Exhibit 99.1
USX
Index to 1999 Consolidated Financial Statements and
Supplementary Data
Page
----
Management's Report............................................ U-1
Audited Consolidated Financial Statements:
Report of Independent Accountants............................. U-1
Consolidated Statement of Operations.......................... U-2
Consolidated Balance Sheet.................................... U-4
Consolidated Statement of Cash Flows.......................... U-5
Consolidated Statement of Stockholders' Equity................ U-6
Notes to Consolidated Financial Statements.................... U-8
Selected Quarterly Financial Data.............................. U-29
Principal Unconsolidated Affiliates............................ U-30
Supplementary Information...................................... U-30
USX
Explanatory Note Regarding Financial Information
Although the financial statements of the Marathon Group and the
U. S. Steel Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of USX
attributed to each such Group, such attribution does not affect
legal title to such assets and responsibility for such liabilities.
Holders of USX - Marathon Group Common Stock and USX - U. S. Steel
Group Common Stock are holders of common stock of USX and continue
to be subject to all the risks associated with an investment in USX
and all of its businesses and liabilities. Financial impacts
arising from one Group that affect the overall cost of USX's
capital could affect the results of operations and financial
condition of the other Group. In addition, net losses of either
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 series of Preferred Stock, will reduce
the funds of USX legally available for payment of dividends on both
classes of USX Common Stock.
Management's Report
The accompanying consolidated financial statements of USX Corporation
and Subsidiary Companies (USX) are the responsibility of and have been
prepared by USX in conformity with accounting principles generally
accepted in the United States. They necessarily include some amounts
that are based on best judgments and estimates. The consolidated
financial information displayed in other sections of this report is
consistent with these consolidated financial statements.
USX seeks to assure the objectivity and integrity of its
financial records by careful selection of its managers, by
organizational arrangements that provide an appropriate division of
responsibility and by communications programs aimed at assuring that
its policies and methods are understood throughout the organization.
USX has a comprehensive formalized system of internal accounting
controls designed to provide reasonable assurance that assets are
safeguarded and that financial records are reliable. Appropriate
management monitors the system for compliance, and the internal
auditors independently measure its effectiveness and recommend
possible improvements thereto. In addition, as part of their audit of
the consolidated financial statements, USX's independent accountants,
who are elected by the stockholders, review and test the internal
accounting controls selectively to establish a basis of reliance
thereon in determining the nature, extent and timing of audit tests to
be applied.
The Board of Directors pursues its oversight role in the area of
financial reporting and internal accounting control through its Audit
Committee. This Committee, composed solely of nonmanagement directors,
regularly meets (jointly and separately) with the independent
accountants, management and internal auditors to monitor the proper
discharge by each of its responsibilities relative to internal
accounting controls and the consolidated financial statements.
Thomas J. Usher Robert M. Hernandez Kenneth L. Matheny
Chairman, Board of Directors Vice Chairman Vice President
& Chief Executive Officer & Chief Financial Officer & Comptroller
Report of Independent Accountants
To the Stockholders of USX Corporation:
In our opinion, the accompanying consolidated financial statements
appearing on pages U-2 through U-28 present fairly, in all material
respects, the financial position of USX Corporation and its
subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial
statements are the responsibility of USX's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
February 8, 2000
U-1
Consolidated Statement of Operations
(Dollars in millions) 1999 1998 1997
----------------------------------------------------------------------------------------
Revenues:
Sales (Note 6) $29,534 $27,789 $22,467
Dividend and affiliate income (loss) (20) 96 105
Net gains on disposal of assets 21 82 94
Gain on ownership change in
Marathon Ashland Petroleum LLC (Note 3) 17 245 -
Other income 31 25 14
------- ------- -------
Total revenues 29,583 28,237 22,680
------- ------- -------
Costs and expenses:
Cost of sales (excludes items shown below) 22,143 20,371 16,047
Selling, general and administrative expenses 203 304 218
Depreciation, depletion and amortization 1,254 1,224 967
Taxes other than income taxes 4,433 4,241 3,270
Exploration expenses 238 313 189
Inventory market valuation charges (credits) (Note 17) (551) 267 284
------- ------- -------
Total costs and expenses 27,720 26,720 20,975
------- ------- -------
Income from operations 1,863 1,517 1,705
Net interest and other financial costs (Note 7) 362 279 347
Minority interest in income of
Marathon Ashland Petroleum LLC (Note 3) 447 249 -
------- ------- -------
Income from continuing operations before income taxes 1,054 989 1,358
Provision for estimated income taxes (Note 12) 349 315 450
------- ------- -------
Income from continuing operations 705 674 908
------- ------- -------
Discontinued operations (Note 5):
Loss from operations (net of income tax) - - (1)
Gain on disposal (net of income tax) - - 81
------- ------- -------
Income from discontinued operations - - 80
------- ------- -------
Extraordinary losses (Note 8) 7 - -
------- ------- -------
Net income 698 674 988
Noncash credit from exchange of preferred stock (Note 23) - - 10
Dividends on preferred stock (9) (9) (13)
------- ------- -------
Net income applicable to common stocks $ 689 $ 665 $ 985
----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
U-2
Income Per Common Share
(Dollars in millions, except per share data) 1999 1998 1997
-------------------------------------------------------------------
CONTINUING OPERATIONS
Applicable to Marathon Stock:
Net income $ 654 $ 310 $ 456
Per Share Data:
Basic 2.11 1.06 1.59
Diluted 2.11 1.05 1.58
-------------------------------------------------------------------
Applicable to Steel Stock:
Income before extraordinary losses $ 42 $ 355 $ 449
Extraordinary losses 7 - -
----- ----- -----
Net income $ 35 $ 355 $ 449
Per Share Data
Basic:
Income before extraordinary losses $ .48 $4.05 $5.24
Extraordinary losses .08 - -
----- ----- -----
Net income $ .40 $4.05 $5.24
Diluted:
Income before extraordinary losses $ .48 $3.92 $4.88
Extraordinary losses .08 - -
----- ----- -----
Net income $ .40 $3.92 $4.88
-------------------------------------------------------------------
DISCONTINUED OPERATIONS
Applicable to Delhi Stock:
Net income $79.7
Per Share Data:
Basic 8.43
Diluted 8.41
-------------------------------------------------------------------
See Note 22, for a description and computation of income per common
share.
The accompanying notes are an integral part of these consolidated
financial statements.
U-3
Consolidated Balance Sheet
(Dollars in millions) December 31 1999 1998
------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents (Note 4) $ 133 $ 146
Receivables, less allowance for doubtful accounts of
$12 and $12 (Note 16) 2,696 1,663
Inventories (Note 17) 2,627 2,008
Deferred income tax benefits (Note 12) 303 217
Other current assets 218 172
------- -------
Total current assets 5,977 4,206
Investments and long-term receivables, less reserves of
$3 and $10 (Note 14) 1,247 1,249
Property, plant and equipment - net (Note 13) 12,809 12,929
Prepaid pensions (Note 10) 2,629 2,413
Other noncurrent assets 300 336
------- -------
Total assets $22,962 $21,133
------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Notes payable $ - $ 145
Accounts payable 3,397 2,438
Distribution payable to minority shareholder of
Marathon Ashland Petroleum LLC (Note 4) - 103
Payroll and benefits payable 468 520
Accrued taxes 283 245
Accrued interest 107 97
Long-term debt due within one year (Note 16) 61 71
------- -------
Total current liabilities 4,316 3,619
Long-term debt (Note 16) 4,222 3,920
Deferred income taxes (Note 12) 1,839 1,579
Employee benefits (Note 10) 2,809 2,868
Deferred credits and other liabilities 734 720
Preferred stock of subsidiary (Note 23) 250 250
USX obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely junior subordinated
convertible debentures of USX (Note 23) 183 182
Minority interest in Marathon Ashland Petroleum LLC (Note 3) 1,753 1,590
Stockholders' Equity (Details on pages U-6 and U-7)
Preferred stock (Note 24) -
6.50% Cumulative Convertible issued - 2,715,287 shares and
2,767,787 shares ($136 and $138 liquidation preference, respectively) 3 3
Common stocks:
Marathon Stock issued - 311,767,181 shares and 308,458,835 shares
(par value $1 per share, authorized 550,000,000 shares) 312 308
Steel Stock issued - 88,397,714 shares and 88,336,439 shares
(par value $1 per share, authorized 200,000,000 shares) 88 88
Securities exchangeable solely into Marathon Stock -
issued - 288,621 shares and 507,324 shares (Note 3) - 1
Additional paid-in capital 4,673 4,587
Deferred compensation - (1)
Retained earnings 1,807 1,467
Accumulated other comprehensive income (loss) (27) (48)
------- -------
Total stockholders' equity 6,856 6,405
------- -------
Total liabilities and stockholders' equity $22,962 $21,133
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
U-4
Consolidated Statement of Cash Flows
(Dollars in millions) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income $ 698 $ 674 $ 988
Adjustments to reconcile to net cash provided
from operating activities:
Extraordinary losses 7 - -
Minority interest in income of
Marathon Ashland Petroleum LLC 447 249 -
Depreciation, depletion and amortization 1,254 1,224 987
Exploratory dry well costs 109 186 78
Inventory market valuation charges (credits) (551) 267 284
Pensions and other postretirement benefits (220) (181) (342)
Deferred income taxes 212 184 228
Gain on disposal of the Delhi Companies - - (287)
Gain on ownership change in
Marathon Ashland Petroleum LLC (17) (245) -
Net gains on disposal of assets (21) (82) (94)
Changes in: Current receivables - sold (320) (30) (390)
- operating turnover (977) 451 16
Inventories (77) (6) (39)
Current accounts payable and accrued expenses 1,240 (497) 91
All other - net 152 (172) (56)
------- ------- -------
Net cash provided from operating activities 1,936 2,022 1,464
------- ------- -------
Investing activities:
Capital expenditures (1,665) (1,580) (1,373)
Acquisition of Tarragon Oil and Gas Limited - (686) -
Proceeds from sale of the Delhi Companies - - 752
Disposal of assets 366 86 481
Restricted cash - withdrawals 60 241 108
- deposits (61) (67) (205)
Affiliates - investments (74) (115) (219)
- loans and advances (70) (104) (46)
- returns and repayments 1 71 10
All other - net (25) (4) (3)
------- ------- -------
Net cash used in investing activities (1,468) (2,158) (495)
------- ------- -------
Financing activities:
Commercial paper and revolving credit arrangements - net (381) 724 41
Other debt - borrowings 810 1,036 11
- repayments (242) (1,445) (786)
Common stock - issued 89 668 82
- repurchased - (195) -
Preferred stock repurchased (2) (8) -
Dividends paid (354) (342) (316)
Distributions to minority shareholder of
Marathon Ashland Petroleum LLC (400) (211) -
------- ------- -------
Net cash provided from (used in) financing activities (480) 227 (968)
------- ------- -------
Effect of exchange rate changes on cash (1) 1 (2)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (13) 92 (1)
Cash and cash equivalents at beginning of year 146 54 55
------- ------- -------
Cash and cash equivalents at end of year $ 133 $ 146 $ 54
-----------------------------------------------------------------------------------------------------------
See Note 18, for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated
financial statements.
U-5
Consolidated Statement of Stockholders' Equity
After the redemption of the USX - Delhi Group Common Stock (Delhi
Stock) on January 26, 1998 (Note 5), USX has two classes of common
stock: USX - Marathon Group Common Stock (Marathon Stock) and USX -
U. S. Steel Group Common Stock (Steel Stock), which are intended to
reflect the performance of the Marathon and U. S. Steel Groups,
respectively. (See Note 9, for a description of the two Groups.)
During 1998, USX issued 878,074 Exchangeable Shares (exchangeable
solely into Marathon Stock) related to the purchase of a Canadian
company. (See Note 3.)
On all matters where the holders of Marathon Stock and Steel
Stock vote together as a single class, Marathon Stock has one vote
per share and Steel Stock has a fluctuating vote per share based on
the relative market value of a share of Steel Stock to the market
value of a share of Marathon Stock. In the event of a disposition
of all or substantially all the properties and assets of the U. S.
Steel Group, USX must either distribute the net proceeds to the
holders of the Steel Stock as a special dividend or in redemption
of the stock, or exchange the Steel Stock for the Marathon Stock.
In the event of liquidation of USX, the holders of the Marathon
Stock and Steel Stock will share in the funds remaining for common
stockholders based on the relative market capitalization of the
respective Marathon Stock and Steel Stock to the aggregate market
capitalization of both classes of common stock.
