<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 March 31, 1997
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 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes..X..No.....
Common stock outstanding at April 30, 1997 follows:
USX-Marathon Group - 287,745,235 shares
USX-U. S. Steel Group - 85,616,168 shares
USX-Delhi Group - 9,451,269 shares
<PAGE> 2
USX CORPORATION
SEC FORM 10-Q
QUARTER ENDED March 31, 1997
---------------------------
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 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Financial Statistics 21
B. Marathon Group
Item 1. Financial Statements:
Marathon Group Statement of Operations 22
Marathon Group Balance Sheet 23
Marathon Group Statement of Cash Flows 24
Selected Notes to Financial Statements 25
Item 2. Marathon Group Management's Discussion and
Analysis of Financial Condition and
Results of Operations 29
Supplemental Statistics 35
<PAGE> 3
USX CORPORATION
SEC FORM 10-Q
QUARTER ENDED March 31, 1997
---------------------------
INDEX Page
----- ----
PART I - FINANCIAL INFORMATION (Continued)
C. U. S. Steel Group
Item 1. Financial Statements:
U. S. Steel Group Statement of Operations 36
U. S. Steel Group Balance Sheet 37
U. S. Steel Group Statement of Cash Flows 38
Selected Notes to Financial Statements 39
Item 2. U. S. Steel Group Management's Discussion
and Analysis of Financial Condition
and Results of Operations 43
Supplemental Statistics 47
D. Delhi Group
Item 1. Financial Statements:
Delhi Group Statement of Operations 48
Delhi Group Balance Sheet 49
Delhi Group Statement of Cash Flows 50
Selected Notes to Financial Statements 51
Item 2. Delhi Group Management's Discussion and
Analysis of Financial Condition
and Results of Operations 55
Supplemental Statistics 59
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 60
Item 5. Other Information 60
Item 6. Exhibits and Reports on Form 8-K 70
<PAGE> 4
Part I - Financial Information
A. Consolidated Corporation
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
------------------------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $5,997 $5,473
OPERATING COSTS:
Cost of sales (excludes items shown below) 4,432 4,076
Inventory market valuation charges (credits) 114 (155)
Selling, general and administrative expenses 54 44
Depreciation, depletion and amortization 253 267
Taxes other than income taxes 769 742
Exploration expenses 33 33
------ ------
Total operating costs 5,655 5,007
------ ------
OPERATING INCOME 342 466
Other income 27 34
Interest and other financial income 3 5
Interest and other financial costs (85) (120)
------ ------
INCOME BEFORE INCOME TAXES 287 385
Less provision for estimated income taxes 91 120
------ ------
NET INCOME 196 265
Dividends on preferred stock (6) (6)
------ ------
NET INCOME APPLICABLE TO COMMON STOCKS $190 $259
====== ======
<FN>
Selected notes to financial statements appear on pages 9-12.
</TABLE>
<PAGE> 5
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
------------------------------------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
APPLICABLE TO MARATHON STOCK:
Net income $108 $216
- Per share - primary .37 .75
- fully diluted .37 .74
Dividends paid per share .19 .17
Weighted average shares, in thousands
- Primary 287,987 287,460
- Fully diluted 294,661 297,251
APPLICABLE TO STEEL STOCK:
Net income $81 $40
- Per share - primary .96 .49
- fully diluted .93 .48
Dividends paid per share .25 .25
Weighted average shares, in thousands
- Primary 85,006 83,197
- Fully diluted 94,581 85,030
APPLICABLE TO DELHI STOCK:
Net income $1 $2
- Per share - primary and fully diluted .15 .25
Dividends paid per share .05 .05
Weighted average shares, in thousands
- Primary 9,466 9,447
- Fully diluted 9,467 9,447
<FN>
Selected notes to financial statements appear on pages 9-12.
</TABLE>
<PAGE> 6
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Unaudited)
----------------------------------------
<CAPTION>
ASSETS
March 31 December 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $78 $55
Receivables, less allowance for doubtful
accounts of $8 and $26 1,019 1,270
Inventories 1,855 1,939
Deferred income tax benefits 57 57
Other current assets 84 81
------ ------
Total current assets 3,093 3,402
Investments and long-term receivables,
less reserves of $17 and $17 931 854
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$15,426 and $15,280 10,323 10,404
Prepaid pensions 2,064 2,014
Other noncurrent assets 308 306
------ ------
Total assets $16,719 $16,980
====== ======
<FN>
Selected notes to financial statements appear on pages 9-12.
</TABLE>
<PAGE> 7
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Continued) (Unaudited)
--------------------------------------------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable $103 $81
Accounts payable 1,862 2,204
Payroll and benefits payable 514 475
Accrued taxes 306 304
Accrued interest 63 102
Long-term debt due within one year 521 353
------ ------
Total current liabilities 3,369 3,519
Long-term debt, less unamortized discount 3,535 3,859
Long-term deferred income taxes 1,147 1,097
Employee benefits 2,797 2,797
Deferred credits and other liabilities 469 436
Preferred stock of subsidiary 250 250
------ ------
Total liabilities 11,567 11,958
------ ------
STOCKHOLDERS' EQUITY
Preferred stock -
6.50% Cumulative Convertible issued - 6,900,000 shares
($345 liquidation preference) 7 7
Common stocks:
Marathon Stock issued - 287,686,738 shares and
287,525,213 shares 288 288
Steel Stock issued - 85,281,513 shares and
84,885,473 shares 85 85
Delhi Stock issued - 9,451,269 shares and
9,448,269 shares 9 9
Additional paid-in capital 4,166 4,150
Retained earnings 631 517
Other equity adjustments (34) (34)
------ ------
Total stockholders' equity 5,152 5,022
------ ------
Total liabilities and stockholders' equity $16,719 $16,980
====== ======
<FN>
Selected notes to financial statements appear on pages 9-12.
</TABLE>
<PAGE> 8
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $196 $265
Adjustments to reconcile to net cash provided
from operating activities:
Depreciation, depletion and amortization 253 267
Exploratory dry well costs 14 14
Inventory market valuation charges (credits) 114 (155)
Pensions (47) (46)
Postretirement benefits other than pensions 9 6
Deferred income taxes 39 74
Gain on disposal of assets (14) (25)
Changes in:
Current receivables 239 (20)
Inventories (30) 21
Current accounts payable and accrued expenses (331) (130)
All other - net (23) (6)
------ ------
Net cash provided from operating activities 419 265
------ ------
INVESTING ACTIVITIES:
Capital expenditures (185) (178)
Disposal of assets 19 175
Investments in equity affiliates - net (56) 5
All other - net 5 (7)
------ ------
Net cash used in investing activities (217) (5)
------ ------
FINANCING ACTIVITIES:
Commercial paper and revolving credit arrangements - net 22 60
Other debt repayments (134) (263)
Common stock issued 14 7
Dividends paid (81) (75)
------ ------
Net cash used in financing activities (179) (271)
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23 (11)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 55 131
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $78 $120
====== ======
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(132) $(170)
Income taxes paid (44) (23)
<FN>
Selected notes to financial statements appear on pages 9-12.
</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, 1996.
Effective January 1, 1997, USX adopted American Institute of Certified
Public Accountants Statement of Position No. 96-1, "Environmental
Remediation Liabilities" (SOP 96-1), which provides additional
interpretation of existing accounting standards related to recognition,
measurement and disclosure of environmental remediation liabilities. As a
result of adopting SOP 96-1, USX identified additional environmental
remediation liabilities of $46 million, of which $28 million was discounted
to a present value of $13 million and $18 million was not discounted.
Assumptions used in the calculation of the present value amount included an
inflation factor of 2% and an interest rate of 7% over a range of 22 to 30
years. Estimated receivables for recoverable costs related to adoption of
SOP 96-1 were $4 million. The net unfavorable effect on first quarter 1997
operating income was $27 million.
2. The method of calculating net income 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 on the respective classes of stock, although legally available
funds and liquidation preferences of these classes of stock do not
necessarily correspond with these amounts. The financial statements of the
Marathon Group, the U. S. Steel Group and the Delhi Group, taken together,
include all accounts which comprise the corresponding consolidated
financial statements of USX.
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, where applicable.
Fully diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options, provided in each case, the effect is not antidilutive.
<PAGE> 10
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
3. The items below are included in both revenues and operating costs,
resulting in no effect on income.
<TABLE>
<CAPTION>
(In millions)
-------------------
First Quarter Ended
March 31
1997 1996
---- ----
<S> <C> <C>
Matching crude oil and refined product buy/sell
transactions settled in cash $755 $599
Consumer excise taxes on petroleum products and
merchandise 655 633
</TABLE>
4. Operating income includes net periodic pension credits of $38 million and
$37 million in the first quarter of 1997 and 1996, respectively. These
pension credits are primarily noncash and for the most part are included in
selling, general and administrative expenses.
5. 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.
6. 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)
----------------------
March 31 December 31
1997 1996
-------- -----------
<S> <C> <C>
Raw materials $532 $594
Semi-finished products 317 309
Finished products 993 908
Supplies and sundry items 127 128
------ ------
Total (at cost) 1,969 1,939
Less inventory market valuation reserve 114 -
------ ------
Net inventory carrying value $1,855 $1,939
====== ======
</TABLE>
The inventory market valuation reserve reflects the extent that the
recorded LIFO cost basis of crude oil and refined products inventories
exceeds net realizable value. The reserve is decreased to reflect
increases in market prices and inventory turnover and increased to
reflect decreases in market prices. Changes in the inventory market
valuation reserve result in noncash charges or credits to operating
income. For additional information, see Outlook in the Marathon Group's
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
<PAGE> 11
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
7. At March 31, 1997, USX had no borrowings against its $2,350 million long-
term revolving credit agreement.
USX had $30 million in outstanding borrowings at March 31, 1997, against
its short-term lines of credit totaling $200 million, which require
maintenance of compensating balances of 3%. In addition, USX had other
outstanding short-term borrowings of $73 million.
In the event of a change in control of USX, debt obligations totaling
$3,212 million at March 31, 1997, may be declared immediately due and
payable.
8. During the first quarter of 1997, USX called for redemption on April 4,
1997 and April 15, 1997, respectively, Zero Coupon Convertible Senior
Debentures Due 2005 with a carrying value of $41 million and the aggregate
principal amount of $227 million 7% Convertible Subordinated Debentures Due
2017. Also during the quarter, USX redeemed $120 million aggregate
principal amount of 8.50% Sinking Fund Debentures Due November 1, 2006.
9. USX has agreements (the programs) to sell an undivided interest in certain
accounts receivable subject to limited recourse. Payments are collected
from the sold accounts receivable; the collections are reinvested in new
accounts receivable for the buyers; and a yield, based on defined short-
term market rates, is transferred to the buyers. At March 31, 1997, the
amount sold under the programs that had not been collected was $740
million, which will be forwarded to the buyers at the end of the
agreements, or in the event of earlier contract termination. If USX does
not have a sufficient quantity of eligible accounts receivable to reinvest
in for the buyers, the size of the programs will be reduced accordingly.
The buyers have rights to a pool of receivables that must be maintained at
a level of 110% to 115% of the programs' size. 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 under an agreement that expires in
1997. USX Credit continues to collect payments from the loans and transfer
to the buyers principal collected plus yield based on defined short-term
market rates. At March 31, 1997, the balance of sold loans receivable
subject to recourse was $35 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.
10. USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments involving a variety of
matters, including laws and regulations relating to the environment.
Certain of these matters are discussed below. The ultimate resolution of
these contingencies could, individually or in the aggregate, be material to
the 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 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)
10. (Continued)
USX is subject to federal, state, local and foreign laws and regulations
relating to the environment. These laws generally provide for control of
pollutants released into the environment and require responsible parties to
undertake remediation of hazardous waste disposal sites. Penalties may be
imposed for noncompliance. At March 31, 1997, and December 31, 1996,
accrued liabilities for remediation totaled $171 million and $144 million,
respectively. It is not presently possible to estimate the ultimate amount
of all remediation costs that might be incurred or the penalties that may
be imposed. Receivables for recoverable costs from certain states, under
programs to assist companies in cleanup efforts related to underground
storage tanks at retail marketing outlets, were $42 million at March 31,
1997, and $23 million at December 31, 1996.
