposal of assets (22) (6)
Changes in:
Current receivables - Purchased from
the Delhi Group (13) (4)
- operating turnover 19 2
Inventories 89 52
Current accounts payable and accrued expenses (225) (185)
All other items - net 13 (9)
---- ----
Net cash provided from operating activities 73 46
---- ----
INVESTING ACTIVITIES:
Capital expenditures (113) (166)
Disposal of assets 28 28
All other items - net 3 (22)
---- ----
Net cash used in investing activities (82) (160)
---- ----
FINANCING ACTIVITIES:
Marathon Group activity - USX debt attributed to all
groups - net (213) 203
Attributed preferred stock of consolidated subsidiary 176 -
Marathon Stock issued - 1
Dividends paid (50) (50)
---- ----
Net cash provided from (used in) financing activities (87) 154
---- ----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (96) 40
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 185 35
---- ----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $89 $75
==== ====
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(104) $(76)
Income taxes paid including settlements with other
groups (10) (46)
<FN>
*Restated as a result of the adoption of two new accounting standards.
Selected notes to financial statements appear on pages 24-27.
24
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited but,
in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments
are of a normal recurring nature unless disclosed otherwise. These
financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Additional information is contained in the USX Annual Report
on Form 10-K for the year ended December 31, 1993. Financial data for the
first quarter of 1993 has been restated to reflect the adoption of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (SFAS No. 112), and Emerging Issues Task Force
Consensus No. 93-14, "Accounting for Multiple-Year Retrospectively Rated
Insurance Contracts" (EITF No. 93-14) (see Note 6).
The financial statements of the Marathon Group include the financial
position, results of operations and cash flows for the businesses of
Marathon Oil Company and certain other subsidiaries of USX, and a portion
of the corporate assets and liabilities and related transactions which are
not separately identified with ongoing operating units of USX. These
financial statements are prepared using the amounts included in the USX
consolidated financial statements. Corporate amounts reflected in these
financial statements are determined based upon methods which management
believes to be reasonable. The accounting policies applicable to the
preparation of the financial statements of the Marathon Group may be
modified or rescinded in the sole discretion of the Board of Directors of
USX (Board), although the Board has no present intention to do so. The
Board may also adopt additional policies depending on the circumstances.
Although the financial statements of the Marathon Group, the U. S. Steel
Group and the Delhi Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of USX
attributed to each such group, such attribution does not affect legal title
to such assets and responsibility for such liabilities. Holders of USX-
Marathon Group Common Stock (Marathon Stock), USX-U. S. Steel Group Common
Stock (Steel Stock) and USX-Delhi Group Common Stock (Delhi Stock) are
holders of common stock of USX and continue to be subject to all the risks
associated with an investment in USX and all of its businesses and
liabilities. Financial impacts arising from any of the Marathon Group, the
U. S. Steel Group or the Delhi Group which affect the overall cost of USX's
capital could affect the results of operations and financial condition of
all groups. In addition, net losses of any group, as well as dividends or
distributions on any class of USX common stock or series of Preferred Stock
and repurchases of any class of USX common stock or certain series of
Preferred Stock, will reduce the funds of USX legally available for payment
of dividends on all classes of USX common stock. Accordingly, the USX
consolidated financial information should be read in connection with the
Marathon Group financial information.
25
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
2. The method of calculating net income per share for the Marathon Stock,
Steel Stock and Delhi Stock reflects the Board's intent that the separately
reported earnings and surplus of the Marathon Group, the U. S. Steel Group
and the Delhi Group, as determined consistent with the USX Certificate of
Incorporation, are available for payment of dividends to the respective
classes of stock, although legally available funds and liquidation
preferences of these classes of stock do not necessarily correspond with
these amounts.
Primary net income per share is calculated by adjusting net income for
dividend requirements of preferred stock and is based on the weighted
average number of common shares outstanding plus common stock equivalents,
provided they are not antidilutive. Common stock equivalents result from
assumed exercise of stock options and surrender of stock appreciation
rights associated with stock options, where applicable.
Fully diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options and surrender of stock appreciation rights, provided, in each
case, the effect is not antidilutive.
3. Inventories are carried at the lower of cost or market. Cost of
inventories of crude oil and refined products is determined under the last-
in, first-out (LIFO) method.
(In millions)
----------------------
March 31 December 31
1994 1993
--------- ------------
Crude oil and natural gas liquids $474 $522
Refined products and merchandise 758 796
Supplies and sundry items 105 108
------ ------
Total 1,337 1,426
Less inventory market valuation reserve 311 439
------ ------
Net inventory carrying value $1,026 $987
====== ======
The inventory market valuation reserve reflects the extent that the
recorded cost of crude oil and refined products inventories exceeds net
realizable value. The reserve is decreased to reflect increases in market
prices and inventory turnover and increased to reflect decreases in market
prices. Changes in the inventory market valuation reserve resulted in a
$128 million and $23 million credit to operating income in the first
quarter of 1994 and 1993, respectively.
4. Other income in the first quarter of 1994 included a pretax gain of $22
million from disposal of assets, primarily related to the sale of certain
domestic oil and gas production properties.
26
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
5. The financial statement provision for estimated income taxes and related
tax payments or refunds have been reflected in the Marathon Group, the U.
S. Steel Group and the Delhi Group financial statements in accordance with
USX's tax allocation policy for such groups. In general, such policy
provides that the consolidated tax provision and related tax payments or
refunds are allocated among the Marathon Group, the U. S. Steel Group and
the Delhi Group for group financial statement purposes, based principally
upon the financial income, taxable amount, credits, preferences and other
amounts directly related to the respective groups.
The provision for estimated income taxes for the Marathon Group is based on
tax rates and amounts which recognize management's best estimate of current
and deferred tax assets and liabilities. Differences between the combined
interim tax provisions of the Marathon, U. S. Steel and Delhi Groups and
USX consolidated are allocated to each group based on the relationship of
the individual group provisions to the combined interim provisions.
6. In 1993, USX adopted SFAS No. 112 and EITF No. 93-14. The cumulative effect
of these changes in accounting principles decreased first quarter 1993 net
income by $17 million, net of $10 million income tax effect, for SFAS No.
112; and $6 million, net of $3 million income tax effect, for EITF No. 93-
14.
7. In the first quarter of 1994, USX Capital LLC, a wholly owned subsidiary of
USX, sold $250 million of 8-3/4% Cumulative Monthly Income Preferred Shares
(MIPS). In accordance with the USX policy of managing most financial
activities on a centralized, consolidated basis, the proceeds from issuance
of the MIPS and the related financial costs (which are included in interest
and other financial costs) are attributed to all three groups in proportion
to their respective participation in USX centrally managed financing
activities.
8. The Marathon Group has entered into an agreement, subject to limited
recourse, to sell certain accounts receivable including accounts receivable
purchased from the Delhi Group. Payments are collected from the sold
accounts receivable; the collections are reinvested in new accounts
receivable for the buyers; and a yield based on defined short-term market
rates is transferred to the buyers. At March 31, 1994, the balance of sold
accounts receivable that had not been collected was $400 million. Buyers
have collection rights to recover payments from an amount of outstanding
receivables equal to 120% of the outstanding receivables purchased on a
nonrecourse basis. Such overcollateralization cannot exceed $80 million.
In the event of a change in control of USX, as defined in the agreement,
the Marathon Group may be required to forward payments collected on sold
accounts receivable to the buyers.
9. USX is the subject of, or a 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
27
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
9. (Continued)
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 discussion of Liquidity and Capital
Resources in USX Consolidated Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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. 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 these accruals coincides with completion of a
feasibility study or the commitment to a formal plan of action. At March
31, 1994, accrued liabilities for remediation and platform abandonment
totaled $159 million. It is not presently possible to estimate the
ultimate amount of all remediation costs that might be incurred or the
penalties that may be imposed.
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 1993 and 1992, such capital expenditures
totaled $123 million and $240 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.
By reason of Executive Orders and related regulations under which the
U.S. Government is continuing economic sanctions against Libya, the
Marathon Group was required to discontinue performing its Libyan petroleum
contracts on June 30, 1986. In June 1989, the Department of the Treasury
authorized the Marathon Group to resume performing under those contracts.
Pursuant to that authorization, the Marathon Group has engaged the Libyan
National Oil Company and the Secretary of Petroleum in continuing
negotiations to determine when and on what basis they are willing to allow
the Marathon Group to resume realizing revenue from the Marathon Group's
investment of $108 million in Libya. The Marathon Group is uncertain when
these negotiations can be completed or how the negotiations will be
affected by the United Nations sanctions against Libya.
Guarantees by USX of the liabilities of affiliated and other entities of
the Marathon Group totaled $18 million at March 31, 1994.
