<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------ to ------------
USX CORPORATION
--------------------------------------------------------------------------------
----
(Exact name of registrant as specified in its charter)
Delaware 1-5153 25-0996816
--------------- ------------ -------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
600 Grant Street, Pittsburgh, PA 15219-4776
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(412) 433-1121
------------------------------
(Registrant's telephone number,
including area code)
--------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes..X..No.....
Common stock outstanding at July 31, 1995 follows:
USX-Marathon Group - 287,162,628 shares
USX-U. S. Steel Group - 81,833,968 shares
USX-Delhi Group - 9,436,769 shares
<PAGE> 2
USX CORPORATION
SEC FORM 10-Q
QUARTER ENDED JUNE 30, 1995
----------------------------
INDEX Page
----- ----
PART I - FINANCIAL INFORMATION
A. Consolidated Corporation
Item 1. Financial Statements:
Consolidated Statement of Operations 4
Consolidated Balance Sheet 6
Consolidated Statement of Cash Flows 8
Selected Notes to Consolidated
Financial Statements 9
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends and Ratio of
Earnings to Fixed Charges 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
Financial Statistics 20
B. Marathon Group
Item 1. Financial Statements:
Marathon Group Statement of Operations 21
Marathon Group Balance Sheet 22
Marathon Group Statement of Cash Flows 23
Selected Notes to Financial Statements 24
Item 2. Marathon Group Management's Discussion and
Analysis of Financial Condition and
Results of Operations 29
Supplemental Statistics 36
<PAGE> 3
USX CORPORATION
SEC FORM 10-Q
QUARTER ENDED JUNE 30, 1995
----------------------------
INDEX Page
----- ----
PART I - FINANCIAL INFORMATION (Continued)
C. U. S. Steel Group
Item 1. Financial Statements:
U. S. Steel Group Statement of Operations 37
U. S. Steel Group Balance Sheet 38
U. S. Steel Group Statement of Cash Flows 39
Selected Notes to Financial Statements 40
Item 2. U. S. Steel Group Management's Discussion
and Analysis of Financial Condition
and Results of Operations 45
Supplemental Statistics 51
D. Delhi Group
Item 1. Financial Statements:
Delhi Group Statement of Operations 52
Delhi Group Balance Sheet 53
Delhi Group Statement of Cash Flows 54
Selected Notes to Financial Statements 55
Item 2. Delhi Group Management's Discussion and
Analysis of Financial Condition
and Results of Operations 59
Supplemental Statistics 65
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 66
Item 4. Submission of Matters to a Vote of
Security Holders 66
Item 5. Other Information 67
Item 6. Exhibits and Reports on Form 8-K 68
<PAGE> 4
Part I - Financial Information
A. Consolidated Corporation
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
------------------------------------------------
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30 June 30
(Dollars in millions) 1995 1994 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $5,278 $4,761 $10,316 $9,034
OPERATING COSTS:
Cost of sales (excludes items shown below) 3,736 3,551 7,394 6,745
Inventory market valuation charges (credits) 2 (93) (86) (221)
Selling, general and administrative expenses 53 64 95 119
Depreciation, depletion and amortization 300 272 590 530
Taxes other than income taxes 783 697 1,539 1,354
Exploration expenses 27 35 53 68
Restructuring charges (credits) (6) 37 (6) 37
------ ------ ------ ------
Total operating costs 4,895 4,563 9,579 8,632
------ ------ ------ ------
OPERATING INCOME 383 198 737 402
Other income 37 31 61 59
Interest and other financial income 13 2 17 11
Interest and other financial costs (132) (81) (265) (198)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 301 150 550 274
Less provision for estimated income taxes 111 43 206 92
------ ------ ------ ------
NET INCOME 190 107 344 182
Dividends on preferred stock (8) (9) (16) (16)
------ ------ ------ ------
NET INCOME APPLICABLE TO COMMON STOCKS $182 $98 $328 $166
====== ====== ====== ======
<FN>
Selected notes to financial statements appear on pages 9-13.
</TABLE>
<PAGE> 5
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
------------------------------------------------------------
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30 June 30
(Dollars in millions, except per share amounts) 1995 1994 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APPLICABLE TO MARATHON STOCK:
Net income $107 $70 $182 $179
- Per share - primary and fully diluted .37 .25 .63 .63
Dividends paid per share .17 .17 .34 .34
Weighted average shares, in thousands
- Primary 287,246 286,578 287,217 286,580
- Fully diluted 293,504 286,578 287,225 286,581
APPLICABLE TO STEEL STOCK:
Net income $74 $49 $142 $8
- Per share - primary .99 .65 1.87 .11
- fully diluted .95 .64 1.80 .11
Dividends paid per share .25 .25 .50 .50
Weighted average shares, in thousands
- Primary 76,562 75,490 76,373 74,579
- Fully diluted 87,484 78,929 87,293 74,579
APPLICABLE TO OUTSTANDING DELHI STOCK:
Net income (loss) $1 $(21) $4 $(21)
- Per share - primary and fully diluted .12 (2.27) .42 (2.25)
Dividends paid per share .05 .05 .10 .10
Weighted average shares, in thousands
- Primary and fully diluted 9,438 9,418 9,438 9,375
<FN>
Selected notes to financial statements appear on pages 9-13.
</TABLE>
<PAGE> 6
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Unaudited)
----------------------------------------
<CAPTION>
ASSETS
June 30 December 31
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $101 $48
Receivables, less allowance for doubtful
accounts of $15 and $9 1,114 1,112
Inventories 1,854 1,742
Deferred income tax benefits 213 339
Other current assets 69 81
------ ------
Total current assets 3,351 3,322
Long-term receivables and other investments,
less reserves of $22 and $22 962 1,005
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$14,383 and $14,211 11,151 11,375
Prepaid pensions 1,574 1,485
Other noncurrent assets 324 330
------ ------
Total assets $17,362 $17,517
====== ======
<FN>
Selected notes to financial statements appear on pages 9-13.
</TABLE>
<PAGE> 7
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Continued) (Unaudited)
--------------------------------------------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30 December 31
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable $111 $1
Accounts payable 1,778 1,873
Payroll and benefits payable 467 442
Accrued taxes 354 330
Accrued interest 128 128
Long-term debt due within one year 314 78
------ ------
Total current liabilities 3,152 2,852
Long-term debt, less unamortized discount 4,975 5,521
Long-term deferred income taxes 1,197 1,249
Employee benefits 2,793 2,822
Deferred credits and other liabilities 476 521
Preferred stock of subsidiary 250 250
------ ------
Total liabilities 12,843 13,215
------ ------
STOCKHOLDERS' EQUITY
Preferred stocks:
Adjustable Rate Cumulative issued - 2,099,970 shares 105 105
6.50% Cumulative Convertible issued - 6,900,000 shares
($345 liquidation preference) 7 7
Common stocks:
Marathon Stock issued - 287,201,519 shares and
287,185,916 shares 287 287
Steel Stock issued - 76,761,577 shares and
75,969,771 shares 77 76
Delhi Stock issued - 9,438,391 shares and
9,437,891 shares 9 9
Treasury common stock, at cost:
Marathon Stock 39,597 shares and 0 shares (1) -
Steel Stock 14,805 shares and 0 shares - -
Delhi Stock 1,622 shares and 0 shares - -
Additional paid-in capital 4,040 4,168
Accumulated earnings (deficit) 14 (330)
Other equity adjustments (19) (20)
------ ------
Total stockholders' equity 4,519 4,302
------ ------
Total liabilities and stockholders' equity $17,362 $17,517
====== ======
<FN>
Selected notes to financial statements appear on pages 9-13.
</TABLE>
<PAGE> 8
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
<CAPTION>
Six Months Ended
June 30
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $344 $182
Adjustments to reconcile to net cash provided from
(used in) operating activities:
Depreciation, depletion and amortization 590 530
Exploratory dry well costs 17 28
Inventory market valuation credits (86) (221)
Pensions (78) (81)
Postretirement benefits other than pensions (8) 45
Deferred income taxes 78 91
Gain on disposal of assets (11) (33)
Restructuring charges (credits) (6) 37
Changes in:
Current receivables - sold (10) -
- operating turnover 5 12
Inventories (29) (56)
Current accounts payable and accrued expenses (58) (582)
All other items - net 20 4
------ ------
Net cash provided from (used in)
operating activities 768 (44)
------ ------
INVESTING ACTIVITIES:
Capital expenditures (413) (399)
Disposal of assets 68 46
All other items - net 13 15
------ ------
Net cash used in investing activities (332) (338)
------ ------
FINANCING ACTIVITIES:
Commercial paper and revolving credit arrangements-net (238) 102
Other debt - borrowings - 505
- repayments (18) (721)
Issuance of preferred stock of subsidiary - 242
Common stock issued 22 211
Dividends paid (149) (150)
------ ------
Net cash provided from (used in)
financing activities (383) 189
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 53 (193)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 48 268
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $101 $75
====== ======
Cash provided from (used in) operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(237) $(347)
Income taxes (paid) refunded (92) 2
<FN>
Selected notes to financial statements appear on pages 9-13.
</TABLE>
<PAGE> 9
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited but,
in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments
are of a normal recurring nature unless disclosed otherwise. These
financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Additional information is contained in the USX Annual Report
on Form 10-K for the year ended December 31, 1994.
2. The method of calculating net income (loss) per share for the Marathon
Stock, Steel Stock and Delhi Stock reflects the USX Board of Directors'
intent that the separately reported earnings and surplus of the Marathon
Group, the U. S. Steel Group and the Delhi Group, as determined consistent
with the USX Certificate of Incorporation, are available for payment of
dividends to the respective classes of stock, although legally available
funds and liquidation preferences of these classes of stock do not
necessarily correspond with these amounts. The financial statements of the
Marathon Group, the U. S. Steel Group and the Delhi Group, taken together,
include all accounts which comprise the corresponding consolidated
financial statements of USX.
Primary net income (loss) per share is calculated by adjusting net income
(loss) for dividend requirements of preferred stock and, in the case of
Delhi Stock, for the income applicable to the Retained Interest; and is
based on the weighted average number of common shares outstanding plus
common stock equivalents, provided they are not antidilutive. Common stock
equivalents result from assumed exercise of stock options and surrender of
stock appreciation rights associated with stock options, where applicable.
Fully diluted net income (loss) per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options and surrender of stock appreciation rights, provided, in each
case, the effect is not antidilutive.
3. The items below were included in both sales and operating costs, resulting
in no effect on income:
<TABLE>
<CAPTION>
(In millions)
-------------------------------
Second Qtr. Six Months
Ended Ended
June 30 June 30
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consumer excise taxes on petroleum
products and merchandise $681 $602 $1,328 $1,145
Matching buy/sell transactions 491 558 1,052 967
</TABLE>
<PAGE> 10
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
4. Inventories are carried at lower of cost or market. Cost of inventories is
determined primarily under the last-in, first-out (LIFO) method.
<TABLE>
<CAPTION>
(In millions)
----------------------
June 30 December 31
1995 1994
-------- -----------
<S> <C> <C>
Raw materials $582 $568
Semi-finished products 325 336
Finished products 941 930
Supplies and sundry items 199 187
------ ------
Total (at cost) 2,047 2,021
Less inventory market valuation reserve 193 279
------ ------
Net inventory carrying value $1,854 $1,742
====== ======
</TABLE>
The inventory market valuation reserve reflects the extent that the
recorded cost of crude oil and refined products inventories exceeds net
realizable value. The reserve is decreased to reflect increases in market
prices and inventory turnover and increased to reflect decreases in market
prices. Changes in the reserve result in charges or credits to operating
income.
5. In the second quarter of 1994, payments of $124 million were made to settle
various state tax issues. As a result of these settlements, a net
favorable adjustment of $37 million was made to net income consisting of a
credit of $12 million in operating costs, a credit of $35 million in
interest and other financial costs and an income tax provision effect of
$10 million.
6. In the second quarter of 1994, restructuring charges totaling $40 million
were reported for the write-down of assets to estimated net realizable
value related to the planned disposition of certain nonstrategic gas
gathering and processing assets and other investments. Charges of $37
million were included in operating costs and $3 million included in other
income. In the second quarter of 1995, disposition of these assets was
completed at higher than anticipated sales proceeds, resulting in
restructuring credits of $11 million ($6 million included in operating
income and $5 million included in other income).
7. Operating income included net periodic pension credits of $72 million and
$61 million in the first six months of 1995 and 1994, respectively, ($36
million and $31 million in the second quarter of 1995 and 1994,
respectively). These pension credits are primarily noncash and for the
most part are included in selling, general and administrative expenses.
The expected long-term rate of return on plan assets, which is reflected in
the calculation of net periodic pension credits, was increased to 10% in
1995 from 9% in 1994.
<PAGE> 11
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
8. The provision for estimated income taxes for the periods reported is based
on tax rates and amounts which recognize management's best estimate of
current and deferred tax assets and liabilities.
9. At June 30, 1995, USX had no borrowings against its $2,325 million long-
term revolving credit agreement. At June 30, 1995, $2 million of
commercial paper and $426 million of zero coupon convertible debentures
were included in long-term debt, since the unused long-term credit
agreement was available for refinancing, if needed.
USX had outstanding borrowings of $56 million at June 30, 1995, against its
short-term lines of credit totaling $165 million, which require maintenance
of compensating balances of 3%. In addition, USX had other outstanding
short-term borrowings of $55 million.
In the event of a change in control of USX, debt obligations totaling
$3,942 million at June 30, 1995, may be declared immediately due and
payable.
10. USX has entered into agreements to sell certain accounts receivable subject
to limited recourse. Payments are collected from the sold accounts
receivable; the collections are reinvested in new accounts receivable for
the buyers; and a yield based on defined short-term market rates is
transferred to the buyers. At June 30, 1995, the balance of sold accounts
receivable that had not been collected was $740 million, and the buyers had
collection rights for an additional $92 million of designated unsold
receivables to collateralize the limited recourse provisions. In the event
of a change in control of USX, as defined in one of the agreements, USX may
be required to forward to the buyers, payments collected on sold accounts
receivable of $350 million.
Prior to 1993, USX Credit, a division of USX, sold certain of its loans
receivable subject to limited recourse. USX Credit continues to collect
payments from the loans and transfer to the buyers principal collected plus
yield based on defined short-term market rates. At June 30, 1995, the
balance of sold loans receivable subject to recourse was $108 million. As
of June 30, 1995, USX Credit had outstanding loan commitments of $10
million. USX Credit is not actively seeking new loans at this time. In
the event of a change in control of USX, as defined in the agreement, USX
may be required to provide cash collateral in the amount of the uncollected
loans receivable to assure compliance with the limited recourse provisions.
11. USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments involving a variety of
matters, including laws and regulations relating to the environment.
Certain of these matters are discussed below. The ultimate resolution of
these contingencies could, individually or in the aggregate, be material to
the consolidated financial statements. However, management believes that
USX will remain a viable and competitive enterprise even though it is
possible that these contingencies could be resolved unfavorably. See
discussion of Liquidity and Capital Resources in USX Consolidated
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE> 12
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
11. (Continued)
In 1994, USX paid $367 million in judgments against the Bessemer & Lake
Erie Railroad in the Lower Lake Erie Iron Ore Antitrust Litigation. Two
remaining plaintiffs in this case have had their damage claims remanded for
retrial. A new trial may result in awards more or less than the original
asserted claims of $8 million and would be subject to trebling.
In 1992, the United States District Court for the District of Utah Central
Division issued a Memorandum Opinion and Order in Pickering v. USX relating
to pension and compensation claims by approximately 1,900 employees of
USX's former Geneva (Utah) Works. Although the court dismissed a number of
the claims by the plaintiffs, it found that USX had violated the Employee
Retirement Income Security Act by interfering with the accrual of pension
benefits of certain employees and amending a benefit plan to reduce the
accrual of future benefits without proper notice to plan participants. On
May 5, 1995, the Court issued its Opinion on the damage issues concerning
the claims of a sample group of 23 plaintiffs. A settlement requiring USX
to make payments of $47 million (which had been partially accrued in prior
periods) has been approved by the court covering substantially all of the
remaining plaintiffs.