Dollars in millions Shares in thousands
--------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
Preferred stock (Note 24) -
6.50% Cumulative Convertible:
Outstanding at beginning of year $ 3 $ 3 $ 7 2,768 2,962 6,900
Repurchased - - - (53) (194) -
Exchanged for trust preferred securities - - (4) - - (3,938)
----- ----- ----- ------- ------- -------
Outstanding at end of year $ 3 $ 3 $ 3 2,715 2,768 2,962
----------------------------------------------------------------------------------------------------------------------
Common stocks:
Marathon Stock:
Outstanding at beginning of year $ 308 $ 289 $ 288 308,459 288,786 287,525
Issued in public offering - 17 - 67 17,000 -
Issued for:
Employee stock plans 3 2 1 2,903 2,236 1,209
Dividend Reinvestment and
Direct Stock Purchase Plan - - - 120 66 52
Exchangeable Shares 1 - - 218 371 -
----- ----- ----- ------- ------- -------
Outstanding at end of year $ 312 $ 308 $ 289 311,767 308,459 288,786
----------------------------------------------------------------------------------------------------------------------
Steel Stock:
Outstanding at beginning of year $ 88 $ 86 $ 85 88,336 86,578 84,885
Issued for:
Employee stock plans - 2 1 62 1,733 1,416
Dividend Reinvestment and
Direct Stock Purchase Plan - - - - 25 277
----- ----- ----- ------- ------- -------
Outstanding at end of year $ 88 $ 88 $ 86 88,398 88,336 86,578
----------------------------------------------------------------------------------------------------------------------
Delhi Stock:
Outstanding at beginning of year $ - $ - $ 9 - - 9,448
Canceled - employee stock plans - - - - - (3)
Reclassified to redeemable Delhi Stock - - (9) - - (9,445)
----- ----- ----- ------- ------- -------
Outstanding at end of year $ - $ - $ - - - -
----------------------------------------------------------------------------------------------------------------------
Securities exchangeable solely into
Marathon Stock:
Outstanding at beginning of year $ 1 $ - $ - 507 - -
Issued to acquire Tarragon stock - 1 - - 878 -
Exchanged for Marathon Stock (1) - - (218) (371) -
----- ----- ----- ------- ------- -------
Outstanding at end of year $ - $ 1 $ - 289 507 -
----------------------------------------------------------------------------------------------------------------------
(Table continued on next page)
U-6
Stockholders' Equity Comprehensive Income
--------------------------------- -----------------------------
(Dollars in millions) 1999 1998 1997 1999 1998 1997
--------------------------------------------------------------------------------------- -----------------------------
Additional paid-in capital:
Balance at beginning of year $4,587 $3,924 $4,150
Marathon Stock issued 92 598 38
Steel Stock issued 2 57 52
Exchangeable Shares:
Issued - 28 -
Exchanged for Marathon Stock (6) (12) -
6.50% preferred stock:
Repurchased (2) (8) -
Exchanged for trust preferred securities - - (188)
Reclassified to redeemable Delhi Stock - - (128)
------ ------ ------
Balance at end of year $4,673 $4,587 $3,924
--------------------------------------------------------------------------------------
Deferred compensation (Note 19) $ - $ (1) $ (3)
--------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year $1,467 $1,138 $ 517
Net income 698 674 988 $ 698 $ 674 $ 988
Dividends on preferred stock (9) (9) (13)
Dividends on Marathon Stock
(per share: $.84 in 1999 and
1998 and $.76 in 1997) (261) (248) (219)
Dividends on Steel Stock (per share $1.00) (88) (88) (86)
Dividends on Delhi Stock (per share $.15) - - (1)
Reclassified to redeemable Delhi Stock - - (58)
Noncash credit from exchange of
preferred stock - - 10
------ ------ ------
Balance at end of year $1,807 $1,467 $1,138
--------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss):
Minimum pension liability adjustments:
Balance at beginning of year $ (37) $ (32) $ (22)
Changes during year, net of taxes/(a)/ 27 (5) (10) 27 (5) (10)
------ ------ ------
Balance at end of year (10) (37) (32)
------ ------ ------
Foreign currency translation adjustments:
Balance at beginning of year $ (11) $ (8) $ (8)
Changes during year, net of taxes/(a)/ (6) (3) - (6) (3) -
------ ------ ------
Balance at end of year (17) (11) (8)
------ ------ ------
Unrealized holding gains on investments:
Balance at beginning of year $ - $ 3 $ -
Changes during year, net of taxes/(a)/ (1) 2 3 (1) 2 3
Reclassification adjustment
included in net income 1 (5) - 1 (5) -
------ ------ ------
Balance at end of year - - 3
--------------------------------------------------------------------------------------
Total balances at end of year $ (27) $ (48) $ (37)
---------------------------------------------------------------------------------------------------------------------
Total comprehensive income/(b)/ $ 719 $ 663 $ 981
---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $6,856 $6,405 $5,400
--------------------------------------------------------------------------------------
/(a)/ Related income tax provision (credit): 1999 1998 1997
---- ---- ----
Minimum pension liability adjustments $ (13) $ 3 $ 5
Foreign currency translation adjustments 3 4 -
Unrealized holding gains on investments - 2 (1)
/(b)/ Total comprehensive income by Group:
Marathon Group $ 660 $ 306 $ 457
U. S. Steel Group 59 357 444
Delhi Group - - 80
------ ------ ------
Total $ 719 $ 663 $ 981
====== ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
U-7
Notes to Consolidated Financial Statements
1. Summary of Principal Accounting Policies
Principles applied in consolidation - The consolidated financial
statements include the accounts of USX Corporation and the
majority-owned subsidiaries which it controls (USX).
Investments in unincorporated oil and gas joint ventures,
undivided interest pipelines and jointly owned gas processing
plants are consolidated on a pro rata basis.
Investments in entities over which USX has significant
influence are accounted for using the equity method of accounting
and are carried at USX's share of net assets plus loans and
advances.
Investments in companies whose stock is publicly traded are
carried at market value. The difference between the cost of these
investments and market value is recorded in other comprehensive
income (net of tax). Investments in companies whose stock has no
readily determinable fair value are carried at cost.
Use of estimates - Generally accepted accounting principles require
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at year-end and the reported
amounts of revenues and expenses during the year. Significant items
subject to such estimates and assumptions include the carrying
value of long-lived assets; valuation allowances for receivables,
inventories and deferred income tax assets; environmental
liabilities; liabilities for potential tax deficiencies and
potential litigation claims and settlements; and assets and
obligations related to employee benefits. Additionally, certain
estimated liabilities are recorded when management commits to a
plan to close an operating facility or to exit a business activity.
Actual results could differ from the estimates and assumptions
used.
Revenue recognition - Revenues principally include sales, dividend
and affiliate income, gains or losses on the disposal of assets and
gains or losses from changes in ownership interests.
Sales - Sales are recognized when products are shipped or
services are provided to customers. Consumer excise taxes on
petroleum products and merchandise and matching crude oil and
refined products buy/sell transactions settled in cash are
included in both revenues and costs and expenses, with no
effect on income.
Dividend and Affiliate Income - Dividend and affiliate income
includes USX's proportionate share of income from equity method
investments and dividend income from other investments.
Dividend income is recognized when dividend payments are
received.
Disposal of Assets - When long-lived assets depreciated on an
individual basis are sold or otherwise disposed of, any gains
or losses are reflected in income. Gains on disposal of long-
lived assets are recognized when earned, which is generally at
the time of closing. If a loss on disposal is expected, such
losses are recognized when long-lived assets are reclassified
as assets held for sale. Proceeds from disposal of long-lived
assets depreciated on a group basis are credited to accumulated
depreciation, depletion and amortization with no immediate
effect on income.
Gas Balancing - USX follows the sales method of accounting for
gas production imbalances and would recognize a liability if
the existing proved reserves were not adequate to cover the
current imbalance situation.
Changes in Ownership Interest - Gains or losses from a change
in ownership of a consolidated subsidiary or an unconsolidated
affiliate are recognized in revenues in the period of change.
Cash and cash equivalents - Cash and cash equivalents include cash
on hand and on deposit and investments in highly liquid debt
instruments with maturities generally of three months or less.
Inventories - Inventories are carried at lower of cost or market.
Cost of inventories is determined primarily under the last-in,
first-out (LIFO) method.
Derivative instruments - USX uses commodity-based and foreign
currency derivative instruments to manage its exposure to price
risk. Management is authorized to use futures, forwards, swaps and
options related to the purchase, production or sale of crude oil,
natural gas, refined products, nonferrous metals and electricity.
While USX's risk management activities generally reduce market risk
exposure due to unfavorable commodity price changes for raw
material purchases and products sold, such activities can also
encompass strategies which assume price risk.
U-8
Commodity-Based Hedging Transactions - For transactions that
qualify for hedge accounting, the resulting gains or losses are
deferred and subsequently recognized in income from operations,
as a component of sales or cost of sales, in the same period as
the underlying physical transaction. To qualify for hedge
accounting, derivative positions cannot remain open if the
underlying physical market risk has been removed. If such
derivative positions remain in place, they would be marked-to-
market and accounted for as trading or other activities.
Recorded deferred gains or losses are reflected within other
current and noncurrent assets or accounts payable and deferred
credits and other liabilities, as appropriate.
Commodity-Based Trading and Other Activities - Derivative
instruments used for trading and other activities are
marked-to-market and the resulting gains or losses are
recognized in the current period within income from operations.
This category also includes the use of derivative instruments
that have no offsetting underlying physical market risk.
Foreign Currency Transactions - USX uses forward exchange
contracts to manage currency risks. Gains or losses related to
firm commitments are deferred and recognized concurrent with
the underlying transaction. All other gains or losses are
recognized in income in the current period as sales, cost of
sales, interest income or expense, or other income, as
appropriate. Forward exchange contracts are recorded as
receivables or payables, as appropriate.
Exploration and development - USX follows the successful efforts
method of accounting for oil and gas exploration and development.
Long-lived assets - Except for oil and gas producing properties,
depreciation is generally computed on the straight-line method
based upon estimated lives of assets. USX's method of computing
depreciation for steel producing assets modifies straight-line
depreciation based on the level of production. The modification
factors range from a minimum of 85% at a production level below 81%
of capability, to a maximum of 105% for a 100% production level. No
modification is made at the 95% production level, considered the
normal long-range level.
Depreciation and depletion of oil and gas producing properties
are computed using predetermined rates based upon estimated proved
oil and gas reserves applied on a units-of-production method.
Depletion of mineral properties, other than oil and gas, is
based on rates which are expected to amortize cost over the
estimated tonnage of minerals to be removed.
USX evaluates impairment of its oil and gas producing assets
primarily on a field-by-field basis using undiscounted cash flows
based on total proved reserves. Other assets are evaluated on an
individual asset basis or by logical groupings of assets. Assets
deemed to be impaired are written down to their fair value,
including any related goodwill, using discounted future cash flows
and, if available, comparable market values.
Environmental liabilities - USX provides for remediation costs and
penalties when the responsibility to remediate is probable and the
amount of associated costs is reasonably determinable. Generally,
the timing of remediation accruals coincides with completion of a
feasibility study or the commitment to a formal plan of action.
Remediation liabilities are accrued based on estimates of known
environmental exposure and are discounted in certain instances. If
recoveries of remediation costs from third parties are probable, a
receivable is recorded. Estimated abandonment and dismantlement
costs of offshore production platforms are accrued based on
production of estimated proved oil and gas reserves.
Postemployment benefits - USX recognizes an obligation to provide
postemployment benefits, primarily for disability-related claims
covering indemnity and medical payments. The obligation for these
claims and the related periodic costs are measured using actuarial
techniques and assumptions, including an appropriate discount rate,
analogous to the required methodology for measuring pension and
other postretirement benefit obligations. Actuarial gains and
losses are deferred and amortized over future periods.
Insurance - USX is insured for catastrophic casualty and certain
property and business interruption exposures, as well as those
risks required to be insured by law or contract. Costs resulting
from noninsured losses are charged against income upon occurrence.
Reclassifications - Certain reclassifications of prior years' data
have been made to conform to 1999 classifications.
U-9
- --------------------------------------------------------------------------------
2. New Accounting Standards
Effective January 1, 1997, USX adopted American Institute of
Certified Public Accountants Statement of Position No. 96-1,
"Environmental Remediation Liabilities" (SOP 96-1), which provides
additional interpretation of existing accounting standards related
to recognition, measurement and disclosure of environmental
remediation liabilities. As a result of adopting SOP 96-1, USX
identified additional environmental remediation liabilities of $46
million, of which $28 million was discounted to a present value of
$13 million and $18 million was not discounted. Assumptions used in
the calculation of the present value amount included an inflation
factor of 2% and an interest rate of 7% over a range of 22 to 30
years. Estimated receivables for recoverable costs related to
adoption of SOP 96-1 were $4 million. The net unfavorable effect of
adoption on income from operations at January 1, 1997, was $27
million.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (SFAS No. 133).
This new Standard requires recognition of all derivatives as either
assets or liabilities at fair value. SFAS No. 133 may result in
additional volatility in both current period earnings and other
comprehensive income as a result of recording recognized and
unrecognized gains and losses resulting from changes in the fair
value of derivative instruments. The transition adjustment
resulting from adoption of SFAS No. 133 will be reported as a
cumulative effect of a change in accounting principle.
Under the new Standard, USX may elect not to designate certain
derivative instruments as hedges even if the strategy qualifies for
hedge accounting treatment. This approach would eliminate the
administrative effort needed to measure effectiveness and monitor
such instruments; however, this approach also may result in
additional volatility in current period earnings.
USX cannot reasonably estimate the effect of adoption on either
the financial position or results of operations. It is not possible
to estimate what effect this Statement will have on future results
of operations, although greater period-to-period volatility is
likely. USX plans to adopt the Standard effective January 1, 2001.
- --------------------------------------------------------------------------------
3. Business Combinations
In August 1998, Marathon Oil Company (Marathon) acquired Tarragon
Oil and Gas Limited (Tarragon), a Canadian oil and gas exploration
and production company. Securityholders of Tarragon received, at
their election, Cdn$14.25 for each Tarragon share, or the economic
equivalent in Exchangeable Shares of an indirect Canadian
subsidiary of Marathon, which are exchangeable solely on a one-for-
one basis into Marathon Stock. The purchase price included cash
payments of $686 million, issuance of 878,074 Exchangeable Shares
valued at $29 million and the assumption of $345 million in debt.
The Exchangeable Shares are exchangeable at the option of the
holder at any time and automatically redeemable on August 11, 2003
(and, in certain circumstances, as early as August 11, 2001). The
holders of Exchangeable Shares are entitled to receive declared
dividends equivalent to dividends declared from time to time by USX
on Marathon Stock.
USX accounted for the acquisition using the purchase method of
accounting. The 1998 results of operations include the operations
of Marathon Canada Limited, formerly known as Tarragon, commencing
August 12, 1998.
During 1997, Marathon and Ashland Inc. (Ashland) agreed to
combine the major elements of their refining, marketing and
transportation (RM&T) operations. On January 1, 1998, Marathon
transferred certain RM&T net assets to Marathon Ashland Petroleum
LLC (MAP), a new consolidated subsidiary. Also on January 1, 1998,
Marathon acquired certain RM&T net assets from Ashland in exchange
for a 38% interest in MAP. The acquisition was accounted for under
the purchase method of accounting. The purchase price was
determined to be $1.9 billion, based upon an external valuation.
The change in Marathon's ownership interest in MAP resulted in a
gain of $245 million, which is included in 1998 revenues. In
accordance with MAP closing agreements, Marathon and Ashland made
capital contributions to MAP for environmental improvements. The
closing agreements stipulate that ownership interests in MAP will
not be adjusted as a result of such contributions. Accordingly,
Marathon recognized a gain on ownership change of $17 million in
1999.
U-10
In connection with the formation of MAP, Marathon and Ashland
entered into a Limited Liability Company Agreement dated January 1,
1998 (the LLC Agreement). The LLC Agreement provides for an initial
term of MAP expiring on December 31, 2022 (25 years from its
formation). The term will automatically be extended for ten-year
periods, unless a termination notice is given by either party.
Also in connection with the formation of MAP, the parties
entered into a Put/Call, Registration Rights and Standstill
Agreement (the Put/Call Agreement). The Put/Call Agreement provides
that at any time after December 31, 2004, Ashland will have the
right to sell to Marathon all of Ashland's ownership interest in
MAP, for an amount in cash and/or Marathon or USX debt or equity
securities equal to the product of 85% (90% if equity securities
are used) of the fair market value of MAP at that time, multiplied
by Ashland's percentage interest in MAP. Payment could be made at
closing, or at Marathon's option, in three equal annual
installments, the first of which would be payable at closing. At
any time after December 31, 2004, Marathon will have the right to
purchase all of Ashland's ownership interests in MAP, for an amount
in cash equal to the product of 115% of the fair market value of
MAP at that time, multiplied by Ashland's percentage interest in
MAP.