At March 31, 1994, the Marathon Group's pro rata share of obligations of
LOOP INC. and various pipeline affiliates secured by throughput and
deficiency agreements totaled $204 million. Under the agreements, the
Marathon Group is required to advance funds if the affiliates are unable to
service debt. Any such advances are prepayments of future transportation
charges.
At March 31, 1994, contract commitments for the Marathon Group's capital
expenditures for property, plant and equipment totaled $365 million
compared with $284 million at December 31, 1993.
28
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Marathon Group includes Marathon Oil Company ("Marathon"), a wholly
owned subsidiary of USX Corporation ("USX"), which is engaged in worldwide
exploration, production, transportation and marketing of crude oil and natural
gas; and domestic refining, marketing and transportation of petroleum products.
The following discussion should be read in conjunction with the first quarter
1994 USX consolidated financial information and the Marathon Group financial
statements and selected notes.
Results of Operations
- - ---------------------
The Marathon Group reported net income of $110 million, or $.38 per share,
in the first quarter of 1994. The Marathon Group's net income in the first
quarter of 1993 was $8 million, or $.02 per share, as restated to reflect the
unfavorable $23 million ($.08 per share) cumulative effect of changes in
accounting principles.
First quarter 1994 sales totaled $2,747 million, a decrease from $2,954
million in the first quarter of 1993. The 7% decrease primarily reflected lower
prices of worldwide liquid hydrocarbons and refined products, including matching
buy/sell transactions, partially offset by increased excise taxes. Matching
buy/sell transactions and excise taxes are included in both sales and operating
costs, resulting in no effect on operating income. Higher excise taxes were the
predominant factor in the increase in taxes other than income taxes which
totaled $597 million in the first quarter of 1994, compared with $496 million in
the first quarter of 1993.
Operating income was $226 million in the first quarter of 1994, compared
with operating income of $106 million in the first quarter of 1993. First
quarter operating income for 1994 and 1993 included favorable noncash effects of
$128 million and $23 million, respectively, resulting from decreases in the
inventory market valuation reserve. The inventory market valuation reserve
reflects the extent to which the recorded costs of crude oil and refined product
inventories exceed net realizable value. Subsequent changes to the inventory
market valuation reserve are dependent on changes in future crude oil and
refined product price levels and inventory turnover. Excluding the effects of
these changes in the inventory market valuation reserve, operating income in the
first quarter of 1994 increased $15 million from the first quarter of 1993. The
18% increase was primarily due to improved refined product margins, partially
offset by lower worldwide liquid hydrocarbon prices. The following discussion
excludes the effects of the decreases in the inventory market valuation reserve.
Operating income from worldwide exploration and production was $17 million
in the first quarter of 1994, compared with $71 million in the first quarter of
1993. Domestic exploration and production operating income totaled $15 million
in the first quarter of 1994, compared with $61 million in the first quarter of
1993. The 75% decrease was predominantly due to lower liquid hydrocarbon
prices, which declined $4.66 per barrel from the year-earlier period, and higher
dry well expenses, partially offset by increased natural gas prices and reduced
production expenses.
International exploration and production operating income totaled $2
million in the first quarter of 1994, compared with $10 million in the first
quarter of
29
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
1993. The 80% decrease was primarily due to lower liquid hydrocarbon prices,
which declined $3.57 per barrel from the year-earlier period, partially offset
by reduced dry well expenses.
Operating income from refining, marketing and transportation operations was
$97 million in the first quarter of 1994, compared with $32 million in the first
quarter of 1993. The significant increase was predominantly due to higher
refined product margins primarily resulting from lower crude oil costs. In May
1994, 36 gasoline stations were acquired from a leading independent retailer.
Administrative expenses were $17 million in the first quarter of 1994,
compared with $21 million in the first quarter of 1993. These costs include the
portion of the Marathon Group's administrative costs not allocated to the
individual business components and the portion of USX corporate general and
administrative costs allocated to the Marathon Group.
Other income was $22 million in the first quarter of 1994, compared with
$10 million in the first quarter of 1993. Other income increased primarily due
to the sale of certain domestic oil and gas production properties in the first
quarter of 1994.
Interest and other financial costs were $77 million in the first quarter of
1994, compared with $68 million in the first quarter of 1993. The increase
mainly reflected higher interest rates.
The Marathon Group's average posted price of West Texas Intermediate, a
benchmark crude oil, averaged $14.73 per barrel in April 1994, compared to a
first quarter 1994 average of $13.17 per barrel; however, the outlook regarding
prices and costs for the Marathon Group's principal products is largely
dependent upon world market developments for crude oil and refined products.
Market conditions in the petroleum industry are cyclical and subject to global
economics and political events.
In March 1994, representatives of the international consortium, led by
Marathon Oil Company, and the Russian Government signed a protocol agreement
furthering efforts to finalize a production sharing contract relating to the
development of the Lunskoye gas field and the Piltun-Astokhskoye oil field
offshore Sakhalin Island. The negotiated production sharing contract
is subject to approval by various Russian ministries. If the necessary
approvals are received, it is anticipated that the
formal signing of the production sharing contract will occur in 1994. Any
further commitment will be conditioned upon the adoption of a set of laws,
regulations and permits by the necessary Russian authorities such that the
production sharing contract can be implemented.
Cash Flows
- - ----------
Net cash provided from operating activities totaled $73 million in the
first quarter of 1994, compared with $46 million in the first quarter of 1993.
Proceeds from the disposal of assets totaled $28 million in the first
quarter of 1994, unchanged from the first quarter of 1993. Amounts in both
periods mainly reflected proceeds from the sale of various domestic oil and gas
production properties.
30
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Financial obligations decreased $37 million in the first quarter of 1994,
primarily reflecting net cash provided from operating activities and a reduction
in attributed cash and cash equivalents, partially offset by net cash flows used
in investing activities and dividends paid during the period. Financial
obligations consist of the Marathon Group's portion of USX debt and preferred
stock of a consolidated subsidiary attributed to all three groups.
In April 1994, settlement agreements were reached with two states relating
to state tax issues. Settlement payments in excess of $120 million were made in
April 1994. As a result of these settlements and ongoing negotiations with
various tax jurisdictions, a net favorable adjustment to income is expected to
be made in the second quarter of 1994. The amount of this adjustment has not
yet been determined.
For discussion of USX's liquidity and capital resources, see USX
Consolidated Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Capital Expenditures
- - --------------------
Marathon Group capital expenditures for property, plant and equipment
totaled $113 million in the first quarter of 1994, compared with $166 million in
the first quarter of 1993. The $53 million decline was primarily due to
decreased expenditures for development of the East Brae Field and SAGE system in
the United Kingdom.
For the year 1994, capital expenditures are expected to decrease from $910
million in 1993 by approximately $100 million mainly reflecting decreased
expenditures for development of the East Brae Field and SAGE system in the
United Kingdom.
Contract commitments for capital expenditures at March 31, 1994 were $365
million, compared with $284 million at year-end 1993.
Environmental Matters, Contingencies and Commitments
- - ----------------------------------------------------
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. In recent years, these expenditures have
increased primarily due to required product reformulation and process changes in
order to meet Clean Air Act obligations, although ongoing compliance costs have
also been significant. To the extent these expenditures, as with all costs, are
not ultimately reflected in the prices of the 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 their operating facilities, their production processes and whether
or not they are engaged in the petrochemical business or the marine
transportation of crude oil.
31
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX has been notified that it is a potentially responsible party ("PRP") at
11 waste sites related to the Marathon Group under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") as of March
31, 1994. In addition, there are 23 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 or make any judgment as to the amount thereof. There are also 52
additional sites, excluding retail gasoline stations, related to the Marathon
Group where state governmental agencies or private parties are seeking
remediation under state environmental laws through discussions or litigation.
At many of these sites, USX is one of a number of parties involved and the total
cost of remediation, as well as USX's share thereof, is frequently dependent
upon the outcome of investigations and remedial studies. The number of waste
sites in and of itself does not necessarily represent a relevant measure of
liability because the nature and extent of environmental concerns vary from site
to site, and USX's share of responsibility varies significantly.
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.
USX is the subject of, or a 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 (see Note 9 to the Marathon Group financial statements for a
discussion of certain of these matters). 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
discussion of Liquidity and Capital Resources in USX Consolidated Management's
Discussion and Analysis of Financial Condition and Results of Operations.