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 June 30, 1995, and December 31, 1994,
accrued liabilities for remediation totaled $164 million and $186 million,
respectively. It is not presently possible to estimate the ultimate amount
of all remediation costs that might be incurred or the penalties that may
be imposed.
For a number of years, USX has made substantial capital expenditures to
bring existing facilities into compliance with various laws relating to the
environment. In the first six months of 1995 and for the years 1994 and
1993, such capital expenditures for environmental controls totaled $41
million, $132 million and $181 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 June 30, 1995, and December 31, 1994, accrued liabilities for platform
abandonment and dismantlement totaled $124 million and $127 million,
respectively.
By reason of Executive Orders and related regulations under which the U.S.
Government is continuing economic sanctions against Libya, USX was required
to discontinue performing its Libyan petroleum contracts on June 30, 1986.
In June 1989, the Department of the Treasury authorized USX to resume
performing under those contracts. Pursuant to that authorization, USX has
engaged the
<PAGE> 13
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
11. (Continued)
Libyan National Oil Company and the Secretary of Petroleum in continuing
negotiations to determine when and on what basis they are willing to allow
USX to resume realizing revenue from USX's investment of $107 million in
Libya. USX is uncertain when these negotiations can be completed.
Guarantees by USX of the liabilities of affiliated and other entities
totaled $166 million at June 30, 1995. In the event that any defaults of
guaranteed liabilities occur, USX has access to its interest in the assets
of most of the affiliates to reduce losses resulting from these guarantees.
As of June 30, 1995, the largest guarantee for a single affiliate was $79
million.
At June 30, 1995, USX's pro rata share of obligations of LOOP INC. and
various pipeline affiliates secured by throughput and deficiency agreements
totaled $195 million. Under the agreements, USX is required to advance
funds if the affiliates are unable to service debt. Any such advances are
prepayments of future transportation charges.
Contract commitments for capital expenditures for property, plant and
equipment at June 30, 1995, totaled $429 million compared with $283 million
at December 31, 1994.
12. In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which is effective for 1996. USX has not adopted SFAS No. 121. For
additional information, see USX Consolidated Management's Discussion and
Analysis of Financial Condition and Results of Operations.
13. In July 1995, USX sold 5,000,000 shares of Steel Stock to the public for
net proceeds of $169 million.
<PAGE> 14
<TABLE>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
TOTAL ENTERPRISE BASIS - (Unaudited)
----------------------------------------------------------
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
-------------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
2.69 1.71 1.92 (a) (a) (a) 2.69
==== ==== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover combined fixed charges and preferred stock
dividends by $325 million for 1993, by $211 million for 1992 and by $696
million for 1991.
</TABLE>
<TABLE>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TOTAL ENTERPRISE BASIS - (Unaudited)
-------------------------------------------------
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
--------------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
2.92 1.84 2.08 (a) (a) (a) 2.80
==== ==== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover fixed charges by $281 million in 1993, by $197
million in 1992 and by $681 million in 1991.
</TABLE>
<PAGE> 15
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following discussion should be read in conjunction with the second
quarter 1995 USX consolidated financial statements and selected notes.
Results of Operations
---------------------
See the Consolidated Statement of Operations - Income per Common Share for
comparative amounts applicable to the three classes of common stock.
Sales in the second quarter of 1995 increased $517 million from the same
period in 1994. The improvement reflected increases of 21% (excluding matching
buy/sell transactions and excise taxes), 6% and 2% in sales for the Marathon
Group, the U. S. Steel Group and the Delhi Group, respectively. Sales in the
first six months of 1995 increased $1,282 million from the same period in 1994.
First half 1995 sales for the Marathon Group and U. S. Steel Group increased 20%
(excluding matching buy/sell transactions and excise taxes) and 10%,
respectively, from the same period in 1994, while sales for the Delhi Group
decreased 5%. Matching buy/sell transactions and excise taxes are included in
both sales and operating costs, resulting in no effect on operating income.
Operating income increased $185 million in the second quarter of 1995 from
the same period in 1994. Results in the second quarter of 1995 included charges
of $56 million related to the Pickering v. USX litigation and the repair of the
Gary Works' No. 8 blast furnace (which was damaged by an explosion on April 5,
1995), and a $2 million unfavorable noncash effect resulting from an increase in
the inventory market valuation reserve, partially offset by a favorable
adjustment of $6 million related to the completion of the planned disposition of
certain nonstrategic gas gathering and processing assets. The second quarter
1994 operating income included a $93 million favorable noncash effect resulting
from a decrease in inventory market valuation reserve, partially offset by
restructuring charges of $37 million related to the planned disposition of
certain nonstrategic gas gathering and processing assets. Excluding the effects
of these items, second quarter 1995 operating income increased $293 million from
the second quarter of 1994. This reflected increases of $188 million, $97
million and $8 million in operating results for the Marathon Group, the
U. S. Steel Group and the Delhi Group, respectively.
Operating income increased $335 million in the first six months of 1995
from the same period in 1994. Operating income in the first six months of 1995
included an $86 million favorable noncash effect resulting from a decrease in
the inventory market valuation reserve and a favorable adjustment of $6 million
related to the completion of the planned disposition of certain nonstrategic gas
gathering and processing assets, partially offset by charges of $56 million
related to the Pickering v. USX litigation and the repair of the Gary Works' No.
8 blast furnace. Operating income in the first six months of 1994 included a
$221 million favorable noncash effect resulting from a decrease in the inventory
market valuation reserve, partially offset by $44 million of charges related to
utility curtailments and other severe winter weather complications, a caster
fire at the Mon Valley Works and planned outages for modernization of the Gary
Works hot strip mill and pickle line and $37 million of charges related to the
planned disposition of certain nonstrategic gas gathering and processing assets.
Excluding the effects of these items, operating income in the first six months
of 1995 increased $439 million from the same period in 1994. This reflected
increases of $213 million, $211 million and $15 million in operating results for
the Marathon Group, the U. S. Steel Group and the Delhi Group, respectively.
<PAGE> 16
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Other income in the first six months of 1995 primarily reflected income
from equity affiliates. Other income in the first six months of 1994 included a
pretax gain of $33 million from the disposal of assets ($9 million in the second
quarter), primarily related to the first quarter sale of certain domestic oil
and gas production properties.
Net interest and other financial costs increased $61 million in the first
six months of 1995 from the same period in 1994. Net interest and other
financial costs in the first six months of 1994 included a $35 million favorable
effect resulting from settlement of various state tax issues. Excluding the
favorable effect, net interest and other financial costs increased 12% in the
first six months of 1995 from the same period in 1994, primarily due to lower
capitalized interest at the Marathon Group.
Net income increased 78% in the second quarter of 1995 from the same period
in 1994. For the first six months of 1995, net income increased 89% from the
same period in 1994.
Group Results
-------------
See Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Marathon Group, the U. S. Steel Group and the Delhi Group.
Operating Statistics
--------------------
For details, see Supplemental Statistics table for the Marathon Group, the
U. S. Steel Group and the Delhi Group.
Dividends to Stockholders
-------------------------
On July 25, 1995, USX's Board of Directors (the "Board") declared dividends
of 17 cents per share on Marathon Stock, 25 cents per share on Steel Stock and
five cents per share on Delhi Stock, all payable September 9, 1995, to
stockholders of record at the close of business on August 16, 1995.
The Board also declared a dividend of $0.8125 per share on USX
Corporation's 6.50% Cumulative Convertible Preferred Stock and $0.9375 per share
on USX Corporation's Adjustable Rate Cumulative Preferred Stock, in each case
payable September 29, 1995, to stockholders of record at the close of business
on August 31, 1995.
FINANCIAL CONDITION
-------------------
Cash Flows
----------
At June 30, 1995, cash and cash equivalents totaled $101 million compared
with $48 million at December 31, 1994.
Net cash provided from operating activities totaled $768 million in the
first six months of 1995, compared with net cash used in operating activities of
$44 million
<PAGE> 17
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
in the first six months of 1994. Results in 1994 included payments of
$367 million to settle substantially all of the remaining judgments from the
Bessemer & Lake Erie Railroad litigation and payments of $124 million in the
second quarter of 1994 related to settlement of various state tax issues.
Excluding the 1994 payments, net cash provided from operating activities in the
first six months of 1995 improved $321 million from the same period in 1994.
The increase primarily reflected improved profitability and favorable working
capital changes.
Cash from the disposal of assets totaled $68 million in the first six
months of 1995, compared with $46 million in the same period in 1994. The 1995
proceeds primarily reflected property sales by real estate development and
management and USX Credit. The 1994 proceeds primarily reflected the sale of
certain domestic oil and gas production properties.
USX's total long-term debt, preferred stock of subsidiary and notes payable
at June 30, 1995, was $5,650 million, down $200 million from December 31, 1994.
At June 30, 1995, USX had $2,325 million in unused long-term revolving committed
credit agreements. USX had outstanding borrowings of $111 million against
short-term lines of credit totaling $340 million, of which $175 million
requires a commitment fee and the other $165 million generally requires a
maintenance of compensating balances of 3%.
Hedging Activity
----------------
USX engages in hedging activities in the normal course of its businesses.
Futures contracts, commodity swaps and options are used to hedge exposure to
price fluctuations relevant to the purchase or sale of crude oil, natural gas
and refined products. Forward currency contracts have been used to manage
currency risks related to anticipated revenues and operating costs, firm
commitments for capital expenditures and existing assets or liabilities
denominated in a foreign currency. While hedging activities are generally used
to reduce risks from unfavorable commodity price and currency rate movements,
they also may limit the opportunity to benefit from favorable movements. USX's
hedging activities have not been significant in relation to its overall business
activity. Based on the risk assessment procedures and internal controls in
place, management believes that its use of hedging instruments will not have a
material adverse effect on the financial position, liquidity or results of
operations of USX.
Liquidity
---------
USX believes that its short-term and long-term liquidity is adequate to
satisfy its obligations as of June 30, 1995, and to complete currently
authorized capital spending programs. Future requirements for USX's business
needs, including the funding of capital expenditures, debt maturities for the
balance of 1995 and years 1996 and 1997 are expected to be financed by a
combination of internally generated funds, proceeds from the sale of stock,
future borrowings and other external financing sources.
<PAGE> 18
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
In July 1995, USX sold 5,000,000 shares of Steel Stock to the public for
net proceeds of $169 million. The net proceeds were used to fund the U. S.
Steel Group's principal pension plan for the 1994 and a portion of the 1995 plan
years.
Capital Expenditures
--------------------
Capital expenditures for property, plant and equipment in the second
quarter and first six months of 1995 were $254 million and $413 million,
respectively, compared with $237 million and $399 million in the same periods in
1994. The increases from 1994 to 1995 primarily reflected higher spending for
the U. S. Steel Group mainly due to spending related to the Gary Works' No. 8
blast furnace, continued spending on a degasser at Mon Valley Works and a
granulated coal injection facility at Fairfield Works' blast furnace. For
further details, see the Financial Statistics table.
For the year 1995, capital expenditures are expected to total approximately
$1.1 billion. The increase from 1994 of $105 million is expected to result
mainly from higher spending for the U. S. Steel Group. For details, see
discussion of Capital Expenditures for the Marathon Group, the U. S. Steel Group
and the Delhi Group.
Contract commitments for capital expenditures at June 30, 1995, were $429
million, compared with $283 million at year-end 1994.
Environmental Matters, Contingencies and Commitments
----------------------------------------------------
USX has incurred and will continue to incur substantial capital, operating
and maintenance, and remediation expenditures as a result of environmental laws
and regulations. To the extent these expenditures, as with all costs, are not
ultimately reflected in the prices of USX's products and services, operating
results will be adversely affected. USX believes that domestic competitors of
the U. S. Steel Group and substantially all the competitors of the Marathon
Group and the Delhi Group are subject to similar environmental laws and
regulations. However, the specific impact on each competitor may vary depending
on a number of factors, including the age and location of its operating
facilities, marketing areas, production processes and the specific products and
services it provides.
USX has been notified that it is a potentially responsible party ("PRP") at
46 waste sites under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") as of June 30, 1995. In addition, there are 34 sites
where USX has received information requests or other indications that USX may be
a PRP under CERCLA but where sufficient information is not presently available
to confirm the existence of liability. There are also 107 additional sites,
excluding retail gasoline stations, where remediation is being sought under
other environmental statutes, both federal and state. At many of these sites,
USX is one of a number of parties involved and the total cost of remediation, as
well as
<PAGE> 19
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX's share thereof, is frequently dependent upon the outcome of investigations
and remedial studies. USX accrues for environmental remediation activities when
the responsibility to remediate is probable and the amount of associated costs
is reasonably determinable. As environmental remediation matters proceed toward
ultimate resolution or as additional remediation obligations arise, charges in
excess of those previously accrued may be required. See Note 11 to the
Consolidated Financial Statements.
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments involving a variety of matters,
including laws and regulations relating to the environment certain of which are
discussed in Note 11 to the Consolidated Financial Statements. The ultimate
resolution of these contingencies could, individually or in the aggregate, be
material to the consolidated financial statements. However, management believes
that USX will remain a viable and competitive enterprise even though it is
possible that these contingencies could be resolved unfavorably. See discussion
of Cash Flows and Liquidity herein.
Accounting Standard
-------------------
In March 1995, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS No. 121"). This
standard must be adopted no later than the 1996 reporting year but can be
adopted early. SFAS No. 121 requires that operating assets and associated
goodwill be written down to fair value whenever an impairment review indicates
that the carrying value cannot be recovered on an undiscounted cash flow basis.
After any such noncash write-down, results of operations would be favorably
affected by reduced depreciation, depletion and amortization charges. USX is
currently reviewing its assets and, at this time, cannot provide an assessment
of either the impact or the timing of adoption of SFAS No. 121, although it is
likely that certain charges will be recognized upon adoption.
<PAGE> 20
<TABLE>
USX Corporation
FINANCIAL STATISTICS
--------------------
($'s in Millions)
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30 June 30
-------------- --------------
1995 1994 1995 1994
---- ---- ---- ----
SALES
<S> <C> <C> <C> <C>
Marathon Group $3,528 $3,105 $6,865 $5,852
U. S. Steel Group 1,623 1,534 3,200 2,918
Delhi Group 139 136 276 291
Eliminations (12) (14) (25) (27)
------- ------- ------- -------
Total $5,278 $4,761 $10,316 $9,034
OPERATING INCOME (LOSS)
Marathon Group $249 $156 $460 $382
U. S. Steel Group 129 88 263 64
Delhi Group 5 (46) 14 (44)
------ ------ ------ ------
Total $383 $198 $737 $402
CAPITAL EXPENDITURES
Marathon Group $161 $164 $258 $277
U. S. Steel Group 86 64 142 108
Delhi Group 7 9 13 14
------ ------ ------ ------
Total $254 $237 $413 $399
</TABLE>
<PAGE> 21
Part I - Financial Information (Continued):
<TABLE>
B. Marathon Group
MARATHON GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30 June 30
(Dollars in millions, except per share amounts) 1995 1994 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $3,528 $3,105 $6,865 $5,852
OPERATING COSTS:
Cost of sales (excludes items shown below) 2,230 2,097 4,439 3,867
Inventory market valuation charges (credits) 2 (93) (86) (221)
Selling, general and administrative expenses 79 86 152 164
Depreciation, depletion and amortization 209 182 416 353
Taxes other than income taxes 732 642 1,431 1,239
Exploration expenses 27 35 53 68
------ ------ ------ ------
Total operating costs 3,279 2,949 6,405 5,470
------ ------ ------ ------
OPERATING INCOME 249 156 460 382
Other income (loss) 8 (4) 13 18
Interest and other financial income 10 - 13 7
Interest and other financial costs (94) (43) (185) (120)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 173 109 301 287
Less provision for estimated income taxes 65 37 116 105
------- ------- ------- -------
NET INCOME 108 72 185 182
Dividends on preferred stock (1) (2) (3) (3)
------ ------ ------ ------
NET INCOME APPLICABLE TO MARATHON STOCK $107 $70 $182 $179
====== ====== ====== ======
MARATHON STOCK DATA:
Net income per share - primary and fully diluted $.37 $.25 $.63 $.63
Dividends paid per share .17 .17 .34 .34
Weighted average shares, in thousands
- Primary 287,246 286,578 287,217 286,580
- Fully diluted 293,504 286,578 287,225 286,581
<FN>
Selected notes to financial statements appear on pages 24-28.
