UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported):
October 23, 1996
USX Corporation
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(Exact name of registrant as specified in its charter)
Delaware 1-5153 25-0996816
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
600 Grant Street, Pittsburgh, PA 15219-4776
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(Address of principal executive offices) (Zip Code)
(412) 433-1121
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(Registrant's telephone number,
including area code)
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Item 5. Other Events
Forward-looking statements concerning trends, market forces, commitments,
material events and other contingencies potentially affecting the USX
Corporation ("USX"), or the businesses of its Marathon Group, U. S. Steel Group
or Delhi Group, may be provided in reports filed with the Securities and
Exchange Commission, external documents and oral presentations. In order to
take advantage of "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, USX is filing the following cautionary language identifying
important factors that could cause actual outcomes to differ materially from
information set forth in forward-looking statements made by, or on behalf of,
USX, its representatives and its individual Groups.
Cautionary Language Concerning Forward-Looking Statements
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I. USX
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Forward-looking statements with respect to USX may include, but are not limited
to, comments about general business strategies, financing decisions or corporate
structure. The following discussion is intended to identify important factors
(though not necessarily all such factors) that could cause future outcomes to
differ materially from those set forth in forward-looking statements.
Liquidity Factors
USX's ability to finance its future business requirements through internally
generated funds, proceeds from the sale of stock, borrowings and other external
financing sources is affected by the performance of the businesses of its
Marathon Group, U. S. Steel Group and Delhi Group and, with respect to
borrowings, by the levels of outstanding debt, and credit ratings by investor
services.
Other Factors
Holders of USX-Marathon Group Common Stock, USX-U. S. Steel Group Common Stock
and USX-Delhi Group Common Stock are holders of common stock of USX and are
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 groups,
which affect the overall cost of USX's capital could affect the results of
operations and financial condition of all groups.
For further discussion of certain of the factors described herein, see Item 5.
Market For Registrant's Common Equity and Related Stockholder Matters, and
Management's Discussion and Analysis in the USX Corporation Form 10-K for the
fiscal year ended December 31, 1995, and Management's Discussion and Analysis in
Form 10-Q for the periods ended March 31, and June 30, 1996.
II. USX-U. S. Steel Group
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Forward-looking statements with respect to the U. S. Steel Group may include,
but are not limited to, projections of levels of sales, operating income or
operating income per ton, net income or earnings per share; levels of capital,
environmental or maintenance expenditures; the success or timing of completion
of ongoing or anticipated capital or maintenance projects; levels of raw steel
production
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capability, prices, production, shipments, or labor and raw material costs; the
acquisition, idling, shutdown or divestiture of assets or businesses; the effect
of restructuring or reorganization of business components; the effect of
potential judicial proceedings on the business and financial condition; and the
effects of actions of third parties such as competitors, or federal, state or
local regulatory authorities.
Forward-looking statements typically contain words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "predicts" or "projects", or
variations of these words, suggesting that future outcomes are uncertain. The
following discussion is intended to identify important factors (though not
necessarily all such factors) that could cause future outcomes to differ
materially from those set forth in forward-looking statements with respect to
the U. S. Steel Group.
Market Factors
The U.S. Steel Group's expectations as to levels of production and sales, gross
margins, operating income and operating income per ton are based upon
assumptions as to future product prices and mix, and levels of raw steel
production capability, production and shipments. These assumptions may prove to
be inaccurate.
The steel industry is characterized by excess world supply which has restricted
the ability of U. S. Steel and the industry to raise prices during periods of
economic growth and resist price decreases during economic contraction. Over
the next several years, construction of additional flat-rolled steel production
facilities could result in increased domestic capacity of up to 10 million tons
over 1995 levels.
Several of the additional facilities are minimills which are less expensive to
build than integrated facilities, and are typically staffed by non-unionized
work forces with lower base labor costs and more flexible work rules. Through
the use of thin slab casting technology, minimill competitors are increasingly
able to compete directly with integrated producers of higher value-added
products. Such competition could adversely affect the U.S. Steel Group's future
product prices and shipment levels.