32
MARATHON GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS
-----------------------
($'s in Millions)
First Quarter
Ended March 31
--------------
1994 1993
---- ----
SALES $2,747 $2,954
OPERATING INCOME (LOSS)
Exploration & Production
Domestic $15 $61
International 2 10
Refining, Marketing & Transportation 97 32
Gas Gathering & Processing 1 1
Administrative (17) (21)
Inventory Mkt. Val. Res. Adj. 128 23
------ ------
Total Marathon Group $226 $106
CAPITAL EXPENDITURES $113 $166
EXPLORATION EXPENSES $33 $28
OPERATING STATISTICS
Net Liquids Production (a):
Domestic 110.5 112.9
International 48.7 43.6
------ ------
Worldwide 159.2 156.5
Net Natural Gas Production (b):
Domestic 572.4 568.4
International 413.7 393.7
------ ------
Worldwide 986.1 962.1
Average Sales Prices:
Liquid Hydrocarbons (per Bbl)
Domestic $11.19 $15.85
International 13.91 17.48
Natural Gas (per Mcf)
Domestic $2.07 $1.88
International 1.44 1.56
Crude Oil Refined (a) 440.8 541.4
Refined Products Sold (a) 686.0 706.4
- - ------------
<FN>
(a) Thousands of barrels per day
(b) Millions of cubic feet per day
33
Part I - Financial Information (Continued):
C. U. S. Steel Group
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
--------------------------------------------
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1994 1993*
- - --------------------------------------------------------------------------------
- - ---
SALES $1,384 $1,208
OPERATING COSTS:
Cost of sales (excludes items shown below) 1,303 1,079
Selling, general and
administrative expenses (credits) (30) (33)
Depreciation, depletion and amortization 78 76
Taxes other than income taxes 57 51
------- -------
Total operating costs 1,408 1,173
------- -------
OPERATING INCOME (LOSS) (24) 35
Other income 5 27
Interest and other financial income 3 5
Interest and other financial costs (38) (48)
------- -------
TOTAL INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (54) 19
Less provision (credit) for estimated
income taxes (19) 9
------- -------
TOTAL INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (35) 10
Cumulative effect of change in
accounting principle - (69)
------- -------
NET LOSS (35) (59)
Dividends on preferred stock (6) (2)
------- -------
NET LOSS APPLICABLE TO STEEL STOCK $(41) $(61)
======= =======
<FN>
*Restated as a result of the adoption of a new accounting standard.
Selected notes to financial statements appear on page 37-41.
34
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
-----------------------------------------------
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1994 1993*
- - --------------------------------------------------------------------------------
- - ---
PER COMMON SHARE DATA:
Weighted average shares, in thousands:
- Primary 73,598 59,978
- Fully diluted 73,598 59,981
Primary and fully diluted:
Total income (loss) before cumulative
effect of change in accounting
principle applicable to Steel Stock $(.56) $.13
Cumulative effect of change in accounting
principle - (1.16)
Net loss applicable to Steel Stock (.56) (1.03)
<FN>
*Restated as a result of the adoption of a new accounting standard.
Selected notes to financial statements appear on pages 37-41.
35
U. S. STEEL GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
----------------------------------------
March 31 December 31
(Dollars in millions) 1994 1993
- - --------------------------------------------------------------------------------
- - ----
ASSETS
Current assets:
Cash and cash equivalents $47 $79
Receivables, less allowance for doubtful
accounts of $4 and $5 519 583
Receivable from other groups 13 13
Inventories 629 629
Deferred income tax benefits 281 269
Other current assets 2 2
------- -------
Total current assets 1,491 1,575
Long-term receivables and other investments,
less reserves of $22 and $22 680 685
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$6,035 and $5,984 2,623 2,653
Long-term deferred income tax benefits 526 538
Prepaid pensions 1,117 1,084
Other noncurrent assets 86 81
------- -------
Total assets $6,523 $6,616
======= =======
LIABILITIES
Current liabilities:
Notes payable $7 $-
Accounts payable 633 1,048
Payroll and benefits payable 339 349
Accrued taxes 205 180
Accrued interest 25 33
Long-term debt due within one year 12 11
------- -------
Total current liabilities 1,221 1,621
Long-term debt, less unamortized discount 1,599 1,540
Employee benefits 2,513 2,491
Deferred credits and other liabilities 364 347
Preferred stock of consolidated subsidiary 64 -
------- -------
Total liabilities 5,761 5,999
STOCKHOLDERS' EQUITY
Preferred stock 32 32
Common stockholders' equity 730 585
------- -------
Total stockholders' equity 762 617
------- -------
Total liabilities and stockholders' equity $6,523 $6,616
======= =======
<FN>
Selected notes to financial statements appear on pages 37-41.
36
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
Three Months Ended
March 31
(Dollars in millions) 1994 1993*
- - --------------------------------------------------------------------------------
- - ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net loss $(35) $(59)
Adjustments to reconcile to net cash provided from
(used in) operating activities:
Accounting principle change - 69
Depreciation, depletion and amortization 78 76
Pensions (42) (63)
Postretirement benefits other than pensions 20 50
Deferred income taxes (3) 5
Gain on disposal of assets (1) (38)
B&LE litigation (360) -
Changes in:
Current receivables - sold (5) 29
- operating turnover 69 5
Inventories - (49)
Current accounts payable and accrued expenses (41) 77
All other items - net 18 (10)
---- ----
Net cash provided from (used in)
operating activities (302) 92
---- ----
INVESTING ACTIVITIES:
Capital expenditures (44) (36)
Disposal of assets 3 48
All other items - net 3 (11)
---- ----
Net cash provided from (used in)
investing activities (38) 1
---- ----
FINANCING ACTIVITIES:
U. S. Steel Group activity - debt attributed to all
groups - net 64 (411)
Specifically attributed debt:
Borrowings 2 4
Repayments (1) (2)
Attributed preferred stock of consolidated subsidiary 62 -
Preferred stock issued - 336
Steel Stock issued 205 6
Dividends paid (24) (15)
---- ----
Net cash provided from (used in)
financing activities 308 (82)
---- ----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (32) 11
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 79 22
---- ----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $47 $33
==== ====
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(97) $(56)
Income taxes refunded including settlements
with other groups 37 48
<FN>
*Restated as a result of the adoption of a new accounting standard.
Selected notes to financial statements appear on pages 37-41.
37
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited but,
in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments
are of a normal recurring nature unless disclosed otherwise. These
financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Additional information is contained in the USX Annual Report
on Form 10-K for the year ended December 31, 1993. Financial data for the
first quarter of 1993 has been restated to reflect the adoption of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (SFAS No. 112) (see Note 7).
The financial statements of the U. S. Steel Group include the financial
position, results of operations and cash flows for all businesses of USX
other than the businesses, assets and liabilities included in the Marathon
Group or the Delhi Group, and a portion of the corporate assets and
liabilities and related transactions which are not separately identified
with ongoing operating units of USX. These financial statements are
prepared using the amounts included in the USX consolidated financial
statements. Corporate amounts reflected in these financial statements are
determined based upon methods which management believes to be reasonable.
The accounting policies applicable to the preparation of the financial
statements of the U. S. Steel Group may be modified or rescinded in the
sole discretion of the Board of Directors of USX (Board), although the
Board has no present intention to do so. The Board may also adopt
additional policies depending on the circumstances.
Although the financial statements of the U. S. Steel Group, the Marathon
Group and the Delhi Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of USX
attributed to each such group, such attribution does not affect legal title
to such assets and responsibility for such liabilities. Holders of USX-
U. S. Steel Group Common Stock (Steel Stock), USX-Marathon Group Common
Stock (Marathon Stock) and USX-Delhi Group Common Stock (Delhi Stock) are
holders of common stock of USX and continue to be subject to all the risks
associated with an investment in USX and all of its businesses and
liabilities. Financial impacts arising from any of the U. S. Steel Group,
the Marathon Group or the Delhi Group which affect the overall cost of
USX's capital could affect the results of operations and financial
condition of all groups. In addition, net losses of any group, as well as
dividends or distributions on any class of USX common stock or series of
Preferred Stock and repurchase of any class of USX common stock or certain
series of Preferred Stock, will reduce the funds of USX legally available
for payment of dividends on all classes of common stock. Accordingly, the
USX consolidated financial information should be read in connection with
the U. S. Steel Group financial information.
2. The method of calculating net income (loss) per share for the Steel Stock,
Marathon Stock and Delhi Stock reflects the Board's intent that the
separately reported earnings and surplus of the U. S. Steel Group, the
Marathon Group and the Delhi Group, as determined consistent with the USX
Certificate of
38
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
2. (Continued)
Incorporation, are available for payment of dividends to the respective
classes of stock, although legally available funds and liquidation
preferences of these classes of stock do not necessarily correspond with
these amounts.
Primary net income (loss) per share is calculated by adjusting net income
(loss) for dividend requirements of preferred stock and is based on the
weighted average number of common shares outstanding plus common stock
equivalents, provided they are not antidilutive. Common stock equivalents
result from assumed exercise of stock options and surrender of stock
appreciation rights associated with stock options, where applicable.
Fully diluted net income (loss) per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options and surrender of stock appreciation rights, provided, in
each case, the effect is not antidilutive.
3. Inventories are carried at the lower of cost or market. Cost of
inventories is determined primarily under the last-in, first-out (LIFO)
method.