</TABLE>
<PAGE> 22
<TABLE>
MARATHON GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
---------------------------------
<CAPTION>
June 30 December 31
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $72 $28
Receivables, less allowance for doubtful
accounts of $3 and $3 476 438
Inventories 1,212 1,137
Other current assets 136 134
------- ------
Total current assets 1,896 1,737
Long-term receivables and other investments 291 376
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$8,142 and $7,797 8,176 8,364
Prepaid pensions 274 261
Other noncurrent assets 207 213
------ ------
Total assets $10,844 $10,951
====== ======
LIABILITIES
Current liabilities:
Notes payable $83 $1
Accounts payable 952 1,129
Payable to other groups 70 44
Payroll and benefits payable 78 84
Accrued taxes 92 133
Deferred income taxes 191 171
Accrued interest 97 95
Long-term debt due within one year 232 55
------ ------
Total current liabilities 1,795 1,712
Long-term debt, less unamortized discount 3,684 3,983
Long-term deferred income taxes 1,302 1,270
Employee benefits 321 317
Deferred credits and other liabilities 233 246
Preferred stock of subsidiary 182 182
------ ------
Total liabilities 7,517 7,710
------ ------
STOCKHOLDERS' EQUITY
Preferred stock 78 78
Common stockholders' equity 3,249 3,163
------ ------
Total stockholders' equity 3,327 3,241
------ ------
Total liabilities and stockholders' equity $10,844 $10,951
====== ======
<FN>
Selected notes to financial statements appear on pages 24-28.
</TABLE>
<PAGE> 23
<TABLE>
MARATHON GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
-----------------------------------
<CAPTION>
Six Months Ended
June 30
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $185 $182
Adjustments to reconcile to net cash provided from
operating activities:
Depreciation, depletion and amortization 416 353
Exploratory dry well costs 17 28
Inventory market valuation credits (86) (221)
Pensions (12) (9)
Postretirement benefits other than pensions 5 8
Deferred income taxes 34 84
Gain on disposal of assets (3) (25)
Changes in:
Current receivables - sold 8 3
- operating turnover (46) (83)
Inventories 11 (41)
Current accounts payable and accrued expenses (197) (178)
All other items - net 80 18
------ ------
Net cash provided from operating activities 412 119
------ ------
INVESTING ACTIVITIES:
Capital expenditures (258) (277)
Disposal of assets 13 32
Elimination of Retained Interest in Delhi Group 58 -
All other items - net 3 10
------ ------
Net cash used in investing activities (184) (235)
------ ------
FINANCING ACTIVITIES:
Decrease in Marathon Group's share of
USX consolidated debt (83) (108)
Attributed preferred stock of subsidiary - 176
Dividends paid (101) (100)
------ ------
Net cash used in financing activities (184) (32)
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 44 (148)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 28 185
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $72 $37
====== ======
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(164) $(219)
Income taxes paid, including settlements with other
groups (96) (34)
<FN>
Selected notes to financial statements appear on pages 24-28.
</TABLE>
<PAGE> 24
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited but,
in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments
are of a normal recurring nature unless disclosed otherwise. These
financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Additional information is contained in the USX Annual Report
on Form 10-K for the year ended December 31, 1994.
2. The financial statements of the Marathon Group include the financial
position, results of operations and cash flows for the businesses of
Marathon Oil Company and certain other subsidiaries of USX, and a portion
of the corporate assets and liabilities and related transactions which are
not separately identified with ongoing operating units of USX. These
financial statements are prepared using the amounts included in the USX
consolidated financial statements. Corporate amounts reflected in these
financial statements are determined based upon methods which management
believes to be reasonable. The accounting policies applicable to the
preparation of the financial statements of the Marathon Group may be
modified or rescinded in the sole discretion of the Board of Directors of
USX (Board), although the Board has no present intention to do so. The
Board may also adopt additional policies depending on the circumstances.
Although the financial statements of the Marathon Group, the U. S. Steel
Group and the Delhi Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of USX
attributed to each such group, such attribution of assets, liabilities
(including contingent liabilities) and stockholders' equity among the
Marathon Group, the U. S. Steel Group and the Delhi Group for the purpose
of preparing their respective financial statements does not affect legal
title to such assets and responsibility for such liabilities. Holders of
USX-Marathon Group Common Stock (Marathon Stock), USX-U. S. Steel Group
Common Stock (Steel Stock) and USX-Delhi Group Common Stock (Delhi Stock)
are holders of common stock of USX and continue to be subject to all the
risks associated with an investment in USX and all of its businesses and
liabilities. Financial impacts arising from one Group that affect the
overall cost of USX's capital could affect the results of operations and
financial condition of other groups. In addition, net losses of any group,
as well as dividends or distributions on any class of USX Common Stock or
series of preferred stock and repurchases of any class of USX Common Stock
or 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. Accordingly, the USX consolidated financial
information should be read in connection with the Marathon Group financial
information.
<PAGE> 25
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
3. The method of calculating net income (loss) per share for the Marathon
Stock, Steel Stock and Delhi Stock reflects the Board's intent that the
separately reported earnings and surplus of the Marathon Group, the
U. S. Steel Group and the Delhi Group, as determined consistent with the
USX Certificate of Incorporation, are available for payment of dividends to
the respective classes of stock, although legally available funds and
liquidation preferences of these classes of stock do not necessarily
correspond with these amounts.
Primary net income per share is calculated by adjusting net income for
dividend requirements of preferred stock and is based on the weighted
average number of common shares outstanding plus common stock equivalents,
provided they are not antidilutive. Common stock equivalents result from
assumed exercise of stock options and surrender of stock appreciation
rights associated with stock options, where applicable.
Fully diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options and surrender of stock appreciation rights, provided, in each
case, the effect is not antidilutive.
4. The items below were included in both sales and operating costs, resulting
in no effect on income:
<TABLE>
<CAPTION>
(In millions)
-------------------------------
Second Qtr. Six Months
Ended Ended
June 30 June 30
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consumer excise taxes on petroleum
products and merchandise $681 $602 $1,328 $1,145
Matching buy/sell transactions 491 558 1,052 967
</TABLE>
5. Inventories are carried at the lower of cost or market. Cost of
inventories of crude oil and refined products is determined under the last-
in, first-out (LIFO) method.
<TABLE>
<CAPTION>
(In millions)
----------------------
June 30 December 31
1995 1994
-------- -----------
<S> <C> <C>
Crude oil and natural gas liquids $512 $516
Refined products and merchandise 794 801
Supplies and sundry items 99 99
------ ------
Total (at cost) 1,405 1,416
Less inventory market valuation reserve 193 279
------ ------
Net inventory carrying value $1,212 $1,137
====== ======
</TABLE>
<PAGE> 26
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
5. (Continued)
The inventory market valuation reserve reflects the extent that the
recorded cost of crude oil and refined products inventories exceeds net
realizable value. The reserve is decreased to reflect increases in market
prices and inventory turnover and increased to reflect decreases in market
prices. Changes in the reserve result in charges or credits to operating
income.
6. In the second quarter of 1994, payments of $123 million were made to settle
various state tax issues. As a result of these settlements, a net
favorable adjustment of $36 million was made to net income consisting of a
credit of $12 million in operating costs, a credit of $34 million in
interest and other financial costs and an income tax provision effect of
$10 million.
7. The financial statement provision for estimated income taxes and related
tax payments or refunds have been reflected in the Marathon Group, the U.
S. Steel Group and the Delhi Group financial statements in accordance with
USX's tax allocation policy for such groups. In general, such policy
provides that the consolidated tax provision and related tax payments or
refunds are allocated among the Marathon Group, the U. S. Steel Group and
the Delhi Group for group financial statement purposes, based principally
upon the financial income, taxable income, credits, preferences and other
amounts directly related to the respective groups.
The provision for estimated income taxes for the Marathon Group is based on
tax rates and amounts which recognize management's best estimate of current
and deferred tax assets and liabilities. Differences between the combined
interim tax provisions of the Marathon, U. S. Steel and Delhi Groups and
USX consolidated are allocated to each group based on the relationship of
the individual group provisions to the combined interim provisions.
8. The Marathon Group participates in an agreement to sell certain accounts
receivable subject to limited recourse. Payments are collected from the
sold accounts receivable; the collections are reinvested in new accounts
receivable for the buyers; and a yield based on defined short-term market
rates is transferred to the buyers. At June 30, 1995, the balance of sold
accounts receivable that had not been collected was $340 million, and the
buyers had collection rights for an additional $34 million of designated
unsold receivables to collateralize the limited recourse provisions.
9. On June 15, 1995, USX eliminated the Marathon Group's Retained Interest in
the Delhi Group (equivalent to 4,564,814 shares of Delhi Stock). This was
accomplished through a reallocation of assets and a corresponding
adjustment to debt and equity attributed to the Marathon and Delhi Groups.
The transfer was made at a price of $12.75 per equivalent share, or an
aggregate of $58 million, resulting in a corresponding reduction of the
Marathon Group debt. The Retained Interest represented the Marathon
Group's interest in the earnings and equity of the Delhi Group.
<PAGE> 27
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
10. USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the Marathon Group
involving a variety of matters, including laws and regulations relating to
the environment. Certain of these matters are discussed below. The
ultimate resolution of these contingencies could, individually or in the
aggregate, be material to the Marathon Group financial statements.
However, management believes that USX will remain a viable and competitive
enterprise even though it is possible that these contingencies could be
resolved unfavorably to the Marathon Group. See discussion of Liquidity
and Capital Resources in USX Consolidated Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The Marathon Group is subject to federal, state, local and foreign laws and
regulations relating to the environment. These laws generally provide for
control of pollutants released into the environment and require responsible
parties to undertake remediation of hazardous waste disposal sites.
Penalties may be imposed for noncompliance. At both June 30, 1995, and
December 31, 1994, accrued liabilities for remediation totaled $45 million.
It is not presently possible to estimate the ultimate amount of all
remediation costs that might be incurred or the penalties that may be
imposed.
For a number of years, the Marathon Group has made substantial capital
expenditures to bring existing facilities into compliance with various laws
relating to the environment. In the first six months of 1995 and for the
years 1994 and 1993, such capital expenditures for environmental controls
totaled $20 million, $70 million and $123 million, respectively. The
Marathon Group anticipates making additional such expenditures in the
future; however, the exact amounts and timing of such expenditures are
uncertain because of the continuing evolution of specific regulatory
requirements.
At June 30, 1995, and December 31, 1994, accrued liabilities for
platform abandonment and dismantlement totaled $124 million and $127
million, respectively.
By reason of Executive Orders and related regulations under which the
U.S. Government is continuing economic sanctions against Libya, the
Marathon Group was required to discontinue performing its Libyan petroleum
contracts on June 30, 1986. In June 1989, the Department of the Treasury
authorized the Marathon Group to resume performing under those contracts.
Pursuant to that authorization, the Marathon Group has engaged the Libyan
National Oil Company and the Secretary of Petroleum in continuing
negotiations to determine when and on what basis they are willing to allow
the Marathon Group to resume realizing revenue from the Marathon Group's
investment of $107 million in Libya. The Marathon Group is uncertain when
these negotiations can be completed.
<PAGE> 28
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
10. (Continued)
Guarantees by USX of the liabilities of affiliated and other entities of
the Marathon Group totaled $18 million at June 30, 1995.
At June 30, 1995, the Marathon Group's pro rata share of obligations of
LOOP INC. and various pipeline affiliates secured by throughput and
deficiency agreements totaled $195 million. Under the agreements, the
Marathon Group is required to advance funds if the affiliates are unable to
service debt. Any such advances are prepayments of future transportation
charges.
At June 30, 1995, contract commitments for the Marathon Group's capital
expenditures for property, plant and equipment totaled $190 million
compared with $158 million at December 31, 1994.
11. In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which is effective for 1996. USX has not adopted SFAS No. 121. For
additional information, see Marathon Group Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<PAGE> 29
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Marathon Group includes Marathon Oil Company ("Marathon") and certain
other subsidiaries of USX Corporation ("USX") which are engaged in worldwide
exploration, production, transportation and marketing of crude oil and natural
gas; and domestic refining, marketing and transportation of petroleum products.
Management's Discussion and Analysis should be read in conjunction with the
second quarter 1995 USX consolidated financial information and the Marathon
Group financial statements and selected notes. The discussion of Results of
Operations should be read in conjunction with the Supplemental Statistics
provided on page 36.
Results of Operations
---------------------
Sales (excluding matching buy/sell transactions and excise taxes) increased
by 21% in the second quarter of 1995 from the prior-year quarter. Sales for the
second quarter and first six months of 1995 and 1994 are summarized in the
following table:
<TABLE>
<CAPTION>
Second Qtr. Six Months
Ended Ended
June 30 June 30
(Dollars in millions) 1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Refined Products and Merchandise $1,883 $1,598 $3,479 $3,010
Crude Oil and Condensate 173 129 384 289
Natural Gas (a) 233 163 486 329
Natural Gas Liquids 17 11 34 23
Transportation, Drilling and Other 50 44 102 89
Matching Buy/Sell Transactions (b) 491 558 1,052 967
Excise Taxes (b) 681 602 1,328 1,145
------ ------ ------ ------
Total Sales $3,528 $3,105 $6,865 $5,852
====== ====== ====== ======
--------
<FN>
(a) Amounts for 1995 represented equity, royalty and trading sales; amounts for
1994 represented equity sales.
(b) Included in both sales and operating costs, resulting in no effect on
income.
</TABLE>
The improvements in the 1995 second quarter and first six months primarily
reflected higher average prices for domestic refined products and worldwide
liquid hydrocarbons (including matching buy/sell transactions), increased excise
taxes, increased volumes for worldwide liquid hydrocarbons and natural gas, and
higher average prices for international natural gas. These factors were
partially offset by lower average prices for domestic natural gas. In addition,
second quarter refined product sales volumes declined in 1995 from 1994 due to
reduced refined product buy/sell activity.
Operating income was $249 million in the second quarter of 1995, compared
with $156 million in the second quarter of 1994. Second quarter operating
income for 1995 included a $2 million unfavorable noncash effect of an increase
in the inventory market valuation reserve, while income in 1994 included a $93
million favorable effect of a decrease in the reserve. This reserve reflects
the extent to which the recorded costs of crude oil and refined product
inventories exceed net realizable value. The amounts of increases or decreases
in the reserve in future periods are dependent on changes in future crude oil
and refined product price levels, and inventory turnover.
<PAGE> 30
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Excluding the effects of adjustments to the inventory market valuation
reserve, operating income in the second quarter of 1995 increased by $188
million from the second quarter of 1994, due primarily to improved refined
product margins, increased sales volumes for worldwide liquid hydrocarbons and
natural gas, and higher average prices for worldwide liquid hydrocarbons and
international natural gas, partially offset by lower average prices for domestic
natural gas. Operating income in the second quarter of 1994 included employee
reorganization charges of $27 million related to employee severance and
relocation costs associated with work force reduction programs, and a $12
million favorable effect resulting from settlement of various state production
taxes. The employee reorganization charges were comprised of $11 million for
worldwide exploration and production, $10 million for refining, marketing and
transportation, and $6 million for administrative.