The domestic steel industry has, in the past, been adversely affected by
unfairly traded imports. Steel imports to the United States accounted for an
estimated 21%, 25% and 19% of the domestic steel market in 1995, 1994 and 1993,
respectively, and for an estimated 21% in the first seven months of 1996.
Foreign competitors typically have lower labor costs, and are often owned,
controlled or subsidized by their governments, allowing their production and
pricing decisions to be influenced by political and economic policy
considerations as well as prevailing market conditions. Increases in levels of
imported steel could adversely affect future market prices and demand levels for
domestic steel.
The U. S. Steel Group also competes in many markets with producers of
substitutes for steel products, including aluminum, cement, composites, glass,
plastics and wood. The emergence of additional substitutes for steel products
could adversely affect future prices and demand for steel products.
The businesses of the U. S. Steel Group are aligned with cyclical industries
such as the automotive, appliance, containers, construction and energy
industries. As a result, future downturns in the U.S. economy could adversely
affect the profitability of the U. S. Steel Group.
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Operating and Cost Factors
The operations of the U. S. Steel Group are subject to planned and unplanned
outages due to maintenance, equipment malfunctions or work stoppages; and
various hazards, including explosions, fires and severe weather conditions,
which could disrupt operations or the availability of raw materials, resulting
in reduced production volumes and increased production costs.
Labor costs for the U. S. Steel Group are affected by collective bargaining
agreements. U. S. Steel entered into a five and one-half year contract with the
United Steel Workers of America, effective February 1, 1994, covering
approximately 15,000 employees. The contract provides for renegotiation,
subject to arbitration, of certain compensation issues in 1996. To the extent
that increased costs associated with any renegotiated issues are not recoverable
through the sales prices of products, future operating income would be adversely
affected.
Operating income for the U. S. Steel Group includes net periodic pension credits
(which are primarily noncash) mainly reflecting the excess of expected return on
plan assets over the cost of benefits earned and interest on the projected
benefit obligation. These credits totaled $132 million, $120 million and $202
million in 1995, 1994 and 1993, respectively, and $81 million in the first six
months of 1996. The amounts of these credits fluctuate over time primarily
reflecting changes in the expected long-term rate of return on plan assets and
the assumed discount rate on the outstanding pension obligation. To the extent
that these credits decline in the future, operating income would be adversely
affected.
The U. S. Steel Group provides health care and life insurance benefits to most
employees upon retirement. Most of these benefits have not been prefunded. The
accrued liability for such benefits as of December 31, 1995, was $2,223 million.
To the extent that competitors do not provide similar benefits, or have been
relieved of obligations to provide such benefits following bankruptcy
reorganization, the competitive position of the U. S. Steel Group may be
adversely affected, depending on future costs of health care.
Legal and Environmental Factors
The profitability of the U. S. Steel Group's operations could be affected by a
number of contingencies, including legal actions. Included among these actions
is a jury trial in a civil class action (Cox, et al. v. USX, et al.) related to
the Fairfield Agreement Litigation which began on September 30, 1996, in the
U.S. District Court for the Northern District of Alabama. Plaintiffs' claims
seek damages in excess of $276 million, which may be subject to trebling. The
ultimate resolution of these contingencies could, individually or in the
aggregate, be material to the U. S. Steel Group financial statements.
The businesses of the U. S. Steel Group are subject to numerous environmental
laws. Certain current and former U. S. Steel Group operating facilities,
including Gary Works, have been in operation for many years, and could require
significant future accruals and expenditures to meet existing and future
requirements under these laws. To the extent that competitors are not required
to undertake equivalent costs in their operations, the competitive position of
the U. S. Steel Group could be adversely affected.
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Other Factors
Holders of USX-U. S. Steel Group Common Stock are holders of common stock of USX
and are 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
groups, which affect the overall cost of USX's capital could affect the results
of operations and financial condition of all groups.
For further discussion of certain of the factors described herein, and their
potential effects on the businesses of the U.S. Steel Group, see Item 1.