(In millions)
-----------------------
March 31 December 31
1994 1993
-------- -----------
Raw materials $93 $108
Semi-finished products 323 329
Finished products 134 125
Supplies and sundry items 79 67
---- ----
Total $629 $629
==== ====
Cost of sales was reduced and operating income was increased by $14 million
in the first quarter of 1993 as a result of liquidations of LIFO
inventories (immaterial in the 1994 period).
4. Operating income included net periodic pension credits of $30 million and
$51 million in the first quarter of 1994 and 1993, respectively. These
pension credits are primarily noncash and for the most part are included in
selling, general and administrative expenses. The expected long-term rate
of return on plan assets, which is reflected in the calculation of net
periodic pension credits, was reduced to 9% in 1994 from 10% in 1993.
5. Other income in the first quarter of 1993 included a pretax gain of $38
million from disposal of assets, primarily related to the sale of an
investment in an insurance company.
39
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
6. The financial statement provision for estimated income taxes and related
tax payments or refunds have been reflected in the U. S. Steel Group, the
Marathon Group and the Delhi Group financial statements in accordance with
USX's tax allocation policy for such groups. In general, such policy
provides that the consolidated tax provision and related tax payments or
refunds are allocated among the U. S. Steel Group, the Marathon Group and
the Delhi Group for group financial statement purposes, based principally
upon the financial income, taxable amount, credits, preferences and other
amounts directly related to the respective groups.
The provision (credit) for estimated income taxes for the U. S. Steel Group
is based on tax rates and amounts which recognize management's best
estimate of current and deferred tax assets and liabilities. Differences
between the combined interim tax provisions of the U. S. Steel, Marathon
and Delhi Groups and USX consolidated are allocated to each group based on
the relationship of the individual group provisions to the combined interim
provisions.
7. In 1993, USX adopted SFAS No. 112. The cumulative effect of this change in
accounting principle decreased first quarter 1993 net income of the U. S.
Steel Group by $69 million, net of $40 million income tax effect.
8. In the first quarter of 1994, USX sold 5,000,000 shares of USX-U. S. Steel
Group Common Stock to the public for net proceeds of $201 million, which
have been reflected in their entirety in the financial statements of the U.
S. Steel Group.
In the first quarter of 1994, USX Capital LLC, a wholly owned subsidiary of
USX, sold $250 million of 8-3/4% Cumulative Monthly Income Preferred Shares
(MIPS). In accordance with the USX policy of managing most financial
activities on a centralized, consolidated basis, the proceeds from issuance
of the MIPS and the related financial costs (which are included in interest
and other financial costs) are attributed to all three groups in proportion
to their respective participation in USX centrally managed financing
activities.
9. The U. S. Steel Group has entered into an agreement to sell certain
accounts receivable subject to limited recourse. Payments are collected
from the sold accounts receivable; the collections are reinvested in new
accounts receivable for the buyers; and a yield based on defined short-term
market rates is transferred to the buyers. At March 31, 1994, the balance
of sold accounts receivable that had not been collected was $335 million.
Buyers have collection rights to recover payments from an amount of
outstanding receivables equal to 120% of the outstanding receivables
purchased on a nonrecourse basis. Such overcollateralization cannot exceed
$70 million. In the event of a change in control of USX, as defined in the
agreement, the U. S. Steel Group may be required to forward payments
collected on sold accounts receivable to the buyers.
40
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
9. (Continued)
Prior to 1993, USX Credit, a division of USX, sold certain of its loans
receivable subject to limited recourse. USX Credit continues to collect
payments from the loans and transfer to the buyers principal collected plus
yield based on defined short-term market rates. At March 31, 1994, the
balance of sold loans receivable subject to recourse was $187 million. As
of March 31, 1994, USX Credit had outstanding loan commitments of $28
million. USX Credit is not actively making new loan commitments. In the
event of a change in control of USX, as defined in the agreement, the U. S.
Steel Group may be required to provide cash collateral in the amount of the
uncollected loans receivable to assure compliance with the limited recourse
provisions.
10. USX is the subject of, or a 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
U. S. Steel Group financial statements. However, management believes that
USX will remain a viable and competitive enterprise even though it is
possible that these contingencies could be resolved unfavorably to the U.
S. Steel Group. See discussion of Liquidity and Capital Resources in USX
Consolidated Management's Discussion and Analysis of Financial Condition
and Results of Operations.
In the first quarter of 1994, USX paid $360 million in judgments against
the Bessemer & Lake Erie Railroad (B&LE) in the Lower Lake Erie Iron Ore
Antitrust Litigation (MDL-587). Two other plaintiffs in this case have had
their damage claims remanded for retrial. A new trial may result in awards
more or less than the original asserted claims of $8 million and would be
subject to trebling.
In June 1990, following judgments entered on behalf of plaintiffs in MDL-
587, Armco Steel (presently, AK Steel) filed federal antitrust claims
against the B&LE and other railroads in the
Federal District Court for the District of Columbia. B&LE successfully
challenged the actions for lack of jurisdiction and venue, and the case was
transferred to the Federal District Court for the Northern District of
Ohio. Other defendant railroads settled with Armco, leaving B&LE the only
remaining defendant. On April 7, 1993, B&LE's motion to dismiss the
federal antitrust claims on grounds of statute of limitations was granted.
Subsequently, Armco refiled its claims under the Ohio Valentine Act. B&LE's
motions for summary judgment on time bar issues and for change of venue are
pending. No discovery has been taken on the merits of Armco's claims, but
if Armco survives the present and possibly further pre-trial motions and
the case proceeds to trial on the merits, Armco's claimed damages are
likely to be substantial. The B&LE was a wholly owned subsidiary of USX
throughout the period the alleged conduct occurred. It is now a subsidiary
of Transtar in which USX has a 46% equity interest. It is USX's position
that the Armco case was not an excluded liability in the sale of USX's
transportation units to Transtar in 1988, and that USX therefore is not
obligated to reimburse Transtar for any judgments rendered in the Armco
case; however, this position is being disputed by Transtar and The
Blackstone Group, the ultimate owner of 53% of Transtar's outstanding
shares.
41
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
10. (Continued)
On November 3, 1992, the United States District Court for the District of
Utah Central Division issued a Memorandum Opinion and Order in Pickering v.
USX relating to pension and compensation claims by approximately 1,900
employees of USX's former Geneva (Utah) Works. Although the court
dismissed a number of the claims by the plaintiffs, it found that USX had
violated the Employee Retirement Income Security Act by interfering with
the accrual of pension benefits of certain employees and amending a benefit
plan to reduce the accrual of future benefits without proper notice to plan
participants. Further proceedings were held to determine damages and,
pending the court's determinations, USX may appeal. Plaintiffs' counsel
has been reported as estimating plaintiffs' anticipated recovery to be in
excess of $100 million. USX believes actual damages will be substantially
less than plaintiffs' estimates. In the first quarter of 1994, USX entered
into settlement agreements with 208 plaintiffs providing for releases of
liability against USX and the aggregate payment of approximately $1 million
by USX. A joint motion to dismiss these plaintiffs from the case with
prejudice is in the process of being prepared.
The U. S. Steel Group is subject to federal, state and 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. 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 these accruals coincide with
completion of a feasibility study or the commitment to a formal plan of
action. At March 30, 1994, accrued liabilities for remediation and mine
reclamation totaled $160 million. It is not presently possible to estimate
the ultimate amount of all remediation costs that might be incurred or the
penalties that may be imposed.
For a number of years, the U. S. Steel Group has made substantial capital
expenditures to bring existing facilities into compliance with various laws
relating to the environment. In 1993 and 1992, such capital expenditures
totaled $53 million and $52 million, respectively. The U. S. Steel Group
anticipates making additional such expenditures in the future; however, the
exact amounts and timing of such expenditures are uncertain because of the
continuing evolution of specific regulatory requirements.
Guarantees by USX of the liabilities of affiliated entities of the U. S.
Steel Group totaled $202 million at March 31, 1994. In the event that any
defaults of guaranteed liabilities occur, USX has access to its interest in
the assets of the affiliates to reduce U. S. Steel Group losses resulting
from these guarantees. As of March 31, 1994, the largest guarantee for a
single affiliate was $96 million.
At March 31, 1994, contract commitments for the U. S. Steel Group's capital
expenditures for property, plant and equipment totaled $140 million
compared with $105 million at December 31, 1993.
42
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The U. S. Steel Group includes U. S. Steel, which is primarily engaged in
the production and sale of a wide range of steel mill products, coke and
taconite pellets. The U. S. Steel Group also includes the management of mineral
resources, domestic coal mining, engineering and consulting services and
technology licensing (together with U. S. Steel, the "Steel and Related
Businesses"). Other businesses that are part of the U. S. Steel Group include
real estate development and management, fencing products, leasing and financing
activities and a majority interest in a titanium metal products company. The
following discussion should be read in conjunction with the first quarter 1994
USX consolidated financial information and the U. S. Steel Group financial
statements and selected notes.