The following unaudited pro forma data for USX includes the
results of operations of Tarragon for 1998 and 1997, and the
Ashland RM&T net assets for 1997, giving effect to the acquisitions
as if they had been consummated at the beginning of the years
presented. The 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.
(In millions, except per share amounts) 1998 1997
--------------------------------------------------------------------------------------------
Revenues $28,331 $30,259
Net income 643/(a)/ 989/(a)/
Net income per common share of Marathon Stock -
Basic and diluted .95 1.58
--------------------------------------------------------------------------------------------
/(a)/ Excluding the pro forma inventory market valuation
adjustment, pro forma net income would have been $747
million in 1998 and $1,151 million in 1997. Reported net
income, excluding the reported inventory market valuation
adjustment, would have been $778 million in 1998 and $1,167
million in 1997.
- --------------------------------------------------------------------------------
4. Transactions Between MAP and Ashland
At December 31, 1999 and 1998, MAP had current receivables from
Ashland of $26 million and $22 million, respectively, and current
payables to Ashland of $2 million at December 31, 1999, and at
December 31, 1998, $106 million, including distributions payable.
At December 31, 1998, MAP's cash and cash equivalents included
a $103 million demand note invested with Ashland, which was repaid
in January 1999.
MAP has a $190 million short-term revolving credit agreement
with Ashland. Interest on borrowings is based on the Federal Funds
Rate in effect each day during the period plus 0.30 of 1%. At
December 31, 1999, there were no borrowings against this facility.
During 1999 and 1998, MAP's sales to Ashland consisting
primarily of petroleum products, were $198 million and $185
million, respectively, and MAP's purchases of products and services
from Ashland were $25 million and $45 million, respectively. These
transactions were conducted under terms comparable to those with
unrelated parties.
- --------------------------------------------------------------------------------
5. Discontinued Operations
Effective October 31, 1997, USX sold its stock in Delhi Gas
Pipeline Corporation and other subsidiaries of USX that comprised
all of the Delhi Group (Delhi Companies). The transaction involved
a gross purchase price of $762 million. Under the USX Restated
Certificate of Incorporation (USX Certificate), USX was required to
elect one of three options to return the value of the net proceeds
received in the transaction to the holders of shares in Delhi Stock
(Delhi shareholders). Of the three options, USX elected to use the
net proceeds of $195 million, or $20.60 per share, to redeem all
shares of Delhi Stock. The net proceeds were distributed to the
Delhi shareholders on January 26, 1998. After the redemption,
50,000,000 shares of Delhi Stock remain authorized but unissued.
The sale of the Delhi Companies resulted in a gain on disposal
of $81 million, net of $206 million income taxes.
The financial results of the Delhi Group have been reclassified
as discontinued operations for 1997 as presented in the
Consolidated Statement of Operations and are summarized as follows:
(In millions) 1997/(a)/
-----------------------------------------------------------------------------------
Revenues $1,205
Costs and expenses 1,190
------
Income from operations 15
Net interest and other financial costs 23
------
Loss before income taxes (8)
Credit for estimated income taxes (7)
------
Net loss $ (1)
-----------------------------------------------------------------------------------
/(a)/ Represents ten months of operations.
U-11
- --------------------------------------------------------------------------------
6. Revenues
The items below are included in revenues and costs and expenses,
with no effect on income.
(In millions) 1999 1998 1997
----------------------------------------------------------------------------------------------
Consumer excise taxes on petroleum products
and merchandise $3,973 $3,824 $2,828
Matching crude oil and refined product
buy/sell transactions settled in cash 3,539 3,948 2,436
----------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. Other Items
(In millions) 1999 1998 1997
----------------------------------------------------------------------------------------------
Net interest and other financial costs from continuing operations
Interest and other financial income:
Interest income $ 16 $ 35 $ 11
Other (13) 4 (6)
------ ------ ------
Total 3 39 5
------ ------ ------
Interest and other financial costs:
Interest incurred 326 325 289
Less interest capitalized 26 46 31
------ ------ ------
Net interest 300 279 258
Interest on tax issues 20 21 20
Financial costs on trust preferred securities 13 13 10
Financial costs on preferred stock of subsidiary 22 22 21
Amortization of discounts 3 6 6
Expenses on sales of accounts receivable 15 21 40
Adjustment to settlement value of indexed debt (13) (44) (10)
Other 5 - 7
------ ------ ------
Total 365 318 352
------ ------ ------
Net interest and other financial costs $ 362 $ 279 $ 347
----------------------------------------------------------------------------------------------
Foreign currency transactions
For 1999, 1998 and 1997, the aggregate foreign currency
transaction gains (losses) included in determining income from
continuing operations were $(12) million, $13 million and $4
million, respectively.
- --------------------------------------------------------------------------------
8. Extraordinary Losses
In 1999, USX irrevocably deposited with a trustee the entire 5.5
million common shares it owned in RTI International Metals, Inc.
(RTI). The deposit of the shares resulted in the satisfaction of
USX's obligation under its 6 3/4% Exchangeable Notes (indexed debt)
due February 1, 2000. Under the terms of the indenture, the trustee
exchanged one RTI share for each note at maturity. All shares were
required for satisfaction of the indexed debt; therefore, none
reverted back to USX.
As a result of the above transaction, USX recorded in 1999 an
extraordinary loss of $5 million, net of a $3 million income tax
benefit, representing prepaid interest expense and the write-off of
unamortized debt issue costs, and a pretax charge of $22 million,
representing the difference between the carrying value of the
investment in RTI and the carrying value of the indexed debt, which
is included in net gains on disposal of assets.
In December 1996, USX had issued $117 million of notes indexed
to the common share price of RTI. At maturity, USX would have been
required to exchange the notes for shares of RTI common stock, or
redeem the notes for the equivalent amount of cash. Since USX's
investment in RTI was attributed to the U. S. Steel Group, the
indexed debt was also attributed to the U. S. Steel Group. USX had
a 26% investment in RTI and accounted for its investment using the
equity method of accounting.
Republic Technologies International, LLC, an equity method
affiliate of USX, recorded in 1999 an extraordinary loss related to
the early extinguishment of debt. As a result, USX recorded an
extraordinary loss of $2 million, net of a $1 million income tax
benefit, representing its share of the extraordinary loss.
U-12
- --------------------------------------------------------------------------------
9. Group and Segment Information
After the redemption of the Delhi Stock on January 26, 1998, USX has two classes
of common stock: Marathon Stock and Steel Stock, which are intended to reflect
the performance of the Marathon Group and the U. S. Steel Group, respectively.
A description of each group and its products and services is as follows:
Marathon Group - The Marathon Group includes Marathon Oil Company and certain
other subsidiaries of USX. Marathon Group revenues as a percentage of total
consolidated USX revenues were 82% in 1999, 78% in 1998 and 69% in 1997.
U. S. Steel Group - The U. S. Steel Group consists of U. S. Steel, the largest
domestic integrated steel producer. U. S. Steel Group revenues as a percentage
of total consolidated USX revenues were 18% in 1999, 22% in 1998 and 31% in
1997.
Group Operations:
Income
From Net Capital
(In millions) Year Revenues Operations Income Expenditures Assets
- --------------------------------------------------------------------------------------------------------------------------
Marathon Group 1999 $24,327 $1,713 $ 654 $1,378 $15,705
1998 21,977 938 310 1,270 14,544
1997 15,846 932 456 1,038 10,565
- -------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group 1999 5,314 150 44 287 7,525
1998 6,283 579 364 310 6,749
1997 6,941 773 452 261 6,694
- -------------------------------------------------------------------------------------------------------------------------
Adjustments for 1999 (58) - - - (268)
Discontinued 1998 (23) - - - (160)
Operations and 1997 (107) - 80 74 25
Eliminations
- -------------------------------------------------------------------------------------------------------------------------
Total USX 1999 $29,583 $1,863 $ 698 $1,665 $22,962
Corporation 1998 28,237 1,517 674 1,580 21,133
1997 22,680 1,705 988 1,373 17,284
- -------------------------------------------------------------------------------------------------------------------------
Sales by Product:
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Marathon Group
Refined products $10,873 $8,750 $ 7,012
Merchandise 2,088 1,873 1,045
Liquid hydrocarbons 2,159 1,818 941
Natural gas 1,381 1,144 1,331
Transportation and other products 199 271 167
- -------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group
Sheet and semi-finished steel products $ 3,345 $3,501 $ 3,820
Tubular, plate and tin mill products 1,118 1,513 1,754
Raw materials (coal, coke and iron ore) 505 679 724
Other/(a)/ 414 490 517
- -------------------------------------------------------------------------------------------------------------------------
/(a)/ Includes revenue from the sale of steel production by-products,
engineering and consulting services, real estate development and resource
management.
Operating Segments:
USX's reportable operating segments are business units within the Marathon and
U. S. Steel Groups, each providing their own unique products and services. Each
operating segment is independently managed and requires different technology and
marketing strategies. Segment income represents income from operations allocable
to operating segments. The following items included in income from operations
are not allocated to operating segments:
. Gain on ownership change in MAP
. Pension credits associated with pension plan assets and liabilities
allocated to pre-1987 retirees and former businesses
. Certain costs related to former U. S. Steel Group business activities
. Certain general and administrative costs related to all Marathon Group
operating segments in excess of amounts billed to MAP under service
contracts and amounts charged out to operating segments under
Marathon's shared services procedures
. USX corporate general and administrative costs. These costs primarily
consist of employment costs including pension effects, professional
services, facilities and other related costs associated with corporate
activities.
. Inventory market valuation adjustments
. Certain other items not allocated to operating segments for business
performance reporting purposes (see (a) in reconcilement table on page
U-15)
U-13
The Marathon Group's operations consists of three reportable operating segments:
1) Exploration and Production - explores for and produces crude oil and natural
gas on a worldwide basis; 2) Refining, Marketing and Transportation - refines,
markets and transports crude oil and petroleum products, primarily in the
Midwest and southeastern United States through MAP; and 3) Other Energy Related
Businesses. Other Energy Related Businesses is an aggregation of two segments
which fall below the quantitative reporting thresholds: 1) Natural Gas and Crude
Oil Marketing and Transportation - markets and transports its own and third-
party natural gas and crude oil in the United States; and 2) Power Generation -
develops, constructs and operates independent electric power projects worldwide.
The U. S. Steel Group consists of a single operating segment, U. S. Steel. U. S.
Steel is engaged in the production and sale of steel mill products, coke and
taconite pellets; the management of mineral resources; domestic coal mining;
engineering and consulting services; and real estate development and management.
Refining, Other
Exploration Marketing Energy Total
and and Related Marathon
(In millions) Production Transportation Businesses Segments U. S. Steel Total
- -----------------------------------------------------------------------------------------------------------------------------------
1999
Revenues:
Customer $3,230 $20,210 $731 $24,171 $5,363 $29,534
Intersegment/(a)/ 202 47 40 289 - 289
Intergroup/(a)/ 19 - 22 41 17 58
Equity in earnings (losses) of
unconsolidated affiliates (2) 17 26 41 (43) (2)
Other 30 48 15 93 46 139
------ ------- ---- ------- ------ -------
Total revenues $3,479 $20,322 $834 $24,635 $5,383 $30,018
====== ======= ==== ======= ====== =======
Segment income (loss) $ 618 $ 611 $ 61 $ 1,290 $ (128) $ 1,162
Significant noncash items included in
segment income:
Depreciation, depletion and amortization/(b)/ 638 280 5 923 304 1,227
Pension expenses/(c)/ 3 32 2 37 219 256
Capital expenditures/(d)/ 744 612 4 1,360 286 1,646
Affiliates - investments 56 - 3 59 15 74
- --------------------------------------------------------------------------------------------------------------------------------
1998
Revenues:
Customer $2,085 $19,192 $306 $21,583 $6,180 $27,763
Intersegment/(a)/ 144 10 17 171 - 171
Intergroup/(a)/ 13 - 7 20 2 22
Equity in earnings of
unconsolidated affiliates 2 12 14 28 46 74
Other 26 40 11 77 55 132
------ ------- ---- -------- ------- --------
Total revenues $2,270 $19,254 $355 $21,879 $6,283 $28,162
====== ======= ==== ======== ======= ========
Segment income $ 278 $ 896 $ 33 $ 1,207 $ 330 $ 1,537
Significant noncash items included in
segment income:
Depreciation, depletion and amortization/(b)/ 581 272 6 859 283 1,142
Pension expenses/(c)/ 3 16 2 21 187 208
Capital expenditures/(d)/ 839 410 8 1,257 305 1,562
Affiliates - investments/(e)/ - 22 17 39 71 110
- --------------------------------------------------------------------------------------------------------------------------------
1997
Revenues:
Customer $1,575 $13,698 $381 $15,654 $6,812 $22,466
Intersegment/(a)/ 619 - - 619 - 619
Intergroup/(a)/ 99 - 6 105 2 107
Equity in earnings of
unconsolidated affiliates 14 4 7 25 69 94
Other 7 20 30 57 58 115
------ ------- ---- ------- ------ -------
Total revenues $2,314 $13,722 $424 $16,460 $6,941 $23,401
====== ======= ==== ======= ====== =======
Segment income $ 773 $ 563 $ 48 $ 1,384 $ 618 $ 2,002
Significant noncash items included in
segment income:
Depreciation, depletion and amortization/(b)/ 469 173 7 649 303 952
Pension expenses/(c)/ 3 8 1 12 169 181
Capital expenditures/(d)/ 810 205 6 1,021 256 1,277
Affiliates - investments/(e)/ 114 - 73 187 26 213
- --------------------------------------------------------------------------------------------------------------------------------
/(a)/ Intersegment and intergroup sales and transfers were conducted under
terms comparable to those with unrelated parties.
/(b)/ Differences between segment totals and consolidated totals represent
amounts included in administrative expenses and, in 1999 and 1998,
certain international and domestic exploration and production property
impairments.
/(c)/ Differences between segment totals and consolidated totals represent
unallocated pension credits and amounts included in administrative
expenses.
/(d)/ Differences between segment totals and consolidated totals represent
amounts related to corporate administrative activities and, in 1997,
discontinued operations.
/(e)/ Differences between segment totals and consolidated totals represent
amounts related to corporate administrative activities.