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 quarter of 1997 and for the years 1996 and 1995,
such capital expenditures totaled $31 million, $165 million and $111
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 March 31, 1997, and December 31, 1996, accrued liabilities for platform
abandonment and dismantlement totaled $122 million and $118 million,
respectively.
Guarantees by USX of the liabilities of affiliated entities totaled
$70 million at March 31, 1997. In the event that any defaults of
guaranteed liabilities occur, USX has access to its interest in the assets
of most of the affiliates to reduce losses resulting from these guarantees.
As of March 31, 1997, the largest guarantee for a single affiliate was $28
million.
At March 31, 1997, USX's pro rata share of obligations of LOOP LLC and
various pipeline affiliates secured by throughput and deficiency agreements
totaled $176 million. Under the agreements, USX is required to advance
funds if the affiliates are unable to service debt. Any such advances are
prepayments of future transportation charges.
Contract commitments for capital expenditures for property, plant and
equipment at March 31, 1997, totaled $596 million compared with $526
million at December 31, 1996.
<PAGE> 13
<TABLE>
<CAPTION>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
TOTAL ENTERPRISE BASIS - (Unaudited)
----------------------------------------------------------
First Quarter Ended
March 31 Year Ended December 31
- --------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
3.31 3.78 3.55 1.50 1.92 (a) (a)
==== ==== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover combined fixed charges and preferred stock
dividends by $325 million for 1993 and by $211 million for 1992.
</TABLE>
<TABLE>
<CAPTION>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TOTAL ENTERPRISE BASIS - (Unaudited)
-------------------------------------------------
First Quarter Ended
March 31 Year Ended December 31
- --------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
3.57 4.04 3.81 1.63 2.08 (a) (a)
==== ==== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover fixed charges by $281 million for 1993 and by
$197 million for 1992.
</TABLE>
PAGE> 14
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX Corporation ("USX") is a diversified company engaged primarily in the
energy business through its Marathon Group, in the steel business through its
U. S. Steel Group and in the gas gathering and processing business through its
Delhi Group. The following discussion should be read in conjunction with the
first quarter 1997 USX consolidated financial statements and selected notes. For
income per common share amounts applicable to each of USX's three classes of
common stock, USX-Marathon Group Common Stock ("Marathon Stock"), USX-U. S.
Steel Group Common Stock ("Steel Stock") and USX-Delhi Group Common Stock
("Delhi Stock"), see Consolidated Statement of Operations - Income per Common
Share. For 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. For operating statistics, see Supplemental Statistics
following Management's Discussion and Analysis of Financial Condition and
Results of Operations for the respective Groups.
Certain sections of the discussion include forward-looking statements
concerning trends or events potentially affecting USX. These statements
typically contain words such as "anticipates", "believes", "estimates",
"expects" or similar words indicating that future outcomes are uncertain. In
accordance with "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, these statements are accompanied by cautionary language
identifying important factors, though not necessarily all such factors, that
could cause future outcomes to differ materially from those set forth in
forward-looking statements. For additional cautionary language related to
USX, see Item 5. herein.
Results of Operations
- ---------------------
Revenues for the first quarter of 1997 and 1996 are set forth in the
following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Marathon Group $4,082 $3,627
U. S. Steel Group 1,620 1,591
Delhi Group 339 278
Eliminations (44) (23)
------ ------
Total USX Corporation Revenues 5,997 5,473
Less:
Matching crude oil and refined product buy/sell
transactions settled in cash (a) 755 599
Consumer excise taxes on petroleum products
and merchandise (a) 655 633
------ ------
Revenues adjusted to exclude above items $4,587 $4,241
====== ======
<FN>
(a) Included in both revenues and operating costs for the Marathon Group and
USX Consolidated.
</TABLE>
<PAGE> 15
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Adjusted revenues increased by $346 million, or 8%, in the first quarter of
1997 as compared with the first quarter of 1996. The improvement reflected
increases of 12% for the Marathon Group, 22% for the Delhi Group and 2% for the
U. S. Steel Group. The increase for the Marathon Group was due primarily to
higher average refined product prices and higher average worldwide natural gas
and liquid hydrocarbon prices, partially offset by reduced worldwide liquid
hydrocarbon volumes. The increase for the Delhi Group was due primarily to
higher average sales prices for natural gas and natural gas liquids, partially
offset by lower natural gas sales volumes. The increase for the U. S. Steel
Group was due primarily to higher average realized prices.
Operating income and certain items included in operating income for the
first quarter of 1997 and 1996 are set forth in the following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Operating income $342 $466
Less: certain favorable (unfavorable) items for
Marathon Group
Inventory market valuation reserve adjustment (a) (114) 155
Charges for withdrawal from MPA (b) - (10)
U. S. Steel Group
Effect of adoption of SOP 96-1 (c) (20) -
Other environmental accrual adjustments - net 11 -
---- ----
Subtotal (123) 145
---- ----
Operating income adjusted to exclude above items $465 $321
==== ====
<FN>
(a) The inventory market valuation reserve reflects the extent to which the
recorded LIFO cost basis of crude oil and refined product inventories exceeds
net realizable value. For additional discussion of this noncash adjustment, see
Outlook in Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Marathon Group.
(b) Marine Preservation Association ("MPA") is a non-profit oil spill response
group.
(c) American Institute of Certified Public Accountants Statement of Position
No. 96-1, "Environmental Remediation Liabilities" ("SOP 96-1") provides
additional guidance on recognition, measurement and disclosure of remediation
liabilities.
</TABLE>
Adjusted operating income increased by $144 million, or 45%, in the first
quarter of 1997 as compared with the first quarter of 1996, reflecting increases
of $96 million for the Marathon Group and $48 million for the U. S. Steel Group.
The increase for the Marathon Group was due primarily to higher average
worldwide natural gas and liquid hydrocarbon prices and higher average refined
product margins, partially offset by reduced worldwide liquid hydrocarbon
volumes. The increase for the U. S. Steel Group was due primarily to higher
average realized prices, a partial recovery of insurance proceeds related to the
April 1996 break-out at the Gary Works' No. 13 blast furnace and an improved
product mix, partially offset by higher natural gas costs.
<PAGE> 16
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Other income for the first quarter of 1997 and 1996 is set forth in the
following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Income from affiliates - equity method $15 $12
Gain on sale of investments (a) 11 21
Other income 1 1
------ ------
Total other income $27 $34
====== ======
- ------
<FN>
(a) Amounts in 1997 and 1996 primarily reflect gains on the sale of the
Marathon Group's interests in certain domestic pipeline companies.
Net interest and other financial costs for the first quarter of 1997 and
1996 are set forth in the following table:
</TABLE>
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest and other financial income $3 $5
Interest and other financial costs (85) (120)
------ ------
Net interest and other financial costs (82) (115)
Less:
Favorable adjustment to carrying value
of indexed debt(a) 16 -
------ ------
Net interest and other financial costs
adjusted to exclude above item $(98) $(115)
====== ======
<FN>
(a) In December 1996, USX issued $117 million in aggregate principal amount of
6-3/4% Notes Due February 1, 2000 ("indexed debt"), mandatorily exchangeable
at maturity for common stock of RMI Titanium Company ("RMI") (or for the
equivalent amount of cash, at USX's option). The carrying value of indexed
debt is adjusted quarterly to settlement value based on changes in the value
of RMI common stock. Any resulting adjustment is charged or credited to
income and included in interest and other financial costs. USX's 27% interest
in RMI continues to be accounted for under the equity method.
</TABLE>
Excluding the adjustment to the carrying value of indexed debt, net
interest and other financial costs decreased by $17 million in the first quarter
of 1997 as compared with the first quarter of 1996, due primarily to lower
average debt levels.
Provision for estimated income taxes of $91 million and $120 million for
the first quarter of 1997 and 1996 were based on tax rates and amounts that
recognize management's best estimate of current and deferred tax assets and
liabilities.
Net income was $196 million in the first quarter of 1997, a decrease of
$69 million, or 26%, from the first quarter of 1996, mainly reflecting the items
discussed above.
<PAGE> 17
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Dividends to Stockholders
- -------------------------
On April 29, 1997, the USX Board of Directors (the "Board") declared
dividends of 19 cents per share on Marathon Stock, 25 cents per share on Steel
Stock and 5 cents per share on Delhi Stock, all payable June 10, 1997, to
stockholders of record at the close of business on May 21, 1997. The Board also
declared a dividend of $0.8125 per share on USX's 6.5% Cumulative Convertible
Preferred Stock, payable June 30, 1997, to stockholders of record at the close
of business on June 2, 1997.
Cash Flows
- ----------
Cash and cash equivalents totaled $78 million at March 31, 1997, compared
with $55 million at December 31, 1996.
Net cash provided from operating activities totaled $419 million in the
first quarter of 1997, compared with $265 million in the first quarter of 1996.
The 1996 period included payments of $39 million related to certain state tax
issues and $28 million for final settlement of the Pickering v. USX litigation.
Excluding the effects of these items, net cash provided from operating
activities increased by $87 million in the first quarter of 1997, due primarily
to improved operating results (mainly reflecting higher worldwide natural gas
and liquid hydrocarbon prices, higher average refined product margins and higher
average realized steel prices), partially offset by unfavorable working capital
changes.
Cash from the disposal of assets was $19 million in the first quarter of
1997, compared with $175 million in the first quarter of 1996. The 1997 proceeds
primarily reflected sale of the Marathon Group's interest in a domestic pipeline
company and certain other investments. The 1996 proceeds primarily reflected the
sale of the U. S. Steel Group's investment in National-Oilwell (an oil field
service joint venture); sales of the Marathon Group's interests in oil and gas
production properties in Indonesia and the sale of the Marathon Group's interest
in a domestic pipeline company.
Capital expenditures for property, plant and equipment in the first quarter
of 1997 were $185 million, compared with $178 million in the first quarter of
1996. For further details, see USX Corporation - Financial Statistics, following
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Contract commitments for capital expenditures were $596 million at March
31, 1997, compared with $526 million at December 31, 1996.
Investments in equity affiliates of $56 million in the first quarter of
1997 reflect spending on capital projects by equity affiliates, primarily the
Nautilus natural gas pipeline system in the Gulf of Mexico and the Sakhalin II
project in Russia, and an investment in a power generation project in Ecuador.
USX's total long-term debt, preferred stock of subsidiary and notes
payable, was $4.4 billion at March 31, 1997, down $134 million from December 31,
1996, mainly reflecting cash provided from operating activities and asset sales
during 1997, in excess of cash used for capital expenditures, dividend payments
and investments in equity affiliates. Redemptions of long-term debt consisted of
$120 million of 8-1/2% Sinking Fund Debentures due 2006.
<PAGE> 18
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity
- ---------
At March 31, 1997, USX had no borrowings against its $2,350 million long-
term revolving credit agreement. At March 31, 1997, USX had no borrowings
against its short-term credit agreements totaling $175 million. These agreements
are with two banks, with interest based on their prime rate or London Interbank
Offered Rate, and carry a facility fee of .15%. Certain other banks provide
short-term lines of credit totaling $200 million which generally require
maintenance of compensating balances of 3%. At March 31, 1997, USX had $30
million borrowed against these lines of credit, leaving $170 million available
in short-term lines of credit. In addition, USX had other outstanding short-term
borrowings of $73 million.
USX management believes that its short-term and long-term liquidity is
adequate to satisfy its obligations as of March 31, 1997, 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 1997 and years 1998 and 1999, and any amounts that may
ultimately be paid in connection with contingencies (which are discussed in Note
10 to the Consolidated Financial Statements), are expected to be financed by a
combination of internally generated funds, proceeds from the sale of stock,
borrowings and other external financing sources.
USX's ability to avail itself in the future of the above mentioned
financing options is affected by the performance of each of its Groups (as
measured by various factors including cash provided from operating activities),
the state of worldwide debt and equity markets, investor perceptions and
expectations of past and future performance and actions, the overall U.S.
financial climate, and, in particular, with respect to borrowings, by levels of
USX's outstanding debt and credit ratings by investor services.
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.
<PAGE> 19
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX has been notified that it is a potentially responsible party ("PRP") at
46 waste sites under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") as of March 31, 1997. In addition, there are 24 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 109 additional sites,
excluding retail marketing outlets, where remediation is being sought under
other environmental statutes, both federal and state, or where private parties
are seeking remediation through discussions or litigation. At many of these
sites, USX is one of a number of parties involved and the total cost of
remediation, as well as USX's share thereof, is frequently dependent upon the
outcome of investigations and remedial studies. 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.