Results of Operations
- - ---------------------
The U. S. Steel Group had a net loss of $35 million, or $.56 per share, in
the first quarter of 1994. The U. S. Steel Group's net loss in the first
quarter of 1993 was $59 million, or $1.03 per share, as restated to reflect the
unfavorable $69 million ($1.16 per share) cumulative effect of a change in
accounting principle.
First quarter 1994 sales for the U. S. Steel Group totaled $1.4 billion
compared with $1.2 billion in the same quarter of 1993. The $176 million
increase mainly reflected higher steel shipment volumes and prices, and
increased commercial shipments of coke and ore. These were partially offset by
lower commercial shipments of coal due primarily to the sale of the Cumberland
Mine in June 1993.
The U. S. Steel Group reported an operating loss of $24 million in the
first quarter of 1994 compared with restated operating income of $35 million in
the same quarter of 1993. The $59 million decline reflected lower results from
Steel and Related Businesses and from Administrative.
Steel and Related Businesses reported an operating loss of $36 million in
the first quarter of 1994 compared with operating income of $7 million in the
same quarter last year. First quarter results in 1993 benefited from a $28
million favorable effect from the utilization of funds from previously
established insurance reserves to pay for certain employee insurance benefits.
Excluding this favorable effect, the $15 million decline in operating results
for Steel and Related Businesses primarily resulted from utility curtailments
and other severe winter weather complications; outages at Mon Valley (PA) Works
and Gary (IN) Works; and higher pension, scrap metal and steel labor costs.
These negative factors were partially offset by the favorable effects of higher
steel prices and shipment volumes.
January's record low temperatures and extreme snow and ice conditions
disrupted raw materials and steel producing operations and caused mandated
utility curtailments at U. S. Steel facilities in the Midwest and Northeast. In
addition, in March, a steel ladle failure at Mon Valley Works caused extensive
damage and required the shutdown of steel production facilities for 13 days.
This outage resulted in costs for facility repairs, lost steel production and
reduced operating levels at downstream finishing facilities. Steel production
at Mon Valley Works returned to normal levels in early April. Production was
also adversely affected by planned outages for modernization of the Gary Works
hot strip mill.
43
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The increase in pension costs was primarily due to a lower assumed long-
term rate of return on plan assets and enhanced pension benefits under the new
labor agreement with the United Steelworkers of America. The increase in steel
labor costs mainly reflected a signing bonus paid under terms of the new labor
agreement.
Other Businesses had an operating loss of $7 million in the first quarter
of 1994, unchanged from the same quarter in 1993.
Operating income from Administrative, which includes pension credits, other
postretirement benefit costs and certain other expenses principally attributable
to former business units of the U. S. Steel Group, as well as the portion of USX
corporate general and administrative costs allocated to the U. S. Steel Group,
totaled $19 million in the first quarter of 1994 compared with $35 million in
the first quarter of 1993. The decrease was mainly due to higher accruals for
environmental remediation and increased retiree medical costs.
Other income in the first quarter of 1993 included a pretax gain of $38
million from the disposal of assets, including the sale of an investment in an
insurance company.
First quarter 1994 steel shipments of 2.5 million tons increased 9% from
the same quarter of 1993. Raw steel production in the first quarter of 1994
totaled 2.7 million tons and reflected a slight decrease from the first quarter
of 1993. Raw steel production in the first quarter of 1994 averaged 93% of
capability versus 94% of capability in the first quarter of 1993.
In the second quarter of 1994, steel shipments are projected to remain at
current high levels and average steel transaction prices are anticipated to
continue to reflect modest improvements. On the negative side, second quarter
operations are expected to be adversely affected by a planned outage at Gary
Works for a pickle line modernization project, continuation of the Gary Works
hot strip mill modernization project and the continuing effects of higher
pension and labor costs under the new labor agreement.
The domestic steel industry has been adversely affected by unfairly traded
imports. Steel imports to the United States accounted for an estimated 19%, 17%
and 18% of the domestic steel market in 1993, 1992 and 1991, respectively.
Following the decisions by the International Trade Commission ("ITC") in July
1993, which are currently on appeal, levels of imported steel increased with
imports accounting for an estimated 22% of the domestic steel market in the
fourth quarter of 1993 and 24% in the first two months of 1994. While foreign
imports continue to be a problem for the domestic steel industry, market prices
for steel products have generally remained firm because of strong demand, and
USX has successfully obtained some price increases. USX is unable to predict
the ultimate effect the ITC decision may have on the business or results of
operations of the U. S. Steel Group; however, the higher levels of imported
steel may negatively impact product prices and shipment levels.
USX will file additional antidumping and countervailing duty petitions if
unfairly traded imports adversely impact, or threaten to adversely impact, the
results of the U. S. Steel Group.
44
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Cash Flows
- - ----------
Net cash used in operating activities was $302 million in the first quarter
of 1994 compared with net cash provided from operating activities of $92 million
in the same period of 1993. The unfavorable change primarily reflected payments
of $360 million in the first quarter of 1994 related to the Lower Lake Erie Iron
Ore Antitrust Litigation against the Bessemer & Lake Erie Railroad. In
addition, net cash provided from operating activities in the first quarter of
1993 benefited from a $69 million favorable effect from the use of available
funds from previously established insurance reserves to pay for certain active
and retired employee insurance benefits.
Cash from the disposal of assets was $3 million in the first quarter of
1994, down $45 million from the same period in 1993. The 1993 proceeds mainly
reflected the sale of an investment in an insurance company.
Financial obligations increased by $127 million in the first quarter of
1994, primarily reflecting the U. S. Steel Group's net cash used in operating
activities, partially offset by proceeds from the issuance of Steel Stock.
These financial obligations consist of the U. S. Steel Group's portion of USX
debt and preferred stock of a consolidated subsidiary attributed to all three
groups, as well as debt and financing agreements specifically attributed to the
U. S. Steel Group.
In February 1994, USX sold 5,000,000 shares of Steel Stock to the public
for net proceeds of $201 million which were reflected in their entirety in the
U. S. Steel Group financial statements.
For discussion of USX's liquidity and capital resources, see USX
Consolidated Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Capital Expenditures
- - --------------------
U. S. Steel Group capital expenditures for property, plant and equipment in
the first quarter of 1994 were $44 million compared with $36 million in the same
period in 1993.
For the year 1994, capital expenditures are expected to total approximately
$250 million compared with $198 million in 1993. Capital expenditures in 1994
will include continued expenditures for projects begun in 1993 relative to
environmental, hot-strip mill and pickle line improvements at Gary Works and
initial expenditures for a blast furnace reline project at Mon Valley Works
which is planned for completion in 1995.
Contract commitments for capital expenditures at March 31, 1994, were $140
million compared with $105 million at year-end 1993.
45
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Environmental Matters, Contingencies and Commitments
- - ----------------------------------------------------
The U. S. Steel Group has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. In recent years, these expenditures have
been mainly for process changes in order to meet Clean Air Act obligations,
although ongoing compliance costs have also been significant. To the extent
these expenditures, as with all costs, are not ultimately reflected in the
prices of the U. S. Steel Group's products and services, operating results will
be adversely affected. The U. S. Steel Group believes that all of its domestic
competitors are subject to similar environmental laws and regulations. However,
the specific impact on each competitor may vary depending on a number of
factors, including the age and location of their operating facilities and their
production methods.
USX has been notified that it is a potentially responsible party ("PRP") at
44 waste sites related to the U. S. Steel Group under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") as of March
31, 1994. In addition, there are 29 sites related to the U. S. Steel Group
where USX has received information requests or other indications that USX may be
a PRP under CERCLA but where sufficient information is not presently available
to confirm the existence of liability or make any judgment as to the amount
thereof. There are also 16 additional sites related to the U. S. Steel Group
where state governmental agencies or private parties are seeking remediation
under state environmental laws through discussions or litigation. At many of
these sites, USX is one of a number of parties involved and the total cost of
remediation, as well as USX's share thereof, is frequently dependent upon the
outcome of investigations and remedial studies. The number of waste sites in
and of itself does not necessarily represent a relevant measure of liability
because the nature and extent of environmental concerns vary from site to site,
and USX's share of responsibility varies significantly.
The U. S. Steel Group accrues for environmental remediation activities when
the responsibility to remediate is probable and the amount of associated costs
is reasonably determinable. As environmental remediation matters proceed toward
ultimate resolution or as additional remediation obligations arise, charges in
excess of those previously accrued may be required.
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the U. S. Steel Group
involving a variety of matters, including laws and regulations relating to the
environment (see Note 10 to the U. S. Steel Group financial statements for a
discussion of certain of these matters). The ultimate resolution of these
contingencies could, individually or in the aggregate, be material to the U. S.