U-14
The following reconciles segment revenues and income to amounts reported in
the Groups' financial statements:
Marathon Group U. S. Steel Group
-------------------------------------- -----------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Revenues of reportable segments $24,635 $21,879 $16,460 $5,383 $6,283 $6,941
Items not allocated to segments:
Gain on ownership change in MAP 17 245 - - - -
Losses related to investments in
equity affiliates - - - (69) - -
Other (36) 24 - - - -
Elimination of intersegment revenues (289) (171) (619) - - -
Administrative revenues - - 5 - - -
------- ------- ------- ------ ------ ------
Total Group revenues $24,327 $21,977 $15,846 $5,314 $6,283 $6,941
======= ======= ======= ====== ====== ======
Income:
Income (loss) for reportable segments $ 1,290 $ 1,207 $ 1,384 $ (128) $ 330 $ 618
Items not allocated to segments:
Gain on ownership change in MAP 17 245 - - - -
Administrative expenses (108) (106) (168) (17) (24) (33)
Pension credits - - - 447 373 313
Costs related to former business activities - - - (83) (100) (125)
Inventory market valuation adjustments 551 (267) (284) - - -
Other/(a)/ (37) (141) - (69) - -
------- ------- ------- ------ ------ ------
Total Group income from operations $ 1,713 $ 938 $ 932 $ 150 $ 579 $ 773
- ----------------------------------------------------------------------------------------------------------------------------------
/(a)/ Represents in 1999, for the Marathon Group, primarily certain domestic
exploration and production impairments, costs of a voluntary early
retirement program and net losses on certain asset sales and, for the U.
S. Steel Group, certain losses related to investments in equity method
affiliates. Represents in 1998 certain international exploration and
production property impairments, certain suspended exploration well
write-offs, a gas contract settlement and MAP transition charges.
Geographic Area:
The information below summarizes the operations in different geographic
areas. Transfers between geographic areas are at prices which approximate
market.
Revenues
-------------------------------------------
Within Between
(In millions) Year Geographic Areas Geographic Areas Total Assets/(a)/
- ------------------------------------------------------------------------------------------------------------------------------------
Marathon Group:
United States 1999 $23,337 $ - $23,337 $ 7,555
1998 21,191 - 21,191 7,659
1997 15,123 - 15,123 5,578
Canada 1999 425 521 946 1,112
1998 209 368 577 1,094
United Kingdom 1999 459 - 459 1,581
1998 462 - 462 1,739
1997 593 - 593 1,856
Other Foreign Countries 1999 106 88 194 735
1998 115 52 167 468
1997 130 39 169 530
Eliminations 1999 - (609) (609) -
1998 - (420) (420) -
1997 - (39) (39) -
Total Marathon Group 1999 $24,327 $ - $24,327 $10,983
1998 21,977 - 21,977 10,960
1997 15,846 - 15,846 7,964
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group:
United States 1999 $ 5,296 $ - $ 5,296 $ 2,889
1998 6,266 - 6,266 3,043
1997 6,926 - 6,926 3,023
Foreign Countries 1999 18 - 18 63
1998 17 - 17 69
1997 15 - 15 1
Total U. S. Steel Group 1999 $ 5,314 $ - $ 5,314 $ 2,952
1998 6,283 - 6,283 3,112
1997 6,941 - 6,941 3,024
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments for Discontinued 1999 $ (58) $ - $ (58) $ -
Operations and Eliminations 1998 (23) - (23) -
1997 (107) - (107) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total USX Corporation 1999 $29,583 $ - $29,583 $13,935
1998 28,237 - 28,237 14,072
1997 22,680 - 22,680 10,988
- ------------------------------------------------------------------------------------------------------------------------------------
/(a)/ Includes property, plant and equipment and investments in affiliates.
U-15
- --------------------------------------------------------------------------------
10. Pensions and Other Postretirement Benefits
USX has noncontributory defined benefit pension plans covering
substantially all employees. Benefits under these plans are
primarily based upon years of service and final average pensionable
earnings, or a minimum benefit based upon years of service,
whichever is greater. In addition, pension benefits based upon a
percent of total career pensionable earnings cover certain
participating salaried employees.
USX also has defined benefit retiree health and life insurance
plans (other benefits) covering most employees upon their
retirement. Health benefits are provided through comprehensive
hospital, surgical and major medical benefit provisions or through
health maintenance organizations, both subject to various cost
sharing features. Life insurance benefits are provided to certain
nonunion and union represented retiree beneficiaries primarily
based on employees' annual base salary at retirement. For most
union retirees, benefits are provided for the most part based on
fixed amounts negotiated in labor contracts with the appropriate
unions. Except for certain life insurance benefits paid from
reserves held by insurance carriers and benefits required to be
funded by union contracts, most other benefits have not been
prefunded.
Pension Benefits Other Benefits
------------------------ -----------------
(In millions) 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------------
Change in benefit obligations
Benefit obligations at January 1 $ 8,629 $ 8,085 $ 2,710 $ 2,451
Service cost 152 119 32 27
Interest cost 540 544 169 172
Plan amendments 399 /(a)/ 14 (30) (20)
Actuarial (gains) losses (1,019) 637 (333) 135
Plan mergers and acquisitions 56 145 11 98
Settlements, curtailments and termination benefits (329) 10 - 7
Benefits paid (844) (925) (185) (160)
-------- ------- ------- -------
Benefit obligations at December 31 $ 7,584 $ 8,629 $ 2,374 $ 2,710
-----------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $ 11,574 $10,925 $ 265 $ 258
Actual return on plan assets 865 1,507 20 31
Plan merger and acquisitions 38 55 1 -
Employer contributions 2 8 34 -
Trustee distributions/(b)/ (30) (14) - -
Settlements paid (306) - - -
Benefits paid from plan assets (838) (907) (39) (24)
-------- ------- ------- -------
Fair value of plan assets at December 31 $ 11,305 $11,574 $ 281 $ 265
-----------------------------------------------------------------------------------------------------
Funded status of plans at December 31 $ 3,721 /(c)/ $ 2,945/(c)/ $(2,093) $(2,445)
Unrecognized net gain from transition (95) (175) - -
Unrecognized prior service costs (credits) 880 566 (53) (28)
Unrecognized net actuarial gains (1,945) (993) (458) (110)
Additional minimum liability/(d)/ (24) (75) - -
-------- ------- ------- -------
Prepaid (accrued) benefit cost $ 2,537 $ 2,268 $(2,604) $(2,583)
-----------------------------------------------------------------------------------------------------
/(a)/ Results primarily from a new five-year labor contract with the United Steelworkers of America
ratified in August 1999.
/(b)/ Represents transfers of excess pension assets to fund retiree health care benefits accounts
under Section 420 of the Internal Revenue Code.
/(c)/ Includes several plans that have accumulated
benefit obligations in excess of plan assets:
Aggregate accumulated benefit obligations $ (53) $ (98)
Aggregate projected benefit obligations (76) (120)
Aggregate plan assets - -
/(d)/ Additional minimum liability recorded
was offset by the following:
Intangible asset $ 9 $ 18
-------- -------
Accumulated other comprehensive income
(losses):
Beginning of year $ (37) $ (32)
Change during year (net of tax) 27 (5)
-------- -------
Balance at end of year $ (10) $ (37)
--------------------------------------------------------------------------------------------------
U-16
Pension Benefits Other Benefits
-------------------------------- --------------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------------
Components of net periodic
benefit cost (credit)
Service cost $ 152 $ 119 $ 96 $ 32 $ 27 $ 21
Interest cost 540 544 562 169 172 175
Expected return on plan assets (895) (876) (828) (21) (21) (11)
Amortization - net transition gain (72) (74) (74) -- -- --
- prior service costs (credits) 87 75 73 (4) 1 1
- actuarial (gains) losses 7 6 4 (5) (13) (13)
Multiemployer and other USX plans 5 6 6 7 /(a)/ 13 /(a)/ 15 /(a)/
Settlement and termination (gains) losses (42) /(b)/ 10 /(b)/ 4 -- -- --
------ ------ ------ ------ ------ ------
Net periodic benefit cost (credit) $ (218) $ (190) $ (157) $ 178 $ 179 $ 188
--------------------------------------------------------------------------------------------------------------------------
/(a)/ Represents payments to a multiemployer health care benefit plan
created by the Coal Industry Retiree Health Benefit Act of 1992
based on assigned beneficiaries receiving benefits. The present
value of this unrecognized obligation is broadly estimated to
be $90 million, including the effects of future medical
inflation, and this amount could increase if additional
beneficiaries are assigned.
/(b)/ Relates primarily to the 1999 Marathon Group and 1998 U. S.
Steel Group voluntary early retirement programs.
Pension Benefits Other Benefits
------------------------ -------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------
Weighted average actuarial assumptions
at December 31:
Discount rate 8.0% 6.5% 8.0% 6.5%
Expected annual return on plan assets 8.6% 9.1% 8.5% 9.0%
Increase in compensation rate 4.1% 4.1% 4.1% 4.1%
-------------------------------------------------------------------------------------------------------------
For measurement purposes, a 7.6% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2000.
The rate was assumed to decrease gradually to 5% until 2005 for the U.
S. Steel Group and until 2006 for the Marathon Group and remain at
that level thereafter.
A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
1-Percentage- 1-Percentage-
(In millions) Point Increase Point Decrease
----------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components $ 22 $ (18)
Effect on other postretirement benefit obligations 207 (175)
-----------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. Leases
Future minimum commitments for capital leases (including sale-
leasebacks accounted for as financings) and for operating leases
having remaining noncancelable lease terms in excess of one year are
as follows:
Capital Operating
(In millions) Leases Leases
------------------------------------------------------------------------------------
2000 $ 13 $ 302
2001 13 199
2002 13 115
2003 13 76
2004 13 65
Later years 119 200
Sublease rentals - (104)
----- -----
Total minimum lease payments 184 $ 853
----- =====
Less imputed interest costs (77)
-----
Present value of net minimum lease payments
included in long-term debt $ 107
------------------------------------------------------------------------------------
Operating lease rental expense from continuing operations:
(In millions) 1999 1998 1997
---------------------------------------------------------------------------------------------------
Minimum rental $ 266 $ 288 $ 232
Contingent rental 29 29 25
Sublease rentals (12) (14) (14)
----- ----- -----
Net rental expense $ 283 $ 303 $ 243
---------------------------------------------------------------------------------------------------
USX leases a wide variety of facilities and equipment under
operating leases, including land and building space, office equipment,
production facilities and transportation equipment. Most long-term
leases include renewal options and, in certain leases, purchase
options. In the event of a change in control of USX, as defined in the
agreements, or certain other circumstances, operating lease
obligations totaling $105 million may be declared immediately due and
payable.
U-17
- --------------------------------------------------------------------------------
12. Income Taxes
Provisions (credits) for estimated income taxes on income from
continuing operations were:
1999 1998 1997
----------------------------- ---------------------------- -----------------------------
(In millions) Current Deferred Total Current Deferred Total Current Deferred Total
------------------------------------------------------------------------------------------------------------------
Federal $107 $ 257 $364 $102 $ 168 $ 270 $ 208 $ 163 $ 371
State and local 4 1 5 33 18 51 7 32 39
Foreign 26 (46) (20) (4) (2) (6) 12 28 40
---- ----- ---- ---- ----- ----- ----- ----- ------
Total $137 $ 212 $349 $131 $ 184 $ 315 $227 $ 223 $ 450
------------------------------------------------------------------------------------------------------------------
A reconciliation of federal statutory tax rate (35%) to
total provisions from continuing operations follows:
(In millions) 1999 1998 1997
--------------------------------------------------------------------------------------------------------
Statutory rate applied to income from continuing operations
before income taxes $ 369 $ 346 $ 475
Effects of foreign operations, including foreign tax credits (20) (37) (11)
State and local income taxes after federal income tax effects 3 33 25
Credits other than foreign tax credits (10) (12) (24)
Excess percentage depletion (7) (11) (10)
Effects of partially owned companies (5) (4) (9)
Dispositions of subsidiary investments 7 - -
Adjustment of prior years' federal income taxes 4 (5) 2
Adjustment of valuation allowances - - (5)
Other 8 5 7
----- ----- ------
Total provisions on income from continuing operations $ 349 $ 315 $ 450
--------------------------------------------------------------------------------------------------------
Deferred tax assets and liabilities resulted from the
following:
(In millions) December 31 1999 1998
-----------------------------------------------------------------------------------------------------------
Deferred tax assets:
Minimum tax credit carryforwards $ 131 $ 200
State tax loss carryforwards (expiring in 2000 through 2019) 122 118
Foreign tax loss carryforwards (portion of which expire in 2000 through 2014) 382 414
Employee benefits 1,204 1,170
Expected federal benefit for:
Crediting certain foreign deferred income taxes 530 528
Deducting state and other foreign deferred income taxes 36 48
Receivables, payables and debt 82 65
Contingency and other accruals 202 188
Investments in foreign subsidiaries 52 52
Other 45 50
Valuation allowances:
Federal (30) (30)
State (52) (52)
Foreign (282) (260)
------- -------
Total deferred tax assets/(a)/ 2,422 2,491
------- -------
Deferred tax liabilities:
Property, plant and equipment 2,339 2,430
Prepaid pensions 1,048 917
Inventory 340 186
Investments in subsidiaries and affiliates 76 94
Other 155 190
------- -------
Total deferred tax liabilities 3,958 3,817
------- -------
Net deferred tax liabilities $ 1,536 $ 1,326
-----------------------------------------------------------------------------------------------------------
/(a)/ USX expects to generate sufficient future taxable income to realize the
benefit of its deferred tax assets. In addition, the ability to realize
the benefit of foreign tax credits is based upon certain assumptions
concerning future operating conditions (particularly as related to
prevailing oil prices), income generated from foreign sources and USX's
tax profile in the years that such credits may be claimed.
The consolidated tax returns of USX for the years 1990 through 1997 are
under various stages of audit and administrative review by the IRS. USX believes
it has made adequate provision for income taxes and interest which may become
payable for years not yet settled.
Pretax income (loss) from continuing operations included $63 million,
$(75) million and $250 million attributable to foreign sources in 1999, 1998 and
1997, respectively.
Undistributed earnings of certain consolidated foreign subsidiaries at
December 31, 1999, amounted to $150 million. No provision for deferred U.S.
income taxes has been made for these subsidiaries because USX intends to
permanently reinvest such earnings in those foreign operations. If such earnings
were not permanently reinvested, a deferred tax liability of $53 million would
have been required.
U-18
- --------------------------------------------------------------------------------
13. Property, Plant and Equipment
(In millions) December 31 1999 1998
---------------------------------------------------------------------------------------
Marathon Group $20,860 $20,728
U. S. Steel Group 8,748 8,439
------- -------
Total 29,608 29,167
Less accumulated depreciation, depletion and amortization 16,799 16,238
------- -------
Net $12,809 $12,929
---------------------------------------------------------------------------------------
Property, plant and equipment includes gross assets acquired
under capital leases (including sale-leasebacks accounted for as
financings) of $125 million at December 31, 1999, and $108
million at December 31, 1998; related amounts in accumulated
depreciation, depletion and amortization were $81 million and $77
million, respectively.