Business, and Management's Discussion and Analysis in the USX Corporation Form
10-K for the fiscal year ended December 31, 1995, and Management's Discussion
and Analysis in Form 10-Q for the periods ended March 31, and June 30, 1996.
III. USX-Delhi Group
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Forward-looking statements with respect to the Delhi Group may include, but are
not limited to, projections of levels of sales, gross margins, operating income,
net income or earnings per share; levels of capital, environmental or
maintenance expenditures; the success or timing of completion of ongoing or
anticipated capital or maintenance projects; volumes of sales, throughput or
shipments of natural gas or natural gas liquids ("NGLs"); levels of, or changes
in, dedicated reserves of natural gas; the acquisition or divestiture of assets;
the effect of restructuring or reorganization of business components or entry
into new lines of business; the effect of potential judicial proceedings on the
business and financial condition; and the effects of actions of third parties
such as competitors, or federal, state or local regulatory authorities.
Forward-looking statements typically contain words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "predicts" or "projects", or
variations of these words, suggesting that future outcomes are uncertain. The
following discussion is intended to identify important factors (though not
necessarily all such factors) that could cause future outcomes to differ
materially from those set forth in forward-looking statements with respect to
the Delhi Group.
Market Factors
The adoption in 1992 of Federal Energy Regulatory Commission ("FERC") Order
No. 636, has resulted in a fundamental "unbundling" of the services provided in
the natural gas industry, affording natural gas producers easier access to end-
user sales markets, and reducing market demand for the premium services
traditionally provided by the Delhi Group. To the extent that producers convert
their natural gas sales contracts with the Delhi Group to lower margin, fixed-
fee transportation agreements, or that customers reduce their demand for gas
under premium service agreements, the Delhi Group's future operating income will
be adversely affected.
The Delhi Group faces intense competition in all of its businesses, including
obtaining additional dedicated natural gas reserves, and in the purchasing,
gathering, processing, transporting and marketing of natural gas. The Delhi
Group competes with major integrated oil and gas companies; more than 100 major
intrastate and interstate pipeline companies; and national and local gas
gatherers, brokers, marketers, processors and distributors of varying size,
financial resources and experience. Certain of these competitors, including
major integrated oil and gas companies and some intrastate and interstate
pipeline companies, have greater financial resources and control larger natural
gas supplies or storage capacity than the Delhi Group.
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The Delhi Group's expectations as to levels of sales, gross margins and
operating income, and its return on investment in capital projects are based
upon assumptions as to future market prices and market supply and demand for
natural gas, NGLs, and competing fuels and feedstocks, and as to levels of
third-party drilling success in Delhi's current or anticipated core operating
areas of Oklahoma and Texas. These assumptions may prove to be inaccurate.
The Delhi Group generally buys natural gas at prices based on a market index,
and sells natural gas under sales contracts (typically for periods of one year
or less) and in the spot market. Pricing mechanisms under natural gas sales
contracts result in gas sales primarily at market sensitive prices with the unit
gross margin fluctuating based on the sales price and the cost of natural gas.
Accordingly, Delhi's gross margin (and operating results) are affected by
fluctuations in natural gas prices and demand levels, and by basis differentials
(differences between natural gas prices in various locations).
The Delhi Group uses commodity-based derivative instruments such as exchange-
traded futures contracts and options and over-the-counter commodity swaps and
options to manage its exposure to market risk. The Delhi Group uses these
instruments as a hedging mechanism to protect margins. As a result, changes
in the fair value of derivative instruments are generally offset by
price changes in the underlyning natural gas transaction. While
commodity-based derivative instruments are generally used to reduce risks
from unfavorable commodity price movements, they also may limit the opportunity
to benefit from favorable movements. Levels of hedging activity vary among
competitors and could affect the Delhi Group's competitive position with
respect to those competitors.