Effective January 1, 1997, USX adopted SOP 96-1. First quarter 1997
operating income for USX included charges of $27 million (net of expected
recoveries) related to such adoption, primarily accruals of post-closure
monitoring costs, study costs and administrative costs. See Note 1 to the
Consolidated Financial Statements for additional discussion.
First quarter 1997 operating income also included net favorable effects of
$15 million related to other environmental accrual adjustments.
Accrued liabilities for remediation totaled $171 million at
March 31, 1997, an increase of $27 million from December 31, 1996, due
primarily to accrual adjustments for the adoption of SOP 96-1 and accruals
related to retail marketing outlets, partially offset by other net accrual
adjustments related to U. S. Steel Group. Receivables for expected recoveries
totaled $42 million at March 31, 1997, an increase of $19 million from
December 31, 1996, due primarily to accrual adjustments reflecting an
increase in the estimated portion of costs that are ultimately recoverable,
and accruals for recoveries associated with adoption of SOP 96-1. See Note 10
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 (see Note 10 to the
Consolidated Financial Statements for a discussion of certain of these matters).
The ultimate resolution of these contingencies could, individually or in the
aggregate, be material to the Consolidated Financial Statements. However,
management believes that USX will remain a viable and competitive enterprise
even though it is possible that these contingencies could be resolved
unfavorably. See discussion of Liquidity herein.
Outlook
- -------
In March 1997, USX called for redemption in April 1997, Zero Coupon
Convertible Senior Debentures Due 2005 with a carrying value of $41 million
($24 million in original proceeds and $17 million of amortized discount) and
7% Convertible Subordinated Debentures due 2017 with a carrying value of
$227 million. The effects of these redemptions will be reflected in USX's second
quarter 1997 financial statements.
For additional discussion, see Outlook in 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.
<PAGE> 20
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Accounting Standard
- -------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"), which changes the computation and presentation of earnings per share
("EPS"). USX will adopt SFAS No. 128 in the fourth quarter of 1997, as required.
While restatement of prior-period EPS is required by the standard, EPS presented
for each class of USX Common Stock for the first quarter of 1997 and for the
years 1996 and 1995 will not change upon adoption.
<PAGE> 21
<TABLE>
USX CORPORATION
FINANCIAL STATISTICS (Unaudited)
--------------------------------
<CAPTION>
First Quarter
Ended
March 31
----------------
(Dollars in Millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Marathon Group $4,082 $3,627
U. S. Steel Group 1,620 1,591
Delhi Group 339 278
Eliminations (44) (23)
------- -------
Total $5,997 $5,473
OPERATING INCOME
Marathon Group $214 $377
U. S. Steel Group 120 81
Delhi Group 8 8
----- -----
Total $342 $466
CAPITAL EXPENDITURES
Marathon Group $118 $100
U. S. Steel Group 50 56
Delhi Group 17 22
----- -----
Total $185 $178
</TABLE>
<PAGE> 22
Part I - Financial Information (Continued):
B. Marathon Group
<TABLE>
MARATHON GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $4,082 $3,627
OPERATING COSTS:
Cost of sales (excludes items shown below) 2,758 2,430
Inventory market valuation charges (credits) 114 (155)
Selling, general and administrative expenses 84 78
Depreciation, depletion and amortization 171 182
Taxes other than income taxes 708 682
Exploration expenses 33 33
------ ------
Total operating costs 3,868 3,250
------ ------
OPERATING INCOME 214 377
Other income 16 25
Interest and other financial income 2 4
Interest and other financial costs (67) (86)
------ ------
INCOME BEFORE INCOME TAXES 165 320
Less provision for estimated income taxes 57 104
------ ------
NET INCOME $108 $216
====== ======
MARATHON STOCK DATA:
Net income per share - primary $.37 $.75
- fully diluted .37 .74
Dividends paid per share .19 .17
Weighted average shares, in thousands
- Primary 287,987 287,460
- Fully diluted 294,661 297,251
<FN>
Selected notes to financial statements appear on pages 25-28.
</TABLE>
<PAGE> 23
<TABLE>
MARATHON GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
---------------------------------
<CAPTION>
March 31 December 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $62 $32
Receivables, less allowance for doubtful
accounts of $2 and $2 494 613
Inventories 1,182 1,282
Other current assets 124 119
------ ------
Total current assets 1,862 2,046
Investments and long-term receivables 384 311
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$9,182 and $9,031 7,232 7,298
Prepaid pensions 285 280
Other noncurrent assets 212 216
------ ------
Total assets $9,975 $10,151
====== ======
LIABILITIES
Current liabilities:
Notes payable $77 $59
Accounts payable 1,087 1,385
Payroll and benefits payable 113 106
Accrued taxes 95 98
Deferred income taxes 146 155
Accrued interest 47 75
Long-term debt due within one year 399 264
------ ------
Total current liabilities 1,964 2,142
Long-term debt, less unamortized discount 2,522 2,642
Long-term deferred income taxes 1,203 1,178
Employee benefits 361 356
Deferred credits and other liabilities 346 311
Preferred stock of subsidiary 182 182
------ ------
Total liabilities 6,578 6,811
STOCKHOLDERS' EQUITY 3,397 3,340
------ ------
Total liabilities and stockholders' equity $9,975 $10,151
====== ======
<FN>
Selected notes to financial statements appear on pages 25-28.
</TABLE>
<PAGE> 24
<TABLE>
MARATHON GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
-----------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $108 $216
Adjustments to reconcile to net cash provided from
operating activities:
Depreciation, depletion and amortization 171 182
Exploratory dry well costs 14 14
Inventory market valuation charges (credits) 114 (155)
Pensions (5) (5)
Postretirement benefits other than pensions 3 4
Deferred income taxes 16 57
Gain on disposal of assets (12) (21)
Changes in:
Current receivables 119 (24)
Inventories (14) 41
Current accounts payable and accrued expenses (323) (57)
All other - net 13 10
------ ------
Net cash provided from operating activities 204 262
------ ------
INVESTING ACTIVITIES:
Capital expenditures (118) (100)
Disposal of assets 13 85
Investments in equity affiliates - net (57) 2
All other - net 1 -
------ ------
Net cash used in investing activities (161) (13)
------ ------
FINANCING ACTIVITIES:
Increase (decrease) in Marathon Group's share
of USX consolidated debt 39 (188)
Marathon Stock issued 3 -
Dividends paid (55) (49)
------ ------
Net cash used in financing activities (13) (237)
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 30 12
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 32 77
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $62 $89
====== ======
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(92) $(133)
Income taxes paid, including settlements with other
groups (71) (5)
<FN>
Selected notes to financial statements appear on pages 25-28.
</TABLE>
<PAGE> 25
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, 1996.
Effective January 1, 1997, USX adopted American Institute of Certified
Public Accountants Statement of Position No. 96-1, "Environmental
Remediation Liabilities" (SOP 96-1), which provides additional
interpretation of existing accounting standards related to recognition,
measurement and disclosure of environmental remediation liabilities. As a
result of adopting SOP 96-1, the Marathon Group recognized additional
environmental remediation liabilities of $11 million. Estimated
receivables for recoverable costs related to adoption of SOP 96-1 were $4
million. The net unfavorable effect on Marathon Group first quarter 1997
operating income was $7 million.
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
<PAGE> 26
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
2. (Continued)
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.
3. The method of calculating net income per share for the Marathon Stock,
Steel Stock and Delhi Stock reflects the Board's intent that the separately
reported earnings and surplus of the Marathon Group, the U. S. Steel Group
and the Delhi Group, as determined consistent with the USX Certificate of
Incorporation, are available for payment of dividends on the respective
classes of stock, although legally available funds and liquidation
preferences of these classes of stock do not necessarily correspond with
these amounts.
Primary net income per share 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, where applicable.
Fully diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options provided, in each case, the effect is not antidilutive.
4. The items below are included in both revenues and operating costs,
resulting in no effect on income.
<TABLE>
<CAPTION>
(In millions)
-------------------
First Quarter Ended
March 31
1997 1996
---- ----
<S> <C> <C>
Matching crude oil and refined product buy/sell
transactions settled in cash $755 $599
Consumer excise taxes on petroleum products and
merchandise 655 633
</TABLE>
<PAGE> 27
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
5. The financial statement provision for estimated income taxes and related
tax payments or refunds have been reflected in the Marathon Group, the U.
S. Steel Group and the Delhi Group financial statements in accordance with
USX's tax allocation policy for such groups. In general, such policy
provides that the consolidated tax provision and related tax payments or
refunds are allocated among the Marathon Group, the U. S. Steel Group and
the Delhi Group for group financial statement purposes, based principally
upon the financial income, taxable 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.
6. 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)
----------------------
March 31 December 31
1997 1996
-------- -----------
<S> <C> <C>
Crude oil and natural gas liquids $414 $463
Refined products and merchandise 811 746
Supplies and sundry items 71 73
------ ------
Total (at cost) 1,296 1,282
Less inventory market valuation reserve 114 -
------ ------
Net inventory carrying value $1,182 $1,282
====== ======
</TABLE>
The inventory market valuation reserve reflects the extent that the
recorded LIFO cost basis of crude oil and refined products inventories
exceeds net realizable value. The reserve is decreased to reflect increases
in market prices and inventory turnover and increased to reflect decreases
in market prices. Changes in the inventory market valuation
reserve result in noncash charges or credits to operating income. For
additional information, see Outlook in the Marathon Group's
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
7. The Marathon Group participates in an agreement (the program) to sell an
undivided interest in certain accounts receivable subject to limited
recourse. Payments are collected from the sold accounts receivable; the
collections are reinvested in new accounts receivable for the buyers; and a
yield, based on defined short-term market rates, is transferred to the
buyers. At March 31, 1997, the amount sold under the program that had not
been collected was $340 million, which will be forwarded to the buyers at
the end of the agreement, or in the event of earlier contract termination.
If the Marathon Group does not have a sufficient quantity of eligible
accounts receivable to reinvest in for the buyers, the size of the program
will be reduced accordingly. The buyers have rights to a pool of
receivables that must be maintained at a level of 110% of the program size.
<PAGE> 28
MARATHON 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 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 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 March 31, 1997, and
December 31, 1996, accrued liabilities for remediation totaled $58 million
and $37 million, respectively. It is not presently possible to estimate
the ultimate amount of all remediation costs that might be incurred or the
penalties that may be imposed. Receivables for recoverable costs from
certain states, under programs to assist companies in cleanup efforts
related to underground storage tanks at retail marketing outlets, were $42
million at March 31, 1997, and $23 million at December 31, 1996.
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 quarter of 1997 and for the
years 1996 and 1995, such capital expenditures totaled $12 million, $66
million and $50 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 March 31, 1997, and December 31, 1996, accrued liabilities for
platform abandonment and dismantlement totaled $122 million and $118
million, respectively.
Guarantees by USX of the liabilities of affiliated entities of the Marathon
Group totaled $34 million at March 31, 1997. As of March 31, 1997, the
largest guarantee for a single affiliate was $28 million.
At March 31, 1997, the Marathon Group's pro rata share of obligations of
LOOP LLC and various pipeline affiliates secured by throughput and
deficiency agreements totaled $176 million. Under the agreements, the
Marathon Group is required to advance funds if the affiliates are unable to
service debt. Any such advances are prepayments of future transportation
charges.
At March 31, 1997, contract commitments for the Marathon Group's capital
expenditures for property, plant and equipment totaled $473 million
compared with $388 million at December 31, 1996.
<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 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
first quarter 1997 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 35.
Certain sections of Management's Discussion and Analysis include forward-
looking statements concerning trends or events potentially affecting the
businesses of the Marathon Group. These statements typically contain words such
as "believes", "estimates", "expects" or similar words indicating that future
outcomes are uncertain. In accordance with "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, these statements are
accompanied by cautionary language identifying important factors, though not
necessarily all such factors, that could cause future outcomes to differ
materially from those set forth in forward-looking statements. For additional
cautionary language related to the Marathon Group, see Item 5. herein.