- --------------------------------------------------------------------------------
14. Investments and Long-Term Receivables
(In millions) December 31 1999 1998
--------------------------------------------------------------------------------------------------
Equity method investments $1,055 $1,062
Other investments 71 81
Receivables due after one year 67 56
Deposits of restricted cash 22 21
Other 32 29
------ ------
Total $1,247 $1,249
--------------------------------------------------------------------------------------------------
Summarized financial information of affiliates accounted for
by the equity method of accounting follows:
(In millions) 1999 1998 1997
---------------------------------------------------------------------------------------------------
Income data - year:
Revenues $3,449 $3,510 $3,705
Operating income 95 324 342
Net income (loss) (74) 176 191
---------------------------------------------------------------------------------------------------
Balance sheet data - December 31:
Current assets $1,382 $1,290
Noncurrent assets 5,008 4,382
Current liabilities 1,481 874
Noncurrent liabilities 2,317 2,137
---------------------------------------------------------------------------------------------------
In 1999, USX and Kobe Steel, Ltd. (Kobe Steel) completed a
transaction that combined the steelmaking and bar producing
assets of USS/Kobe Steel Company (USS/Kobe) with companies
controlled by Blackstone Capital Partners II. The combined entity
was named Republic Technologies International, LLC (Republic). In
addition, USX made a $15 million equity investment in Republic.
USX owned 50% of USS/Kobe and now owns 16% of Republic. USX
accounts for its investment in Republic under the equity method
of accounting. Dividend and affiliate income (loss) in 1999
includes $47 million in charges related to the impairment of the
carrying value of USX's investment in USS/Kobe and costs related
to the formation of Republic. The seamless pipe business of
USS/Kobe was excluded from this transaction. That business, now
known as Lorain Tubular Company, LLC, became a wholly owned
subsidiary of USX at the close of business on December 31, 1999.
Dividends and partnership distributions received from equity
affiliates were $46 million in 1999, $42 million in 1998 and $34
million in 1997.
USX purchases from equity affiliates totaled $411 million,
$395 million and $461 million in 1999, 1998 and 1997,
respectively. USX sales to equity affiliates totaled $853
million, $747 million and $838 million in 1999, 1998 and 1997,
respectively.
- --------------------------------------------------------------------------------
15. Short-Term Credit Agreement
USX has a short-term credit agreement totaling $125 million at
December 31, 1999. Interest is based on the bank's prime rate or
London Interbank Offered Rate (LIBOR), and carries a facility fee
of .15%. Certain other banks provide short-term lines of credit
totaling $150 million which require a .125% fee or maintenance of
compensating balances of 3%. At December 31, 1999, there were no
borrowings against these facilities.
U-19
________________________________________________________________________________
16. Long-Term Debt
Interest December 31
(In millions) Rates - % Maturity 1999 1998
------------------------------------------------------------------------------------------------------------
USX Corporation:
Revolving credit facility/(a)/ 2001 $ 300 $ 700
Commercial paper/(a)/ 6.71 165 -
Notes payable 6 13/20 - 9 4/5 2000 - 2023 2,525 2,267
Obligations relating to Industrial Development and
Environmental Improvement Bonds and Notes/(b)/ 3 9/20 - 6 7/8 2009 - 2033 494 494
Receivables facility/(a)(c)/ 2004 350 -
Indexed debt (Note 8) 6 3/4 - 69
All other obligations, including sale-leaseback
financing and capital leases 2000 - 2012 92 94
Consolidated subsidiaries:
Revolving credit facilities/(d)/ 2000 - 2003 - -
Guaranteed Notes 7 2002 135 135
Guaranteed Loan/(e)/ 9 1/20 2000 - 2006 223 245
Notes payable 8 1/2 2000 - 2001 1 2
All other obligations, including capital leases 2000 - 2011 26 11
------ ------
Total/(f)(g)/ 4,311 4,017
Less unamortized discount 28 26
Less amount due within one year 61 71
------ ------
Long-term debt due after one year $4,222 $3,920
------------------------------------------------------------------------------------------------------------
/(a)/ An amended agreement which terminates in August 2001, provides
for borrowing under a $2,350 million revolving credit facility.
Interest is based on defined short-term market rates. During
the term of this agreement, USX is obligated to pay a variable
facility fee on total commitments, which was .15 % at December
31, 1999. If the receivables facility discussed in (c) is not
renewed annually, the balance outstanding of such facility
could be refinanced by the revolving credit facility, or
another long-term debt source; and therefore, is classified as
long-term debt. The commercial paper is supported by the $2,050
million in unused and available credit and, accordingly, is
classified as long-term debt.
/(b)/ At December 31, 1999, USX had outstanding obligations relating
to Environmental Improvement Bonds in the amount of $141
million, which were supported by letter of credit arrangements
that could become short-term obligations under certain
circumstances.
/(c)/ In December 1999, USX entered into an agreement under which the
U. S. Steel Group participates in a program to sell an
undivided interest in certain accounts receivable. A previous
program expired in October 1999 and was accounted for as a
transfer of receivables. The new program is accounted for as a
secured borrowing. Payments are collected from sold accounts
receivable and invested in new accounts receivable for the
purchaser and a yield, based on short-term market rates, is
transferred to the purchaser. If the U. S. Steel Group does not
have sufficient eligible receivables to reinvest for the
purchaser, the size of the program is reduced accordingly. The
purchaser has a security interest in a pool of receivables to
secure USX's obligations under the program. The amounts sold
under the previous receivables' programs averaged $291 million,
$347 million and $705 million for the years 1999, 1998 and
1997, respectively. (The Marathon and Delhi Groups had a
separate accounts receivable program that was terminated in
late 1997.)
/(d)/ MAP has a revolving credit facility for $100 million that
terminates in July 2000 and a $400 million revolving credit
facility that terminates in July 2003. Interest is based on
defined short-term market rates for both facilities. During the
terms of the agreements, MAP is obligated to pay a variable
facility fee on total commitments. At December 31, 1999, the
facility fee was .11% for the $100 million facility and .125%
for the $400 million facility. At December 31, 1999, the unused
and available credit was $429 million, which reflects
reductions for outstanding letters of credit. In the event that
MAP defaults on indebtedness (as defined in the agreement) in
excess of $100 million, USX has guaranteed the payment of any
outstanding obligations.
/(e)/ The guaranteed loan was used to fund a portion of the costs in
connection with the development of the East Brae Field and the
SAGE pipeline in the North Sea. A portion of proceeds from a
long-term gas sales contract is dedicated to loan service under
certain circumstances. Prepayment of the loan may be required
under certain situations, including events impairing the
security interest.
/(f)/ Required payments of long-term debt for the years 2001-2004 are
$747 million, $210 million, $187 million and $690 million,
respectively.
/(g)/ In the event of a change in control of USX, as defined in the
related agreements, debt obligations totaling $3,332 million
may be declared immediately due and payable. The principal
obligations subject to such a provision are Notes payable -
$2,525 million; and Guaranteed Loan - $223 million. In such
event, USX may also be required to either repurchase the leased
Fairfield slab caster for $104 million or provide a letter of
credit to secure the remaining obligation.
U-20
- --------------------------------------------------------------------------------
17. Inventories
(In millions) December 31 1999 1998
-------------------------------------------------------------------
Raw materials $ 830 $ 916
Semi-finished products 392 282
Finished products 1,239 1,205
Supplies and sundry items 166 156
------ ------
Total (at cost) 2,627 2,559
Less inventory market valuation reserve - 551
------ ------
Net inventory carrying value $2,627 $2,008
-------------------------------------------------------------------
At December 31, 1999 and 1998, the LIFO method accounted for
91% and 90%, respectively, of total inventory value. Current
acquisition costs were estimated to exceed the above inventory
values at December 31 by approximately $570 million and $310
million in 1999 and 1998, respectively.
The inventory market valuation reserve reflects the extent
that the recorded LIFO cost basis of crude oil and refined products
inventories exceeds net realizable value. The reserve is decreased
to reflect increases in market prices and inventory turnover and
increased to reflect decreases in market prices. Changes in the
inventory market valuation reserve result in noncash charges or
credits to costs and expenses.
- --------------------------------------------------------------------------------
18. Supplemental Cash Flow Information
(In millions) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
Cash used in operating activities included:
Interest and other financial costs paid
(net of amount capitalized) $ (366) $ (336) $ (382)
Income taxes paid (98) (183) (400)
-----------------------------------------------------------------------------------------------------------
Commercial paper and revolving credit arrangements - net:
Commercial paper - issued $ 6,282 $ - $ -
- repayments (6,117) - -
Credit agreements - borrowings 5,529 17,486 10,454
- repayments (5,980) (16,817) (10,449)
Other credit arrangements - net (95) 55 36
------- -------- --------
Total $ (381) $ 724 $ 41
-----------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
Common stock issued for dividend reinvestment and
employee stock plans $ 6 $ 5 $ 10
Marathon Stock issued for Exchangeable Shares 7 11 -
Trust preferred securities exchanged for preferred stock - - 182
Affiliate preferred stock received in conversion of affiliate loan 142 - -
Disposal of assets:
Deposit of RTI common shares in satisfaction of indexed debt 56 - -
Interest in USS/Kobe contributed to Republic 40 - -
Other disposals of assets:
Notes or common stock received 20 2 -
Liabilities assumed by buyers - - 240
Business combinations:
Acquisition of Tarragon:
Exchangeable Shares issued - 29 -
Liabilities assumed - 433 -
Acquisition of Ashland RM&T net assets:
38% interest in MAP - 1,900 -
Liabilities assumed - 1,038 -
Other acquisitions:
Liabilities assumed 42 - -
Affiliate liabilities consolidated in step acquisition 26 - -
-----------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19. Stock-Based Compensation Plans
The 1990 Stock Plan, as amended and restated, authorizes the
Compensation Committee of the Board of Directors to grant
restricted stock, stock options and stock appreciation rights to
key management employees. Such employees are generally granted
awards of the class of common stock intended to reflect the
performance of the group(s) to which their work relates. Up to .5
percent of the outstanding Marathon Stock and .8 percent of the
outstanding Steel Stock, as determined on December 31 of the
preceding year, are available for grants during each calendar year
the 1990 Plan is in effect. In addition, awarded shares that do not
result in shares being issued are available for subsequent grant,
and any ungranted shares from prior years' annual allocations are
available for subsequent grant
U-21
during the years the 1990 Plan is in effect. As of December 31,
1999, 8,744,297 Marathon Stock shares and 2,540,519 Steel Stock
shares were available for grants in 2000. The Stock-Based
Compensation Plans' activity below includes the Delhi Stock prior
to its January 1998 redemption (Note 5).
Restricted stock represents stock granted for such
consideration, if any, as determined by the Compensation Committee,
subject to provisions for forfeiture and restricting transfer.
Those restrictions may be removed as conditions such as
performance, continuous service and other criteria are met.
Restricted stock is issued at the market price per share at the
date of grant and vests over service periods that range from one to
five years.
Deferred compensation is charged to stockholders' equity when
the restricted stock is granted and subsequently adjusted for
changes in the market value of the underlying stock. The deferred
compensation is expensed over the balance of the vesting period and
adjusted if conditions of the restricted stock grant are not met.
The following table presents information on restricted stock
grants:
Marathon Stock Steel Stock
--------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------------------------------------
Number of shares granted 28,798 25,378 20,430 18,272 17,742 11,942
Weighted-average grant-date
fair value per share $ 29.38 $ 34.00 $ 29.38 $ 28.22 $ 37.28 $ 32.00
-----------------------------------------------------------------------------------------------
Stock options represent the right to purchase shares of
Marathon Stock, Steel Stock or Delhi Stock at the market value of
the stock at date of grant. Certain options contain the right to
receive cash and/or common stock equal to the excess of the fair
market value of shares of common stock, as determined in accordance
with the plan, over the option price of shares. Stock options vest
after a one-year service period and expire 10 years from the date
they are granted. The following is a Summary of Stock option
activity:
Marathon Stock Steel Stock Delhi Stock
------------------------ ---------------------- --------------------------
Shares Price/(a)/ Shares Price/(a)/ Shares Price/(a)/
---------------------------------------------------------------------------------------------------------
Balance December 31, 1996 5,230,570 $23.78 1,345,595 $34.85 326,950 $15.60
Granted 756,260 29.38 457,590 32.00 94,250 13.31
Exercised (2,215,665) 23.86 (158,265) 31.85 (6,300) 12.21
Canceled (76,300) 26.91 (11,820) 34.36 (6,650) 15.73
---------- --------- -------
Balance December 31, 1997 3,694,865 24.81 1,633,100 34.35 408,250 15.13
Granted 987,535 34.00 611,515 37.28
Exercised (594,260) 27.61 (230,805) 32.00
Canceled (13,200) 27.22 (21,240) 35.89
Redeemed - - (408,250) 20.60 /(b)/
---------- --------- -------
Balance December 31, 1998 4,074,940 26.62 1,992,570 35.50 -
Granted 1,005,000 29.38 656,400 28.22
Exercised (176,160) 27.27 (2,580) 24.92
Canceled (121,055) 30.19 (20,005) 38.51
---------- --------- -------
Balance December 31, 1999 4,782,725 27.08 2,626,385 33.67 -
---------------------------------------------------------------------------------------------------------
/(a)/ Weighted-average exercise price
/(b)/ Redemption price
The weighted-average grant-date fair value per option for the
Marathon Stock was $8.89 in 1999, $10.43 in 1998 and $9.01 in 1997.
For the Steel Stock such amounts were $6.95 in 1999, $8.29 in 1998
and $6.72 in 1997.
The following table represents stock options at December 31,
1999:
Outstanding Exercisable
------------------------------------------- ----------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of of Shares Remaining Average of Shares Average
Exercise Under Contractual Exercise Under Exercise
Prices Option Life Price Option Price
-----------------------------------------------------------------------------------------------------------------------
Marathon Stock $ 17.00-23.44 1,679,060 4.6 years $20.60 1,679,060 $20.60
25.38-26.88 164,825 1.4 25.45 164,825 25.45
29.08-34.00 2,938,840 7.8 30.88 1,959,335 31.63
--------- ----------
Total 4,782,725 3,803,220
--------- ----------
Steel Stock $ 22.46-28.22 685,340 9.0 years $28.07 29,395 $24.82
31.69-34.44 1,073,095 6.2 32.57 1,073,095 32.57
37.28-44.19 867,950 6.8 39.45 867,950 39.45
--------- ----------
Total 2,626,385 1,970,440
----------------------------------------------------------------------------------------------------------------------
Actual stock-based compensation expense (credit) was $(3)
million in 1999 and 1998 and $30 million in 1997. Incremental
compensation expense, as determined under a fair value model, was
not material ($.02 or less per share for all years presented).