The Delhi Group obtains natural gas supplies from various sources, including
major oil and gas companies, other pipeline companies and independent producers,
marketers and brokers. Certain of these supplies are subject to natural
declines in production from wells connected to the Delhi Group's systems. The
Delhi Group's ability to contract for additional dedicated natural gas reserves
to offset such declines depends, in part, on the level and success of drilling
by producers in areas in which the Delhi Group operates. Levels of hydrocarbon
drilling in these areas, and other areas of the United States, typically
fluctuate based on the market price of natural gas and constraints of
environmental regulation, among other factors.
Market demand for natural gas is influenced by the seasonal requirements of
purchasers using gas for space heating and generation of electricity for air
conditioning, levels of imported natural gas, particularly from Canada, and the
prices of competing fuels.
The Delhi Group processes natural gas (extracts NGLs from the gas stream) in
plants connected to its pipeline systems, and, in some cases, has its natural
gas processed by third parties. Gross margins on gas processing vary with
fluctuations in the market price of NGLs (which tend to parallel fluctuations in
market prices for crude oil), the demand for NGLs and the price volatility,
availability and quality of natural gas. Gross margins on gas processing
accounted for 27%, 16% and 13% of total Delhi Group gross margins for the years
1995, 1994 and 1993, respectively, and 21% for the first six months of 1996.
Operational Factors
The Delhi Group's natural gas purchasing, gathering, processing, treating,
transportation and marketing operations are subject to business interruption,
liability and other risks of unforeseen events such as explosions, fires,
natural disasters, leaks and uncontrollable flows of natural gas or NGLs.
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The viability and timing of growth strategies through capital development
projects, acquisition, or joint ventures can be affected by external factors
such as legal or regulatory delays, competing bids or competitor development
activity.
Contingency Factors
Future operating results could be affected by litigation settlements, judgments,
or other contingencies, and by changes in federal, state and local laws and
regulations, including environmental regulations and FERC regulations.
Other Factors
Holders of USX-Delhi Group Common Stock are holders of common stock of USX and
are 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 groups,
which affect the overall cost of USX's capital could affect the results of
operations and financial condition of all groups.
For further discussion of certain of the factors described herein, and their
potential effects on the businesses of the Delhi Group, see Item 1. Business,
and Management's Discussion and Analysis in the USX Corporation Form 10-K for
the fiscal year ended December 31, 1995, and Management's Discussion and
Analysis in Form 10-Q for the periods ended March 31, and June 30, 1996.
IV. USX-Marathon Group
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The following cautionary language for the USX-Marathon Group updates
language filed on Form 8-K dated September 24, 1996.
Forward-looking statements with respect to the Marathon Group may include, but
are not limited to, levels of sales, gross margins, operating income, net income
or earnings per share; levels of capital, exploration, environmental or
maintenance expenditures; the success or timing of completion of ongoing or
anticipated capital, exploration or maintenance projects; volumes of production,
sales, throughput or shipments of liquid hydrocarbons, natural gas and refined
products; levels of reserves, proved or otherwise, of liquid hydrocarbons or
natural gas; the acquisition or divestiture of assets; the effect of
restructuring or reorganization of business components; the potential effect of
judicial proceedings on the business and financial condition; and the
anticipated effects of actions of third parties such as competitors, or federal,
state or local regulatory authorities.
Forward-looking statements typically contain words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "predicts" or "projects" or
variations of these words, suggesting that future outcomes are uncertain. The
following discussion is intended to identify important factors (though not
necessarily all such factors) that could cause future outcomes to differ
materially from those set forth in forward-looking statements with respect to
the Marathon Group.
The oil and gas industry is characterized by a large number of companies, none
of which is dominant within the industry, but a number of which have greater
resources than Marathon. Marathon must compete with these companies for the
rights to explore for oil and gas. Marathon's expectations as to sales levels,
margins and income are based upon assumptions as to future prices and volumes of
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crude oil, natural gas and refined products. Prices have historically been
volatile and have frequently been driven by unpredictable changes in supply and
demand resulting from fluctuations in economic activity and political
developments in the world's major oil and gas producing areas, including OPEC
member countries. Any substantial decline in such prices could have a material
adverse effect on Marathon's results of operations. A decline in such prices
could also adversely affect the quantity of crude oil and natural gas reserves
that can be economically produced and the amount of capital available for
exploration and development.
