Exhibit 99.1
Financial Statements
UNITED STATES STEEL
COMBINED STATEMENT OF OPERATIONS (Unaudited)
Third Quarter
Ended Nine Months
September 30 Ended September 30
-------------- ------------------
2001 2000 2001 2000
------ ------ --------- ---------
(In millions)
Revenues and other income:
Revenues............................... $1,645 $1,462 $ 4,888 $ 4,673
Income from investees.................. 11 6 51 13
Net gains on disposal of assets........ 4 6 20 34
Other income (loss).................... -- 1 2 (1)
------ ------ --------- ---------
Total revenues and other income...... 1,660 1,475 4,961 4,719
------ ------ --------- ---------
Costs and expenses:
Cost of revenues (excludes items shown
below)................................ 1,519 1,344 4,658 4,234
Selling, general and administrative
expenses (credits).................... 7 (56) 19 (176)
Depreciation, depletion and
amortization.......................... 94 69 246 222
Taxes other than income taxes.......... 65 58 191 176
------ ------ --------- ---------
Total costs and expenses............. 1,685 1,415 5,114 4,456
------ ------ --------- ---------
Income (loss) from operations............ (25) 60 (153) 263
Net interest and other financial costs... 38 27 74 75
------ ------ --------- ---------
Income (loss) before income taxes........ (63) 33 (227) 188
Provision (credit) for income taxes...... (40) 14 (183) 70
------ ------ --------- ---------
Net income (loss)........................ (23) 19 (44) 118
Dividends on preferred stock............. 2 2 6 6
------ ------ --------- ---------
Net income (loss) available to USX's net
investment.............................. $ (25) $ 17 $ (50) $ 112
====== ====== ========= =========
2
UNITED STATES STEEL
COMBINED BALANCE SHEET (Unaudited)
September 30 December 31
------------ -----------
(Dollars in millions) 2001 2000
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents........................... $ 475 $ 219
Receivables, less allowance for doubtful accounts of
$131 and $57....................................... 655 625
Receivables subject to a security interest.......... 350 350
Receivables from related parties.................... 380 366
Inventories......................................... 950 946
Deferred income tax benefits........................ 185 201
Other current assets................................ 6 10
------ ------
Total current assets.............................. 3,001 2,717
Investments and long-term receivables, less reserves
of $39 and $38....................................... 349 439
Long-term receivable from related parties............. 43 97
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of $6,775
and $6,531........................................... 3,089 2,739
Prepaid pensions...................................... 2,740 2,672
Other noncurrent assets............................... 115 47
------ ------
Total assets...................................... $9,337 $8,711
====== ======
LIABILITIES
Current liabilities:
Notes payable....................................... $ -- $ 70
Accounts payable.................................... 801 755
Accounts payable to related parties................. -- 5
Payroll and benefits payable........................ 228 202
Accrued taxes....................................... 259 173
Accrued interest.................................... 41 47
Long-term debt due within one year.................. 136 139
------ ------
Total current liabilities......................... 1,465 1,391
Long-term debt, less unamortized discount............. 2,622 2,236
Deferred income taxes................................. 753 666
Employee benefits..................................... 1,936 1,767
Deferred credits and other liabilities................ 483 483
Preferred stock of subsidiary......................... 66 66
Mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely
junior subordinated convertible debentures of USX.... 183 183
EQUITY
Preferred stock....................................... 2 2
USX's net investment.................................. 1,867 1,950
Deferred compensation................................. (7) (3)
Accumulated other comprehensive loss.................. (33) (30)
------ ------
Total equity...................................... 1,829 1,919
------ ------
Total liabilities and equity...................... $9,337 $8,711
====== ======
3
UNITED STATES STEEL
COMBINED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30
------------------
2001 2000
-------- --------
(In millions)
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income (loss)......................................... $ (44) $ 118
Adjustments to reconcile to net cash provided from
operating activities:
Depreciation, depletion and amortization................ 246 222
Pensions and other postretirement benefits.............. (59) (234)
Deferred income taxes................................... 84 208
Net gains on disposal of assets......................... (20) (34)
Changes in:
Current receivables................................... -- (33)
Inventories........................................... 23 (113)
Current accounts payable and accrued expenses......... 41 (138)
All other--net.......................................... (92) 9
-------- --------
Net cash provided from operating activities........... 179 5
-------- --------
Investing activities:
Capital expenditures.................................... (197) (133)
Disposal of assets...................................... 17 17
Restricted cash--withdrawals............................ 5 3
- --deposits................................................ (2) (2)
Investees--investments.................................. (3) (18)
- --loans and advances -- (8)
All other--net.......................................... 10 4
-------- --------
Net cash used in investing activities................. (170) (137)
-------- --------
Financing activities:
Increase in attributed portion of USX consolidated
debt................................................... 300 206
Specifically attributed debt repayments................. (6) (6)
Preferred stock repurchased............................. -- (12)
Dividends paid.......................................... (46) (72)
-------- --------
Net cash provided from financing activities........... 248 116
-------- --------
Effect of exchange rate changes on cash................... (1) --
-------- --------
Net increase (decrease) in cash and cash equivalents...... 256 (16)
Cash and cash equivalents at beginning of year............ 219 22
-------- --------
Cash and cash equivalents at end of period................ $ 475 $ 6
======== ========
Cash provided from (used in) operating activities
included:
Interest and other financial costs paid (net of amount
capitalized)........................................... $ (155) $ (68)
Income taxes refunded, including settlements with USX .. 387 85
4
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying combined financial statements represent a carve-out
financial statement presentation of the businesses comprising United States
Steel and are not intended to be a complete presentation of the financial
position, the results of operations and cash flows of United States Steel on a
stand-alone basis. These combined financial statements are presented as if
United States Steel existed as an entity separate from the remaining businesses
of USX Corporation (USX) during the periods presented.