Steel Group financial statements. However, management believes that USX will
remain a viable and competitive enterprise even though it is possible that these
contingencies could be resolved unfavorably to the U. S. Steel Group. See
discussion of Liquidity and Capital Resources in USX Consolidated Management's
Discussion and Analysis of Financial Condition and Results of Operations.
46
U. S. STEEL GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS
------------------------------------
($'s in Millions)
First Quarter
Ended March 31
--------------
1994 1993
---- ----
SALES
Steel and Related Businesses (a) $1,334 $1,166
Other Businesses (b) 50 42
------ ------
Total U. S. Steel Group $1,384 $1,208
OPERATING INCOME (LOSS)
Steel and Related Businesses (a) $(36) $7
Other Businesses (b) (7) (7)
Administrative (c) 19 35
------ ------
Total U. S. Steel Group $(24) $35
CAPITAL EXPENDITURES $44 $36
OPERATING STATISTICS
Public & Affiliated Steel Shipments (d) 2,461 2,252
Raw Steel-Production (d) 2,743 2,751
Raw Steel-Capability Utilization 92.8% 94.1%
- - ------------
<FN>
(a) Includes the production and sale of steel products, coke and taconite
pellets; domestic coal mining; the management of mineral resources; and
engineering and consulting services and technology licensing.
(b) Includes real estate; fencing products; leasing and financing activities;
and titanium metal products.
(c) Includes pension credits, other postretirement benefit costs and certain
other expenses principally attributable to former business units of the
U. S. Steel Group as well as the portion of USX corporate general and
administrative costs allocated to the U. S. Steel Group.
(d) Thousands of net tons
47
Part I - Financial Information (Continued):
D. Delhi Group
DELHI GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
--------------------------------------------
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1994 1993
- - --------------------------------------------------------------------------------
- - ---
SALES $154.4 $131.0
OPERATING COSTS:
Cost of sales (excludes items shown below) 133.4 95.2
Selling, general and administrative expenses 7.1 7.0
Depreciation, depletion and amortization 9.3 9.4
Taxes other than income taxes 2.1 2.3
------- -------
Total operating costs 151.9 113.9
------- -------
OPERATING INCOME 2.5 17.1
Other income .9 2.8
Interest and other financial costs (2.7) (2.5)
------- -------
TOTAL INCOME BEFORE INCOME TAXES .7 17.4
Less provision for estimated income taxes .3 8.7
------- -------
NET INCOME .4 8.7
Net income applicable to Retained Interest (.1) (3.1)
------- -------
NET INCOME APPLICABLE TO OUTSTANDING
DELHI STOCK $.3 $5.6
======= =======
PER COMMON SHARE DATA:
Weighted average shares, in thousands
- Primary and fully diluted 9,332 9,006
Primary and fully diluted:
Net income applicable to outstanding Delhi Stock $.03 $.62
<FN>
Selected notes to financial statements appear on page 50-52.
48
DELHI GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
----------------------------------------
March 31 December 31
(Dollars in millions) 1994 1993
- - --------------------------------------------------------------------------------
- - ----
ASSETS
Current assets:
Cash and cash equivalents $1.0 $3.8
Receivables, less allowance for doubtful
accounts of $.6 and $.5 9.2 24.2
Inventories 7.7 9.6
Other current assets 4.6 4.6
------- -------
Total current assets 22.5 42.2
Long-term receivables and other investments 14.9 14.7
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$495.2 and $491.5 518.5 521.8
Other noncurrent assets 1.9 1.7
------- -------
Total assets $557.8 $580.4
======= =======
LIABILITIES
Current liabilities:
Notes payable $.4 $-
Accounts payable 92.8 88.9
Payable to the U. S. Steel Group .3 .3
Payroll and benefits payable 2.0 1.8
Accrued taxes 8.1 8.1
Accrued interest 1.3 2.7
Long-term debt due within one year .6 .6
------- -------
Total current liabilities 105.5 102.4
Long-term debt, less unamortized discount 83.4 109.0
Long-term deferred income taxes 152.8 154.0
Deferred credits and other liabilities 7.1 9.5
Preferred stock of consolidated subsidiary 3.8 -
------- -------
Total liabilities 352.6 374.9
STOCKHOLDERS' EQUITY
Preferred stock 2.5 2.5
Common stockholders' equity 202.7 203.0
------- -------
Total stockholders' equity 205.2 205.5
------- -------
Total liabilities and stockholders' equity $557.8 $580.4
======= =======
<FN>
Selected notes to financial statements appear on pages 50-52.
49
DELHI GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
Three Months Ended
March 31
(Dollars in millions) 1994 1993
- - --------------------------------------------------------------------------------
- - ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $.4 $8.7
Adjustments to reconcile to net cash provided from
operating activities:
Depreciation, depletion and amortization 9.3 9.4
Pensions .6 .4
Deferred income taxes (1.2) (1.1)
Gain on disposal of assets (.7) (2.1)
Changes in:
Current receivables - sold 12.7 3.8
- operating turnover 2.4 6.9
Inventories 2.0 (.5)
Current accounts payable and accrued expenses 2.7 (11.7)
All other items - net (4.3) (2.0)
---- ----
Net cash provided from operating activities 23.9 11.8
---- ----
INVESTING ACTIVITIES:
Capital expenditures (4.9) (4.5)
Disposal of assets .7 2.5
---- ----
Net cash used in investing activities (4.2) (2.0)
---- ----
FINANCING ACTIVITIES:
Delhi Group activity - USX debt attributed to all
groups - net (25.5) (8.3)
Attributed preferred stock of consolidated subsidiary 3.7 -
Dividends paid (.5) (.5)
Payment attributed to Retained Interest (.2) (.2)
---- ----
Net cash used in financing activities (22.5) (9.0)
---- ----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2.8) .8
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3.8 .1
---- ----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1.0 $.9
==== ====
Cash used in operating activities included:
Interest and other financial costs paid $(3.9) $(3.0)
Income taxes paid including settlements
with other groups (.3) (9.0)
<FN>
Selected notes to financial statements appear on pages 50-52.
50
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited but,
in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments
are of a normal recurring nature unless disclosed otherwise. These
financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Additional information is contained in the USX Annual Report
on Form 10-K for the year ended December 31, 1993.
2. The financial statements of the Delhi Group include the financial position,
results of operations and cash flows for the businesses of Delhi Gas
Pipeline Corporation (DGP) 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.
These financial statements are prepared using amounts included in the USX
consolidated financial statements. Corporate amounts reflected in these
financial statements are determined based upon methods which management
believes to be reasonable. The accounting policies applicable to the
preparation of the financial statements of the Delhi Group may be modified
or rescinded in the sole discretion of the Board of Directors of USX
(Board), although the Board has no present intention to do so. The Board
may also adopt additional policies depending on the circumstances.
The Board has designated 14,003,000 shares of USX-Delhi Group Common Stock
(Delhi Stock) to represent 100% of the common stockholders' equity value of
USX attributable to the Delhi Group as of March 31, 1994. The Delhi
Fraction is the percentage interest in the Delhi Group represented by the
shares of Delhi Stock that are outstanding at any particular time and,
based on 9,366,673 outstanding shares at March 31, 1994, is approximately
67%. The Marathon Group financial statements reflect a Retained Interest
in the Delhi Group of approximately 33%.
Although the financial statements of the Delhi Group, the Marathon Group
and the U. S. Steel Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of USX
attributed to each such group, such attribution does not affect legal title
to such assets or responsibility for such liabilities. Holders of Delhi
Stock, USX-Marathon Group Common Stock (Marathon Stock) and USX-U. S. Steel
Group Common Stock (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 any of the Delhi Group, the Marathon Group or the U. S. Steel Group
which affect the overall cost of USX's capital could affect the results of
operations and financial condition of all groups. In addition, net losses
of any group, as well as dividends or distributions on any class of USX
common stock or series of Preferred Stock and repurchases of any class of
USX common stock or certain series of Preferred Stock, will reduce the
funds of USX legally available for payment of dividends on all classes of
USX common stock. Accordingly, the USX consolidated financial information
should be read in connection with the Delhi Group financial information.
51
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
3. The method of calculating net income per share for the Delhi Stock,
Marathon Stock, and Steel Stock reflects the Board's intent that the
separately reported earnings and surplus of the Delhi Group, the Marathon
Group and the U. S. Steel Group, as determined consistent with the USX
Certificate of Incorporation, are available for payment of dividends to the
respective classes of stock, although legally available funds and
liquidation preferences of these classes of stock do not necessarily
correspond with these amounts.
Net income per share is calculated by adjusting net income for dividend
requirements of preferred stock and income applicable to the Retained
Interest and is based on the weighted average number of common shares
outstanding plus common stock equivalents, provided they are not
antidilutive. Common stock equivalents result from assumed exercise of
stock options and surrender of stock appreciation rights associated with
stock options, where applicable.