Results of Operations
- ---------------------
Revenues for the first quarter of 1997 and 1996 are summarized in the
following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
-------------------
(Dollars in millions) 1997 1996
----- -----
<S> <C> <C>
Refined products $1,686 $1,529
Merchandise 238 227
Liquid hydrocarbons 266 270
Natural gas 438 319
Transportation and other 44 50
------ ------
Subtotal 2,672 2,395
Matching crude oil and refined product buy/sell
transactions settled in cash (a) 755 599
Consumer excise taxes on petroleum products and
merchandise (a) 655 633
------ ------
Total revenues $4,082 $3,627
====== ======
<FN>
- --------
(a)Included in both revenues and operating costs.
</TABLE>
Revenues (excluding matching buy/sell transactions and excise taxes)
increased by $277 million, or 12%, in the first quarter of 1997 from the
comparable prior-year period. The increase primarily reflected higher average
refined product prices and worldwide natural gas and liquid hydrocarbon prices,
partly offset by reduced volumes of worldwide liquid hydrocarbons.
<PAGE> 30
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Operating income and certain items included in operating income for the
first quarter of 1997 and 1996 are summarized in the following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
-------------------
(Dollars in millions) 1997 1996
----- -----
<S> <C> <C>
Operating income $214 $377
Less: Certain favorable (unfavorable) items
Inventory market valuation reserve adjustment (a) (114) 155
Charges for withdrawal from MPA (b) - (10)
------ ------
Subtotal (114) 145
------ ------
Operating income adjusted to exclude above items $328 $232
====== ======
- --------
<FN>
(a)The inventory market valuation reserve reflects the extent to which the
recorded LIFO cost basis of crude oil and refined products inventories
exceeds net realizable value. For additional discussion of this noncash
adjustment, see Outlook herein.
(b)Marine Preservation Association ("MPA") is a non-profit oil spill response
group.
</TABLE>
Adjusted operating income in the first quarter of 1997 improved by $96
million from last year's first quarter, due primarily to increased worldwide
natural gas and liquid hydrocarbon prices and higher average refined product
margins, partially offset by reduced volumes of worldwide liquid hydrocarbons.
First quarter operating income for domestic exploration and production
("upstream") increased by $63 million in 1997 from 1996. The improvement was
mainly due to higher average natural gas and liquid hydrocarbon prices and
increased natural gas production, partially offset by lower liquid hydrocarbon
volumes. The increase in gas volumes was mainly attributable to the Cotton
Valley Pinnacle Reef play in east Texas, while the lower liquid hydrocarbon
volumes were mostly due to the fourth quarter 1996 disposal of oil producing
properties in Alaska.
International upstream operations recorded a $4 million improvement in
first quarter operating income in 1997 from 1996 as favorable effects of higher
average natural gas and liquid hydrocarbon prices were predominantly offset by
lower liquid hydrocarbon liftings, primarily in the U.K. North Sea, and lower
natural gas volumes, primarily in Ireland.
First quarter operating income for refining, marketing and transportation
("downstream") operations increased by $48 million in 1997 from 1996. First
quarter 1996 results included a $10 million charge for Marathon's withdrawal
from the MPA. Excluding this item, downstream results improved by over 85% from
the prior-year quarter, primarily reflecting higher wholesale margins on refined
products, despite higher crude oil and other feedstock acquisition costs.
Administrative expense for the first quarter increased by $9 million in
1997 from 1996, mainly reflecting an increase in accruals for stock appreciation
rights and Marathon's performance-based variable pay plan.
<PAGE> 31
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Other income in the first quarter of 1997 and 1996 included gains of $11
million and $20 million, respectively, on the sales of interests in certain
domestic pipeline companies and other investments.
Net interest and other financial costs in the first quarter of 1997
decreased by $17 million from the first quarter of 1996, mainly due to lower
average debt levels.
Net income for the first quarter decreased by $108 million in 1997 from
1996. Excluding the after-tax effects of the inventory market valuation
adjustment and other special items, first quarter financial results increased by
61% to $180 million in 1997 from $112 million in 1996, primarily reflecting the
factors discussed above.
Cash Flows
- ----------
Net cash provided from operating activities was $204 million in the first
quarter of 1997, compared with $262 million in the first quarter of 1996.
Excluding first quarter 1996 payments of $39 million related to certain state
tax issues, net cash from operating activities decreased by $97 million, mainly
reflecting unfavorable working capital changes, including increased income tax
payments, partially offset by the favorable effects of improved profitability.
Cash from the disposal of assets was $13 million in the first quarter of
1997, compared with $85 million in the first quarter of 1996. Proceeds in 1996
were mainly from the sales of interests in certain international production
properties and a domestic pipeline company.
Capital expenditures in the first quarter of 1997 totaled $118 million,
compared with $100 million in the first quarter of 1996. Expenditures in both
periods were primarily for upstream projects. Contract commitments for capital
expenditures were $473 million at March 31, 1997, compared with $388 million at
year-end 1996.
Investments in equity affiliates of $57 million in the first quarter of
1997 reflect spending on capital projects by equity affiliates, primarily the
Nautilus natural gas pipeline system in the Gulf of Mexico and the Sakhalin II
project in Russia. In addition, in March 1997, Marathon purchased a 50%
interest in an Ecuadorian power generation company, Power Services Ecuador
Ecuapower Compania Limitada ("Ecuapower"). Ecuapower's major assets include a
96 megawatt power plant at Santa Domingo and a 34 megawatt power plant at Santa
Elena.
Financial obligations increased by $39 million in the first quarter of 1997
as cash used for capital expenditures, investments in equity affiliates and
dividend payments exceeded net cash provided from operating activities and asset
disposals. 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.
Dividends paid in the first quarter of 1997 increased by $6 million from
the first quarter of 1996 reflecting the two-cents-per-share increase in the
quarterly USX-Marathon Group Common Stock dividend rate, initially declared in
October 1996.
<PAGE> 32
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.
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
20 waste sites related to the Marathon Group under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") as of March
31, 1997. In addition, there are 9 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 68 additional sites,
excluding retail marketing outlets, related to the Marathon Group where
remediation is being sought under other environmental statutes, both federal and
state, or where private parties are seeking remediation through discussions or
litigation. At many of these sites, USX is one of a number of parties involved
and the total cost of remediation, as well as USX's share thereof, is frequently
dependent upon the outcome of investigations and remedial studies. The 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.
Effective January 1, 1997, USX adopted the American Institute of Certified
Public Accountants Statement of Position No. 96-1, "Environmental Remediation
Liabilities" ("SOP 96-1"). First quarter 1997 operating income for the Marathon
Group included charges of $7 million (net of expected recoveries) related to
such adoption, primarily for accruals of post-closure monitoring costs, study
costs and administrative costs. See Note 1 to the Marathon Group Financial
Statements for additional discussion.
First quarter 1997 operating income also included net favorable effects of
$4 million related to other environmental accrual adjustments.
Accrued liabilities for remediation totaled $58 million at March 31, 1997,
an increase of $21 million from December 31, 1996, due primarily to accrual
adjustments for adoption of SOP 96-1 and accruals related to retail marketing
outlets. Receivables for expected recoveries totaled $42 million at
March 31, 1997, an increase of $19 million from December 31, 1996, due
primarily to accrual adjustments reflecting an increase in the estimated
portion of costs that are ultimately recoverable, and accruals for recoveries
associated with the adoption of SOP 96-1. See Note 8 to the Marathon Group
Financial Statements.
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 8 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.
<PAGE> 33
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
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
in USX Consolidated Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Outlook
- -------
In April 1997, Marathon acquired an additional 7.5% interest in Sakhalin
Energy Investment Company Ltd. ("Sakhalin Energy"), increasing its ownership to
37.5%. Sakhalin Energy, an incorporated joint venture company, holds the
licenses to the Piltun-Astokhskoye and Lunskoye fields, located offshore
Sakhalin Island in the Russian Far East Region.
The outlook regarding the Marathon Group's revenues, margins and income is
largely dependent upon future prices and volumes of crude oil, natural gas and
refined products. Prices have historically been volatile and have frequently
been driven by unpredictable changes in supply and demand resulting from
fluctuations in economic activity and political developments in the world's
major oil and gas producing areas, including OPEC member countries. Any
substantial decline in such prices could have a material adverse effect on the
Marathon Group's results of operations. A prolonged decline in such prices
could also adversely affect the quantity of crude oil and natural gas reserves
that can be economically produced and the amount of capital available for
exploration and development.
Relative to the changing levels of commodity prices, when U.S. Steel
Corporation acquired Marathon Oil Company in March 1982, crude oil and refined
product prices were at historically high levels. In applying the purchase
method of accounting, Marathon's crude oil and refined product inventories were
revalued by reference to current prices at the time of acquisition. This became
the new LIFO cost basis of the inventories, which has been maintained since
the 1982 acquisition. Generally accepted accounting principles require that
inventories be valued at lower of cost or market. Accordingly, Marathon
has established an inventory market valuation ("IMV") reserve to reduce the LIFO
cost basis, to the extent necessary, to current market value. Adjustments to
the IMV reserve result in noncash charges or credits to operating income. These
adjustments affect the comparability of financial results from period
to period as well as comparisons with other energy companies, which may not
have such adjustments. The IMV reserve adjustments have been separately
reported, on a consistent basis, as a component of operating results and
separately identified in management's discussion of operations.
Commodity prices have fluctuated widely and, since 1986, have generally
remained below prices that existed at the time of the 1982 acquisition,
resulting in periodic adjustments to the LIFO cost basis of the inventories. At
December 31, 1996, market prices exceeded LIFO cost, and no IMV reserve was
required. At March 31, 1997, LIFO cost exceeded market prices by $114 million,
resulting in a corresponding charge to operating income. During the first
quarter of 1996, favorable market price movements resulted in a $155 million
credit to operating income. This $269 million variance in operating income
affects the comparability of reported financial results. In management's
opinion, the Marathon Group's operating performance should be evaluated
exclusive of the IMV reserve adjustments, which management believes provides a
more indicative view of the profit and cash flow performance of the Group.
<PAGE> 34
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
As commodity prices continue to fluctuate, future quarterly IMV reserve
adjustments can be reasonably expected. In addition to
reported financial results, management believes that the Marathon Group's
future operating performance should be evaluated exclusive of the impact of
these adjustments, whether favorable or unfavorable.
Accounting Standard
- -------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"), which changes the computation and presentation of earnings per share
("EPS"). USX will adopt SFAS No. 128 in the fourth quarter of 1997, as
required. While restatement of prior-period EPS is required by the standard,
EPS presented for USX-Marathon Group Common Stock for the first quarter of 1997
and for the years 1996 and 1995 will not change upon adoption.
<PAGE> 35
<TABLE>
MARATHON GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS (Unaudited)
-----------------------------------
($ in Millions)
<CAPTION>
First Quarter
Ended March 31
--------------
1997 1996
---- ----
<S> <C> <C>
OPERATING INCOME (LOSS)
Exploration & Production
Domestic $183 $120
International 101 97
Refining, Marketing & Transportation 82 34
Gas Gathering and Processing 3 3
Administrative (41) (32)
------ ------
$328 $222
Inventory Market Val. Res. Adjustment (114) 155
------ ------
Total Marathon Group $214 $377
CAPITAL EXPENDITURES $118 $100
OPERATING STATISTICS
Net Liquid Hydrocarbon Production (a):
Domestic 114.8 125.9
International 53.6 65.3
------ ------
Worldwide 168.4 191.2
Net Natural Gas Production (b):
Domestic 758.5 689.8
International - Equity 537.1 596.7
International - Other (c) 37.9 35.2
------- -------
Total Consolidated 1,333.5 1,321.7
Equity Affiliate 54.9 62.2
------- -------
Worldwide 1,388.4 1,383.9
Average Equity Sales Prices (d):
Liquid Hydrocarbons (per Bbl)
Domestic $19.26 $16.17
International 21.30 18.57
Natural Gas (per Mcf)
Domestic $2.53 $2.02
International 2.18 1.87
Natural Gas Sales (b) (e):
Domestic 1,245.5 1,090.8
International 575.0 631.9
------- -------
Total Consolidated 1,820.5 1,722.7
Equity Affiliate 54.9 62.2
------- -------
Worldwide 1,875.4 1,784.9
Crude Oil Refined (a) 476.1 489.8
Refined Products Sold (a) 724.0 725.3
- ------------
<FN>
(a) Thousands of barrels per day
(b) Millions of cubic feet per day
(c) Represents gas acquired for injection and subsequent resale
(d) Prices exclude gains and losses from hedging activities
(e) Represents equity, royalty and resale volumes
</TABLE>
<PAGE> 36
Part I - Financial Information (Continued):
C. U. S. Steel Group
<TABLE>
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
------------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $1,620 $1,591
OPERATING COSTS:
Cost of sales (excludes items shown below) 1,404 1,415
Selling, general and administrative expenses (credits) (37) (41)
Depreciation, depletion and amortization 74 78
Taxes other than income taxes 59 58
------ ------
Total operating costs 1,500 1,510
------ ------
OPERATING INCOME 120 81
Other income 11 8
Interest and other financial income 1 1
Interest and other financial costs (12) (29)
------ ------
INCOME BEFORE INCOME TAXES 120 61
Less provision for estimated income taxes 33 15
------ ------
NET INCOME 87 46
Dividends on preferred stock (6) (6)
------ ------
NET INCOME APPLICABLE TO STEEL STOCK $81 $40
====== ======
STEEL STOCK DATA:
Net income per share - primary $.96 $.49
- fully diluted .93 .48
Dividends paid per share .25 .25
Weighted average shares, in thousands
- Primary 85,006 83,197
- Fully diluted 94,581 85,030
<FN>
Selected notes to financial statements appear on pages 39-42.