Operating income from refining, marketing and transportation operations was
$147 million in the second quarter of 1995, an improvement of $118 million from
the second quarter of 1994. This improvement mainly reflected higher average
refined product prices and lower maintenance expense for refinery turnaround
activity, partially offset by increases in raw material costs. Second quarter
refined product sales volumes, excluding matching buy/sell volumes, increased by
4% in 1995 from 1994.
Second quarter 1995 wholesale margins on refined products improved
significantly from depressed first quarter levels, especially in the Midwest,
reflecting strong demand (fueled by seasonal effects and the strengthening U.S.
economy), and supply constraints resulting from a Brazilian oil industry labor
strike and several unplanned refinery outages in the Midwest and South. This
included a nine-day unplanned outage of the 32,500 barrel per day ("bpd") fluid
catalytic cracking unit ("F.C.C.U.") at Marathon's 70,000 bpd Texas City
refinery that did not have a material adverse effect on Marathon's second
quarter sales volumes or operating results, as product shortfalls were primarily
filled from inventories.
Operating income from worldwide exploration and production was $126 million
in the second quarter of 1995, up $67 million from the second quarter of 1994,
reflecting improved domestic and international results. Operating income from
domestic exploration and production was $83 million in the second quarter of
1995, compared with $51 million in the second quarter of 1994. The improvement
was primarily due to increased volumes for liquid hydrocarbons and natural gas
and higher average prices for liquid hydrocarbons, partially offset by lower
average prices for natural gas. Operating income in 1994 included the
previously mentioned $12 million favorable effect of the settlement of various
state taxes. The increase in domestic liquid hydrocarbon volumes primarily
reflected production from the Ewing Bank 873 Field in the Gulf of Mexico, which
began production in August 1994. The increase in domestic natural gas volumes
primarily reflected successful drilling programs in Wyoming and Texas and an
acquisition in New Mexico.
Operating income from international exploration and production was $43
million in the second quarter of 1995, compared with $8 million in the second
quarter of 1994. The improvement was primarily due to higher average prices and
volumes for liquid hydrocarbons and natural gas. The increase in liquid
hydrocarbon volumes mainly reflected increased production from the East Brae
Field in the U.K. North Sea and new production from the KG Field in Indonesia.
<PAGE> 31
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Brae-Area production averaged 49,000 net bpd in the second quarter of 1995,
compared with 57,000 net bpd in the first quarter. A planned maintenance shut-
in of Brae-Area operations in the U.K. North Sea during the second quarter of
1995 resulted in an estimated 5,500 net bpd reduction in second quarter Brae-
Area production. The shut-in was scheduled to coincide with the planned
maintenance of third-party facilities. Marathon owns a 41.6% revenue interest
in the South, Central and North Brae Fields and a 38.5% revenue interest in the
East Brae Field.
The increase in second quarter international natural gas sales volumes in
1995 versus 1994 mainly reflected Brae-Area gas sales, which began in October
1994. Gas sales volumes through the Scottish Area Gas Evacuation ("SAGE")
pipeline system averaged 94 net million cubic feet per day ("mmcfd") during the
second quarter of 1995. The decline from the first quarter mainly reflected
seasonal demand fluctuations. Although demand for natural gas from the Brae
Area continues to be lower than anticipated, annual cash flows from the two
primary Brae-Area natural gas sales contracts are largely protected by take-or-
pay provisions.
Marathon Group operating income in the first six months of 1995 was $460
million, compared with $382 million in the first six months of 1994. Operating
income for the first six months of 1995 and 1994 included favorable noncash
effects of $86 million and $221 million, respectively, reflecting adjustments to
the inventory market valuation reserve. Excluding the effects of these
adjustments, operating income in the first six months of 1995 increased by $213
million from the first six months of 1994. The increase mainly reflected higher
average prices and volumes for worldwide liquid hydrocarbons, increased sales
volumes for worldwide natural gas, higher average prices for international
natural gas, and slightly higher refined product margins. These factors were
partially offset by lower average prices for domestic natural gas. Operating
income in the first six months of 1994 included charges of $29 million related
to employee reorganization and a favorable effect of $12 million resulting from
the settlement of various state production taxes. Operating income in the first
six months of 1994 also included income of $15 million from Emro Propane Company
(a wholly owned subsidiary of Marathon's Emro Marketing Company) which
distributed propane to residential and industrial consumers in the Midwest. The
assets of Emro Propane Company were sold in September 1994.
Other income totaled $13 million in the first six months of 1995, compared
with $18 million in the first six months of 1994. In addition to income from
equity affiliates, other income in the first six months of 1995 included gains
of $3 million on the disposal of assets. Other income in the first six months
of 1994 included gains of $25 million on the disposal of assets (primarily
certain domestic oil and gas production properties), partially offset by a $10
million unfavorable effect applicable to the Marathon Group's 33% Retained
Interest in the Delhi Group (the Delhi Group reported a second quarter 1994 net
loss, predominantly as a result of restructuring charges related to planned
asset dispositions). The Retained Interest was eliminated in June 1995.
Net interest and other financial costs in the first six months of 1995
increased by $59 million from the first six months of 1994, due, in part, to
lower capitalized interest following the completion during 1994 of the East Brae
project and SAGE system. Interest and other financial costs in the first six
months of 1994 included a $34 million favorable effect of a second quarter
settlement of various state tax issues.
<PAGE> 32
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Net income for the Marathon Group totaled $108 million, or $.37 per share,
in the second quarter of 1995, compared with $72 million, or $.25 per share, in
the second quarter of 1994. Net income totaled $185 million, or $.63 per share,
in the first six months of 1995, compared with $182 million, or $.63 per share,
in the first six months of 1994. The increases in net income primarily reflect
the factors discussed above.
On June 15, 1995, USX eliminated the Marathon Group's Retained Interest in
the Delhi Group (equivalent to 4,564,814 shares of USX-Delhi Group Common
Stock). This was accomplished through a reallocation of assets and
corresponding adjustments to debt and equity attributed to the Marathon and
Delhi Groups. The transfer was made at a price of $12.75 per equivalent share,
or an aggregate value of $58 million. The Audit Committee of the USX Board of
Directors approved the transaction following receipt of advice from two
nationally recognized investment banking firms who negotiated the per-share
price and rendered opinions to the Audit Committee that such price was fair from
a financial point of view to the respective groups and their shareholders. The
Retained Interest represented the Marathon Group's interest in the earnings and
equity of the Delhi Group. The effect on future operating results of the
Marathon Group is not expected to be material. For further discussion of the
elimination of the Retained Interest, see Financial obligations, below, and Note
9 to the Marathon Group Financial Statements.
Outlook
-------
Worldwide natural gas sales volumes are expected to trend downward in the
third quarter of 1995 and increase in the fourth quarter, mainly reflecting
seasonal demand fluctuations. In June, Marathon completed renegotiation of its
natural gas sales agreement covering post-1996 production from the Kinsale Head
and Ballycotton Fields in the Irish Celtic Sea. The agreement provides for a
higher composite gas price, and accordingly, extends the economic production
lives of the fields. Natural gas sales from these maturing fields are expected
to average approximately 260 mmcfd in 1995, and decrease in succeeding years as
a result of natural production declines. Marathon holds a 100% working interest
in the Kinsale Head and Ballycotton Fields.
Marathon and its working interest partners continued appraisal activity of
the Green Canyon Block 244 No. 1 discovery located offshore Louisiana with a
successful delineation well in block 200 in early July. Marathon and its
partners are currently drilling an exploratory well in the adjacent Green Canyon
Block 245.
Progress continues toward ratification of the Sakhalin II Production
Sharing Contract ("PSC") for development of the Lunskoye gas field and the
Piltun-Astokhskoye oil field located offshore Sakhalin Island in the Russian Far
East Region. In June 1995, a PSC Law was passed by the Russian Duma and sent to
the Russian Federation Council for consideration. The Federation Council is
expected to vote on the PSC Law in the third quarter of 1995. The Marathon
Group has a 30% interest in Sakhalin Energy Investment Company Ltd. ("Sakhalin
Energy") joint venture company. While adoption of a PSC Law would be a
significant step toward stabilization of the PSC, other Russian laws and acts at
the Federation and local levels will need to be brought into compliance with the
PSC before Sakhalin Energy commits to undertaking appraisal period activities.
These appraisal period activities include the finalizing of the development plan
and efforts to secure liquefied natural gas markets and financing arrangements.
<PAGE> 33
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The outlook regarding prices and costs for the Marathon Group's principal
products is largely dependent upon world market developments for crude oil and
refined products. These developments tend to be cyclical as well as subject to
a wide range of global political events. For example, in addition to industry
supply and demand conditions, changes in production policy by the Organization
of Petroleum Exporting Countries, or in the status of United Nations sanctions
against Iraq, could affect industry prices during the remainder of the year.
The Marathon Group's posted price for West Texas Intermediate, a benchmark
crude oil, averaged $15.54 per barrel in July 1995, down from a second quarter
average of $17.63 per barrel.
For discussion of a new Statement of Financial Accounting Standards that,
upon adoption, may affect future Marathon Group operating results, see
Accounting Standard below.
Cash Flows
----------
Net cash provided from operating activities was $412 million in the first
six months of 1995, compared with $119 million in the first six months of 1994.
The improvement mainly reflected higher average prices and volumes for worldwide
liquid hydrocarbons and favorable working capital changes. Net cash provided
from operating activities in the first six months of 1994 was adversely affected
by second quarter payments of $123 million related to settlement of various
state tax issues.
Cash from the disposal of assets was $13 million in the first six months of
1995, compared with $32 million in the first six months of 1994. Proceeds in
each of these periods primarily reflected the sale of certain domestic oil and
gas production properties and certain refining and marketing assets.
Financial obligations decreased by $83 million in the first six months of
1995, as cash provided from operating activities and the elimination of the
Marathon Group's Retained Interest in the Delhi Group exceeded cash used for
capital expenditures and dividends paid. Financial obligations consist of the
Marathon Group's portion of USX debt and preferred stock of a subsidiary
attributed to all three groups, as well as debt specifically attributed to the
Marathon Group.
Hedging Activity
----------------
The Marathon Group engages in hedging activities in the normal course of
its business. Futures contracts, commodity swaps and options are used to hedge
exposure to price fluctuations relevant to the purchase or sale of crude oil,
natural gas and refined products. Forward currency contracts have been used to
manage currency risks related to anticipated revenues and operating costs, firm
commitments for capital expenditures and existing assets or liabilities
denominated in a foreign currency. While hedging activities are generally used
to reduce risks from unfavorable commodity price and currency rate movements,
they also may limit the opportunity to benefit from favorable movements. The
Marathon Group's hedging activities have not been significant in relation to its
overall business activity. Based on risk assessment procedures and internal
controls in place, management believes that its use of hedging instruments will
not have a material adverse effect on the financial position, liquidity or
results of operations of the Marathon Group.
<PAGE> 34
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity
---------
For discussion of USX's liquidity and capital resources, see USX
Consolidated Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Capital Expenditures
--------------------
Marathon Group capital expenditures for property, plant and equipment in
the second quarter and first six months of 1995 were $161 million and $258
million, respectively, compared with $164 million and $277 million in the
comparable 1994 periods. Expenditures in these periods were primarily for
upstream projects. Capital expenditures for the year 1995 are expected to total
approximately $670 million, compared with $753 million for the year 1994.
Contract commitments for capital expenditures were $190 million at June 30,
1995, compared with $158 million at year-end 1994.
Environmental Matters, Contingencies and Commitments
----------------------------------------------------
The Marathon Group has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. To the extent these expenditures, as with
all costs, are not ultimately reflected in the prices of the Marathon Group's
products and services, operating results will be adversely affected. The
Marathon Group believes that substantially all of its competitors are subject to
similar environmental laws and regulations. However, the specific impact on
each competitor may vary depending on a number of factors, including the age and
location of its operating facilities, marketing areas, production processes and
whether or not it is engaged in the petrochemical business or the marine
transportation of crude oil and refined products.
USX has been notified that it is a potentially responsible party ("PRP") at
19 waste sites related to the Marathon Group under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") as of June 30,
1995. In addition, there are seven sites related to the Marathon Group where
USX has received information requests or other indications that USX may be a PRP
under CERCLA but where sufficient information is not presently available to
confirm the existence of liability. There are also 64 additional sites,
excluding retail marketing outlets, related to the Marathon Group where
remediation is being sought under other environmental statutes, both federal
and state. At many of these sites, USX is one of a number of parties
involved and the total cost of remediation, as well as USX's share thereof,
is frequently dependent upon the outcome of investigations and remedial
studies. The Marathon Group accrues for environmental remediation activities
when the responsibility to remediate is probable and the amount of associated
costs is reasonably determinable. As environmental remediation matters
proceed toward ultimate resolution or as additional remediation obligations
arise, charges in excess of those previously accrued may be required.
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the Marathon Group
involving a variety of matters, including laws and regulations relating to the
environment (see Note 10 to the Marathon Group financial statements for a
discussion of certain of these matters). The ultimate resolution of these
contingencies could, individually or in the aggregate, be material to the
Marathon Group financial statements. However, management believes that USX will
remain a viable and competitive
<PAGE> 35
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
enterprise even though it is possible that these contingencies could be resolved
unfavorably to the Marathon Group. See discussion of Financial Condition in USX
Consolidated Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Accounting Standard
-------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121--Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS No. 121"). This
standard must be adopted no later than the 1996 reporting year, but can be
adopted early. SFAS No. 121 requires that operating assets and associated
goodwill be written down to fair value whenever an impairment review indicates
that the carrying value cannot be recovered on an undiscounted cash flow basis.
After any such noncash write-down, results of operations would be favorably
affected by reduced depreciation, depletion and amortization charges. The
Marathon Group is currently reviewing its assets and, at this time, cannot
provide an assessment of either the impact or the timing of adoption of SFAS No.
121, although it is likely that certain charges will be recognized upon
adoption.
<PAGE> 36
<TABLE>
MARATHON GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS
---------------------------------
($'s in Millions)
<CAPTION>
Second Quarter Six Months
Ended June 30 Ended June 30
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING INCOME (LOSS)
Exploration & Production
Domestic $83 $51 $168 $66
International 43 8 105 10
Refining, Marketing & Transportation 147 29 142 126
Gas Gathering & Processing - (1) - -
Administrative (22) (24) (41) (41)
------ ------ ------ ------
$251 $63 $374 $161
Inventory Market Val. Res. Adjustment (2) 93 86 221
------ ------- ------ -------
Total Marathon Group $249 $156 $460 $382
CAPITAL EXPENDITURES $161 $164 $258 $277
EXPLORATION EXPENSES $27 $35 $53 $68
OPERATING STATISTICS
Net Liquid Hydrocarbon Production (a):
Domestic 132.6 109.1 130.9 109.8
International 66.3 53.0 71.0 50.9
------ ------ ------ ------
Worldwide 198.9 162.1 201.9 160.7
Net Natural Gas Production (b):
Domestic 649.1 570.8 651.1 571.6
International - Equity 449.4 364.6 468.4 389.0
International - Other (c) 15.3 - 34.5 -
------- ------ ------- ------
Worldwide 1,113.8 935.4 1,154.0 960.6
Average Sales Prices:
Liquid Hydrocarbons (per Bbl)
Domestic $15.36 $14.21 $14.94 $12.70
International 17.67 15.60 17.20 14.80
Natural Gas (per Mcf)
Domestic $1.61 $2.06 $1.65 $2.07
International 1.91 1.45 1.87 1.45
Natural Gas Sales (b) (d):
Domestic 989.0 841.7 992.9 826.1
International 464.7 364.6 502.9 389.0
------- ------- ------- -------
Worldwide 1,453.7 1,206.3 1,495.8 1,215.1
Crude Oil Refined (a) 532.5 531.5 505.8 486.4
Refined Products Sold (a) 720.2 759.2 724.9 722.8
---------------
<FN>
(a) Thousands of barrels per day
(b) Millions of cubic feet per day
(c) Represents gas acquired for injection and subsequent resale
(d) Represents equity, royalty and trading volumes
</TABLE>
<PAGE> 37
Part I - Financial Information (Continued):
C. U. S. Steel Group
<TABLE>
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
------------------------------------
Second Quarter Six Months
Ended Ended
June 30 June 30
(Dollars in millions, except per share amounts) 1995 1994 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $1,623 $1,534 $3,200 $2,918
OPERATING COSTS:
Cost of sales (excludes items shown below) 1,393 1,343 2,741 2,646
Selling, general and administrative
expenses (credits) (32) (31) (69) (61)
Depreciation, depletion and amortization 84 80 161 158
Taxes other than income taxes 49 54 104 111
------ ------ ------ ------
Total operating costs 1,494 1,446 2,937 2,854
------ ------ ------ ------
OPERATING INCOME 129 88 263 64
Other income 26 27 45 32
Interest and other financial income 3 3 5 6
Interest and other financial costs (36) (37) (75) (75)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 122 81 238 27
Less provision for estimated income taxes 41 25 83 6
------ ------ ------ ------
NET INCOME 81 56 155 21
Dividends on preferred stock (7) (7) (13) (13)
------ ------ ------ ------
NET INCOME APPLICABLE TO STEEL STOCK $74 $49 $142 $8
====== ====== ====== ======
STEEL STOCK DATA:
Net income per share
- Primary $.99 $.65 $1.87 $.11
- Fully diluted .95 .64 1.80 .11
Dividends paid per share .25 .25 .50 .50
Weighted average shares, in thousands
- Primary 76,562 75,490 76,373 74,579
- Fully diluted 87,484 78,929 87,293 74,579
<FN>
Selected notes to financial statements appear on pages 40-44.