The accompanying combined financial statements include the historical
operations of certain divisions of USX and certain subsidiaries of USX. In this
context, no direct ownership existed among all the various units comprising
United States Steel; accordingly, USX's net investment in United States Steel
(USX's net investment) is shown in lieu of Common Stockholder's Equity in the
combined financial statements. The combined financial statements included
herein have been prepared from USX's historical accounting records.
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 combined
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.
2. Effective January 1, 2001, United States Steel adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133), as amended by SFAS Nos. 137 and 138.
This Standard, as amended, requires recognition of all derivatives at fair
value as either assets or liabilities.
United States Steel uses commodity-based and foreign currency derivative
instruments to manage its exposure to price risk. Management has authorized the
use of futures, forwards, swaps and options to reduce the effects of
fluctuations related to the purchase of natural gas and nonferrous metals and
also certain business transactions denominated in foreign currencies. United
States Steel has not elected to designate derivative instruments as qualifying
for hedge accounting treatment. As a result, the changes in fair value of all
derivatives are recognized immediately in earnings.
The cumulative effect adjustment relating to the adoption of SFAS No. 133
was recognized in other comprehensive income. The cumulative effect adjustment
relates only to deferred gains or losses existing as of the close of business
on December 31, 2000, for hedge transactions under prior accounting rules. The
effect of adoption of SFAS No. 133 was less than $1 million, net of tax.
3. In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141 "Business Combinations"
(SFAS No. 141), No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142)
and No. 143 "Accounting for Asset Retirement Obligations" (SFAS No. 143).
SFAS No. 141 requires that all business combinations completed after June
30, 2001, be accounted for under the purchase method. This standard also
establishes for all business combinations made after June 30, 2001, specific
criteria for the recognition of intangible assets
5
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Continued
separately from goodwill. SFAS No. 141 also requires that the excess of fair
value of acquired assets over cost in a business combination (negative
goodwill) be recognized immediately as an extraordinary gain, rather than
deferred and amortized.
SFAS No. 142 addresses the accounting for goodwill and other intangible
assets after an acquisition. The most significant changes made by SFAS No. 142
are: 1) goodwill and intangible assets with indefinite lives will no longer be
amortized; 2) goodwill and intangible assets with
indefinite lives must be tested for impairment at least annually; and 3) the
amortization period for the intangible assets with indefinite lives will no
longer be limited to forty years. United States Steel will adopt SFAS No. 142
effective January 1, 2002, as required. The adoption of SFAS No. 142 is not
expected to have a material impact on the results of operations or financial
position for United States Steel.
SFAS No. 143 establishes a new accounting model for the recognition and
measurement of retirement obligations associated with tangible long-lived
assets. SFAS No. 143 requires that an asset retirement cost should be
capitalized as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and rational method.
United States Steel will adopt the Statement effective January 1, 2003. The
transition adjustment resulting from the adoption of SFAS No. 143 will be
reported as a cumulative effect of a change in accounting principle. At this
time, United States Steel cannot reasonably estimate the effect of the adoption
of this Statement on either its financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). This Statement establishes a
single accounting model for long-lived assets to be disposed of by sale and
provides additional implementation guidance for assets to be held and used and
assets to be disposed of other than by sale. There will be no financial
implication related to the adoption of SFAS No. 144, and the guidance will be
applied on a prospective basis. United States Steel will adopt the Statement
effective January 1, 2002.