</TABLE>
<PAGE> 37
<TABLE>
U. S. STEEL GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
------------------------------------
<CAPTION>
March 31 December 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $16 $23
Receivables, less allowance for doubtful
accounts of $5 and $23 472 580
Inventories 667 648
Deferred income tax benefits 179 177
------ ------
Total current assets 1,334 1,428
Investments and long-term receivables,
less reserves of $17 and $17 625 621
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$5,792 and $5,796 2,527 2,551
Long-term deferred income tax benefits 199 217
Prepaid pensions 1,779 1,734
Other noncurrent assets 40 29
------ ------
Total assets $6,504 $6,580
====== ======
LIABILITIES
Current liabilities:
Notes payable $20 $18
Accounts payable 661 667
Payroll and benefits payable 397 365
Accrued taxes 171 154
Accrued interest 13 22
Long-term debt due within one year 94 73
------ ------
Total current liabilities 1,356 1,299
Long-term debt, less unamortized discount 810 1,014
Employee benefits 2,423 2,430
Deferred credits and other liabilities 213 207
Preferred stock of subsidiary 64 64
------ ------
Total liabilities 4,866 5,014
------ ------
STOCKHOLDERS' EQUITY
Preferred stock 7 7
Common stockholders' equity 1,631 1,559
------ ------
Total stockholders' equity 1,638 1,566
------ ------
Total liabilities and stockholders' equity $6,504 $6,580
====== ======
<FN>
Selected notes to financial statements appear on pages 39-42.
</TABLE>
<PAGE> 38
<TABLE>
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $87 $46
Adjustments to reconcile to net cash provided
from (used in) operating activities:
Depreciation, depletion and amortization 74 78
Pensions (42) (42)
Postretirement benefits other than pensions 6 2
Deferred income taxes 21 16
Gain on disposal of assets (1) (3)
Changes in:
Current receivables 96 (1)
Inventories (19) (24)
Current accounts payable and accrued expenses 31 (66)
All other - net (40) (19)
------ ------
Net cash provided from (used in)
operating activities 213 (13)
------ ------
INVESTING ACTIVITIES:
Capital expenditures (50) (56)
Disposal of assets 5 89
Investments in equity affiliates - net 1 3
All other - net 4 (6)
------ ------
Net cash provided from (used in)
investing activities (40) 30
------ ------
FINANCING ACTIVITIES:
Decrease in U. S. Steel Group's share of USX
consolidated debt (163) (20)
Specifically attributed debt repayments (2) (1)
Steel Stock issued 11 7
Dividends paid (26) (26)
------ ------
Net cash used in financing activities (180) (40)
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7) (23)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 23 52
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $16 $29
====== ======
Cash provided from (used in) operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(33) $(31)
Income taxes refunded (paid), including settlements
with other groups 27 (18)
<FN>
Selected notes to financial statements appear on pages 39-42.
</TABLE>
<PAGE> 39
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, 1996.
Effective January 1, 1997, USX adopted American Institute of Certified
Public Accountants Statement of Position No. 96-1, "Environmental
Remediation Liabilities" (SOP 96-1), which provides additional
interpretation of existing accounting standards related to recognition,
measurement and disclosure of environmental remediation liabilities. As a
result of adopting SOP 96-1, the U. S. Steel Group identified additional
environmental remediation liabilities of $35 million, of which $28 million
was discounted to a present value of $13 million and $7 million was not
discounted. Assumptions used in the calculation of the present value
amount included an inflation factor of 2% and an interest rate of 7% over a
range of 22 to 30 years. The unfavorable effect on first quarter 1997
operating income was $20 million.
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
<PAGE> 40
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
2. (Continued)
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.
3. The method of calculating net income 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 on the
respective classes of stock, although legally available funds and
liquidation preferences of these classes of stock do not necessarily
correspond with these amounts.
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, where applicable.
Fully diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options, provided in each case, the effect is not antidilutive.
4. Operating income includes net periodic pension credits of $38 million and
$40 million in the first quarter of 1997 and 1996, respectively. These
pension credits are primarily noncash and for the most part are included in
selling, general and administrative expenses.
5. 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.
<PAGE> 41
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
5. (Continued)
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.
6. 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)
-----------------------
March 31 December 31
1997 1996
-------- -----------
<S> <C> <C>
Raw materials $114 $124
Semi-finished products 317 309
Finished products 182 162
Supplies and sundry items 54 53
---- ----
Total $667 $648
==== ====
</TABLE>
7. The U. S. Steel Group participates in an agreement (the program) to sell an
undivided interest in certain accounts receivable subject to limited
recourse. Payments are collected from the sold accounts receivable; the
collections are reinvested in new accounts receivable for the buyers; and a
yield, based on defined short-term market rates, is transferred to the
buyers. At March 31, 1997, the amount sold under the program that had not
been collected was $350 million, which will be forwarded to the buyers at
the end of the agreement, or in the event of earlier contract termination.
If the U. S. Steel Group does not have a sufficient quantity of eligible
accounts receivable to reinvest in for the buyers, the size of the program
will be reduced accordingly. The buyers have rights to a pool of
receivables that must be maintained at a level of 115% of the program size.
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 under an agreement that expires in
1997. USX Credit continues to collect payments from the loans and transfer
to the buyers principal collected plus yield based on defined short-term
market rates. At March 31, 1997, the balance of sold loans receivable
subject to recourse was $35 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, 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> 42
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
in USX Consolidated Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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 March 31, 1997, and
December 31, 1996, accrued liabilities for remediation totaled $113 million
and $107 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, 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 quarter of 1997 and for the
years 1996 and 1995, such capital expenditures totaled $16 million, $90
million and $55 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 $36 million at March 31, 1997. In the event that any
defaults of guaranteed liabilities occur, USX has access to its interest in
the assets of the affiliates to reduce U. S. Steel Group losses resulting
from these guarantees. As of March 31, 1997, the largest guarantee for a
single affiliate was $14 million.
At March 31, 1997, contract commitments for the U. S. Steel Group's capital
expenditures for property, plant and equipment totaled $117 million
compared with $134 million at December 31, 1996.
<PAGE> 43
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 first quarter
1997 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 47.
Certain sections of Management's Discussion and Analysis include forward-
looking statements concerning trends or events potentially affecting the
businesses of the U. S. Steel Group. These statements typically contain words
such as "anticipates," "believes," "estimates," "expects" or similar words
indicating that future outcomes are not known with certainty and subject to risk
factors that could cause these outcomes to differ significantly from those
projected. In accordance with "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, these statements are accompanied by
cautionary language identifying important factors, though not necessarily all
such factors, that could cause future outcomes to differ materially from those
set forth in forward-looking statements. For additional cautionary language
related to the U. S. Steel Group, see Item 5. herein.
Results of Operations
- ---------------------
Revenues for the U. S. Steel Group increased $29 million in the first
quarter of 1997 compared with the first quarter of 1996. The increase primarily
reflected higher average realized prices.
Operating income for the U. S. Steel Group increased $39 million in the
first quarter of 1997, compared with the same quarter of 1996. First quarter
1997 included charges of $20 million related to the adoption of the American
Institute of Certified Public Accountants Statement of Position No. 96-1,
"Environmental Remediation Liabilities" ("SOP 96-1"). These charges were
partially offset by a net reduction of $11 million in other unrelated
environmental accruals. For additional discussion on SOP 96-1, see Note 1 to
the U. S. Steel Group Financial Statements.
Operating income for Steel and Related Businesses increased $54 million in
the first quarter of 1997, compared with the same quarter of 1996. The increase
was primarily due to higher average realized prices, a partial recovery of
insurance proceeds related to the April, 1996 breakout of the Gary Works' No. 13
blast furnace and an improved product mix. This improvement was partially
offset by higher natural gas costs.
U. S. Steel entered into a five and one-half year contract with the United
Steelworkers of America ("USWA"), effective February 1, 1994, covering
approximately 15,000 employees. The contract provided for reopener negotiations
of specific payroll items. These negotiations have now been resolved by
following the settlements reached by other major integrated producers (including
the timing of a final lump-sum bonus payment in July, 1999). All revised
contract terms became effective as of February 1, 1997.
<PAGE> 44
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Operating income for Administrative and Other Businesses in the first
quarter of 1997 included charges of $9 million related to environmental accruals
and the adoption of SOP 96-1. Excluding these charges, first quarter 1997
operating income decreased $6 million from the first quarter 1996 primarily due
to lower pension credits. 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.
The pension credits referred to in Administrative and Other Businesses,
combined with pension costs for ongoing operating units of the U. S. Steel
Group, resulted in net pension credits (which are primarily noncash) of $38
million and $40 million in the first quarters of 1997 and 1996, respectively.
The amounts of these credits fluctuate over time primarily reflecting changes in
the expected long-term rate of return on plan assets and assumed discount rate
on the outstanding pension obligation. To the extent that these credits decline
in the future, operating income would be adversely affected.
Other income in the first quarter of 1997 increased $3 million compared
with first quarter 1996 due to higher income from affiliates.
Interest and other financial costs decreased $17 million, compared with
first quarter 1996. Interest and other financial costs in first quarter 1997
was reduced $16 million as a result of the quarterly adjustment to the carrying
value of USX's indexed debt (as set forth in the following paragraph).
In December 1996, USX issued $117 million in aggregate principal amount of
6-3/4% Notes Due February 1, 2000 ("indexed debt"), mandatorily exchangeable at
maturity for common stock of RMI Titanium Company ("RMI") (or for the equivalent
amount of cash, at USX's option). The carrying value of indexed debt is
adjusted quarterly to settlement value based on changes in the value of RMI
common stock. Any resulting adjustment is charged or credited to income and
included in interest and other financial costs. USX's 27% interest in RMI
continues to be accounted for under the equity method.
Net income increased $41 million, or 89%, in the first quarter of 1997 as
compared with first quarter of 1996. The increase mainly reflects the factors
discussed above.
First quarter 1997 steel shipments of 2.9 million tons remained
approximately at first quarter 1996 levels. Raw steel production in the first
quarter of 1997 totaled 3.1 million tons, a decrease of 3% over first quarter
1996. Raw steel production in the first quarter of 1997 averaged 97% of
capability versus 99% in the first quarter of 1996.
Cash Flows
- ------------
Net cash provided from operating activities was $213 million in the first
quarter of 1997, compared with net cash used in operating activities of $13
million in the same period of 1996. The first quarter of 1996 included a
payment of $28 million related to the Pickering litigation. Excluding this
item, net cash from operating activities increased by $198 million due to
favorable working capital changes and increased profitability.
<PAGE> 45
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Cash from the disposal of assets decreased $84 million in the first quarter
of 1997 compared with the same quarter of 1996. The 1996 proceeds mainly
reflected the sale of U. S. Steel Group's investment in National-Oilwell.
Capital expenditures for property, plant and equipment in first quarter
1997 totaled $50 million, compared with $56 million in the same period in 1996.