The Marathon Group uses commodity-based derivative instruments such as
exchange-traded futures contracts and options and over-the-counter commodity
swaps and options to manage exposure to market price risk. The Marathon
Group's strategic approach is to limit the use of these instruments principally
to hedging activities. Accordingly, gains and losses on futures contracts and
swaps generally offset the effects of price changes in the underlying commodity.
While commodity-based derivative instruments are generally used to reduce risks
from unfavorable commodity price movements, they also may limit the
opportunity to benefit from favorable movements. Levels of hedging activity
vary among oil industry competitors and could affect the Marathon Group's
competitive position with respect to those competitors.
Factors Affecting Exploration and Production Operations
Projected production levels for crude oil and natural gas are based on a number
of assumptions, including (among others) prices, supply and demand, regulatory
constraints, reserve estimates, production decline rates for mature fields,
reserve replacement rates, and geological and operating considerations. These
assumptions may prove to be inaccurate. Exploration and production operations
are subject to various hazards, including explosions, fires and uncontrollable
flows of oil and gas. Offshore production and marine operations in areas such
as the Gulf of Mexico and the North Sea are also subject to severe weather
conditions such as hurricanes or violent storms or other hazards. Development
of new production properties in countries outside the United States may require
protracted negotiations with host governments and are frequently subject to
political considerations, such as tax regulations, which could adversely affect
the economics of projects. In addition, with respect to the Sakhalin II project
in Russia, certain Russian laws and normative acts at the Russian Federation and
local levels need to be brought into compliance with the existing Production
Sharing Agreement Law, and development plans need to be finalized prior to final
commitment by the shareholders of Sakhalin Energy.
Factors Affecting Refining, Marketing and Transportation Operations
Marathon conducts refining, marketing and transportation operations primarily in
the Midwest and Southeast. The profitability of these operations depends
largely on the margin between the cost of crude oil to the refinery and the
selling prices of refined products. Marathon is a net purchaser of crude oil in
order to satisfy a substantial portion of its refinery throughput requirements.
As a result, its overall profitability could be adversely affected by rising
crude oil prices or supply constraints. Refined product margins have been
historically volatile and vary with the level of economic activity in the
various marketing areas, the regulatory climate and the available supply of
refined products. Gross margins on merchandise, food and cigarettes sold at
retail outlets tend to moderate the volatility experienced in the retail sale of
refined products. Environmental regulations, particularly the 1990 Amendments
to the Clean Air Act, have imposed (and are expected to continue to impose)
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increasingly stringent and costly requirements on refining and marketing
operations which may have an adverse effect on margins. Refining, marketing and
transportation operations are subject to business interruptions due to
unforeseen events such as explosions, fires, crude oil or refined product
spills, inclement weather, or labor disputes.
Technology Factors
Longer-term projections of corporate strategy, including the viability, timing
or expenditures required for capital projects, can be affected by changes in
technology, especially innovations in processes used in the exploration,
production or refining of hydrocarbons. While specific future changes are
difficult to project, recent innovations affecting the oil industry include the
development of three-dimensional seismic imaging and deep-water and horizontal
drilling capabilities.
Other Factors
Holders of USX-Marathon Group Common Stock are holders of common stock of USX
and are 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
groups, which affect the overall cost of USX's capital could affect the results
of operations and financial condition of all groups.
For further discussion of certain of the factors described herein, and their
potential effects on the businesses of the Marathon Group, see Item 1. Business,
and Management's Discussion and Analysis in the USX Corporation Form 10-K for
the fiscal year ended December 31, 1995, and Management's Discussion and
Analysis in Form 10-Q for the periods ended March 31, and June 30, 1996.
SIGNATURE
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 hereunto duly authorized.
USX CORPORATION
By s/ Lewis B. Jones
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Lewis B. Jones
Vice President & Comptroller
Dated: October 23, 1996