4. The financial statement provision for income taxes and related tax
payments or refunds have been reflected in United States Steel's financial
statements in accordance with USX's tax allocation policy. In general, such
policy provides that the consolidated tax provision and related tax payments or
refunds are allocated to United States Steel principally upon its financial
income, taxable income, credits, preferences and other directly related
amounts.
The provision for income taxes for United States Steel is based on tax rates
and amounts which recognize management's best estimate of current and deferred
tax assets and liabilities.
5. On November 24, 2000, United States Steel acquired U. S. Steel Kosice,
s.r.o. (USSK), which is primarily located in the Slovak Republic. USSK was
formed in June 2000 to hold the steel operations and related assets of VSZ a.s.
(VSZ), a diversified Slovak corporation. The acquisition was accounted for
under the purchase method of accounting.
On March 1, 2001, United States Steel completed the purchase of the tin mill
products business of LTV Corporation (LTV), which is now operated as East
Chicago Tin. In this noncash transaction, United States Steel assumed
approximately $66 million of certain employee related obligations from LTV. The
acquisition was accounted for using the purchase method of accounting. Results
of operations for the nine months of 2001 include the operations of East
Chicago Tin from the date of acquisition.
6
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
5. Continued
On March 23, 2001, Transtar, Inc. (Transtar) completed its previously
announced reorganization with its two voting shareholders, USX and Transtar
Holdings, L.P. (Holdings), an affiliate of Blackstone Capital Partners L.P. As
a result of this transaction, United States Steel became sole owner of Transtar
and certain of its subsidiaries. Holdings became owner of the other
subsidiaries of Transtar. United States Steel accounted for the change in its
ownership interest in Transtar using the purchase method of accounting. United
States Steel recognized in the nine months of 2001 a pretax gain of $68 million
(included in income from investees) and a favorable deferred tax adjustment of
$33 million related to this transaction. United States Steel previously
accounted for its investment in Transtar under the equity method of accounting.
The following unaudited pro forma data for United States Steel includes the
results of operations of the above acquisitions giving effect to them as if
they had been consummated at the beginning of the periods presented. The nine
month 2001 pro forma results exclude the $68 million gain and $33 million tax
benefit recorded as a result of the Transtar transaction. In addition, VSZ did
not historically provide carve-out financial information for its steel
activities prepared in accordance with generally accepted accounting principles
in the United States. Therefore, United States Steel made certain estimates and
assumptions regarding revenues and costs used in the preparation of the
unaudited pro forma data relating to USSK for the nine months of 2000.
The following pro forma data is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations.
Nine Months Ended
September 30
2001 2000
-------- --------
(In millions)
Revenues and other income................................... $ 4,939 $ 5,643
Net income (loss)........................................... (147) 176
7
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. United States Steel consists of two reportable operating segments: 1)
Domestic Steel and 2) U. S. Steel Kosice (USSK). Domestic Steel includes the
United States operations of United States Steel while USSK includes the United
States Steel operations primarily located in the Slovak Republic. Domestic
Steel is engaged in the domestic production, sale and transportation of steel
mill products, coke, taconite pellets and coal; the management of mineral
resources; real estate development; and engineering and consulting services.
USSK is engaged in the production and sale of steel mill products and coke and
primarily serves central European markets. The results of segment operations
are as follows:
Domestic Total
Steel USSK Segments
- --------------------------------------------------------------------------------
(In millions)
THIRD QUARTER 2001
- ------------------
Revenues and other income:
Customer............................................. $ 1,359 $ 285 $ 1,644
Intersegment (a)..................................... 2 -- 2
Other subsidiaries of USX (a)........................ 2 -- 2
Equity in earnings of unconsolidated investees....... 11 -- 11
Other................................................ 2 1 3
------- ----- -------
Total revenues and other income.................... $ 1,376 $ 286 $ 1,662
======= ===== =======
Segment income (loss).................................. $ (47) $ 39 $ (8)
======= ===== =======
THIRD QUARTER 2000
- ------------------
Revenues and other income:
Customer............................................. $ 1,457 $ -- $ 1,457
Other subsidiaries of USX (a)........................ 5 -- 5
Equity in earnings of unconsolidated investees....... 6 -- 6
Other................................................ 7 -- 7
------- ----- -------
Total revenues and other income.................... $ 1,475 $ -- $ 1,475
======= ===== =======
Segment income......................................... $ 23 $ -- $ 23
======= ===== =======
(a) Revenues and transfers between segments and with other subsidiaries of USX
were conducted under terms comparable to those with unrelated parties.