Capital expenditures for the year 1997 are expected to total approximately $290
million, compared with $337 million in 1996. Capital expenditures for 1997
include a blast furnace reline at the Mon Valley Works, a new heat treat line
for plates at the Gary Works and additional environmental expenditures primarily
at the Gary Works. Contract commitments for capital expenditures at March 31,
1997 were $117 million, compared with $134 million at year-end 1996.
Financial obligations decreased $165 million in the first quarter of 1997
primarily reflecting the net effects of cash from operating, investing and
other financing activities. 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.
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.
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. To the extent that competitors are not required to
undertake equivalent costs in their operations, the competitive position of the
U. S. Steel Group could be adversely affected.
USX has been notified that it is a potentially responsible party ("PRP") at
26 waste sites related to the U. S. Steel Group under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") as of March
31, 1997. In addition, there are 15 sites related to the U. S. Steel Group
where USX has received information requests or other indications that USX may be
a PRP under CERCLA but where sufficient information is not presently available
to confirm the existence of liability or make any judgment as to the amount
thereof. There are also 41 additional sites related to the U. S. Steel Group
where remediation is being sought under other environmental statutes, both
federal and state, or where private parties are seeking remediation through
discussions or litigation. At many of these sites, USX is one of a number of
parties involved and the total cost of remediation, as well as USX's share
thereof, is frequently dependent upon the outcome of
<PAGE> 46
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
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 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 Cash Flows
and Liquidity in USX Consolidated Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Outlook
- -------
The U. S. Steel Group anticipates that steel demand will remain relatively
strong in the second quarter as long as the domestic economy continues its
pattern of modest growth and the favorable pattern of demand for capital goods
and consumer durables continues. During the second and third quarter of 1997,
raw steel production will be reduced by a planned reline of the Mon Valley
Works' No. 1 blast furnace, which provides approximately 10 percent of U. S.
Steel's total iron capacity. The reline, which is scheduled to begin in mid-
June, is expected to last 86 days.
The world steel industry is characterized by excess production capacity
which has restricted price increases during periods of economic growth and led
to price decreases during economic contractions. Within the next year, the
anticipated increased availability of flat-rolled steel could have an adverse
effect on U. S. Steel's product prices and shipment levels as companies attempt
to gain or retain market share.
Steel imports to the United States accounted for an estimated 26% of the
domestic steel market in the first two months of 1997, and 23%, 21% and 25% for
the years 1996, 1995 and 1994, respectively. 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.
Accounting Standard
- -------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"),
which changes the computation and presentation of earnings per share ("EPS").
USX will adopt SFAS No. 128 in the fourth quarter of 1997, as required. While
restatement of prior-period EPS is required by the standard, EPS presented for
the USX-U. S. Steel Group Common Stock for the first quarter of 1997 and for the
years 1996 and 1995 will not change upon adoption.
<PAGE> 47
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS (Unaudited)
------------------------------------
First Quarter
Ended March 31
--------------
(Dollars in Millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Steel and Related Businesses (a) $1,608 $1,584
Other 12 7
------ ------
Total U. S. Steel Group $1,620 $1,591
OPERATING INCOME
Steel and Related Businesses (a) $87 $33
Administrative and Other Businesses (b) 33 48
---- -----
Total U. S. Steel Group $120 $81
CAPITAL EXPENDITURES $50 $56
OPERATING STATISTICS
Public & Affiliated Steel Shipments (c) 2,866 2,898
Raw Steel-Production (c) 3,071 3,154
Raw Steel-Capability Utilization (d) 97.3% 99.1%
- ------------
<FN>
(a) Includes the production and sale of steel products, coke and taconite
pellets; domestic coal mining; the management of mineral resources; and
engineering and consulting services and technology licensing.
(b) Includes 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 12.8 million tons.
</TABLE>
<PAGE> 48
Part I - Financial Information (Continued):
D. Delhi Group
<TABLE>
DELHI GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $338.7 $277.6
OPERATING COSTS:
Cost of sales (excludes items shown below) 313.8 253.5
Selling, general and administrative expenses 7.4 6.7
Depreciation, depletion and amortization 7.8 6.9
Taxes other than income taxes 2.1 2.0
------ ------
Total operating costs 331.1 269.1
------ ------
OPERATING INCOME 7.6 8.5
Other income .1 .2
Interest and other financial costs (5.5) (5.0)
------ ------
INCOME BEFORE INCOME TAXES 2.2 3.7
Less provision for estimated income taxes .8 1.3
------ ------
NET INCOME $1.4 $2.4
====== ======
DELHI STOCK DATA:
Net income per share - primary and fully diluted $.15 $.25
Dividends paid per share .05 .05
Weighted average shares, in thousands
- Primary 9,466 9,447
- Fully diluted 9,467 9,447
<FN>
Selected notes to financial statements appear on pages 51-54.
</TABLE>
<PAGE> 49
<TABLE>
DELHI GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
------------------------------
<CAPTION>
March 31 December 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $.4 $.4
Receivables, less allowance for doubtful
accounts of $.8 and $.8 72.7 131.3
Inventories 5.8 8.6
Other current assets 3.9 5.4
------ ------
Total current assets 82.8 145.7
Long-term receivables and investments 5.7 5.8
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$451.2 and $452.6 564.4 555.3
Other noncurrent assets 6.1 7.8
------ ------
Total assets $659.0 $714.6
====== ======
LIABILITIES
Current liabilities:
Notes payable $6.0 $4.3
Accounts payable 130.1 196.3
Payroll and benefits payable 3.9 4.2
Accrued taxes 3.8 5.4
Accrued interest 3.3 5.3
Long-term debt due within one year 27.8 16.5
------ ------
Total current liabilities 174.9 232.0
Long-term debt, less unamortized discount 203.5 202.7
Long-term deferred income taxes 141.7 139.7
Deferred credits and other liabilities 17.9 20.2
Preferred stock of subsidiary 3.8 3.8
------ ------
Total liabilities 541.8 598.4
STOCKHOLDERS' EQUITY 117.2 116.2
------ ------
Total liabilities and stockholders' equity $659.0 $714.6
====== ======
<FN>
Selected notes to financial statements appear on pages 51-54.
</TABLE>
<PAGE> 50
<TABLE>
DELHI GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
-----------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $1.4 $2.4
Adjustments to reconcile to net cash provided from
operating activities:
Depreciation, depletion and amortization 7.8 6.9
Pensions .5 .7
Deferred income taxes 1.9 .5
Gain on disposal of assets (.6) (.4)
Changes in:
Current receivables 58.6 (2.7)
Inventories 2.8 4.4
Current accounts payable and accrued expenses (70.0) 1.6
All other - net .2 2.1
------ ------
Net cash provided from operating activities 2.6 15.5
------ ------
INVESTING ACTIVITIES:
Capital expenditures (17.1) (22.6)
Disposal of assets .9 .6
------ ------
Net cash used in investing activities (16.2) (22.0)
------ ------
FINANCING ACTIVITIES:
Increase in Delhi Group's share of USX
consolidated debt 14.1 7.4
Dividends paid (.5) (.5)
------ ------
Net cash provided from financing activities 13.6 6.9
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS - .4
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .4 1.9
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $.4 $2.3
====== ======
Cash provided from (used in) operating activities included:
Interest and other financial costs paid $(7.3) $(6.3)
Income taxes (paid) refunded, including settlements
with other groups (.5) .2
<FN>
Selected notes to financial statements appear on pages 51-54.
</TABLE>
<PAGE> 51
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, 1996.
Effective January 1, 1997, USX adopted American Institute of Certified
Public Accountants Statement of Position No. 96-1, "Environmental
Remediation Liabilities" (SOP 96-1), which provides additional
interpretation of existing accounting standards related to recognition,
measurement and disclosure of environmental remediation liabilities.
Adoption of SOP 96-1 had no effect on Delhi Group results of operations or
financial condition.
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.
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 USX-
Delhi Group Common Stock (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
<PAGE> 52
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
2. (Continued)
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 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 on the
respective classes of stock, although legally available funds and
liquidation preferences of these classes of stock do not necessarily
correspond with these amounts.
Primary net income per share is calculated 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, where applicable.
Fully diluted net income per share assumes exercise of stock options,
provided the effect is not antidilutive.
4. The financial statement provision for estimated income taxes and related
tax payments or refunds have been reflected in the Delhi Group, the
Marathon Group and the U. S. Steel Group financial statements in accordance
with USX's tax allocation policy for such groups. In general, such policy
provides that the consolidated tax provision and related tax payments or
refunds are allocated among the Delhi Group, the Marathon Group and the U.
S. Steel Group for group financial statement purposes, based principally
upon the financial income, taxable income, credits, preferences and other
amounts directly related to the respective groups.
The provision for estimated U.S. income taxes for the Delhi Group is based
on tax rates and amounts which recognize management's best estimate of
current and deferred tax assets and liabilities. Differences between the
combined 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.
<PAGE> 53
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
5. Inventories are carried at lower of average cost or market.
<TABLE>
<CAPTION>
(In millions)
----------------------
March 31 December 31
1997 1996
-------- -----------
<S> <C> <C>
Natural gas in storage $4.0 $6.4
Natural gas liquids in storage .3 .1
Materials and supplies 1.5 2.1
---- ----
Total $5.8 $8.6
==== ====
</TABLE>
6. The Delhi Group participates in an agreement (the program) to sell an
undivided interest in certain accounts receivable subject to limited
recourse. Payments are collected from the sold accounts receivable; the
collections are reinvested in new accounts receivable for the buyers; and a
yield, based on defined short-term market rates, is transferred to the
buyers. At March 31, 1997, the amount sold under the program that had not
been collected was $50.0 million, which will be forwarded to the buyers at
the end of the agreement, or in the event of earlier contract termination.
If the Delhi Group does not have a sufficient quantity of eligible accounts
receivable to reinvest in for the buyers, the size of the program will be
reduced accordingly. The buyers have rights to a pool of receivables that
must be maintained at a level of 110% of the program size.
7. 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 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.
<PAGE> 54
DELHI GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
7. (Continued)
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 quarter of 1997 and for the years 1996 and 1995,
such capital expenditures totaled $2.8 million, $9.0 million and $5.5
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.
At March 31, 1997, contract commitments for the Delhi Group's capital
expenditures for property, plant and equipment totaled $5.9 million
compared with $4.4 million at December 31, 1996.
<PAGE> 55
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Delhi Group ("Delhi") includes Delhi Gas Pipeline Corporation ("DGP")
and certain other subsidiaries of USX which are engaged in the purchasing,
gathering, processing, treating, transporting and marketing of natural gas. The
following discussion should be read in conjunction with the first quarter 1997
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 59.
Certain sections of the discussion include forward-looking statements
concerning trends or events potentially affecting the Delhi Group. These
statements typically contain words such as "anticipates", "believes",
"estimates", or "expects", or similar words indicating that future outcomes are
uncertain. In accordance with "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, these statements are accompanied by
cautionary language identifying important factors, though not necessarily all
such factors, that could cause future outcomes to differ materially from those
set forth in forward-looking statements. For additional cautionary language
related to the Delhi Group, see Item 5. herein.
Results of Operations
- ---------------------
Revenues for the first quarter of 1997 and 1996 are summarized in the
following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
-------------------
(Dollars in millions) 1997 1996
----- -----
<S> <C> <C>
Gas sales and trading $295.2 $247.6
Transportation 4.2 3.9
Gas processing 28.3 19.1
Gathering service fees 8.5 5.1
Other 2.5 1.9
------ ------
Total revenues $338.7 $277.6
====== ======
</TABLE>
The increase was primarily due to higher sales prices for natural gas and
natural gas liquids ("NGLs"), partially offset by lower natural gas sales
volumes.
Operating income in the first quarter of 1997 decreased by $0.9 million as
compared with the first quarter of 1996. This decrease was due primarily to
lower gas sales and trading unit margins, lower gas sales volumes and increased
operating costs, partially offset by increased gas processing unit margins and
volumes, gathering service fees and transportation volumes.
Gas sales and trading gross margins decreased $5.8 million as compared to
the first quarter 1996. Gas sales and trading unit margins decreased 20% from
first quarter 1996 levels due to unfavorable intra-month price fluctuations in
January and February, as relatively warm winter weather in Delhi's prime service
areas resulted in reduced demand and falling prices. Reduced demand by Delhi's
major customers resulted in a shift in the sales mix to lower margin spot market
sales. Overall, average daily gas sales volumes decreased 12% as compared to
the first quarter 1996.