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
------------------------------------
June 30 December 31
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $29 $20
Receivables, less allowance for doubtful
accounts of $11 and $5 614 672
Receivable from other groups 72 44
Inventories 634 595
Deferred income tax benefits 326 449
------ ------
Total current assets 1,675 1,780
Long-term receivables and other investments,
less reserves of $22 and $22 663 667
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$5,814 and $5,954 2,498 2,536
Long-term deferred income tax benefits 313 223
Prepaid pensions 1,300 1,224
Other noncurrent assets 54 50
------ ------
Total assets $6,503 $6,480
====== ======
LIABILITIES
Current liabilities:
Notes payable $25 $-
Accounts payable 747 678
Payroll and benefits payable 385 354
Accrued taxes 247 183
Accrued interest 27 31
Long-term debt due within one year 73 21
------ ------
Total current liabilities 1,504 1,267
Long-term debt, less unamortized discount 1,147 1,432
Employee benefits 2,462 2,496
Deferred credits and other liabilities 252 276
Preferred stock of subsidiary 64 64
------ ------
Total liabilities 5,429 5,535
------ ------
STOCKHOLDERS' EQUITY
Preferred stock 32 32
Common stockholders' equity 1,042 913
------ ------
Total stockholders' equity 1,074 945
------ ------
Total liabilities and stockholders' equity $6,503 $6,480
====== ======
<FN>
Selected notes to financial statements appear on pages 40-44.
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------
Six Months Ended
June 30
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $155 $21
Adjustments to reconcile to net cash provided from
(used in) operating activities:
Depreciation, depletion and amortization 161 158
Pensions (67) (74)
Postretirement benefits other than pensions (13) 37
Deferred income taxes 42 29
Gain on disposal of assets (8) (7)
Changes in:
Current receivables 26 64
Inventories (41) (15)
Current accounts payable and accrued expenses 151 (387)
All other items - net (60) (8)
------ ------
Net cash provided from (used in)
operating activities 346 (182)
------ ------
INVESTING ACTIVITIES:
Capital expenditures (142) (108)
Disposal of assets 42 13
All other items - net 7 8
------ ------
Net cash used in investing activities (93) (87)
------ ------
FINANCING ACTIVITIES:
Increase (decrease) in U. S. Steel Group's share of
USX consolidated debt (219) 7
Specifically attributed debt:
Borrowings - 4
Repayments (1) (5)
Attributed preferred stock of subsidiary - 62
Steel Stock issued 23 209
Dividends paid (47) (49)
------ ------
Net cash provided from (used in)
financing activities (244) 228
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9 (41)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20 79
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $29 $38
====== ======
Cash provided from (used in) operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(70) $(124)
Income taxes refunded, including settlements
with other groups 7 37
<FN>
Selected notes to financial statements appear on pages 40-44.
</TABLE>
<PAGE> 40
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited but,
in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments
are of a normal recurring nature unless disclosed otherwise. These
financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Additional information is contained in the USX Annual Report
on Form 10-K for the year ended December 31, 1994.
2. The financial statements of the U. S. Steel Group include the financial
position, results of operations and cash flows for all businesses of USX
other than the businesses, assets and liabilities included in the Marathon
Group or the Delhi Group, and a portion of the corporate assets and
liabilities and related transactions which are not separately identified
with ongoing operating units of USX. These financial statements are
prepared using the amounts included in the USX consolidated financial
statements. Corporate amounts reflected in these financial statements are
determined based upon methods which management believes to be reasonable.
The accounting policies applicable to the preparation of the financial
statements of the U. S. Steel Group may be modified or rescinded in the
sole discretion of the Board of Directors of USX (Board), although the
Board has no present intention to do so. The Board may also adopt
additional policies depending on the circumstances.
Although the financial statements of the U. S. Steel Group, the Marathon
Group and the Delhi Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of USX
attributed to each such group, such attribution of assets, liabilities
(including contingent liabilities) and stockholders' equity among the U. S.
Steel Group, the Marathon Group and the Delhi Group for purposes of
preparing their respective financial statements does not affect legal title
to such assets and responsibility for such liabilities. Holders of USX-
U. S. Steel Group Common Stock (Steel Stock), USX-Marathon Group Common
Stock (Marathon Stock) and USX-Delhi Group Common Stock (Delhi Stock) are
holders of common stock of USX and continue to be subject to all the risks
associated with an investment in USX and all of its businesses and
liabilities. Financial impacts arising from one Group that affect the
overall cost of USX's capital could affect the results of operations and
financial condition of other groups. In addition, net losses of any group,
as well as dividends or distributions on any class of USX Common Stock or
series of preferred stock and repurchases of any class of USX Common Stock
or 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. Accordingly, the USX consolidated financial
information should be read in connection with the U. S. Steel Group
financial information.
<PAGE> 41
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
3. The method of calculating net income (loss) per share for the Steel Stock,
Marathon Stock and Delhi Stock reflects the Board's intent that the
separately reported earnings and surplus of the U. S. Steel Group, the
Marathon Group and the Delhi Group, as determined consistent with the USX
Certificate of Incorporation, are available for payment of dividends to the
respective classes of stock, although legally available funds and
liquidation preferences of these classes of stock do not necessarily
correspond with these amounts.
Primary net income per share is calculated by adjusting net income for
dividend requirements of preferred stock and is based on the weighted
average number of common shares outstanding plus common stock equivalents,
provided they are not antidilutive. Common stock equivalents result from
assumed exercise of stock options and surrender of stock appreciation
rights associated with stock options, where applicable.
Fully diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options and surrender of stock appreciation rights, provided, in each
case, the effect is not antidilutive.
4. Inventories are carried at the lower of cost or market. Cost of
inventories is determined primarily under the last-in, first-out (LIFO)
method.
<TABLE>
<CAPTION>
(In millions)
-----------------------
June 30 December 31
1995 1994
-------- -----------
<S> <C> <C>
Raw materials $63 $44
Semi-finished products 325 336
Finished products 147 128
Supplies and sundry items 99 87
---- ----
Total $634 $595
==== ====
</TABLE>
5. Operating income included net periodic pension credits of $67 million and
$61 million in the first six months of 1995 and 1994, respectively, ($34
million and $31 million in the second quarter of 1995 and 1994,
respectively). These pension credits are primarily noncash and for the
most part are included in selling, general and administrative expenses. The
expected long-term rate of return on plan assets, which is reflected in the
calculation of net periodic pension credits, was increased to 10% in 1995
from 9% in 1994.
<PAGE> 42
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
6. The financial statement provision for estimated income taxes and related
tax payments or refunds have been reflected in the U. S. Steel Group, the
Marathon Group and the Delhi Group financial statements in accordance with
USX's tax allocation policy for such groups. In general, such policy
provides that the consolidated tax provision and related tax payments or
refunds are allocated among the U. S. Steel Group, the Marathon Group and
the Delhi Group for group financial statement purposes, based principally
upon the financial income, taxable income, credits, preferences and other
amounts directly related to the respective groups.
The provision for estimated income taxes for the U. S. Steel Group is based
on tax rates and amounts which recognize management's best estimate of
current and deferred tax assets and liabilities. Differences between the
combined interim tax provisions of the U. S. Steel, Marathon and Delhi
Groups and USX consolidated are allocated to each group based on the
relationship of the individual group provisions to the combined interim
provisions.
7. The U. S. Steel Group has entered into an agreement to sell certain
accounts receivable subject to limited recourse. Payments are collected
from the sold accounts receivable; the collections are reinvested in new
accounts receivable for the buyers; and a yield based on defined short-term
market rates is transferred to the buyers. At June 30, 1995, the balance
of sold accounts receivable that had not been collected was $350 million,
and the buyers had collection rights for an additional $53 million of
designated unsold receivables to collateralize the limited recourse
provisions. In the event of a change in control of USX, as defined in the
agreement, the U. S. Steel Group may be required to forward payments
collected on sold accounts receivable to the buyers.
Prior to 1993, USX Credit, a division of USX, sold certain of its loans
receivable subject to limited recourse. USX Credit continues to collect
payments from the loans and transfer to the buyers principal collected plus
yield based on defined short-term market rates. At June 30, 1995, the
balance of sold loans receivable subject to recourse was $108 million. As
of June 30, 1995, USX Credit had outstanding loan commitments of $10
million. USX Credit is not actively making new loan commitments. In the
event of a change in control of USX, as defined in the agreement, the U. S.
Steel Group may be required to provide cash collateral in the amount of the
uncollected loans receivable to assure compliance with the limited recourse
provisions.
<PAGE> 43
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
8. USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the U. S. Steel
Group involving a variety of matters including laws and regulations
relating to the environment. Certain of these matters are discussed below.
The ultimate resolution of these contingencies could, individually or in
the aggregate, be material to the U. S. Steel Group financial statements.
However, management believes that USX will remain a viable and competitive
enterprise even though it is possible that these contingencies could be
resolved unfavorably to the U. S. Steel Group. See discussion of Liquidity
and Capital Resources in USX Consolidated Management's Discussion and
Analysis of Financial Condition and Results of Operations.
In 1994, USX paid $367 million in judgments against the Bessemer & Lake
Erie Railroad in the Lower Lake Erie Iron Ore Antitrust Litigation. Two
remaining plaintiffs in this case have had their damage claims remanded for
retrial. A new trial may result in awards more or less than the original
asserted claims of $8 million and would be subject to trebling.
In 1992, the United States District Court for the District of Utah Central
Division issued a Memorandum Opinion and Order in Pickering v. USX relating
to pension and compensation claims by approximately 1,900 employees of
USX's former Geneva (Utah) Works. Although the court dismissed a number of
the claims by the plaintiffs, it found that USX had violated the Employee
Retirement Income Security Act by interfering with the accrual of pension
benefits of certain employees and amending a benefit plan to reduce the
accrual of future benefits without proper notice to plan participants. On
May 5, 1995, the Court issued its Opinion on the damage issues concerning
the claims of a sample group of 23 plaintiffs. A settlement requiring USX
to make payments of $47 million (which had been partially accrued in prior
periods) has been approved by the court covering substantially all of the
remaining plaintiffs.
The U. S. Steel Group is subject to federal, state and local laws and
regulations relating to the environment. These laws generally provide for
control of pollutants released into the environment and require responsible
parties to undertake remediation of hazardous waste disposal sites.
Penalties may be imposed for noncompliance. At June 30, 1995, and December
31, 1994, accrued liabilities for remediation totaled $120 million and $141
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.
<PAGE> 44
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
8. (Continued)
For a number of years, the U. S. Steel Group has made substantial capital
expenditures to bring existing facilities into compliance with various laws
relating to the environment. In the first six months of 1995 and for the
years 1994 and 1993, such capital expenditures for environmental controls
totaled $19 million, $57 million and $53 million, respectively. The U. S.
Steel Group anticipates making additional such expenditures in the future;
however, the exact amounts and timing of such expenditures are uncertain
because of the continuing evolution of specific regulatory requirements.
Guarantees by USX of the liabilities of affiliated entities of the U. S.
Steel Group totaled $148 million at June 30, 1995. In the event that any
defaults of guaranteed liabilities occur, USX has access to its interest in
the assets of the affiliates to reduce U. S. Steel Group losses resulting
from these guarantees. As of June 30, 1995, the largest guarantee for a
single affiliate was $79 million.
At June 30, 1995, contract commitments for the U. S. Steel Group's capital
expenditures for property, plant and equipment totaled $239 million
compared with $125 million at December 31, 1994.
9. In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which is effective for 1996. USX has not adopted SFAS No. 121. For
additional information, see the U. S. Steel Group Management's Discussion
and Analysis of Financial Condition and Results of Operations.
10. In July 1995, USX sold 5,000,000 shares of Steel Stock to the public for
net proceeds of $169 million, which will be reflected in their entirety in
the financial statements of the U. S. Steel Group.
<PAGE> 45
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The U. S. Steel Group includes U. S. Steel, which is primarily engaged in
the production and sale of steel mill products, coke and taconite pellets. The
U. S. Steel Group also includes the management of mineral resources, domestic
coal mining, engineering and consulting services and technology licensing
(together with U. S. Steel, the "Steel and Related Businesses"). Other
businesses that are part of the U. S. Steel Group include real estate
development and management, and leasing and financing activities. Management's
Discussion and Analysis should be read in conjunction with the second quarter
1995 USX consolidated financial information and the U. S. Steel Group financial
statements and selected notes. The discussion of Results of Operations should
be read in conjunction with the Supplemental Statistics provided on page 51.
Results of Operations
---------------------
Sales for the U. S. Steel Group increased $89 million and $282 million in
the second quarter and first six months of 1995, respectively, compared with the
same periods in 1994. The increases primarily resulted from higher steel
shipment prices and volumes, partially offset by lower revenues from engineering
and consulting services. In addition, sales in the second quarter and first six
months of 1994 included revenues of a consolidated entity for which the equity
method of accounting was subsequently adopted.
Operating income for the U. S. Steel Group totaled $129 million in the
second quarter of 1995, compared with $88 million in the same quarter of 1994.
The $41 million increase mainly reflected improved results from Steel and
Related Businesses.
Steel and Related Businesses reported operating income of $104 million in
the second quarter of 1995, compared with operating income of $64 million in the
same quarter of 1994. Second quarter results in 1995 included $56 million of
charges related to the Pickering v. USX litigation and the repair of the Gary
Works' No. 8 blast furnace which was damaged by an explosion on April 5, 1995.
Excluding these charges, second quarter 1995 operating income increased $96
million from the second quarter 1994. The improvement was mainly due to higher
steel shipment prices and volumes, partially offset by accruals for profit
sharing plans.
Administrative and Other Businesses includes the portion of pension
credits, postretirement benefit costs and certain other expenses principally
attributable to the former businesses of the U. S. Steel Group as well as USX
corporate general and administrative costs allocated to the U. S. Steel Group.
Operating income for Administrative and Other Businesses in the second quarter
of 1995 was $25 million compared with $24 million for the same quarter of 1994.
Operating income for the U. S. Steel Group totaled $263 million for the
first six months of 1995, compared with $64 million in the same period of 1994.