Fully diluted net income per share assumes exercise of stock options and
surrender of stock appreciation rights, provided, in each case, the effect
is not antidilutive.
4. Inventories are carried at lower of average cost or market.
(In millions)
----------------------
March 31 December 31
1994 1993
------- -----------
Natural gas in storage $5.9 $6.8
NGLs in storage .6 .4
Materials and supplies 1.2 2.4
---- ----
Total $7.7 $9.6
==== ====
5. Other income in the first quarter of 1993 included a gain of $1.6 million
from the sale of a 25% interest in a natural gas transmission partnership.
The tax provision for estimated U.S. income taxes in the first quarter of
1993 included an unfavorable tax effect associated with the sale of the
partnership interest, which resulted in a $1.2 million net loss on the
transaction.
6. The financial statement provision for estimated income taxes and related
tax payments or refunds have been reflected in the Delhi Group, the
Marathon Group and the U. S. Steel Group financial statements in accordance
with USX's tax allocation policy for such groups. In general, such policy
provides that the consolidated tax provision and related tax payments or
refunds are allocated among the Delhi Group, the Marathon Group and the U.
S. Steel Group for group financial statement purposes, based principally
upon the financial income, taxable income, credits, preferences and other
amounts directly related to the respective groups.
The provision for estimated U.S. income taxes for the Delhi Group is based
on tax rates and amounts which recognize management's best estimate of
current and deferred tax assets and liabilities. Differences between the
combined
52
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
6. (Continued)
interim tax provisions of the Delhi, the Marathon and the U. S. Steel
Groups and USX consolidated are allocated to each group based on the
relationship of the individual group provisions to the combined interim
provisions.
7. In the first quarter of 1994, USX Capital LLC, a wholly owned subsidiary of
USX, sold $250 million of 8-3/4% Cumulative Monthly Income Preferred Shares
(MIPS). In accordance with the USX policy of managing most financial
activities on a centralized, consolidated basis, the proceeds from issuance
of the MIPS and the related financial costs (which are included in interest
and other financial costs) are attributed to all three groups in proportion
to their respective participation in USX centrally managed financing
activities.
8. Certain of the Delhi Group accounts receivable are sold in combination with
the Marathon Group accounts receivable under a limited recourse agreement.
Payments are collected from the sold accounts receivable; the collections
are reinvested in new accounts receivable for the buyers; and a yield,
based on short-term market rates, is transferred to the buyers. At March
31, 1994, the balance of the Delhi Group's sold accounts receivable that
had not been collected was $86.4 million. In the event of a change in
control of USX, as defined in the agreement, the Delhi Group may be
required to forward payments collected on sold Delhi Group accounts
receivable to the buyers.
9. USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the Delhi 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 Delhi 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 Delhi Group. See discussion of Liquidity and
Capital Resources in USX Consolidated Management's Discussion and Analysis
of Financial Condition and Results of Operations.
The Delhi Group is subject to federal, state and local laws and regulations
relating to the environment. These laws generally provide for control of
pollutants released into the environment and require responsible parties to
undertake remediation of hazardous waste disposal sites. Penalties may be
imposed for noncompliance. Expenditures for remediation and penalties have
not been material.
For a number of years, the Delhi Group has made capital expenditures to
bring existing facilities into compliance with various laws relating to the
environment. In 1993 and 1992, such capital expenditures totaled
approximately $4.5 million and $3.0 million, respectively. The Delhi 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.
53
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Delhi Group includes Delhi Gas Pipeline Corporation ("DGP"), a wholly
owned subsidiary of USX, and certain related companies which are engaged in the
purchasing, gathering, processing, transporting and marketing of natural gas.
The following discussion should be read in conjunction with the first quarter
1994 USX consolidated financial information and the Delhi Group financial
statements and selected notes.
Results of Operations
- - ---------------------
The Delhi Group had net income of $0.4 million, or $.03 per share, in the
first quarter of 1994, compared with $8.7 million, or $.62 per share, in the
first quarter of 1993.
Sales totaled $154.4 million in the first quarter of 1994, up $23.4 million
from the first quarter of 1993 mainly due to increased natural gas sales
throughput and higher natural gas prices, partially offset by a decline in
natural gas liquids ("NGLs") prices and volumes.
First quarter operating income was $2.5 million in 1994 compared with
$17.1 million in 1993. First quarter 1994 operating income included a
$1.6 million favorable pretax effect of the settlement of litigation related to
a prior-year take-or-pay claim for less than the amount previously accrued.
First quarter 1993 operating income included a $1.8 million favorable effect of
the reversal of a prior-period accrual related to a natural gas contract
settlement. Excluding the effects of these items, operating income decreased by
$14.4 million due primarily to a decline in premiums from natural gas sales;
deteriorating gas processing economics evidenced by lower average NGLs sales
prices, which trended downward with crude oil prices, and higher average plant
feedstock (natural gas) costs; and lower transportation throughput and rates.
These factors were partially offset by a 22% increase in natural gas sales
throughput volumes, mainly reflecting increased short-term interruptible
("spot") market sales and new FERC Order No. 636 sales.
The Delhi Group attempts to sell all of the natural gas available on its
systems each month. Natural gas volumes not sold in its premium market are
typically sold in the spot market, generally at lower average unit margins than
those realized from premium sales. First quarter 1994 gas sales margins
declined from the first quarter of 1993 as warmer weather in the Delhi Group's
primary marketing areas of Texas and Oklahoma reduced demand for premium
services and led to increased spot market sales. In addition, first quarter
1994 gas sales margins from Southwestern Electric Power Company ("SWEPCO")
declined by $2.9 million, reflecting the terms of a new natural gas purchase
agreement providing for market sensitive prices beginning in February 1994. On
January 26, 1994, DGP and SWEPCO resolved litigation related to a 15-year
natural gas purchase contract which was due to expire in April 1995. Sales
under the original contract were at prices substantially above spot market
prices and, as a result, this contract accounted for more than 10% of the Delhi
Group's total gross margin in each of the years 1991 through 1993.
Concurrently, the Delhi Group executed a new four-year agreement enabling the
Delhi Group to supply increased volumes of gas to two SWEPCO power plants in
East Texas at market sensitive prices and premiums commensurate with the level
of service provided. The agreement provides for swing service and does not
require any minimum gas purchase volumes. The Delhi Group's operating income
and
54
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
cash flow will be adversely affected by the amount of potential premiums lost
under the original contract for the period February 1, 1994, through April 1,
1995. Second quarter 1994 margins from SWEPCO are expected to decline by
approximately $4 million from the second quarter of 1993.
First quarter 1994 transportation throughput declined by 20% from the first
quarter of 1993 primarily due to increased competition and natural production
declines on third-party wells.
The Delhi Group monitors the economics of removing NGLs from the gas stream
for processing on an ongoing basis to determine the appropriate level of each
gas plant's operation. Due to unfavorable economics in late 1993 and early
1994, the Delhi Group chose not to fully process some gas, resulting in a 22%
decline in first quarter 1994 NGLs sales volumes from the 1993 first quarter.
Other income in the first quarter of 1993 included a $1.6 million pretax
gain on the sale of the Delhi Group's interest in a natural gas transmission
partnership.
The provision for estimated U.S. income taxes is based on tax rates and
amounts which recognize management's best estimate of current and deferred tax
assets and liabilities. The income tax provision for the first quarter of 1993
included a $2.8 million unfavorable effect associated with the previously
mentioned sale of the Delhi Group's interest in a natural gas transmission
partnership, which resulted in a $1.2 million unfavorable first quarter effect
from the transaction.
The Delhi Group's operating results are affected by fluctuations in natural
gas prices and demand levels in the markets that it serves. The Delhi Group
anticipates that gas processing margins will continue to be depressed in the
second quarter of 1994 as compared with the second quarter of 1993, despite
recent crude oil price increases. The level of gas sales margins is primarily a
function of the demand for premium services and the volatility of natural gas
prices in the spot market, and is difficult to accurately project. However, as
mentioned above, second quarter 1994 gas sales margins from one customer,
SWEPCO, will be lower than the prior-year second quarter as a result of the
terms of the new natural gas purchase agreement.
The Delhi Group can also be affected by changes in the regulatory
environment governing its businesses and the businesses of its competitors. In
April 1992, the Federal Energy Regulatory Commission issued Order No. 636 ("the
Order") which makes
significant changes to the structure of the services provided by interstate
natural gas pipelines. The changes are intended to ensure that interstate
pipeline companies provide transportation service that is equal in quality for
all gas supplies, whether the customer purchases the gas from the pipeline or
from another supplier. The Delhi Group is primarily an intrastate gas gatherer
(as opposed to an interstate pipeline company) and does not face significant
transition costs as a result of the Order. The Delhi Group has added new winter
month off-system sales to three customers as a result of the Order and believes
that the Order will provide additional opportunities to offer its merchant gas
services to existing customers of
interstate pipelines who are seeking an alternative gas supply source. However,
as the Order is implemented, additional Delhi Group gas sales resulting from the
Order will be subject to negotiation with the individual customers. The Delhi
Group cannot accurately determine the financial effect of such opportunities on
future operating results.