8
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. (Continued)
Domestic Total
(In millions) Steel USSK Segments
- --------------------------------------------------------------------------------
NINE MONTHS 2001
- ----------------
Revenues and other income:
Customer.............................................. $4,068 $ 815 $4,883
Intersegment (a)...................................... 5 -- 5
Other subsidiaries of USX (a)......................... 6 -- 6
Equity in earnings of unconsolidated investees........ 50 1 51
Other................................................. 19 2 21
------ ----- ------
Total revenues and other income..................... $4,148 $ 818 $4,966
====== ===== ======
Segment income (loss)................................... $ (267) $ 121 $ (146)
====== ===== ======
NINE MONTHS 2000
- ----------------
Revenues and other income:
Customer.............................................. $4,660 $ -- $4,660
Other subsidiaries of USX (a)......................... 13 -- 13
Equity in earnings of unconsolidated investees........ 13 -- 13
Other................................................. 33 -- 33
------ ----- ------
Total revenues and other income..................... $4,719 $ -- $4,719
====== ===== ======
Segment income.......................................... $ 145 $ -- $ 145
====== ===== ======
- ----------
(a) Revenues and transfers between segments and with other subsidiaries of USX
were conducted under terms comparable to those with unrelated parties.
9
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. (Continued)
The following schedules reconcile segment amounts to amounts reported in
United States Steel's combined financial statements:
Third Quarter Ended
September 30,
--------------------
2001 2000
--------- ---------
(in millions)
Revenues and other income:
Revenues and other income of reportable segments........ $ 1,662 $ 1,475
Elimination of intersegment revenues.................... (2) --
--------- ---------
Total revenues and other income........................ $ 1,660 $ 1,475
========= =========
Income:
Income (loss) for reportable segments................... $ (8) $ 23
Items not allocated to segments:
Administrative expenses................................. (5) (7)
Net pension credits..................................... 38 67
Costs related to:
Former business activities............................. (21) (23)
Fairless facility shutdowns............................ (29) --
--------- ---------
Total income (loss) from operations.................... $ (25) $ 60
========= =========
Nine Months Ended
September 30,
--------------------
2001 2000
--------- ---------
(in millions)
Revenues and other income:
Revenues and other income of reportable segments........ $ 4,966 $ 4,719
Elimination of intersegment revenues.................... (5) --
--------- ---------
Total revenues and other income........................ $ 4,961 $ 4,719
========= =========
Income:
Income (loss) for reportable segments................... $ (146) $ 145
Items not allocated to segments:
Administrative expenses................................. (20) (18)
Net pension credits..................................... 110 199
Costs related to:
Former business activities............................. (59) (63)
Fairless facility shutdowns............................ (29) --
Proposed Separation.................................... (9) --
--------- ---------
Total income (loss) from operations.................... $ (153) $ 263
========= =========
10
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
7. On August 14, 2001, United States Steel announced its intention to
permanently close the cold rolling and tin mill operations at United States
Steel's Fairless Works. In the third quarter of 2001, United States Steel
recorded a pretax charge of $29 million related to the shutdown of these
operations, of which $12 million is included in depreciation, depletion and
amortization and $17 million is included in cost of revenues.
8. United States Steel's total comprehensive income (loss) was $(23) million
for the third quarter of 2001, $17 million for the third quarter of 2000, $(47)
million for the nine months of 2001 and $115 million for the nine months of
2000.
9. United States Steel has a 16% investment in Republic Technologies
International LLC (Republic) which was accounted for under the equity method of
accounting. During the first quarter of 2001, United States Steel discontinued
applying the equity method since investments in and advances to Republic had
been reduced to zero. Also, United States Steel has recognized certain debt
obligations of $14 million previously assumed by Republic. On April 2, 2001,
Republic filed a voluntary petition with the U.S. Bankruptcy Court to
reorganize its operations under Chapter 11 of the U.S. Bankruptcy Code. In the
first quarter of 2001, as a result of Republic's action, United States Steel
recorded a pretax charge of $74 million for potentially uncollectible
receivables from Republic.
10. Inventories are carried at the lower of cost or market. Cost of
inventories is determined primarily under the last-in, first-out (LIFO) method.