The $199 million increase mainly reflected improved results from Steel and
Related Businesses.
Steel and Related Businesses reported operating income of $204 million in
the first six months of 1995, compared with operating income of $28 million in
the same period of 1994. Results for the first six months of 1995 included $56
million of
<PAGE> 46
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
charges previously discussed. Results for the first six months of 1994 included
$44 million of charges related to utility curtailments and other severe winter
weather complications, a caster fire at the Mon Valley Works and planned outages
for modernization of the Gary Works hot strip mill and pickle line. Excluding
these charges, operating income for the first six months of 1995 increased $188
million over the same period in 1994. The improvement was mainly due to higher
steel shipment prices and volumes, partially offset by the effects of three
planned blast furnace outages in the first quarter of 1995 and accruals for
profit sharing plans.
Operating income for Administrative and Other Businesses increased $23
million in the first six months of 1995 compared with the same period in 1994
primarily due to lower environmental accruals and higher income from real estate
development and management.
The pension credits referred to above, combined with pension costs for
ongoing operating units of the U. S. Steel Group, resulted in net periodic
pension credits (which are primarily noncash) of $34 million and $67 million for
the second quarter and first six months of 1995, respectively, compared with $31
million and $61 million for the second quarter and first six months of 1994,
respectively.
Other income for the first six months of 1995 increased $13 million over
the same period in 1994 due to increased income from equity affiliates.
Net income for the U. S. Steel Group totaled $81 million, or $.99 per
share, in the second quarter of 1995, compared with net income of $56 million,
or $.65 per share, in the same quarter of 1994. Net income for the U. S. Steel
Group totaled $155 million, or $1.87 per share, in the first six months of 1995,
compared with net income of $21 million, or $.11 per share, in the same period
of 1994.
Second quarter 1995 steel shipments of 2.8 million tons and raw steel
production of 3.0 million tons increased 5% and 3%, respectively, from the same
quarter of 1994. First half 1995 steel shipments of 5.5 million tons and raw
steel production of 6.0 million tons increased 7% and 5%, respectively, from the
first six months of 1994. Steel shipments for the second quarter and first six
months of 1995 included export shipments of 0.3 million tons and 0.4 million
tons, respectively, compared with 0.1 million tons and 0.2 million tons,
respectively, in the same periods in 1994. Raw steel capability utilization in
the second quarter of 1995 averaged approximately 97% versus 98% of capability
in the second quarter of 1994. Raw steel capability utilization in the first
six months of 1995 averaged approximately 96% versus 95% of capability in the
first six months of 1994. As a result of improvements in operating
efficiencies, U. S. Steel has increased its stated annual raw steel production
capability by 0.5 million tons to 12.5 million tons for 1995.
Outlook
-------
For the third quarter of 1995, there are indications that domestic steel
markets will be somewhat weaker than in the first two quarters of 1995, with
automotive manufacturers scheduling annual production breaks and model
changeovers, in addition to customers continuing to reduce inventories.
Consequently, a reduction in the U. S. Steel Group's domestic shipments is
anticipated. Export
<PAGE> 47
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
shipments for the U. S. Steel Group, which are generally less profitable than
domestic shipments, are expected to increase to approximately 0.5 million tons
for the third quarter of 1995.
With the domestic market supply of steel currently exceeding demand, spot
market prices on some products have shown some erosion, and the previously
announced July 2, 1995 price increases on sheet products are not currently being
realized on most products.
Additional charges of approximately $10 million to complete the repairs to
the Gary Works' No. 8 blast furnace are expected to negatively impact the U. S.
Steel Group's third quarter 1995 operating income. The blast furnace is
expected to resume production by mid-August 1995.
Steel imports to the United States accounted for an estimated 24% of the
domestic steel market in the first five months of 1995, and 25%, 19% and 17% of
the domestic steel market in the years 1994, 1993 and 1992, respectively.
Imports have recently included steel from non-traditional sources, such as
Russia and Romania. The domestic steel industry has, in the past, been
adversely affected by unfairly traded imports, and higher levels of imported
steel may ultimately have an adverse effect on product prices and shipment
levels.
Oil country tubular goods ("OCTG") accounted for 3.6% of U. S. Steel Group
shipments in 1994. On June 30, 1994, in conjunction with six other domestic
producers, USX filed antidumping and countervailing duty cases with the U. S.
Department of Commerce ("Commerce") and the International Trade Commission
("ITC") asserting that seven foreign nations have engaged in unfair trade
practices with respect to the export of OCTG. On August 15, 1994, the ITC
unanimously issued a preliminary ruling that there is a reasonable indication
that domestic OCTG producers may have been injured by illegal subsidies and
dumping. In June 1995, Commerce issued its final affirmative determinations of
the applicable margins of dumping and/or subsidies in the OCTG cases against
producers in all seven countries. On July 24, 1995, the ITC rendered
determinations that there had been material injury to domestic producers by
reason of illegal dumping of imported products. Determinations favorable to
domestic producers were rendered with respect to OCTG imports from Argentina,
Italy, Japan, Korea and Mexico and with respect to imports of drill pipe from
Argentina, Japan and Mexico.
USX will file additional antidumping and countervailing duty petitions if
unfairly traded imports adversely impact, or threaten to adversely impact, the
results of the U. S. Steel Group.
See Accounting Standard below for discussion of a new Statement of
Financial Accounting Standards which, upon adoption, may affect future U. S.
Steel Group operating results.
Cash Flows
----------
Net cash provided from operating activities was $346 million in the first
six months of 1995, compared with net cash used in operating activities of $182
million
<PAGE> 48
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
in the same period of 1994. The first six months of 1995 reflected payments of
$35 million to the Voluntary Employee Benefit Trust. The first six months of
1994 was negatively affected by payments of $367 million related to the Lower
Lake Erie Iron Ore Antitrust Litigation against the Bessemer & Lake Erie
Railroad. Excluding these items, net cash from operating activities increased
by $196 million due mainly to increased profitability and favorable working
capital changes.
The settlement in the Pickering v. USX litigation requires USX to make
payments of $47 million, of which $19 million is payable in the third quarter of
1995 and the balance payable in the first quarter of 1996. For further
information, see Note 8 to the U. S. Steel Group Financial Statements.
Cash from the disposal of assets increased $29 million in the first six
months of 1995 compared with the same period of 1994. The 1995 proceeds mainly
reflected property sales by real estate development and management and USX
Credit, a division of USX.
Financial obligations decreased $220 million in first six months of 1995
primarily reflecting the net effects of cash from operating and investing
activities. These financial obligations consist of the U. S. Steel Group's
portion of USX debt and preferred stock of a subsidiary attributed to all three
groups, as well as debt and financing agreements specifically attributed to the
U. S. Steel Group.
In July 1995, USX sold 5,000,000 shares of Steel Stock to the public for
net proceeds of $169 million, which will be reflected in their entirety in the
U. S. Steel Group financial statements. The net proceeds were used to fund the
U. S. Steel Group's principal pension plan for the 1994 and a portion of the
1995 plan years.
Hedging Activity
----------------
The U. S. Steel Group engages in hedging activities in the normal course of
its business. Commodity swaps are used to hedge exposure to price fluctuations
relevant to the purchase of natural gas. While hedging activities are generally
used to reduce risks from unfavorable price movements, they also may limit the
opportunity to benefit from favorable movements. The U. S. Steel Group's
hedging activities have not been significant in relation to its overall business
activity. Based on risk assessment procedures and internal controls in place,
management believes that its use of hedging instruments will not have a material
adverse effect on the financial position, liquidity or results of operations of
the U. S. Steel Group.
Liquidity
---------
For discussion of USX's liquidity and capital resources, see USX
Consolidated Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE> 49
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Capital Expenditures
--------------------
The U. S. Steel Group's capital expenditures for property, plant and
equipment in the second quarter and first six months of 1995 were $86 million
and $142 million, respectively, compared with $64 million and $108 million,
respectively, in the same periods in 1994.
For the year 1995, capital expenditures are expected to total approximately
$340 million, compared with $248 million in 1994. Capital expenditures for 1995
will include continued spending on a degasser at Mon Valley Works and a
granulated coal injection facility at Fairfield Works' blast furnace, spending
on a galvanizing line at Fairfield Works, and certain spending related to the
Gary Works' No. 8 blast furnace. Contract commitments for capital expenditures
at June 30, 1995 were $239 million, compared with $125 million at year-end 1994.
Environmental Matters, Contingencies and Commitments
----------------------------------------------------
The U. S. Steel Group has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. In recent years, these expenditures have
been mainly for process changes in order to meet Clean Air Act obligations,
although ongoing compliance costs have also been significant. To the extent
these expenditures, as with all costs, are not ultimately reflected in the
prices of the U. S. Steel Group's products and services, operating results will
be adversely affected. The U. S. Steel Group believes that all of its domestic
competitors are subject to similar environmental laws and regulations. However,
the specific impact on each competitor may vary depending on a number of
factors, including the age and location of its operating facilities and its
production methods.
USX has been notified that it is a potentially responsible party ("PRP") at
27 waste sites related to the U. S. Steel Group under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") as of June 30,
1995. In addition, there are 27 sites related to the U. S. Steel Group where
USX has received information requests or other indications that USX may be a PRP
under CERCLA but where sufficient information is not presently available to
confirm the existence of liability. There are also 43 additional sites related
to the U. S. Steel Group where remediation is being sought under other
environmental statutes, both federal and state. At many of these sites, USX is
one of a number of parties involved and the total cost of remediation, as well
as USX's share thereof, is frequently dependent upon the outcome of
investigations and remedial studies. The U. S. Steel Group accrues for
environmental remediation activities when the responsibility to remediate is
probable and the amount of associated costs is reasonably determinable. As
environmental remediation matters proceed toward ultimate resolution or as
additional remediation obligations arise, charges in excess of those previously
accrued may be required.
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the U. S. Steel Group
involving a variety of matters, including laws and regulations relating to the
environment, certain of which are discussed in Note 8 to the U. S. Steel Group
Financial Statements. The ultimate resolution of these contingencies could,
individually or
<PAGE> 50
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
in the aggregate, be material to the U. S. Steel Group financial statements.
However, management believes that USX will remain a viable and competitive
enterprise even though it is possible that these contingencies could be resolved
unfavorably to the U. S. Steel Group. See discussion of Liquidity and Capital
Resources in USX Consolidated Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Accounting Standard
-------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets To Be Disposed Of ("SFAS No. 121"). This
standard must be adopted no later than the 1996 reporting year but can be
adopted early. SFAS No. 121 requires that operating assets and associated
goodwill be written down to fair value whenever an impairment review indicates
that the carrying value cannot be recovered on an undiscounted cash flow basis.
After any such noncash write-down, results of operations would be favorably
affected by reduced depreciation, depletion and amortization charges. The U. S.
Steel Group is currently reviewing its assets and, at this time, cannot provide
an assessment of either the impact or the timing of adoption of SFAS No. 121,
although it is possible that certain charges will be recognized upon adoption.
<PAGE> 51
<TABLE>
U. S. STEEL GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS
------------------------------------
<CAPTION>
($ in Millions)
Second Quarter Six Months
Ended Ended
June 30 June 30
-------------- --------------
1995 1994 1995 1994
---- ---- ---- ----
SALES
<S> <C> <C> <C> <C>
Steel and Related Businesses (a) $1,612 $1,482 $3,161 $2,816
Other Businesses 11 52 39 102
------ ------ ------ ------
Total U. S. Steel Group $1,623 $1,534 $3,200 $2,918
OPERATING INCOME
Steel and Related Businesses (a) $104 $64 $204 $28
Administrative and Other (b) 25 24 59 36
------ ------ ------ ------
Total U. S. Steel Group $129 $88 $263 $64
CAPITAL EXPENDITURES $86 $64 $142 $108
OPERATING STATISTICS
Public & Affiliated Shipments (c) 2,757 2,636 5,479 5,097
Raw Steel-Production (c) 3,018 2,918 5,963 5,661
Raw Steel-Capability Utilization (d) 96.8% 97.6% 96.2% 95.2%
------------
<FN>
(a) Includes the production and sale of steel products, coke and taconite
pellets; domestic coal mining; the management of mineral resources; and
engineering and consulting services and technology licensing.
(b) Includes pension credits, other postretirement benefit costs and certain
other expenses principally attributable to former business units of the
U. S. Steel Group. Also includes results of real estate development and
management, and leasing and financing activities.
(c) Thousands of net tons.
(d) Based on annual raw steel production capability of 12.5 million tons for
1995 and 12.0 million tons for 1994.
</TABLE>
<PAGE> 52
Part I - Financial Information (Continued):
D. Delhi Group
<TABLE>
DELHI GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30 June 30
(Dollars in millions, except per share amounts) 1995 1994 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $139.4 $136.2 $276.3 $290.6
OPERATING COSTS:
Cost of sales (excludes items shown below) 126.7 124.0 239.8 257.4
Selling, general and administrative expenses 5.8 9.3 12.2 16.4
Depreciation, depletion and amortization 6.3 9.3 12.6 18.6
Taxes other than income taxes 1.9 2.2 3.9 4.3
Restructuring charges (credits) (6.2) 37.4 (6.2) 37.4
------ ------ ------ ------
Total operating costs 134.5 182.2 262.3 334.1
------ ------ ------ ------
OPERATING INCOME (LOSS) 4.9 (46.0) 14.0 (43.5)
Other income (loss) 5.1 (2.2) 5.7 (1.3)
Interest and other financial costs (3.3) (2.9) (6.6) (5.6)
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES 6.7 (51.1) 13.1 (50.4)
Less provision (credit) for estimated
income taxes 4.4 (19.5) 6.6 (19.2)
------ ------ ------ ------
NET INCOME (LOSS) 2.3 (31.6) 6.5 (31.2)
Dividends on preferred stock (.1) (.1) (.1) (.1)
Net (income) loss applicable to Retained Interest (1.0) 10.3 (2.4) 10.2
------ ------ ------ ------
NET INCOME (LOSS) APPLICABLE TO OUTSTANDING
DELHI STOCK $1.2 $(21.4) $4.0 $(21.1)
====== ====== ====== ======
DELHI STOCK DATA:
Net income (loss) per share
- Primary and fully diluted $.12 $(2.27) $.42 $(2.25)
Dividends paid per share .05 .05 .10 .10
Weighted average shares, in thousands
- Primary and fully diluted 9,438 9,418 9,438 9,375
<FN>
Selected notes to financial statements appear on pages 55-58.
</TABLE>
<PAGE> 53
<TABLE>
DELHI GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
------------------------------
<CAPTION>
June 30 December 31
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $.1 $.1
Receivables, less allowance for doubtful
accounts of $.7 and $.7 33.5 12.5
Receivable from other groups - .2
Inventories 8.6 9.9
Other current assets 3.3 3.1
------ ------
Total current assets 45.5 25.8
Long-term receivables and other investments 7.8 17.0
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$425.1 and $459.5 477.5 475.6
Other noncurrent assets 2.2 2.8
------ ------
Total assets $533.0 $521.2
====== ======
LIABILITIES
Current liabilities:
Notes payable $3.2 $-
Accounts payable 87.9 71.8
Payable to other groups 2.1 1.4
Payroll and benefits payable 3.5 4.7
Accrued taxes 7.4 7.6
Accrued interest 3.7 2.4
Long-term debt due within one year 9.0 1.5
------ ------
Total current liabilities 116.8 89.4
Long-term debt, less unamortized discount 144.5 106.0
Long-term deferred income taxes 134.3 135.4
Deferred credits and other liabilities 15.1 14.8
Preferred stock of subsidiary 3.8 3.8
------ ------
Total liabilities 414.5 349.4
------ ------
STOCKHOLDERS' EQUITY
Preferred stock 2.5 2.5
Common stockholders' equity 116.0 169.3
------ ------
Total stockholders' equity 118.5 171.8
------ ------
Total liabilities and stockholders' equity $533.0 $521.2
====== ======
<FN>
Selected notes to financial statements appear on pages 55-58.