55
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Cash Flows
- - ----------
Net cash provided from operating activities was $23.9 million in the first
quarter of 1994, up $12.1 million from the first quarter of 1993, primarily due
to the timing of income tax payments (including settlements with other groups)
which totaled $0.3 million in the first quarter of 1994 compared with $9.0
million in the first quarter of 1993. The $12.1 million improvement also
reflected an increase in cash realized from the sale of receivables, and the
collection of receivables relating to a natural gas contract dispute with SWEPCO
which was settled in 1994. These factors were partially offset by the decline
in income.
Cash provided from the disposal of assets was $0.7 million in the first
quarter of 1994, a decline of $1.8 million from the same period in 1993,
primarily reflecting proceeds of $1.9 million from the sale of the Delhi Group's
interest in a natural gas transmission partnership in the first quarter of 1993.
Financial obligations decreased by $21.8 million in the first quarter of
1994, primarily reflecting the Delhi Group's net cash provided from operating
activities, partially offset by net cash used in investing activities.
Financial obligations consist of the Delhi Group's portion of USX debt and
preferred stock of a consolidated subsidiary attributed to all three groups.
For discussion of USX's liquidity and capital resources, see USX
Consolidated Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Capital Expenditures
- - --------------------
Delhi Group capital expenditures for property, plant and equipment were
$4.9 million in the first quarter of 1994, compared with $4.5 million in the
first quarter of 1993.
Capital expenditures for the year 1994 are expected to exceed the
$42.6 million expended in 1993, reflecting continued expenditures to connect
dedicated gas reserves by the expansion or acquisition of gas gathering,
processing and transmission assets, including those made available as a result
of current industry conditions and regulatory initiatives.
Environmental Matters, Contingencies and Commitments
- - ----------------------------------------------------
The Delhi Group has incurred and will continue to incur capital and
operating and maintenance 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 Delhi Group's products and services,
operating results will be adversely affected. The Delhi Group believes that
substantially all of its competitors are subject to similar environmental laws
and regulations. However, the
specific impact on each competitor may vary depending on a number of factors,
including the age and location of their operating facilities and their
production processes.
56
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the Delhi Group
involving a variety of matters, including laws and regulations relating to the
environment. The ultimate resolution of these contingencies could, individually
or in the aggregate, be material to the Delhi 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 Delhi Group. See discussion of Liquidity and Capital
Resources in USX Consolidated Management's Discussion and Analysis of Financial
Condition and Results of Operations.
57
DELHI GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS
------------------------------
($'s in Millions)
First Quarter
Ended March 31
--------------
1994 1993
---- ----
SALES $154.4 $131.0
GROSS MARGIN
Gas Sales Margin $24.8 $31.4
Transportation Margin 2.6 3.8
------ ------
Systems Margin $27.4 $35.2
Gas Processing Margin - 7.4
------ ------
Total Gross Margin $27.4 $42.6
OPERATING INCOME $2.5 $17.1
CAPITAL EXPENDITURES $4.9 $4.5
OPERATING STATISTICS
Natural Gas Throughput (a)
Natural Gas Sales 681.3 559.4
Transportation 244.7 304.8
------ ------
Systems Throughput 926.0 864.2
Partnerships - equity share 20.2 19.1
------ ------
Total Throughput 946.2 883.3
Natural Gas Liquids Sales (b) 627.4 808.8
- - ------------
<FN>
(a) Millions of cubic feet per day
(b) Thousands of gallons per day
58
Part II - Other Information:
- - ----------------------------
Item 1. LEGAL PROCEEDINGS
1. USX-MARATHON GROUP
Texas City Refinery Litigation
On April 7, 1994, the District Court of Harris County, Texas found CBI Na-
Con, Inc., liable to Marathon Oil Company for gross negligence and assessed
actual and punitive damages in the amount of $31.5 million in connection
with the release of hydrofluoric acid at Marathon's Texas City refinery in
1987.
2. USX-U. S. STEEL GROUP
Pickering Litigation
In the first quarter of 1994, USX entered into settlement agreements with
208 plaintiffs providing for releases of liability against USX and the
aggregate payment by USX of $1,040,000. A joint motion to dismiss these
plaintiffs from the case with prejudice is in the process of being
prepared.
Fairfield Agreement Litigation
On April 5, 1994, the U.S. Court of Appeals for the 11th Circuit reversed a
summary judgment entered in favor of USX in a civil action (Cox v. USX).
USX intends to seek further appellate review of this decision. The
plaintiffs' complaint asserted five causes of action arising out of conduct
relating to the negotiation of a local labor agreement in 1983 at the
Fairfield Works in Fairfield, Alabama. The causes of action include claims
asserted under the Racketeer Influenced and Corrupt Organization Act and
Employee Retirement Income Security Act based on allegations that union
negotiators had agreed to concessions in the agreement in exchange for
pension payments to which they were not entitled.
In a second action related to the Fairfield labor agreement, the Court of
Appeals for the 11th Circuit on May 10, 1994, affirmed the criminal
convictions of USX and two union officials. USX plans to appeal the
decision.
3. USX-DELHI GROUP
Enserch Litigation
On March 25, 1994, a settlement agreement was executed between Enserch
Exploration, Inc., EP Operating Company, EP Operating Limited Partnership
(collectively "Enserch") and Delhi, resolving litigation which began in
1990 related to a take-or-pay claim. Concurrent with the execution of the
settlement agreement, which provided for an immaterial payment by Delhi, a
new five-year gas purchase agreement with Enserch was entered into at
market-sensitive prices.
59
Part II - Other Information (Continued):
- - ---------------------------
Item 5. OTHER INFORMATION
SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF MARATHON OIL COMPANY
Supplementary Data
---------------------------------------------------------------------
(Unaudited)
The following summarized consolidated financial information of Marathon Oil
Company, a wholly owned subsidiary of USX, is included in this Form 10-Q in
satisfaction of the reporting obligation of Marathon which has debt securities
registered under the Securities Exchange Act. All such securities are
guaranteed by USX.
(In millions)
---------------------
Three Months Ended
March 31
1994 1993*
---- ----
Income Data:
Net sales $2,730 $2,926
Operating income 232 107
Total income (loss) before cumulative effect of
changes in accounting principles 105 (7)
Net income (loss) 105 (30)
<FN>
*Restated as a result of the adoption of two new accounting standards.
(In millions)
---------------------------
March 31 December 31
1994 1993
--------- -----------
Balance Sheet Data:
Assets:
Current assets $1,860 $1,985
Noncurrent assets 8,928 9,015
------- -------
Total assets $10,788 $11,000
======= =======
Liabilities and Stockholder's Equity:
Current liabilities $1,408 $1,580
Noncurrent liabilities 8,167 8,312
Stockholder's equity 1,213 1,108
------- -------
Total liabilities and stockholder's equity $10,788 $11,000
======= =======
60
Part II - Other Information (Continued):
- - ----------------------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
12.2 Computation of Ratio of Earnings to Fixed Charges.
(b) REPORTS ON FORM 8-K
(1)Form 8-K dated January 21, 1994 reporting under Item 5, Other
Events, preliminary unaudited financial information for
the year ended December 31, 1993.
(2)Form 8-K dated January 24, 1994 reporting under Item 5, Other
Events, (1) the Supreme Court decision in the Bessemer & Lake
Erie case; (2) the settlement of litigation between the Delhi
Group and the Southwestern Electric Power Company; (3) the
signing of a
new labor agreement with the United Steelworkers of America; and
(4) the execution of an underwriting agreement relating to the
sale of 5,000,000 shares of USX-U. S. Steel Group Common Stock.
(3)Form 8-K dated February 2, 1994 reporting under Item 5, Other
Events, the execution of an underwriting agreement relating to
the sale of $300 million of 7.20% Notes due 2004.
(4)Form 8-K dated February 14, 1994 reporting under Item 5, Other
Events, the audited financial statements for the year ended
December 31, 1993.
(5)Form 8-K dated February 24, 1994 reporting under Item 5, Other
Events, the execution of an underwriting agreement relating to
the sale of 10,000,000 shares of 8-3/4% Monthly Income
Preferred Shares of USX Capital LLC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned chief accounting officer thereunto duly authorized.
USX CORPORATION
By /s/ Lewis B. Jones
------------------
Lewis B. Jones
Vice President &
Comptroller
May 12, 1994