September December
30, 2001 31, 2000
--------- --------
(in millions)
Raw materials................................................ $178 $214
Semi-finished products....................................... 419 429
Finished products............................................ 247 210
Supplies and sundry items.................................... 106 93
---- ----
Total....................................................... $950 $946
==== ====
Cost of revenues were reduced by $13 million in the nine months of 2001 as a
result of liquidations of LIFO inventories.
11. At September 30, 2001, and December 31, 2000, estimated income tax
receivables from USX included in receivables from related parties were $379
million and $364 million, respectively. In addition, long-term receivables from
related parties at September 30, 2001, and December 31, 2000, were $43 million
and $97 million, respectively, of income taxes receivable from USX. These
amounts have been determined in accordance with the tax allocation policy
discussed in Note 4.
12. Interest and other financial costs in the nine months of 2001 included a
favorable adjustment of $67 million and provision for income taxes included an
unfavorable adjustment of $15 million, both of which are related to prior
years' taxes.
13. United States Steel is the subject of, or a party to, a number of
pending or threatened legal actions, contingencies and commitments relating to
United States Steel 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 United States Steel combined financial
statements.
11
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
United States Steel is subject to federal, state, local and foreign laws and
regulations relating to the environment. These laws generally provide for
control of pollutants released into the environment and require responsible
parties to undertake remediation of hazardous waste disposal sites. Penalties
may be imposed for noncompliance. At September 30, 2001, and December 31, 2000,
accrued liabilities for remediation totaled $139 million and $137 million,
respectively. It is not presently possible to estimate the ultimate amount of
all remediation costs that might be incurred or the penalties that may be
imposed.
For a number of years, United States Steel has made substantial capital
expenditures to bring existing facilities into compliance with various laws
relating to the environment. In the first nine months of 2001 and for the years
2000 and 1999, such capital expenditures totaled $11 million, $18 million and
$32 million, respectively. United States Steel 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 United States Steel of the liabilities of affiliated entities
of United States Steel totaled $33 million at September 30, 2001. In the event
that any defaults of guaranteed liabilities occur, USX has access to its
interest in the assets of the affiliates to reduce United States Steel losses
resulting from these guarantees. As of September 30, 2001, the largest
guarantee for a single affiliate was $24 million.
United States Steel's contract commitments to acquire property, plant and
equipment at September 30, 2001, totaled $77 million compared with $206 million
at December 31, 2000.
14. On July 31, 2001, USX announced that its board of directors approved the
definitive plan of reorganization to separate the energy and steel businesses
of USX (Proposed Separation). The Proposed Separation envisions a tax-free
spin-off of the steel business of USX into a freestanding, publicly traded
company to be known as United States Steel Corporation. Holders of current
USX-U.S. Steel Group Common Stock would become holders of United States Steel
Corporation Common Stock. Holders of current USX-Marathon Group Common Stock
would remain holders of such stock which would be renamed Marathon Oil
Corporation Common Stock. The Proposed Separation does not contemplate a cash
distribution to stockholders. Each company would carry approximately the same
assets and liabilities now associated with its existing business, except for a
value transfer of approximately $900 million from Marathon Oil Corporation to
United States Steel Corporation, intended to maintain United States Steel
Corporation as a strong, independent company. The form of the value transfer
would be a reattribution of USX corporate debt between the USX-Marathon Group
and the USX-U. S. Steel Group. The Proposed Separation was approved by the
shareholders at an October 25, 2001 meeting and is subject to receipt of a
favorable private letter ruling from the Internal Revenue Service ("IRS") on
the tax-free nature of the transaction, completion of necessary financing
arrangements and receipt of necessary regulatory and third party consents. The
Proposed Separation is expected to occur on or about December 31, 2001, subject
to the absence of any materially adverse change in business conditions for the
energy and/or steel business, delay in obtaining the IRS ruling or other
unfavorable circumstances. Costs related to the Proposed Separation include
professional fees and other expenses and are included in selling, general and
administrative expenses (credits). These costs in the nine months of 2001 were
$9 million.
12
UNITED STATES STEEL
SELECTED NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
15. On July 2, 2001, a corporate reorganization was implemented to create a
new holding company structure. USX became a holding company that owns all of
the outstanding equity of Marathon Oil Company, an Ohio Corporation which,
directly and indirectly, owns and operates the businesses of the USX-Marathon
Group, and United States Steel LLC, a Delaware limited liability company which,
directly and indirectly, owns and operates the businesses of the USX-U. S.
Steel Group. The reorganization did not have any impact on the results of
operations or financial position of USX Corporation, the Marathon Group or the
U. S. Steel Group.
This reorganization in corporate form was independent of the Proposed
Separation of the energy and steel businesses of USX Corporation.
13