<PAGE> 56
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Transportation gross margin in the first quarter of 1997 increased by $0.3
million from the comparable prior-year period, primarily due to a 24% increase
in average daily transportation volumes in Texas, and a 17% increase in
Oklahoma. These additional volumes are primarily the result of the expansion
programs in the Cotton Valley Pinnacle Reef play in east Texas and the Carter
Knox field in Oklahoma. Overall, average daily transportation volumes increased
21% as compared to the first quarter of 1996. The benefits from the increased
volumes were partially offset by an 11% decrease in average transportation rates
as compared to the first quarter of 1996.
Natural gas processing involves extraction of NGLs such as ethane, propane,
isobutane, normal butane and natural gasoline from the natural gas stream. Gas
processing gross margin in the first quarter of 1997 increased by $3.8 million,
or 78%, as compared with the first quarter of 1996, primarily as the result of
higher NGLs sales prices and increased average daily sales volumes.
Gathering service fees from treating, dehydration, compression and other
services, for the first quarter of 1997, increased $3.4 million, or 67%, as
compared to first quarter 1996. The primary reason for this increase was higher
natural gas sales prices, as most fees are determined as a percentage of sales
price.
Operating costs, excluding gas purchase costs, increased $2.7 million in
the first quarter of 1997 as compared with the first quarter of 1996. The
increase was primarily due to higher field operating expenses, increased
depreciation, depletion and amortization resulting from the acquisitions and
expansions completed since the first quarter of 1996, increased USX
corporate general and administrative costs associated with the Delhi Group, and
compensation charges.
Interest and other financial costs increased $0.5 million in the first
quarter of 1997 as compared with the first quarter of 1996, primarily due to
increased debt levels reflecting Delhi's increased capital spending program.
Net income of $1.4 million in the first quarter of 1997, compares with net
income of $2.4 million in the first quarter of 1996. The changes in net income
primarily reflect the decrease in operating income, and the increase in interest
and other financial costs, discussed above.
Cash Flows
- ----------
Net cash provided from operating activities decreased $12.9 million in the
first quarter of 1997, compared with the first quarter of 1996. The decrease is
primarily the result of negative working capital changes caused by a decrease in
payables, that was only partially offset by a decrease in receivables, due to
the decline in natural gas and NGLs prices during the first quarter of 1997.
Capital expenditures for property, plant and equipment in the first quarter
of 1997 were $17.1 million, compared with $22.6 million in the first quarter of
1996. Expenditures in the first quarter of 1997 were primarily for completion
of the second phase of the Pinnacle Reef expansion project in east Texas and the
expansion of pipeline and processing assets in west Texas. Capital expenditures
for the year 1997 are expected to approximate $75 million. Contract commitments
for capital expenditures were $5.9 million at March 31, 1997, compared with $4.4
million at year-end 1996.
<PAGE> 57
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Financial obligations increased by $14.1 million in the first quarter of
1997 as capital expenditures exceeded net cash provided from operating
activities. Financial obligations consist of the Delhi Group's portion of USX
debt and preferred stock of a subsidiary attributed to all three groups.
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.
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 Cash Flows and Liquidity in
USX Consolidated Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Outlook
- -------
The Delhi Group continues to expand its natural gas pipeline systems and
treating and processing facilities through acquisitions and expansions of
existing facilities. The Delhi Group is currently involved in significant
projects in east and west Texas, the largest being the expansion in the Cotton
Valley Pinnacle Reef ("Pinnacle Reef") gas play area of east Texas. Phase Two
of the Pinnacle Reef expansion program has been completed, increasing Delhi's
capacity in this area to more than 300 million cubic feet per day ("mmcfd").
Pinnacle Reef volumes purchased or transported by Delhi averaged 186 mmcfd in
March 1997, up from a December 1996 average of 133 mmcfd. Management
anticipates that Delhi's average monthly volumes could approach 300 mmcfd by
year-end, and is considering a possible Phase Three expansion as new production
warrants. The realization of these additional volumes could be affected by many
factors, including but not limited to, the success of drilling by the producers
in the Pinnacle Reef gas play area, the level of drilling in this area, and
other areas of the United States, levels of imported gas, storage levels, and
changes in the price and demand for natural gas. In west Texas, first quarter
1997 volumes averaged 236 mmcfd, up from an average of 190 mmcfd in 1996, as the
result of expansions and upgrades of the facilities.
<PAGE> 58
DELHI GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Accounting Standard
- -------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"), which changes the computation and presentation of earnings per share
("EPS"). USX will adopt SFAS No. 128 in the fourth quarter of 1997, as
required. While restatement of prior-period EPS data is required by the
standard, EPS presented for USX-Delhi Group Common Stock for the first quarter
of 1997 and for the years 1996 and 1995 will not change upon adoption.
<PAGE> 59
<TABLE>
DELHI GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS (Unaudited)
-----------------------------------
<CAPTION>
First Quarter
Ended March 31
--------------
(Dollars in Millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
GROSS MARGIN
Gas Sales and Trading Margin $13.6 $19.4
Transportation Margin 4.2 3.9
------ ------
Systems and Trading Margin 17.8 23.3
Gas Processing Margin 8.7 4.9
Gathering Service Fees Margin (a) 8.5 5.1
------ ------
Total Gross Margin $35.0 $33.3
OPERATING INCOME $7.6 $8.5
CAPITAL EXPENDITURES $17.1 $22.6
OPERATING STATISTICS
Natural Gas Volumes (b)
Natural Gas Sales 549.5 624.8
Transportation 511.6 422.4
------- ------
Systems Throughput 1,061.1 1,047.2
Trading Sales 624.2 624.6
------- ------
Total Sales Volumes 1,685.3 1,671.8
Natural Gas Liquids Sales (c) 810.8 727.8
- ------------
<FN>
(a) Prior to the fourth quarter of 1996, Delhi reported natural gas treating,
dehydration, compression and other service fees as a reduction to cost of
sales. Beginning with the fourth quarter of 1996, these fees are
reported as revenue; accordingly, amounts for prior quarters have been
reclassified.
(b) Millions of cubic feet per day
(c) Thousands of gallons per day
</TABLE>
<PAGE> 60
Part II - Other Information
- ----------------------------
Item 1. - LEGAL PROCEEDINGS
U. S. Steel Group
In August 1996, the Jefferson County, Alabama, Board of Health informed
U. S. Steel Mining Company, L.L.C. (USM) of its intent to initiate
enforcement action because of alleged violations of air pollution
control requirements at USM's Concord Coal Preparation Plant in
Hueytown, Ala. On January 31, 1997, USM and the County reached an
agreement requiring USM to pay a cash penalty of $100,000 and to
implement plant improvements estimated to cost $800,000. This
agreement was submitted to the Circuit Court of Jefferson County for
approval on February 13, 1997 and was approved by the court on
February 18, 1997. USM paid the $100,000 penalty on April 8, 1997.
Item 5. - OTHER INFORMATION
(a) Forward-looking statements concerning trends, market forces,
commitments, material events and other contingencies potentially
affecting the USX Corporation ("USX"), or the businesses of its
Marathon Group, U. S. Steel Group or Delhi Group, may be provided in
reports filed with the Securities and Exchange Commission, external
documents and oral presentations. In order to take advantage of "safe
harbor" provisions of the Private Securities Litigation Reform Act of
1995, USX is filing the following cautionary language identifying
important factors (though not necessarily all such factors) that could
cause actual outcomes to differ materially from information set forth
in forward-looking statements made by, or on behalf of, USX, its
representatives and its individual Groups.
Cautionary Language Concerning Forward-Looking Statements
---------------------------------------------------------
I. USX
---
Forward-looking statements with respect to USX may include, but are
not limited to, comments about general business strategies, financing
decisions or corporate structure. The following discussion is intended
to identify important factors (though not necessarily all such
factors) that could cause future outcomes to differ materially from
those set forth in forward-looking statements.
Liquidity Factors
-----------------
USX's ability to finance its future business requirements through
internally generated funds, proceeds from the sale of stock,
borrowings and other external financing sources is affected by the
performance of each of its Groups (as measured by various factors,
including cash provided from operating activities), the state of
worldwide debt and equity markets, investor perceptions and
expectations of past and future performance and actions, the overall
U.S. financial climate, and, in particular, with respect to
borrowings, by USX's outstanding debt and credit ratings by investor
services.
<PAGE> 61
Part II - OTHER INFORMATION (continued)
- ---------------------------------------
Other Factors
-------------
Holders of USX-Marathon Group Common Stock, USX-U. S. Steel Group Common
Stock and USX-Delhi Group Common Stock are holders of common stock of
USX and are subject to all the risks associated with an investment in
USX and all of its businesses and liabilities. Financial impacts,
arising from any of the groups, which affect the overall cost of USX's
capital could affect the results of operations and financial condition
of all groups.
For further discussion of certain of the factors described herein,
see Item 1. Business, Item 5. Market For Registrant's Common Equity
and Related Stockholder Matters, and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations in the USX Corporation Form 10-K for the fiscal year
ended December 31, 1996, and Management's Discussion and Analysis
of Financial Condition and Results of Operations herein.
II. USX-Marathon Group
------------------
Forward-looking statements with respect to the Marathon Group may
include, but are not limited to, levels of revenues, gross margins,
operating income, net income or earnings per share; levels of
capital, exploration, environmental or maintenance expenditures;
the success or timing of completion of ongoing or anticipated
capital, exploration or maintenance projects; volumes of
production, sales, throughput or shipments of liquid hydrocarbons,
natural gas and refined products; levels of reserves, proved or
otherwise, of liquid hydrocarbons or natural gas; the acquisition
or divestiture of assets; the effect of restructuring or
reorganization of business components; the potential effect of
judicial proceedings on the business and financial condition;
and the anticipated effects of actions of third parties
such as competitors, or federal, state or local regulatory
authorities.
Forward-looking statements typically contain words such as
"anticipates", "believes", "estimates", "expects", "forecasts",
"predicts" or "projects" or variations of these words, suggesting
that future outcomes are uncertain. The following discussion
is intended to identify important factors (though not necessarily
all such factors) that could cause future outcomes to differ
materially from those set forth in forward-looking statements with
respect to the Marathon Group.
The oil and gas industry is characterized by a large number of companies,
none of which is dominant within the industry, but a number of which
have greater resources than Marathon. Marathon must compete with these
companies for the rights to explore for oil and gas. Marathon's
expectations as to revenues, margins and income are based upon
assumptions as to future prices and volumes of liquid hydrocarbons,
natural gas and refined products. Prices have historically been
volatile and have frequently been driven by unpredictable changes
in supply and demand resulting from fluctuations in economic
activity and political developments in the world's major oil and
gas producing areas, including OPEC member countries. Any
substantial decline in such prices could have a material adverse
effect on Marathon's results of operations. A decline in such
prices could also adversely affect the quantity of liquid
hydrocarbons and natural gas that can be economically produced and
the amount of capital available for exploration and development.
<PAGE> 62
Part II - OTHER INFORMATION (continued)
- ---------------------------------------
The Marathon Group uses commodity-based derivative instruments such
as exchange-traded futures contracts and options and over-the-counter
commodity swaps and options to manage exposure to market price risk.
The Marathon Group's strategic approach is to limit the use of these
instruments principally to hedging activities. Accordingly, gains and
losses on futures contracts and swaps generally offset the effects of
price changes in the underlying commodity. While commodity-based
derivative instruments are generally used to reduce risks from
unfavorable commodity price movements, they also may limit the
opportunity to benefit from favorable movements. Levels of hedging
activity vary among oil industry competitors and could affect the
Marathon Group's competitive position with respect to those
competitors.
Factors Affecting Exploration and Production Operations
-------------------------------------------------------
Projected production levels for liquid hydrocarbons and natural gas
are based on a number of assumptions, including (among others)
prices, supply and demand, regulatory constraints, reserve
estimates, production decline rates for mature fields, reserve
replacement rates, and geological and operating considerations.
These assumptions may prove to be inaccurate. Exploration and
production operations are subject to various hazards, including
explosions, fires and uncontrollable flows of oil and gas.