Therefore, pro forma net income and earnings per share data have
been omitted.
U-22
Effective January 1, 1997, USX created a deferred compensation
plan for non-employee directors of its Board of Directors. The plan
permits participants to defer some or all of their annual retainers
in the form of common stock units or cash and it requires new
directors to defer at least half of their annual retainer in the
form of common stock units. Common stock units are book entry units
equal in value to a share of Marathon Stock or Steel Stock.
Deferred stock benefits are distributed in shares of common stock
within five business days after a participant leaves the Board of
Directors. During 1999, 10,541 shares of Marathon Stock and 3,798
shares of Steel Stock were issued. During 1998 and 1997, no shares
of common stock were distributed.
- --------------------------------------------------------------------------------
20. Dividends
In accordance with the USX Certificate, dividends on the Marathon
Stock and Steel Stock are limited to the legally available funds of
USX. Net losses of any Group, as well as dividends and
distributions on any class of USX Common Stock or series of
preferred stock and repurchases of any class of USX Common Stock or
series of preferred stock at prices in excess of par or stated
value, will reduce the funds of USX legally available for payment
of dividends on all classes of Common Stock. Subject to this
limitation, the Board of Directors intends to declare and pay
dividends on the Marathon Stock and Steel Stock based on the
financial condition and results of operations of the related group,
although it has no obligation under Delaware law to do so. In
making its dividend decisions with respect to each of the Marathon
Stock and Steel Stock, the Board of Directors considers, among
other things, the long-term earnings and cash flow capabilities of
the related group as well as the dividend policies of similar
publicly traded companies.
Dividends on the Steel Stock are further limited to the
Available Steel Dividend Amount. At December 31, 1999, the
Available Steel Dividend Amount was at least $3,300 million. The
Available Steel Dividend Amount will be increased or decreased, as
appropriate, to reflect U. S. Steel Group net income, dividends,
repurchases or issuances with respect to the Steel Stock and
preferred stock attributed to the U. S. Steel Group and certain
other items.
- --------------------------------------------------------------------------------
21. Stockholder Rights Plan
On September 28, 1999, USX's Board of Directors adopted a new
Stockholder Rights Plan and declared a dividend distribution of one
right for each outstanding share of Marathon Stock and Steel Stock
(referred to together as "Voting Stock") to stockholders of record
on October 9, 1999. Each right becomes exercisable, at a price of
$110, after any person or group has acquired, obtained the right to
acquire or made a tender or exchange offer for 15% or more of the
outstanding voting power represented by the outstanding Voting
Stock, except pursuant to a qualifying all-cash tender offer for
all outstanding shares of Voting Stock which results in the offeror
owning shares of Voting Stock representing a majority of the voting
power (other than Voting Stock beneficially owned by the offeror
immediately prior to the offer). Each right entitles the holder,
other than the acquiring person or group, to purchase one one-
hundredth of a share of Series A Junior Preferred Stock or, upon
the acquisition by any person of 15% or more of the outstanding
voting power represented by the outstanding Voting Stock, Marathon
Stock or Steel Stock (or, in certain circumstances, other property)
having a market value of twice the exercise price. After a person
or group acquires 15% or more of the outstanding voting power, if
USX engages in a merger or other business combination where it is
not the surviving corporation or where it is the surviving
corporation and the Voting Stock is changed or exchanged, or if 50%
or more of USX's assets, earnings power or cash flow are sold or
transferred, each right entitles the holder to purchase common
stock of the acquiring entity having a market value of twice the
exercise price. The rights and the exercise price are subject to
adjustment. The rights will expire on October 9, 2009, unless such
date is extended or the rights are earlier redeemed by USX for one
cent per right at any time prior to the point they become
exercisable. Under certain circumstances, the Board of Directors
has the option to exchange one share of the respective class of
Voting Stock for each exercisable right.
- --------------------------------------------------------------------------------
22. Income Per Common Share
The method of calculating net income per share for the Marathon
Stock, the Steel Stock and, prior to November 1, 1997, the 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, are available for payment of dividends on
the respective classes of stock, although legally available funds
and liquidation preferences of these classes of stock do not
necessarily correspond with these amounts. The financial statements
of the Marathon Group, the U. S. Steel Group and the Delhi Group,
taken together, include all accounts which comprise the
corresponding consolidated financial statements of USX.
Basic net income per share is calculated by adjusting net
income for dividend requirements of preferred stock and, in 1997,
the noncash credit on exchange of preferred stock and is based on
the weighted average number of common shares outstanding.
Diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes
exercise of stock options, provided in each case, the effect is not
antidilutive.
U-23
COMPUTATION OF INCOME PER SHARE
1999 1998 1997
------------------- ------------------ ------------------
Basic Diluted Basic Diluted Basic Diluted
- ----------------------------------------------------------------------------------------------------------------------
CONTINUING OPERATIONS
Marathon Group
- --------------
Net income (millions):
Net income $ 654 $ 654 $ 310 $ 310 $ 456 $ 456
Dilutive effect of convertible debentures - - - - - 3
------- ------- ------- ------- ------- -------
Net income assuming conversions $ 654 $ 654 $ 310 $ 310 $ 456 $ 459
======= ======= ======= ======= ======= =======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 309,696 309,696 292,876 292,876 288,038 288,038
Effect of dilutive securities:
Convertible debentures - - - - - 1,936
Stock options - 314 - 559 - 546
------- ------- ------- ------- ------- -------
Average common shares and dilutive effect 309,696 310,010 292,876 293,435 288,038 290,520
======= ======= ======= ======= ======= =======
Net income per share $ 2.11 $ 2.11 $ 1.06 $ 1.05 $ 1.59 $ 1.58
- ----------------------------------------------------------------------------------------------------------------------
U.S. Steel Group
- ----------------
Net income (millions):
Income before extraordinary losses $ 51 $ 51 $ 364 $ 364 $ 452 $ 452
Noncash credit from exchange of preferred stock - - - - 10 -
Dividends on preferred stock (9) (9) (9) - (13) -
Extraordinary losses (7) (7) - - - -
------- ------- ------- ------- ------- -------
Net income applicable to Steel Stock 35 35 355 364 449 452
Effect of dilutive securities:
Trust preferred securities - - - 8 - 6
Convertible debentures - - - - - 2
------- ------- ------- ------- ------- -------
Net income assuming conversions $ 35 $ 35 $ 355 $ 372 $ 449 $ 460
======= ======= ======= ======= ======= =======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 88,392 88,392 87,508 87,508 85,672 85,672
Effect of dilutive securities:
Trust preferred securities - - - 4,256 - 2,660
Preferred stock - - - 3,143 - 4,811
Convertible debentures - - - - - 1,025
Stock options - 4 - 36 - 35
------- ------- ------- ------- ------- -------
Average common shares and dilutive effect 88,392 88,396 87,508 94,943 85,672 94,203
======= ======= ======= ======= ======= =======
Per share:
Income before extraordinary losses $ .48 $ .48 $ 4.05 $ 3.92 $ 5.24 $ 4.88
Extraordinary losses .08 .08 - - - -
------- ------- ------- ------- ------- -------
Net income $ .40 $ .40 $ 4.05 $ 3.92 $ 5.24 $ 4.88
- ----------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Delhi Group
- -----------
Net income (millions) $ 79.7 $ 79.7
======= =======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 9,449 9,449
Stock options - 21
------- -------
Average common shares and dilutive effect 9,449 9,470
======= =======
Net income per share $ 8.43 $ 8.41
- ----------------------------------------------------------------------------------------------------------------------
U-24
23. Preferred Stock of Subsidiary and Trust Preferred Securities
USX Capital LLC, a wholly owned subsidiary of USX, sold
10,000,000 shares (carrying value of $250 million) of 8 3/4%
Cumulative Monthly Income Preferred Shares (MIPS) (liquidation
preference of $25 per share) in 1994. Proceeds of the issue were
loaned to USX. USX has the right under the loan agreement to
extend interest payment periods for up to 18 months, and as a
consequence, monthly dividend payments on the MIPS can be
deferred by USX Capital LLC during any such interest payment
period. In the event that USX exercises this right, USX may not
declare dividends on any share of its preferred or common stocks.
The MIPS are redeemable at the option of USX Capital LLC and
subject to the prior consent of USX, in whole or in part from
time to time, for $25 per share, and will be redeemed from the
proceeds of any repayment of the loan by USX. In addition, upon
final maturity of the loan, USX Capital LLC is required to redeem
the MIPS. The financial costs are included in net interest and
other financial costs.
In 1997, USX exchanged approximately 3.9 million 6.75%
Convertible Quarterly Income Preferred Securities (Trust
Preferred Securities) of USX Capital Trust I, a Delaware
statutory business trust (Trust), for an equivalent number of
shares of its 6.50% Cumulative Convertible Preferred Stock (6.50%
Preferred Stock) (Exchange). The Exchange resulted in the
recording of Trust Preferred Securities at a fair value of $182
million and a noncash credit to Retained Earnings of $10 million.
USX owns all of the common securities of the Trust, which
was formed for the purpose of the Exchange. (The Trust Common
Securities and the Trust Preferred Securities are together
referred to as the Trust Securities.) The Trust Securities
represent undivided beneficial ownership interests in the assets
of the Trust, which consist solely of USX 6.75% Convertible
Junior Subordinated Debentures maturing March 31, 2037
(Debentures), having an aggregate principal amount equal to the
aggregate initial liquidation amount ($50.00 per security and
$203 million in total) of the Trust Securities issued by the
Trust. Interest and principal payments on the Debentures will be
used to make quarterly distributions and to pay redemption and
liquidation amounts on the Trust Preferred Securities. The
quarterly distributions, which accumulate at the rate of 6.75%
per annum on the Trust Preferred Securities and the accretion
from fair value to the initial liquidation amount, are charged to
income and included in net interest and other financial costs.
Under the terms of the Debentures, USX has the right to
defer payment of interest for up to 20 consecutive quarters and,
as a consequence, monthly distributions on the Trust Preferred
Securities will be deferred during such period. If USX exercises
this right, then, subject to limited exceptions, it may not pay
any dividend or make any distribution with respect to any shares
of its capital stock.
The Trust Preferred Securities are convertible at any time
prior to the close of business on March 31, 2037 (unless such
right is terminated earlier under certain circumstances) at the
option of the holder, into shares of Steel Stock at a conversion
price of $46.25 per share of Steel Stock (equivalent to a
conversion ratio of 1.081 shares of Steel Stock for each Trust
Preferred Security), subject to adjustment in certain
circumstances.
The Trust Preferred Securities may be redeemed at any time
at the option of USX, at a premium of 102.60% of the initial
liquidation amount through March 31, 2000, and thereafter,
declining annually to the initial liquidation amount on April 1,
2003, and thereafter. They are mandatorily redeemable at March
31, 2037, or earlier under certain circumstances.
Payments related to quarterly distributions and to the
payment of redemption and liquidation amounts on the Trust
Preferred Securities by the Trust are guaranteed by USX on a
subordinated basis. In addition, USX unconditionally guarantees
the Trust's Debentures. The obligations of USX under the
Debentures, and the related indenture, trust agreement and
guarantee constitute a full and unconditional guarantee by USX of
the Trust's obligations under the Trust Preferred Securities.
- --------------------------------------------------------------------------------
24. Preferred Stock
USX is authorized to issue 40,000,000 shares of preferred stock,
without par value -
6.50% Cumulative Convertible Preferred Stock (6.50% Preferred
Stock) - As of December 31, 1999, 2,715,287 shares (stated value
of $1.00 per share; liquidation preference of $50.00 per share)
were outstanding. The 6.50% Preferred Stock is convertible at any
time, at the option of the holder, into shares of Steel Stock at
a conversion price of $46.125 per share of Steel Stock, subject
to adjustment in certain circumstances. This stock is redeemable
at USX's sole option, at a price of $51.30 per share beginning
April 1, 1999, and thereafter at prices declining annually on
each April 1 to an amount equal to $50.00 per share on and after
April 1, 2003.
U-25
- --------------------------------------------------------------------------------
25. Derivative Instruments
USX remains at risk for possible changes in the market value of the derivative
instrument; however, such risk should be mitigated by price changes in the
underlying hedged item. USX is also exposed to credit risk in the event of
nonperformance by counterparties. The credit worthiness of counterparties is
subject to continuing review, including the use of master netting agreements to
the extent practical, and full performance is anticipated.
The following table sets forth quantitative information by class of
derivative instrument for derivative instruments categorized as trading or other
than trading:
Recognized
Fair Carrying Trading Recorded
Value Amount Gain or Deferred Aggregate
Assets Assets (Loss) for Gain or Contract
(In millions) (Liabilities)/(a)(b)/ (Liabilities) the Year (Loss) Values/(c)/
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999:
Exchange-traded commodity futures:
Trading $ - $ - $ 4 $ - $ 8
Other than trading - - - 28 344
Exchange-traded commodity options:
Trading - - 4 - 179
Other than trading (6) /(d)/ (6) - (10) 1,262
OTC commodity swaps/(e)/:
Trading - - - - -
Other than trading 6 /(f)/ 6 - 5 193
OTC commodity options:
Trading - - - - -
Other than trading 4 /(g)/ 4 - 5 238
------------ ------------ ---------- -------- ---------
Total commodities $ 4 $ 4 $ 8 $ 28 $ 2,224
------------ ------------ ---------- -------- ---------
Forward exchange contracts/(h)/:
- receivable $ 52 $ 52 $ - $ - $ 51
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1998:
Exchange-traded commodity futures $ - $ - $ (2) $ 104
Exchange-traded commodity options 3 /(d)/ 2 3 776
OTC commodity swaps (9) /(f)/ (9) (7) 297
OTC commodity options 3 /(g)/ 3 3 147
------------ ------------ -------- ---------
Total commodities $ (3) $ (4) $ (3) $ 1,324
============ ------------ ======== =========
Forward exchange contracts:
- receivable $ 36 $ 36 $ - $ 36
- -----------------------------------------------------------------------------------------------------------------------------
/(a)/ The fair value amounts for OTC positions are based on various indices or
dealer quotes. The fair value amounts for currency contracts are based on
dealer quotes of forward prices covering the remaining duration of the
forward exchange contract. The exchange-traded futures contracts and
certain option contracts do not have a corresponding fair value since
changes in the market prices are settled on a daily basis.
/(b)/ The aggregate average fair value of all trading activities for the period
ending December 31, 1999, was $3 million. Detail by class of instrument
was not available.
/(c)/ Contract or notional amounts do not quantify risk exposure, but are used
in the calculation of cash settlements under the contracts. The contract
or notional amounts do not reflect the extent to which positions may
offset one another.
/(d)/ Includes fair values as of December 31, 1999 and 1998, for assets of $11
million and $23 million and for liabilities of $(17) million and $(20)
million, respectively.