</TABLE>
<PAGE> 54
<TABLE>
DELHI GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
-----------------------------------
<CAPTION>
Six Months Ended
June 30
(Dollars in millions) 1995 1994
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <S>
OPERATING ACTIVITIES:
Net income (loss) $6.5 $(31.2)
Adjustments to reconcile to net cash provided from
operating activities:
Depreciation, depletion and amortization 12.6 18.6
Pensions .9 1.2
Deferred income taxes 1.8 (21.5)
Gain on disposal of assets (.5) (.6)
Restructuring charges (credits) (6.2) 37.4
Changes in:
Current receivables - sold (18.3) (3.2)
- operating turnover (2.5) 19.1
Inventories 1.3 .8
Current accounts payable and accrued expenses 17.0 (3.9)
All other items - net (2.9) 1.7
------ ------
Net cash provided from operating activities 9.7 18.4
------ ------
INVESTING ACTIVITIES:
Capital expenditures (12.7) (13.9)
Disposal of assets 12.6 .8
All other items - net 3.0 -
------ ------
Net cash provided from (used in)
investing activities 2.9 (13.1)
------ ------
FINANCING ACTIVITIES:
Increase (decrease) in Delhi Group's share of
USX consolidated debt 47.1 (11.3)
Elimination of Marathon Group Retained Interest (58.2) -
Attributed preferred stock of subsidiary - 3.7
Dividends paid (1.0) (1.0)
Payment attributed to Retained Interest (.5) (.5)
------ ------
Net cash used in financing activities (12.6) (9.1)
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - (3.8)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .1 3.8
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $.1 $-
====== ======
Cash used in operating activities included:
Interest and other financial costs paid $(5.2) $(5.6)
Income taxes paid, including settlements
with other groups (3.4) (1.0)
<FN>
Selected notes to financial statements appear on pages 55-58.
</TABLE>
<PAGE> 55
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited but,
in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments
are of a normal recurring nature unless disclosed otherwise. These
financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Additional information is contained in the USX Annual Report
on Form 10-K for the year ended December 31, 1994.
2. The financial statements of the Delhi Group include the financial position,
results of operations and cash flows for the businesses of Delhi Gas
Pipeline Corporation and certain other subsidiaries of USX, and a portion
of the corporate assets and liabilities and related transactions which are
not separately identified with ongoing operating units of USX. These
financial statements are prepared using amounts included in the USX
consolidated financial statements. Corporate amounts reflected in these
financial statements are determined based upon methods which management
believes to be reasonable. The accounting policies applicable to the
preparation of the financial statements of the Delhi Group may be modified
or rescinded in the sole discretion of the Board of Directors of USX
(Board), although the Board has no present intention to do so. The Board
may also adopt additional policies depending on the circumstances.
On June 15, 1995, USX eliminated the Marathon Group Retained Interest in
the Delhi Group (equivalent to 4,564,814 shares of USX-Delhi Group Common
Stock (Delhi Stock)). This was accomplished through a reallocation of
assets and a corresponding adjustment to debt and equity attributed to the
Marathon and Delhi Groups. The transfer was made at a price of $12.75 per
equivalent share, or an aggregate of $58.2 million.
The Retained Interest represented the Marathon Group's interest in the
earnings and equity of the Delhi Group. Prior to the elimination, the
Retained Interest was approximately 33%, based on the 14,003,205 shares of
Delhi Stock designated by the Board to represent 100% of the common
stockholders' equity value of USX attributable to the Delhi Group.
The elimination of the Retained Interest resulted in an increase of $58.2
million in USX debt attributed to the Delhi Group and a corresponding
decrease in attributed USX common stockholders' equity. If the elimination
had occurred as of January 1, 1995, Delhi Group income per share would have
been $.15 per share in the second quarter of 1995, compared to reported
results of $.12 per share, and $.52 per share in the six months ended June
30, 1995, compared to reported results of $.42 per share. The above
supplemental income per share data are not necessarily indicative of future
results, which will be dependent upon future operating results relative to
the cost of the incremental debt.
<PAGE> 56
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
2. (Continued)
Although the financial statements of the Delhi Group, the Marathon Group
and the U. S. Steel Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of USX
attributed to each such group, such attribution of assets, liabilities
(including contingent liabilities) and stockholders' equity among the Delhi
Group, the Marathon Group and the U. S. Steel Group for the purpose of
preparing their respective financial statements does not affect legal title
to such assets and responsibility for such liabilities. Holders of Delhi
Stock, USX-Marathon Group Common Stock (Marathon Stock) and USX-U. S. Steel
Group Common Stock (Steel Stock) are holders of common stock of USX, and
continue to be subject to all the risks associated with an investment in
USX and all of its businesses and liabilities. Financial impacts arising
from one Group that affect the overall cost of USX's capital could affect
the results of operations and financial condition of other groups. In
addition, net losses of any Group, as well as dividends and distributions
on any class of USX Common Stock or series of preferred stock and
repurchases of any class of USX Common Stock or series of preferred stock
at prices in excess of par or stated value, will reduce the funds of USX
legally available for payment of dividends on all classes of Common Stock.
Accordingly, the USX consolidated financial information should be read in
connection with the Delhi Group financial information.
3. The method of calculating net income (loss) per share for the Delhi Stock,
Marathon Stock and Steel Stock reflects the Board's intent that the
separately reported earnings and surplus of the Delhi Group, the Marathon
Group and the U. S. Steel Group, as determined consistent with the USX
Certificate of Incorporation, are available for payment of dividends to the
respective classes of stock, although legally available funds and
liquidation preferences of these classes of stock do not necessarily
correspond with these amounts.
Primary net income (loss) per share is calculated by adjusting net income
(loss) for dividend requirements of preferred stock and income that was
applicable to the Retained Interest and is based on the weighted average
number of common shares outstanding plus common stock equivalents, provided
they are not antidilutive. Common stock equivalents result from assumed
exercise of stock options and surrender of stock appreciation rights
associated with stock options, where applicable.
Fully diluted net income (loss) per share assumes exercise of stock options
and surrender of stock appreciation rights, provided, in each case, the
effect is not antidilutive.
<PAGE> 57
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
4. Inventories are carried at lower of average cost or market.
<TABLE>
<CAPTION>
(In millions)
----------------------
June 30 December 31
1995 1994
-------- -----------
<S> <C> <C>
Natural gas in storage $7.6 $8.2
Natural gas liquids (NGLs) in storage .1 .4
Materials and supplies .9 1.3
---- ----
Total $8.6 $9.9
==== ====
</TABLE>
5. In the second quarter of 1994, restructuring charges totaling $39.9 million
were recorded for the write-down of assets to estimated net realizable
value related to the planned disposition of certain nonstrategic gas
gathering and processing assets and other investments. Charges of $37.4
million were included in operating costs and $2.5 million included in other
income. In the second quarter of 1995, disposition of these assets was
completed at higher than anticipated sales proceeds, resulting in
restructuring credits of $11.2 million ($6.2 million included in operating
income and $5.0 million in other income).
6. The financial statement provision for estimated income taxes and related
tax payments or refunds have been reflected in the Delhi Group, the
Marathon Group and the U. S. Steel Group financial statements in accordance
with USX's tax allocation policy for such groups. In general, such policy
provides that the consolidated tax provision and related tax payments or
refunds are allocated among the Delhi Group, the Marathon Group and the
U. S. Steel Group for group financial statement purposes, based principally
upon the financial income, taxable income, credits, preferences and other
amounts directly related to the respective groups.
The provision (credit) for estimated U.S. income taxes for the Delhi Group
is based on tax rates and amounts which recognize management's best
estimate of current and deferred tax assets and liabilities. Differences
between the combined interim tax provisions of the Delhi, the Marathon and
the U. S. Steel Groups and USX consolidated are allocated to each group
based on the relationship of the individual group provisions to the
combined interim provisions.
7. The Delhi Group participates in an agreement to sell certain accounts
receivable subject to limited recourse. Payments are collected from the
sold accounts receivable; the collections are reinvested in new accounts
receivable for the buyers; and a yield, based on short-term market rates,
is transferred to the buyers. At June 30, 1995, the balance of the Delhi
Group's sold accounts receivable that had not been collected was $50.0
million, and the buyers had collection rights for an additional $5.0
million of designated unsold receivables to collateralize the limited
recourse provisions.
<PAGE> 58
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
8. USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the Delhi Group
involving a variety of matters, including laws and regulations relating to
the environment. Certain of these matters are discussed below. The
ultimate resolution of these contingencies could, individually or in the
aggregate, be material to the Delhi Group financial statements. However,
management believes that USX will remain a viable and competitive
enterprise even though it is possible that these contingencies could be
resolved unfavorably to the Delhi Group. See discussion of Liquidity and
Capital Resources in USX Consolidated Management's Discussion and Analysis
of Financial Condition and Results of Operations.
The Delhi Group is subject to federal, state and local laws and regulations
relating to the environment. These laws generally provide for control of
pollutants released into the environment and require responsible parties to
undertake remediation of hazardous waste disposal sites. Penalties may be
imposed for noncompliance. Expenditures for remediation and penalties have
not been material.
For a number of years, the Delhi Group has made capital expenditures to
bring existing facilities into compliance with various laws relating to the
environment. In the first six months of 1995 and for the years 1994 and
1993, such capital expenditures for environmental controls totaled $1.8
million, $4.6 million and $4.5 million, respectively. The Delhi Group
anticipates making additional such expenditures in the future; however, the
exact amounts and timing of such expenditures are uncertain because of the
continuing evolution of specific regulatory requirements.
9. In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which is effective for 1996. USX has not adopted SFAS No. 121. For
additional information, see Delhi Group Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<PAGE> 59
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Delhi Group includes Delhi Gas Pipeline Corporation and certain other
subsidiaries of USX Corporation ("USX") which are engaged in the purchasing,
gathering, processing, transporting and marketing of natural gas. The following
discussion should be read in conjunction with the second quarter 1995 USX
consolidated financial information and the Delhi Group financial statements and
selected notes. In addition, the discussion of Results of Operations should be
read in conjunction with the Supplemental Statistics provided on page 65.
Results of Operations
---------------------
Sales in the second quarter and first six months of 1995 totaled $139.4
million and $276.3 million, respectively, reflecting an increase of $3.2 million
and a decrease of $14.3 million, respectively, from the comparable periods in
1994, as summarized in the following table:
<TABLE>
<CAPTION>
Second Quarter Six Months
Ended June 30 Ended June 30
-------------- -------------
(Dollars in millions) 1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Gas Sales $72.3 $102.1 $162.6 $236.8
Transportation 2.9 3.1 5.3 5.7
------ ------ ------ ------
Total Systems 75.2 105.2 167.9 242.5
Trading 46.1 14.5 73.1 19.9
Gas Processing 18.1 16.4 35.3 28.0
Other - .1 - .2
------ ------ ------ ------
Total Sales $139.4 $136.2 $276.3 $290.6
====== ====== ====== ======
</TABLE>
The increase in the second quarter was mainly due to an increase in trading
volumes, partly offset by a decrease in gas sales volumes and prices. The
decrease for the first six months primarily reflected lower average prices and
volumes of natural gas, partially offset by increased trading volumes.
Operating income of $4.9 million was recorded in the second quarter of
1995, compared with an operating loss of $46.0 million in the second quarter of
1994. Second quarter 1995 results included a $6.2 million favorable adjustment
related to the completion of the nonstrategic asset disposition plan which was
initiated in the second quarter of 1994 and resulted in higher than anticipated
sales proceeds. The second quarter 1994 operating loss included charges of
$37.4 million for the asset disposition plan, expenses of $1.7 million related
to a workforce reduction program, other employment-related costs of $2.0 million
and charges related to certain contractual matters of $1.1 million. Excluding
the effects of these items, operating results improved by $2.5 million from the
prior-year quarter, mainly due to a decrease in total operating costs, excluding
gas purchase costs, and improved gas processing operations, partially offset by
a lower gas sales margin. The reduction in operating costs primarily reflected
the benefits of the asset disposition plan and work force reduction program
initiated in the second quarter of 1994.
<PAGE> 60
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Delhi Group had operating income of $14.0 million in the first six
months of 1995, compared with an operating loss of $43.5 million in the first
six months of 1994. Operating income in the first six months of 1995 included
the $6.2 million favorable adjustment recorded in the second quarter, as
mentioned above. The operating loss in the first six months of 1994 included a
$1.6 million favorable effect of the settlement of litigation related to a
prior-year take-or-pay claim and unfavorable effects totaling $42.2 million
relating to the second quarter, as noted in the preceding paragraph.
Excluding the effects of these items, operating income in the first six
months of 1995 was $7.8 million, compared with an operating loss of $2.9
million in the first six months of 1994. The increase was due primarily to
improved gas processing operations and a decrease in total operating costs,
excluding gas purchase costs, partially offset by a lower gas sales margin.
The gas sales and trading margin was $9.3 million in the second quarter of
1995, compared with $14.2 million in the second quarter of 1994. The second
quarter 1994 margin included the above mentioned $1.1 million of charges related
to contractual matters. Excluding the effect of this item, the second quarter
1995 gas sales and trading margin was $6.0 million lower than the same period in
1994 primarily due to the expiration in August 1994 of the premium service
contract with Central Power and Light Company ("CP&L"), a utility electric
generator serving south Texas, and a 15% decline in gas sales volumes. The
decrease in gas sales volumes mainly resulted from the conversion of sales
volumes to transportation volumes due to contract renegotiations with certain
producers in the second quarter of 1995. Excluding the second quarter 1994
charges of $1.1 million and a $1.6 million favorable effect of a litigation
settlement recorded in the first quarter of 1994, the gas sales and trading
margin in the first six months of 1995 decreased by $8.6 million from the first
six months of 1994 due mainly to a reduction in gas sales volumes, the
expiration of the CP&L contract and the first quarter effects of warmer weather
in the Delhi Group's primary marketing areas of Texas and Oklahoma and reduced
premiums from Southwestern Electric Power Company.
Natural gas volumes from trading sales in the second quarter and first six
months of 1995 totaled 324.1 million cubic feet per day ("mmcfd") and 266.2
mmcfd, respectively, compared with 82.4 mmcfd and 55.9 mmcfd, respectively, for
the same periods of 1994. The trading business, which began in last year's
first quarter, involves the purchase of natural gas from sources other than
wells directly connected to the Delhi Group's systems and the subsequent sale of
like volumes. While unit margins earned on trading sales are significantly less
than those earned on premium sales, the Delhi Group has expanded its trading
operations substantially during 1995 in an attempt to attract off-system
customers requiring premium supply services.
Transportation throughput in the second quarter and first six months of
1995 increased by 8% and 2%, respectively, from the comparable 1994 periods.
The second quarter increase was primarily due to the conversion of gas sales
volumes to transportation volumes, partially offset by the sale of properties
included in the 1994 asset disposition plan.
The gas processing margin in the second quarter and first six months of
1995 increased by $3.1 million and $9.8 million, respectively, from the
comparable 1994 periods primarily due to lower feedstock costs and higher
natural gas liquids ("NGLs") sales prices. Due to the favorable economics, NGLs
sales volumes for the first six months of 1995 increased by 14% from the first
six months of 1994.
<PAGE> 61
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Other income of $5.1 million in the second quarter of 1995 included a $5.0
million favorable adjustment on the sale of the Delhi Group's 25% partnership
interest in Ozark Gas Transmission System ("Ozark") which was included in the
1994 asset disposition plan. Other loss of $2.2 million in the second quarter
of 1994 included a $2.5 million restructuring charge relating to Ozark. Other
income of $5.7 million was recorded in the first six months of 1995, compared
with an other loss of $1.3 million in the first six months of 1994. The
improvement was mainly due to the effects of the second quarter items discussed
above.