/(e)/ The OTC swap arrangements vary in duration with certain contracts
extending into 2008.
/(f)/ Includes fair values as of December 31, 1999 and 1998, for assets of $11
million and $29 million and for liabilities of $(5) million and $(38)
million, respectively.
/(g)/ Includes fair values as of December 31, 1999 and 1998, for assets of $5
million and for liabilities of $(1) million and $(2) million,
respectively.
/(h)/ The forward exchange contracts relating to USX's foreign operations have
various maturities ending in December 2000.
U-26
- --------------------------------------------------------------------------------
26. Fair Value of Financial Instruments
Fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or
settled, nor does the fair value amount consider the tax
consequences of realization or settlement. The following table
summarizes financial instruments, excluding derivative financial
instruments disclosed in Note 25, by individual balance sheet
account:
1999 1998
------------------ -----------------
Fair Carrying Fair Carrying
(In millions) December 31 Value Amount Value Amount
---------------------------------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 133 $ 133 $ 146 $ 146
Receivables 2,696 2,696 1,663 1,663
Investments and long-term receivables 190 134 180 124
------ ------ ------ ------
Total financial assets $3,019 $2,963 $1,989 $1,933
---------------------------------------------------------------------------------------------------------
Financial liabilities:
Notes payable $ - $ - $ 145 $ 145
Accounts payable 3,397 3,397 2,438 2,438
Distribution payable to minority shareholder of MAP - - 103 103
Accrued interest 107 107 97 97
Long-term debt (including amounts due within one year) 4,278 4,176 4,203 3,896
Preferred stock of subsidiary and trust
preferred securities 408 433 414 432
------ ------ ------ ------
Total financial liabilities $8,190 $8,113 $7,400 $7,111
---------------------------------------------------------------------------------------------------------
Fair value of financial instruments classified as current
assets or liabilities approximates carrying value due to the short-
term maturity of the instruments. Fair value of investments and
long-term receivables was based on discounted cash flows or other
specific instrument analysis. Fair value of preferred stock of
subsidiary and trust preferred securities was based on market
prices. Fair value of long-term debt instruments was based on
market prices where available or current borrowing rates available
for financings with similar terms and maturities.
USX's unrecognized financial instruments consist of
receivables sold in 1998 and financial guarantees. It is not
practicable to estimate the fair value of these forms of financial
instrument obligations because there are no quoted market prices
for transactions which are similar in nature. For details relating
to financial guarantees, see Note 27.
- -------------------------------------------------------------------------------
27. Contingencies and Commitments
USX is the subject of, or party to, a number of pending or
threatened legal actions, contingencies and commitments involving a
variety of matters, including laws and regulations relating to the
environment. Certain of these matters are discussed below. The
ultimate resolution of these contingencies could, individually or
in the aggregate, be material to the consolidated financial
statements. However, management believes that USX will remain a
viable and competitive enterprise even though it is possible that
these contingencies could be resolved unfavorably.
Environmental matters -
USX is subject to federal, state, local and foreign laws and
regulations relating to the environment. These laws generally
provide for control of pollutants released into the environment and
require responsible parties to undertake remediation of hazardous
waste disposal sites. Penalties may be imposed for noncompliance.
At December 31, 1999 and 1998, accrued liabilities for remediation
totaled $170 million and $145 million, respectively. It is not
presently possible to estimate the ultimate amount of all
remediation costs that might be incurred or the penalties that may
be imposed. Receivables for recoverable costs from certain states,
under programs to assist companies in cleanup efforts related to
underground storage tanks at retail marketing outlets, were $52
million at December 31, 1999, and $41 million at December 31, 1998.
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 1999 and 1998, such
capital expenditures totaled $78 million and $132 million,
respectively. USX anticipates making additional such expenditures
in the future; however, the exact amounts and timing of such
expenditures are uncertain because of the continuing evolution of
specific regulatory requirements.
At December 31, 1999 and 1998, accrued liabilities for
platform abandonment and dismantlement totaled $152 million and
$141 million, respectively.
U-27
Guarantees -
Guarantees of the liabilities of affiliated entities by USX
and its consolidated subsidiaries totaled $219 million at December
31, 1999, and $212 million at December 31, 1998. In the event that
any defaults of guaranteed liabilities occur, USX has access to its
interest in the assets of most of the affiliates to reduce
potential losses resulting from these guarantees. As of December
31, 1999, the largest guarantee for a single affiliate was $131
million.
At December 31, 1999 and 1998, USX's pro rata share of
obligations of LOOP LLC and various pipeline affiliates secured by
throughput and deficiency agreements totaled $146 million and $164
million, respectively. Under the agreements, USX is required to
advance funds if the affiliates are unable to service debt. Any
such advances are prepayments of future transportation charges.
Commitments -
At December 31, 1999 and 1998, contract commitments to
acquire property, plant and equipment and long-term investments
totaled $568 million and $812 million, respectively.
USX entered into a 15-year take-or-pay arrangement in 1993,
which requires USX to accept pulverized coal each month or pay a
minimum monthly charge of approximately $1 million. Charges for
deliveries of pulverized coal totaled $23 million in both 1999 and
1998. If USX elects to terminate the contract early, a maximum
termination payment of $102 million, which declines over the
duration of the agreement, may be required.
USX is a party to a 15-year transportation services
agreement with a natural gas transmission company. The contract
requires USX to pay a minimum annual demand charge of approximately
$5 million starting in the year 2000 and concluding in the year
2014. The payments are required even if the transportation facility
is not utilized.
Selected Quarterly Financial Data (Unaudited)
1999
------------------------------------------------------------------
(In millions, except per
share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- -----------------------------------------------------------------------------------------------------
Revenues $8,950 $7,813 /(a)/ $6,766 $6,054
Income (loss) from
operations 425 535 502 401
Includes:
Inventory market
valuation
charges (credits) - (136) (66) (349)
Gain on ownership
change in MAP (6) (11) - -
Income (loss) before
extraordinary losses 205 201 /(a)/ 189 110
Net income (loss) 205 199 189 105
- -----------------------------------------------------------------------------------------------------
Marathon Stock data:
- --------------------
Net income (loss) $ 171 $ 230 $ 134 $ 119
- Per share: basic .55 .74 .43 .38
diluted .55 .74 .43 .38
Dividends paid per share .21 .21 .21 .21
Price range of Marathon
Stock/(c)/:
- Low 23- 5/8 28- 1/2 25- 13/16 19- 5/8
- High 30- 5/8 33- 7/8 32- 3/4 31- 3/8
- -----------------------------------------------------------------------------------------------------
Steel Stock data:
- -----------------
Income (loss) before
extraordinary losses
applicable to Steel Stock $ 32 $ (31) /(a)/ $ 52 $ (11)
- Per share: basic .35 (.35) /(a)/ .60 (.13)
diluted .35 (.35) /(a)/ .59 (.13)
Dividends paid per share .25 .25 .25 .25
Price range of Steel
Stock/(c)/:
- Low 21- 3/4 24- 9/16 23- 1/2 22- 1/4
- High 33 30- 1/16 34- 1/4 29- 1/8
- -----------------------------------------------------------------------------------------------------
1998
-----------------------------------------------------------------------------
(In millions, except per
share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- --------------------------------------------------------------------------------------------------------
Revenues $6,686 /(b)/ $7,091/(b)/ $7,260/(b)/ $7,200/(b)/
Income (loss) from
operations (37) 320 670 564
Includes:
Inventory market
valuation
charges (credits) 245 50 (3) (25)
Gain on ownership
change in MAP - 1 2 (248)
Income (loss) before
extraordinary losses (10) 116 298 270
Net income (loss) (10) 116 298 270
- -----------------------------------------------------------------------------------------------------
Marathon Stock data:
- --------------------
Net income (loss) $ (86) $ 51 $ 162 $ 183
- Per share: basic (.29) .18 .56 .63
diluted (.29) .17 .56 .63
Dividends paid per share .21 .21 .21 .21
Price range of Marathon
Stock/(c)/:
- Low 26- 11/16 25 32- 3/16 31
- High 38- 1/8 37- 1/8 38- 7/8 40- 1/2
- -----------------------------------------------------------------------------------------------------
Steel Stock data:
- -----------------
Income (loss) before
extraordinary losses
applicable to Steel Stock $ 74 $ 63 $ 133 $ 85
- Per share: basic .83 .72 1.53 .98
diluted .81 .71 1.46 .95
Dividends paid per share .25 .25 .25 .25
Price range of Steel
Stock/(c)/:
- Low 21- 5/8 20- 7/16 31 28- 7/16
- High 27- 3/4 33- 1/2 43- 1/16 42- 1/8
- --------------------------------------------------------------------------------------------------------
/(a)/ Restated to reflect current classifications.
/(b)/ Reclassified to conform to 1999 classifications.
/(c)/ Composite tape.
U-29
Principal Unconsolidated Affiliates (Unaudited)
December 31, 1999
Company Country Ownership Activity
- -----------------------------------------------------------------------------------------------------------------------------
Clairton 1314B Partnership, L.P. United States 10% Coke & Coke By-Products
CLAM Petroleum B.V. Netherlands 50% Oil & Gas Production
Double Eagle Steel Coating Company United States 50% Steel Processing
Kenai LNG Corporation United States 30% Natural Gas Liquification
LOCAP, Inc. United States 50% /(a)/ Pipeline & Storage Facilities
LOOP LLC United States 47% /(a)/ Offshore Oil Port
Manta Ray Offshore Gathering Company, LLC United States 24% Natural Gas Transmission
Minnesota Pipe Line Company United States 33% /(a)/ Pipeline Facility
Nautilus Pipeline Company, LLC United States 24% Natural Gas Transmission
Odyssey Pipeline LLC United States 29% Pipeline Facility
Poseidon Oil Pipeline Company, LLC United States 28% Crude Oil Transportation
PRO-TEC Coating Company United States 50% Steel Processing
Republic Technologies International, LLC United States 16% Steel Products
Sakhalin Energy Investment Company Ltd. Russia 38% Oil & Gas Development
Transtar, Inc. United States 46% Transportation
USS-POSCO Industries United States 50% Steel Processing
VSZ U. S. Steel, s. r.o. Slovak Republic 50% Tin Mill Products
Worthington Specialty Processing United States 50% Steel Processing
/(a)/ Represents the ownership of MAP.
Supplementary Information on Mineral Reserves (Unaudited)
Mineral Reserves (other than oil and gas)
Reserves at December 31/(a)/ Production
---------------------------- ---------------------
(Million tons) 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Iron/(b)/ 726.1 738.6 754.8 14.3 15.8 16.8
Coal/(c)/ 787.4 789.7 798.8 6.2 7.3 7.5
- ----------------------------------------------------------------------------------------------------------
/(a)/ Commercially recoverable reserves include demonstrated (measured and
indicated) quantities which are expressed in recoverable net product
tons.
/(b)/ In 1999, iron ore reserves decreased due to production, lease activity
and engineering revisions. In 1998, iron ore reserves decreased due to
production and engineering revisions.
/(c)/ In 1999 and 1998, coal reserves decreased due to production, lease
activity and engineering revisions.
Supplementary Information on Oil and Gas Producing Activities (Unaudited)
Capitalized Costs and Accumulated Depreciation, Depletion and Amortization/(a)/
United Other Equity
(In millions) December 31 States Europe Intl. Consolidated Affiliates Total
- -------------------------------------------------------------------------------------------------------------------------------
1999
Capitalized costs:
Proved properties $8,270 $4,465 $1,270 $14,005 $612 $14,617
Unproved properties 349 55 187 591 123 714
------ ------ ------ ------- ---- -------
Total 8,619 4,520 1,457 14,596 735 15,331
------ ------ ------ ------- ---- -------
Accumulated depreciation,
depletion and amortization:
Proved properties 5,019 2,859 136 8,014 169 8,183
Unproved properties 78 - 6 84 - 84
------ ------ ------ ------- ---- -------
Total 5,097 2,859 142 8,098 169 8,267
------ ------ ------ ------- ---- -------
Net capitalized costs $3,522 $1,661 $1,315 $ 6,498 $566 $ 7,064
- ---------------------------------------------------------------------------------------------------------------------
1998
Capitalized costs:
Proved properties $8,366 $4,430 $1,288 $14,084 $628 $14,712
Unproved properties 400 43 90 533 7 540
------ ------ ------ ------- ---- -------
Total 8,766 4,473 1,378 14,617 635 15,252
------ ------ ------ ------- ---- -------
Accumulated depreciation,
depletion and amortization:
Proved properties 5,020 2,685 135 7,840 156 7,996
Unproved properties 91 - 5 96 - 96
------ ------ ------ ------- ---- -------
Total 5,111 2,685 140 7,936 156 8,092
------ ------ ------ ------- ---- -------
Net capitalized costs $3,655 $1,788 $1,238 $ 6,681 $479 $ 7,160
- ---------------------------------------------------------------------------------------------------------------------
/(a)/ Prior year amounts have been changed to conform with current year
reporting practices.
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED
Results of Operations for Oil and Gas Producing Activities, Excluding Corporate
Overhead and Interest Costs/(a)/
United Other Equity
(In millions) States Europe Intl. Consolidated Affiliates Total
- ----------------------------------------------------------------------------------------------------------------------------------
1999: Revenues:
Sales/(b)/ $ 474 $ 431 $ 198 $ 1,103 $ 33 $ 1,136
Transfers 882 - 88 970 - 970
------ ----- ----- ------- ---- -------
Total revenues 1,356 431 286 2,073 33 2,106
Expenses:
Production costs (322) (137) (99) (558) (25) (583)
Exploration expenses (134) (42) (51) (227) (4) (231)
Depreciation, depletion and amortization/(c)/ (378) (143) (99) (620) (13) (633)
Other expenses (28) (7) (15) (50) - (50)
------ ----- ----- ------- ---- -------
Total expenses (862) (329) (264) (1,455) (42) (1,497)
Other production-related earnings/(d)/ 1 4 4 9 1 10
------ ----- ----- ------- ---- -------
Results before income taxes 495 106 26 627 (8) 619
Income taxes (credits) 168 33 (7) 194 (3) 191
------ ----- ----- ------- ---- -------
Results of operations $ 327 $ 73 $ 33 $ 433 $ (5) $ 428
- ------------------------------------------------------------------------------------------------------------------------------------
1998: Revenues:
Sales/(b)/ $ 518 $ 454 $ 71 $ 1,043 $ 28 $ 1,071
Transfers 536 - 51 587 - 587
------ ----- ----- ------- ---- -------
Total revenues 1,054 454 122 1,630 28 1,658
Expenses:
Production costs (295) (153) (57) (505) (8) (513)
Exploration expenses/(e)/ (179) (45) (86) (310) (5) (315)
Depreciation, depletion and amortization/(c)/ (339) (150) (68) (557) (8) (565)
Other expenses (37) (3) (11) (51) - (51)
------ ----- ----- ------- ---- -------
Total expenses (850) (351) (222) (1,423) (21) (1,444)
Other production-related earnings/(d)/ 1 15 3 19 1 20
------ ----- ----- ------- ---- -------
Results before income taxes 205 118 (97) 226 8 234
Income taxes (credits) 61 22 (28) 55 3 58
------ ----- ----- ------- ---- -------
Results of operations $ 144 $ 96 $ (69) $ 171 $ 5 $ 176
- ------------------------------------------------------------------------------------------------------------------------------------
1997: Revenues:
Sales/(b)/ $ 581 $ 572 $ 21 $ 1,174 $ 42 $ 1,216
Transfers 724 - 38 762 - 762
------ ----- ----- ------- ---- -------
Total revenues 1,305 572 59 1,936 42 1,978
Expenses:
Production costs (337) (162) (12) (511) (15) (526)
Exploration expenses (127) (34) (25) (186) (1) (187)
Depreciation, depletion and amortization (300) (130) (16) (446) (8) (454)
Other expenses (32) (3) (13) (48) - (48)
------ ----- ----- ------- ---- -------
Total expenses (796) (329) (66) (1,191) (24) (1,215)
Other production-related earnings/(d)/ - 28 1 29 1 30
------ ----- ----- ------- ---- -------
Results before income taxes 509 271 (6) 774 19 793
Income taxes (credits) 170 79 4 253 4 257
------ ----- ----- ------- ---- -------
Results of operations $ 339 $ 192 $ (10) $ 521 $ 15 $ 536
- ------------------------------------------------------------------------------------------------------------------------------------
/(a)/ Includes the results of using derivative instruments to manage commodity
and foreign currency risks.
/(b)/ Includes net gains on asset dispositions and natural gas contract
settlements, as of December 31, 1999, 1998 and 1997, of $2 million, $43
million and $7 million, respectively.
/(c)/ Includes domestic property impairments of $16 million as of December 31,
1999 and international property impairments of $10 million as of
December 31, 1998.
/(d)/ Includes revenues, net of associated costs, from third-party activities
that are an integral part of USX's production operations. Third-party
activities may include the processing and/or transportation of third-
party production, and the purchase and subsequent resale of gas utilized
in reservoir management.
/(e)/ Includes international property impairments and suspended exploration
well write-offs of $73 million.
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED
Costs Incurred for Property Acquisition, Exploration and Development - Including
Capital Expenditures/(a)/
United Other Equity
(In millions) States Europe Intl. Consolidated Affiliates Total
- ---------------------------------------------------------------------------------------------------------------------------
1999: Property acquisition:
Proved $ 17 $ - $ 10 $ 27 $ - $ 27
Unproved 56 12 107 175 - 175
Exploration 141 47 64 252 7 259
Development 205 34 117 356 84 440
1998: Property acquisition:
Proved $ 3 $ 3 $ 1,051 $1,057 $ - $1,057
Unproved 82 - 57 139 - 139
Exploration 217 39 75 331 11 342
Development 431 39 46 516 165 681
1997: Property acquisition:
Proved $ 16 $ - $ - $ 16 $ - $ 16
Unproved 50 - - 50 - 50
Exploration 170 53 43 266 3 269
Development 477 67 27 571 135 706
- ---------------------------------------------------------------------------------------------------------------------------
/(a)/ Prior year amounts have been changed to conform with current year
reporting practices.
Estimated Quantities of Proved Oil and Gas Reserves
The following estimates of net reserves have been determined by deducting
royalties of various kinds from USX's gross reserves. The reserve estimates are
believed to be reasonable and consistent with presently known physical data
concerning size and character of the reservoirs and are subject to change as
additional knowledge concerning the reservoirs becomes available. The estimates
include only such reserves as can reasonably be classified as proved; they do
not include reserves which may be found by extension of proved areas or reserves
recoverable by secondary or tertiary recovery methods unless these methods are
in operation and are showing successful results. Undeveloped reserves consist of
reserves to be recovered from future wells on undrilled acreage or from existing
wells where relatively major expenditures will be required to realize
production. USX did not have any quantities of oil and gas reserves subject to
long-term supply agreements with foreign governments or authorities in which USX
acts as producer.
United Other Equity
(Millions of barrels) States Europe Intl. Consolidated Affiliates Total
- -----------------------------------------------------------------------------------------------------------------------------
Liquid Hydrocarbons
Proved developed and undeveloped reserves:
Beginning of year - 1997 589 177 26 792 - 792
Purchase of reserves in place 2 - - 2 - 2
Revisions of previous estimates 9 (1) 3 11 - 11
Improved recovery 22 - - 22 - 22
Extensions, discoveries and other additions 31 - - 31 82 113
Production (42) (15) (3) (60) - (60)
Sales of reserves in place (2) - - (2) - (2)
------- ----- ----- ----- -------- --------
End of year - 1997 609 161 26 796 82 878
Purchase of reserves in place 1 - 156/(a) 157 - 157
Revisions of previous estimates (1) (28) 1 (28) (2) (30)
Improved recovery 3 - - 3 - 3
Extensions, discoveries and other additions 10 4 18 32 - 32
Production (49) (15) (7) (71) - (71)
Sales of reserves in place (5) - - (5) - (5)
------- ----- ----- ----- -------- --------
End of year - 1998 568 122 194 884 80 964
Purchase of reserves in place 14 - 7 21 - 21
Revisions of previous estimates 2 (20) - (18) (3) (21)
Improved recovery 11 - 1 12 - 12
Extensions, discoveries and other additions 9 - 5 14 - 14
Production (53) (12) (11) (76) - (76)
Sales of reserves in place (12) - (9) (21) - (21)
------- ----- ----- ----- -------- --------
End of year - 1999 539 90 187 816 77 893
- -------------------------------------------------------------------------------------------------------------------------------
Proved developed reserves:
Beginning of year - 1997 443 163 11 617 - 617
End of year - 1997 486 161 12 659 - 659
End of year - 1998 489 119 67 675 - 675
End of year - 1999 476 90 72 638 69 707
- -----------------------------------------------------------------------------------------------------------------------------
/(a)/ Represents reserves related to the acquisition of Tarragon Oil and Gas
Limited in August 1998.
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED
Estimated Quantities of Proved Oil and Gas Reserves (continued)
United Other Equity
(Billions of cubic feet) States Europe Intl. Consolidated Affiliates Total
- -----------------------------------------------------------------------------------------------------------------------------------
Natural Gas
Proved developed and
undeveloped reserves:
Beginning of year - 1997 2,239 1,178 21 3,438 132 3,570
Purchase of reserves in place 31 - - 31 - 31
Revisions of previous estimates (39) 9 6 (24) (6) (30)
Improved recovery - - - - - -
Extensions, discoveries and
other additions 262 - - 262 - 262
Production (264) (139) (4) (407) (15) (422)
Sales of reserves in place (9) - - (9) - (9)
----- ----- --- ----- ----- -----
End of year - 1997 2,220 1,048 23 3,291 111 3,402
Purchase of reserves in place 10 - 782 /(a)/ 792 - 792
Revisions of previous estimates (16) 10 (1) (7) 5 (2)
Improved recovery - - - - - -
Extensions, discoveries and
other additions 238 32 55 325 5 330
Production (272) (124) (29) (425) (11) (436)
Sales of reserves in place (29) - - (29) - (29)
----- ----- --- ----- ----- -----
End of year - 1998 2,151 966 830 3,947 110 4,057
Purchase of reserves in place 5 - 11 16 - 16
Revisions of previous estimates (83) (81) (3) (167) 13 (154)
Improved recovery 8 - 2 10 - 10
Extensions, discoveries and
other additions 281 - 94 375 13 388
Production (275) (111) (59) (445) (13) (458)
Sales of reserves in place (42) - (42) (84) - (84)
----- ----- --- ----- ----- -----
End of year - 1999 2,045 774 833 3,652 123 3,775
- ----------------------------------------------------------------------------------------------------------------------------
Proved developed reserves:
Beginning of year - 1997 1,720 1,133 16 2,869 100 2,969
End of year - 1997 1,702 1,024 19 2,745 78 2,823
End of year - 1998 1,678 909 534 3,121 76 3,197
End of year - 1999 1,550 741 497 2,788 65 2,853
- ----------------------------------------------------------------------------------------------------------------------------
/(a)/ Represents reserves related to the acquisition of Tarragon Oil and Gas
Limited in August 1998.
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves
Estimated discounted future net cash flows and changes therein were
determined in accordance with Statement of Financial Accounting Standards No.
69. Certain information concerning the assumptions used in computing the
valuation of proved reserves and their inherent limitations are discussed below.
USX believes such information is essential for a proper understanding and
assessment of the data presented.
Future cash inflows are computed by applying year-end prices of oil and gas
relating to USX's proved reserves to the year-end quantities of those reserves.
Future price changes are considered only to the extent provided by contractual
arrangements in existence at year-end.
The assumptions used to compute the proved reserve valuation do not
necessarily reflect USX's expectations of actual revenues to be derived from
those reserves nor their present worth. Assigning monetary values to the
estimated quantities of reserves, described on the preceding page, does not
reduce the subjective and ever-changing nature of such reserve estimates.
Additional subjectivity occurs when determining present values because the
rate of producing the reserves must be estimated. In addition to uncertainties
inherent in predicting the future, variations from the expected production rate
also could result directly or indirectly from factors outside of USX's control,
such as unintentional delays in development, environmental concerns, changes in
prices or regulatory controls.
The reserve valuation assumes that all reserves will be disposed of by
production. However, if reserves are sold in place or subjected to participation
by foreign governments, additional economic considerations also could affect the
amount of cash eventually realized.
Future development and production costs, including abandonment and
dismantlement costs, are computed by estimating the expenditures to be incurred
in developing and producing the proved oil and gas reserves at the end of the
year, based on year-end costs and assuming continuation of existing economic
conditions.
Future income tax expenses are computed by applying the appropriate year-
end statutory tax rates, with consideration of future tax rates already
legislated, to the future pretax net cash flows relating to USX's proved oil and
gas reserves. Permanent differences in oil and gas related tax credits and
allowances are recognized.
Discount was derived by using a discount rate of 10 percent a year to
reflect the timing of the future net cash flows relating to proved oil and gas
reserves.
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED
Standardized Measure of Discounted Future Net Cash Flows Relating
to Proved Oil and Gas Reserves (continued)
United Other Equity
(In millions) States Europe Intl. Consolidated Affiliates Total
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December 31, 1999:
Future cash inflows $ 15,817 $ 4,426 $ 5,242 $ 25,485 $ 2,154 $27,639
Future production costs (4,690) (1,864) (1,107) (7,661) (850) (8,511)
Future development costs (465) (86) (315) (866) (88) (954)
Future income tax expenses (3,232) (987) (1,581) (5,800) (328) (6,128)
-------- ------- --------- ------- --------- -------
Future net cash flows 7,430 1,489 2,239 11,158 888 12,046
10% annual discount for
estimated timing of
cash flows (3,451) (374) (862) (4,687) (372) (5,059)
-------- ------- --------- ------- --------- -------
Standardized measure of
discounted future net cash
flows relating to proved oil
and gas reserves $ 3,979 $ 1,115 $ 1,377 $ 6,471 $ 516 $ 6,987
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December 31, 1998:
Future cash inflows $ 8,615 $ 3,850 $ 2,686 $ 15,151 $ 1,036 $16,187
Future production costs (3,781) (2,240) (950) (6,971) (586) (7,557)
Future development costs (585) (130) (323) (1,038) (124) (1,162)
Future income tax expenses (850) (630) (542) (2,022) (45) (2,067)
-------- ------- --------- ------- ---------- -------
Future net cash expenses 3,399 850 871 5,120 281 5,401
10% annual discount for
estimated timing of cash flows (1,498) (256) (392) (2,146) (136) (2,282)
-------- ------- --------- ------- ---------- -------
Standardized measure of
discounted future net cash
flows relating to proved oil
and gas reserves $ 1,901 $ 594 $ 479 $ 2,974 145 $ 3,119
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December 31, 1997:
Future cash inflows $ 13,902 $ 6,189 $ 484 $ 20,575 $ 1,714 $22,289
Future production costs (4,739) (2,310) (172) (7,221) (643) (7,864)
Future development costs (702) (162) (18) (882) (200) (1,082)
Future income tax expenses (2,413) (1,371) (62) (3,846) (232) (4,078)
-------- ------- --------- ------- ---------- -------
Future net cash flows 6,048 2,346 232 8,626 639 9,265
10% annual discount for
estimated timing of cash flows (2,696) (1,011) (52) (3,759) (367) (4,126)
-------- ------- --------- ------- ---------- -------
Standardized measure of
discounted future net cash
flows relating to proved oil
and gas reserves $ 3,352 $ 1,335 $ 180 $ 4,867 $ 272 $ 5,139
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Summary of Changes in Standardized Measure of Discounted Future
Net Cash Flows Relating to Proved Oil and Gas Reserves/(a)/
Consolidated Equity Affiliates Total
------------------------------ ----------------------------- -----------------------------
(In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997
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Sales and transfers of
oil and gas produced,
net of production
costs $(1,516) $(1,125) $(1,424) $ (8) $ (20) $ (28) $(1,524) $(1,145) $(1,452)
Net changes in prices and
production costs related
to future production 6,061 (3,662) (3,677) 484 (372) (36) 6,545 (4,034) (3,713)
Extensions, discoveries and
improved recovery, less
related costs 566 284 458 9 4 263 575 288 721
Development costs incurred
during the period 356 516 571 84 165 135 440 681 706
Changes in estimated future
development costs (38) (306) (302) (52) (100) (121) (90) (406) (423)
Revisions of previous
quantity estimates (348) (110) 43 (8) (2) (5) (356) (112) 38
Net changes in purchases
and sales of
minerals in place 68 636 14 - - - 68 636 14
Accretion of discount 386 639 1,065 18 39 13 404 678 1,078
Net change in income taxes (2,062) 869 1,350 (117) 57 (29) (2,179) 926 1,321
Other 24 366 (764) (39) 102 (4) (15) 468 (768)
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Net change for the year 3,497 (1,893) (2,666) 371 (127) 188 3,868 (2,020) (2,478)
Beginning of year 2,974 4,867 7,533 145 272 84 3,119 5,139 7,617
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End of year $ 6,471 $ 2,974 $ 4,867 $ 516 $ 145 $ 272 $ 6,987 $ 3,119 $ 5,139
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/(a)/ Prior year amounts have been changed to conform with current
year reporting practices.
U-34