Interest and other financial costs totaled $6.6 million in the first six
months of 1995, an increase of $1.0 million from the comparable period in 1994,
mainly reflecting higher expenses associated with sold accounts receivable, as
the yield paid to the buyer increased with market interest rates.
The provision for estimated income taxes is based on tax rates and amounts
which recognize management's best estimate of current and deferred tax assets
and liabilities. The second quarter 1995 income tax provision included an
unfavorable effect associated with the sale of the Delhi Group's partnership
interest in Ozark.
Net income of $2.3 million, or $.12 per share, was recorded in the second
quarter of 1995, compared with a net loss of $31.6 million, or $2.27 per share,
in the second quarter of 1994. The Delhi Group had net income of $6.5 million,
or $.42 per share, in the first six months of 1995, compared with a net loss of
$31.2 million, or $2.25 per share, in the first six months of 1994. The
improvements in net income primarily reflect the factors discussed above.
On June 15, 1995, USX eliminated the Marathon Group's Retained Interest in
the Delhi Group (equivalent to 4,564,814 shares of USX-Delhi Group Common
Stock). This was accomplished through a reallocation of assets and a
corresponding adjustment to debt and equity attributed to the Marathon and Delhi
Groups. The transfer was made at a price of $12.75 per equivalent share, or an
aggregate of $58.2 million. The Audit Committee of the USX Board of Directors
approved the transaction with the advice of two nationally recognized investment
banking firms who negotiated the per-share price and rendered opinions to the
Audit Committee that such price was fair from a financial point of view to the
respective groups and their shareholders. As a result of the elimination, the
Delhi Group's debt was increased by $58.2 million, and its equity was decreased
by the same amount. For further discussion of the elimination of the Retained
Interest and the effects on earnings per share, see Outlook and Cash Flows below
and Note 2 to the Delhi Group Financial Statements.
Outlook
-------
The Delhi Group's operating results for gas sales are affected by
fluctuations in natural gas prices and demand levels in the markets that it
serves. The levels of gas sales margin are greatly influenced by the demand for
premium services, competition in attracting new premium customers and the
volatility of natural gas prices. The Delhi Group attempts to sell all of the
natural gas available on its systems each month. Natural gas volumes not sold
to its premium markets are typically sold in the short-term interruptible
("spot") market, generally at lower average unit margins than those realized
from premium sales. Because the strongest demand for gas and the highest gas
sales unit margins generally occur during the winter heating season, the Delhi
Group has historically recognized the greatest portion of income from its gas
sales business during the first and fourth quarters
<PAGE> 62
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
of the year. Quarterly levels of gas sales margin are difficult to accurately
project. However, relative to the comparable 1994 period, gas sales margin in
the third quarter of 1995 could be unfavorably affected by the August 1994
expiration of the Delhi Group's premium service contract with CP&L.
The Delhi Group monitors the economics of removing NGLs from the gas stream
for processing on an ongoing basis to determine the appropriate level of each
gas plant's operation. The levels of gas processing margin for future periods
are difficult to project, due to fluctuations in the price and demand for NGLs
and the volatility of natural gas prices (feedstock costs). However, management
can reduce the volume of NGLs extracted and sold during periods of unfavorable
economics by curtailing the extraction of certain NGLs.
See Accounting Standard below for discussion of a new Statement of
Financial Accounting Standards which, upon adoption, may affect future Delhi
Group operating results.
The effect of the elimination of the Marathon Group's Retained Interest on
future earnings per share of the Delhi Group will be dependent upon operating
results relative to the cost of the incremental debt.
Cash Flows
----------
Net cash provided from operating activities was $9.7 million in the first
six months of 1995, down $8.7 million from the first six months of 1994. An
unfavorable change in cash realized from the sale of receivables, as discussed
below, was partially offset by higher operating income.
Reflecting the terms of a new accounts receivable sales agreement and the
current level of eligible accounts receivable, the maximum balance of
outstanding sold accounts receivable was reduced to $50 million. This resulted
in an $18.3 million decrease in cash realized from the sale of receivables for
the six months ending June 30, 1995.
Cash from the disposal of assets was $12.6 million in the first six months
of 1995, compared with $.8 million in the first six months of 1994. The 1995
amount primarily reflects the second quarter sale of the Delhi Group's interest
in Ozark and the first quarter sales of nonstrategic properties in Arkansas and
Oklahoma, all of which were included in the 1994 asset disposition plan. As a
result of the Ozark sale, the Delhi Group also received a partnership
distribution of $3.0 million in the second quarter of 1995, which is reflected
in All other items - net of investing activities.
Financial obligations increased by $47.1 million in the first six months of
1995, mainly reflecting the $58.2 million increase in attributed USX debt
associated with the elimination of the Marathon Group's Retained Interest,
partially offset by net cash provided from operating and investing activities.
All financial obligations consist of the Delhi Group's portion of USX debt and
preferred stock of a subsidiary attributed to all three groups.
The Elimination of Marathon Group Retained Interest of $58.2 million
represents the decrease in equity associated with the elimination of the
Marathon
<PAGE> 63
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Group's interest in the Delhi Group. This is offset by a corresponding increase
in financial obligations, as noted above.
Hedging Activity
----------------
The Delhi Group engages in commodity hedging activities in the normal
course of its businesses. Futures contracts, commodity swaps and options are
used to hedge exposure to price fluctuations relevant to the purchase or sale of
natural gas. While hedging activities are generally used to reduce risks from
unfavorable price movements, they may also limit the opportunity to benefit from
favorable movements. Based on risk assessment procedures and internal controls
in place, management believes that its use of hedging instruments will not have
a material adverse effect on the financial position, liquidity or results of
operations of the Delhi Group.
Liquidity
---------
For discussion of USX's liquidity and capital resources, see USX
Consolidated Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Capital Expenditures
--------------------
Delhi Group capital expenditures for property, plant and equipment in the
second quarter and first six months of 1995 were $7.1 million and $12.7 million,
respectively, compared with $9.0 million and $13.9 million, respectively, for
the same periods in 1994.
For the year 1995, capital expenditures are expected to total approximately
$40 million, compared with $32.1 million in 1994, and will primarily focus on
expenditures to add new dedicated gas reserves, expand existing facilities and
acquire new facilities as opportunities arise.
Environmental Matters, Contingencies and Commitments
----------------------------------------------------
The Delhi Group has incurred and will continue to incur capital and
operating and maintenance expenditures as a result of environmental laws and
regulations. To the extent these expenditures, as with all costs, are not
ultimately reflected in the prices of the Delhi Group's products and services,
operating results will be adversely affected. The Delhi Group believes that
substantially all of its competitors are subject to similar environmental laws
and regulations. However, the specific impact on each competitor may vary
depending on a number of factors, including the age and location of its
operating facilities and its production processes.
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the Delhi Group
involving a variety of matters, including laws and regulations relating to the
environment. The ultimate resolution of these contingencies could, individually
or in the aggregate, be material to the Delhi Group financial statements.
However, management believes that USX will remain a viable and competitive
enterprise even though it is possible that these contingencies could be resolved
unfavorably to the Delhi Group. See discussion of Liquidity and Capital
Resources in USX Consolidated Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<PAGE> 64
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Accounting Standard
-------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS No. 121"). This
standard must be adopted no later than the 1996 reporting year, but can be
adopted early. SFAS No. 121 requires that operating assets and associated
goodwill be written down to fair value whenever an impairment review indicates
that the carrying value cannot be recovered on an undiscounted cash flow basis.
After any such noncash write-down, results of operations would be favorably
affected by reduced depreciation, depletion and amortization charges. The Delhi
Group is currently reviewing its assets and, at this time, cannot provide an
assessment of either the impact or the timing of adoption of SFAS No. 121,
although it is possible that certain charges will be recognized upon adoption.
<PAGE> 65
<TABLE>
DELHI GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS
------------------------------
($ in Millions)
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30 June 30
-------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
GROSS MARGIN
Gas Sales and Trading Margin $9.3 $14.2 $29.9 $39.0
Transportation Margin 2.9 3.1 5.3 5.7
------ ------ ------ ------
Systems and Trading Margin 12.2 17.3 35.2 44.7
Gas Processing Margin 6.4 3.3 13.1 3.3
------ ------ ------ ------
Total Gross Margin $18.6 $20.6 $48.3 $48.0
OPERATING INCOME (LOSS) $4.9 $(46.0) $14.0 $(43.5)
CAPITAL EXPENDITURES $7.1 $9.0 $12.7 $13.9
OPERATING STATISTICS
Natural Gas Volumes (a)
Natural Gas Sales 531.8 625.4 581.2 638.8
Transportation 317.8 293.1 274.7 269.0
------ ------ ------ ------
Systems Throughput 849.6 918.5 855.9 907.8
Trading Sales 324.1 82.4 266.2 55.9
Partnership - equity share (b) 7.0 23.6 10.5 21.9
------- ------- ------- -------
Total Sales Volumes 1,180.7 1,024.5 1,132.6 985.6
Natural Gas Liquids Sales (c) 823.6 805.6 817.1 717.0
---------------
<FN>
(a) Millions of cubic feet per day
(b) Related to an investment in Ozark Gas Transmission System which was sold
in the second quarter of 1995.
(c) Thousands of gallons per day
</TABLE>
<PAGE> 66
Part II - Other Information:
----------------------------
Item 1. LEGAL PROCEEDINGS
USX-U. S. Steel Group
Pickering Litigation
In 1992, the United States District Court for the District of Utah
Central Division issued a Memorandum Opinion and Order in Pickering v.
USX relating to pension and compensation claims by approximately 1,900
employees of USX's former Geneva (Utah) Works. Although the court
dismissed a number of the claims by the plaintiffs, it found that USX
had violated the Employee Retirement Income Security Act by
interfering with the accrual of pension benefits of certain employees
and amending a benefit plan to reduce the accrual of future benefits
without proper notice to plan participants. On May 5, 1995, the Court
issued its Opinion on the damage issues concerning the claims of a
sample group of 23 plaintiffs. A settlement requiring USX to make
payments of $47 million (which had been partially accrued in prior
periods) has been approved by the court covering substantially all of
the remaining plaintiffs.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held April 25, 1995. In connection
with the meeting, proxies were solicited pursuant to the Securities
Exchange Act. The following are the voting results on proposals
considered and voted upon at the meeting, all of which were described
in the proxy statement.
1. All nominees for director listed in the proxy statement were elected.
The following is a tabulation of votes with respect to each nominee
for director:
Votes For Votes Withheld
Victor G. Beghini 373,268,908 5,896,997
James A. D. Geier 373,422,052 5,693,853
Charles R. Lee 373,724,638 5,391,267
Ray Marshall 373,554,532 5,561,373
Thomas J. Usher 373,648,116 5,467,789
2. Price Waterhouse LLP was elected as the independent accountants for
1995. (For, 375,981,681; against, 1,951,507; abstained 1,182,716)
<PAGE> 67
Part II - Other Information (Continued):
---------------------------
Item 5. OTHER INFORMATION
SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF MARATHON OIL COMPANY
Supplementary Data
---------------------------------------------------------------------
(Unaudited)
The following summarized consolidated financial information of Marathon Oil
Company, a wholly owned subsidiary of USX, is included in this Form 10-Q in
satisfaction of the reporting obligation of Marathon which has debt securities
registered under the Securities Exchange Act. All such securities are
guaranteed by USX.
<TABLE>
(In millions)
-------------------------------
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30 June 30
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME DATA:
Net sales $3,509 $3,087 $6,827 $5,817
Operating income 256 164 473 396
Net income 98 75 157 180
(In millions)
-----------------------
June 30 December 31
1995 1994
-------- -----------
BALANCE SHEET DATA:
Assets:
Current assets $2,304 $2,340
Noncurrent assets 8,793 8,974
------ ------
Total assets $11,097 $11,314
====== ======
Liabilities and Stockholder's Equity:
Current liabilities $1,460 $1,591
Noncurrent liabilities 8,080 8,324
Stockholder's equity 1,557 1,399
------- -------
Total liabilities and stockholder's equity $11,097 $11,314
======= =======
</TABLE>
<PAGE> 68
Part II - Other Information (Continued):
----------------------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
12.1Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
12.2Computation of Ratio of Earnings to Fixed Charges
27.Financial Data Schedule
(b) REPORTS ON FORM 8-K
Form 8-K dated June 15, 1995, reporting under Item 5, Other
Events, elimination of Marathon Group's Retained Interest in the
Delhi Group on June 15, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned chief accounting officer thereunto duly authorized.
USX CORPORATION
By /s/ Lewis B. Jones
------------------
Lewis B. Jones
Vice President &
Comptroller
August 10, 1995
Exhibit 12.1
<TABLE>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
TOTAL ENTERPRISE BASIS - (Unaudited)
----------------------------------------------------------
(Dollars in Millions)
<CAPTION>
Six Months
Ended Year Ended December 31
June 30 --------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Portion of rentals
representing interest $40 $40 $85 $84 $87 $91 $88
Capitalized interest 8 43 58 105 78 63 50
Pretax earnings which would
be required to cover
preferred stock dividend
requirements of parent 25 24 49 44 14 15 28
Other interest and fixed
charges 245 218 464 372 408 474 554
---- ---- ---- ---- ---- ---- ----
Combined fixed charges
and preferred stock
dividends (A) $318 $325 $656 $605 $587 $643 $720
==== ==== ==== ==== ==== ==== ====
Earnings-pretax income (loss)
with applicable
adjustments (B) $856 $555 $1,263 $280 $376 $(53)$1,935
==== ==== ===== ==== ==== ==== =====
Ratio of (B) to (A) 2.69 1.71 1.92 (a) (a) (a) 2.69
==== ==== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover combined fixed charges and preferred stock
dividends by $325 million for 1993, by $211 million for 1992 and by $696
million for 1991.
</TABLE>
<TABLE>
Exhibit 12.2
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TOTAL ENTERPRISE BASIS - (Unaudited)
-------------------------------------------------
(Dollars in Millions)
<CAPTION>
Six Months
Ended Year Ended December 31
June 30 --------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Portion of rentals
representing interest $40 $40 $85 $84 $87 $91 $88
Capitalized interest 8 43 58 105 78 63 50
Other interest and fixed
charges 245 218 464 372 408 474 554
---- ---- ----- ---- ---- ---- ----
Total fixed charges (A) $293 $301 $607 $561 $573 $628 $692
==== ==== ==== ==== ==== ==== ====
Earnings-pretax income (loss)
with applicable
adjustments (B) $856 $555 $1,263 $280 $376 $(53)$1,935
==== ==== ===== ==== ==== ==== =====
Ratio of (B) to (A) 2.92 1.84 2.08 (a) (a) (a) 2.80
==== ==== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover fixed charges by $281 million for 1993, by $197
million for 1992 and by $681 million for 1991.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 1,129
<ALLOWANCES> 15
<INVENTORY> 1,854
<CURRENT-ASSETS> 3,351
<PP&E> 25,534
<DEPRECIATION> 14,383
<TOTAL-ASSETS> 17,362
<CURRENT-LIABILITIES> 3,152
<BONDS> 4,975
<COMMON> 373<F1>
0
112
<OTHER-SE> 4,034
<TOTAL-LIABILITY-AND-EQUITY> 17,362
<SALES> 10,316
<TOTAL-REVENUES> 10,316
<CGS> 9,484
<TOTAL-COSTS> 9,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> 550
<INCOME-TAX> 206
<INCOME-CONTINUING> 344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 344
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F3>
<FN>
<F1> Consists of Marathon Stock issued, $287; Steel Stock issued, $77; Delhi
Stock issued, $9.
<F2> Primary earnings per share applicable to Marathon Stock, $0.63; Steel Stock
$1.87; Delhi Stock $0.42.
<F3> Fully diluted earnings per share applicable to Marathon Stock, $0.63; Steel
Stock $1.80; Delhi Stock, $0.42.
</FN>
</TABLE>