Offshore production and marine operations in areas
such as the Gulf of Mexico and the North Sea are also subject to
severe weather conditions such as hurricanes or violent storms or
other hazards. Development of new production properties in countries
outside the United States may require protracted negotiations with
host governments and are frequently subject to political
considerations, such as tax regulations, which could adversely affect
the economics of projects. With respect to the Sakhalin II project in
Russia, development plans need to be finalized prior to final
commitment by the shareholders of Sakhalin Energy. In addition,
Sakhalin Energy continues to seek to have certain Russian laws and
normative acts at the Russian Federation and local levels brought into
compliance with the existing Production Sharing Agreement Law.
Factors Affecting Refining, Marketing and Transportation Operations
-------------------------------------------------------------------
Marathon conducts refining, marketing and transportation operations
primarily in the Midwest and Southeast. The profitability of these
operations depends largely on the margin between the cost of crude oil
and other feedstocks refined and the selling prices of refined products.
Marathon is a net purchaser of crude oil in order to satisfy a
substantial portion of its refinery throughput requirements. As a
result, its overall profitability could be adversely affected by rising
crude oil and other feedstock prices which are not recovered in the
marketplace. Refined product margins have been historically volatile and
vary with the level of economic activity in the various marketing areas,
the regulatory climate and the available supply of refined products.
Gross margins on merchandise sold at retail outlets tend to moderate the
volatility experienced in the retail sale of refined products.
Environmental regulations, particularly the 1990 Amendments to the Clean
Air Act, have imposed (and are expected to continue to impose)
increasingly stringent and costly requirements on refining and marketing
operations which may have an adverse effect on margins. Refining,
marketing and transportation operations are subject to business
interruptions due to unforeseen events such as explosions, fires, crude
oil or refined product spills, inclement weather, or labor disputes.
<PAGE> 63
Part II - Other Information (continued)
- ---------------------------------------
Technology Factors
------------------
Longer-term projections of corporate strategy, including the viability,
timing or expenditures required for capital projects, can be affected
by changes in technology, especially innovations in processes used in
the exploration, production or refining of hydrocarbons. While
specific future changes are difficult to project, recent innovations
affecting the oil industry include the development of three-
dimensional seismic imaging and deep-water and horizontal drilling
capabilities.
Other Factors
-------------
Holders of USX-Marathon Group Common Stock are holders of common stock of
USX and are subject to all the risks associated with an investment in
USX and all of its businesses and liabilities. Financial impacts,
arising from any of the groups, which affect the overall cost of USX's
capital could affect the results of operations and financial condition
of all groups.
For further discussion of certain of the factors described herein, and
their potential effects on the businesses of the Marathon Group, see
Item 1. Business, and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in the USX Corporation
Form 10-K for the fiscal year ended December 31, 1996, and
Management's Discussion and Analysis of Financial Condition and
Results of Operations herein.
III. USX-U. S. Steel Group
---------------------
Forward-looking statements with respect to the U. S. Steel Group may
include, but are not limited to, projections of levels of revenues,
operating income or operating income per ton, net income or earnings
per share; levels of capital, environmental or maintenance
expenditures; the success or timing of completion of ongoing or
anticipated capital or maintenance projects; levels of raw steel
production capability, prices, production, shipments, or labor and raw
material costs; the acquisition, idling, shutdown or divestiture of
assets or businesses; the effect of restructuring or reorganization of
business components; the effect of potential judicial proceedings on
the business and financial condition; and the effects of actions of
third parties such as competitors, or federal, state or local
regulatory authorities.
Forward-looking statements typically contain words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "predicts" or
"projects", or variations of these words, suggesting that future
outcomes are uncertain. The following discussion is intended to
identify important factors (though not necessarily all such factors)
that could cause future outcomes to differ materially from those set
forth in forward-looking statements with respect to the U. S. Steel
Group.
Market Factors
--------------
The U.S. Steel Group's expectations as to levels of production and
revenues, gross margins, operating income and operating income per ton
are based upon assumptions as to future product prices and mix, and
levels of raw steel production capability, production and shipments.
These assumptions may prove to be inaccurate.
<PAGE> 64
Part II - Other Information (continued)
- ---------------------------------------
The steel industry is characterized by excess world supply which has
restricted the ability of U. S. Steel and the industry to raise prices
during periods of economic growth and resist price decreases during
economic contraction. Over the next several years, construction of
additional flat-rolled steel production facilities could result in
increased domestic capacity of up to 14 million tons over 1996 levels.
Several of the additional facilities are minimills which are less expensive
to build than integrated facilities, and are typically staffed by non-
unionized work forces with lower base labor costs and more flexible
work rules. Through the use of thin slab casting technology, minimill
competitors are increasingly able to compete directly with integrated
producers of higher value-added products. Such competition could
adversely affect the U.S. Steel Group's future product prices and
shipment levels.
The domestic steel industry has, in the past, been adversely affected by
unfairly traded imports. Steel imports to the United States accounted
for an estimated 23%, 21% and 25% of the domestic steel market in
1996, 1995 and 1994, respectively, and for an estimated 26% in the
first two months of 1997. Foreign competitors typically have lower
labor costs, and are often owned, controlled or subsidized by their
governments, allowing their production and pricing decisions to be
influenced by political and economic policy considerations as well as
prevailing market conditions. Increases in levels of imported steel
could adversely affect future market prices and demand levels for
domestic steel.
The U. S. Steel Group also competes in many markets with producers of
substitutes for steel products, including aluminum, cement,
composites, glass, plastics and wood. The emergence of additional
substitutes for steel products could adversely affect future prices
and demand for steel products.
The businesses of the U. S. Steel Group are aligned with cyclical
industries such as the automotive, appliance, containers, construction
and energy industries. As a result, future downturns in the U.S.
economy could adversely affect the profitability of the U. S. Steel
Group.
Operating and Cost Factors
--------------------------
The operations of the U. S. Steel Group are subject to planned and
unplanned outages due to maintenance, equipment malfunctions or work
stoppages; and various hazards, including explosions, fires and severe
weather conditions, which could disrupt operations or the availability
of raw materials, resulting in reduced production volumes and
increased production costs.
Labor costs for the U. S. Steel Group are affected by collective bargaining
agreements. U. S. Steel entered into a five and one-half year
contract with the United Steel Workers of America, effective February
1, 1994, covering approximately 15,000 employees. The contract
provided for reopener negotiations of specific payroll items. These
negotiations have now been resolved by following the settlements
reached by other major integrated producers (including the timing of a
final lump-sum bonus payment in July, 1999). All revised contract
terms became effective as of February 1, 1997. To the extent that
increased costs associated with any renegotiated issues are not
recoverable through the sales prices of products, future operating
income would be adversely affected.
<PAGE> 65
Part II - Other Information (continued)
- ---------------------------------------
Operating income for the U. S. Steel Group includes net periodic pension
credits (which are primarily noncash) mainly reflecting the excess of
expected return on plan assets over the cost of benefits earned and
interest on the projected benefit obligation. These credits totaled
$159 million, $132 million and $120 million in 1996, 1995 and 1994,
respectively, and $38 million in the first quarter of 1997. The
amounts of these credits fluctuate over time primarily reflecting
changes in the expected long-term rate of return on plan assets and
the assumed discount rate on the outstanding pension obligation. To
the extent that these credits decline in the future, operating income
would be adversely affected.
The U. S. Steel Group provides health care and life insurance benefits to
most employees upon retirement. Most of these benefits have not been
prefunded. The accrued liability for such benefits as of December 31,
1996, was $2,249 million. To the extent that competitors do not
provide similar benefits, or have been relieved of obligations to
provide such benefits following bankruptcy reorganization, the
competitive position of the U. S. Steel Group may be adversely
affected, depending on future costs of health care.
Legal and Environmental Factors
-------------------------------
The profitability of the U. S. Steel Group's operations could be affected
by a number of contingencies, including legal actions. The ultimate
resolution of these contingencies could, individually or in the
aggregate, be material to the U. S. Steel Group financial statements.
The businesses of the U. S. Steel Group are subject to numerous
environmental laws. Certain current and former U. S. Steel Group
operating facilities, including Gary Works, have been in operation for
many years, and could require significant future accruals and
expenditures to meet existing and future requirements under these
laws. To the extent that competitors are not required to undertake
equivalent costs in their operations, the competitive position of the
U. S. Steel Group could be adversely affected.
Other Factors
-------------
Holders of USX-U. S. Steel Group Common Stock are holders of common stock
of USX and are subject to all the risks associated with an investment
in USX and all of its businesses and liabilities. Financial impacts,
arising from any of the groups, which affect the overall cost of USX's
capital could affect the results of operations and financial condition
of all groups.
For further discussion of certain of the factors described herein, and
their potential effects on the businesses of the U.S. Steel Group, see
Item 1. Business, and Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations in the USX Corporation
Form 10-K for the fiscal year ended December 31, 1996, and
Management's Discussion and Analysis of Financial Condition and
Results of Operations herein.
<PAGE> 66
Part II - Other Information (continued)
- ---------------------------------------
IV. USX-Delhi Group
---------------
Forward-looking statements with respect to the Delhi Group may include, but
are not limited to, projections of levels of revenues, gross margins,
operating income, net income or earnings per share; levels of capital,
environmental or maintenance expenditures; the success or timing of
completion of ongoing or anticipated capital or maintenance projects;
volumes of sales, throughput or shipments of natural gas or natural
gas liquids ("NGLs"); levels of, or changes in, dedicated reserves of
natural gas; the acquisition or divestiture of assets; the effect of
restructuring or reorganization of business components or entry into
new lines of business; the effect of potential judicial proceedings on
the business and financial condition; and the effects of actions of
third parties such as competitors, or federal, state or local
regulatory authorities.
Forward-looking statements typically contain words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "predicts" or
"projects", or variations of these words, suggesting that future
outcomes are uncertain. The following discussion is intended to
identify important factors (though not necessarily all such factors)
that could cause future outcomes to differ materially from those set
forth in forward-looking statements with respect to the Delhi Group.
Market Factors
--------------
The adoption in 1992 of Federal Energy Regulatory Commission ("FERC") Order
No. 636, has resulted in a fundamental "unbundling" of the services
provided in the natural gas industry, affording natural gas producers
easier access to end-user sales markets, and reducing market demand
for the premium services traditionally provided by the Delhi Group.
To the extent that producers convert their natural gas sales contracts
with the Delhi Group to lower margin, fixed-fee transportation
agreements, or that customers reduce their demand for gas under
premium service agreements, the Delhi Group's future operating income
will be adversely affected.
The Delhi Group faces intense competition in all of its businesses,
including obtaining additional dedicated natural gas reserves, and in
the purchasing, gathering, processing, transporting and marketing of
natural gas. The Delhi Group competes with major integrated oil and
gas companies; more than 100 major intrastate and interstate pipeline
companies; and national and local gas gatherers, brokers, marketers,
processors and distributors of varying size, financial resources and
experience. Certain of these competitors, including major integrated
oil and gas companies and some intrastate and interstate pipeline
companies, have greater financial resources and control larger natural
gas supplies or storage capacity than the Delhi Group.
<PAGE> 67
Part II - Other Information (continued)
- ---------------------------------------
The Delhi Group's expectations as to levels of revenues, gross margins and
operating income, and its return on investment in capital projects are
based upon assumptions as to future market prices and market supply
and demand for natural gas, NGLs, and competing fuels and feedstocks,
and as to levels of third-party drilling success in Delhi's current or
anticipated core operating areas of Oklahoma and Texas. These
assumptions may prove to be inaccurate.
The Delhi Group generally buys natural gas at prices based on a market
index, and sells natural gas under sales contracts (typically for
periods of one year or less) and in the spot market. Pricing
mechanisms under natural gas sales contracts result in gas sales
primarily at market sensitive prices with the unit gross margin
fluctuating based on the sales price and the cost of natural gas.
Accordingly, Delhi's gross margin (and operating results) are affected
by fluctuations in natural gas prices and demand levels, and by basis
differentials (differences between natural gas prices in various
locations).
The Delhi Group uses commodity-based derivative instruments such as
exchange-traded futures contracts and options and over-the-counter
commodity swaps and options to manage its exposure to market risk.
The Delhi Group uses these instruments as a hedging mechanism to
protect margins. As a result, changes in the fair value of derivative
instruments are generally offset by price changes in the underlying
natural gas transaction. While commodity-based derivative instruments
are generally used to reduce risks from unfavorable commodity price
movements, they also may limit the opportunity to benefit from
favorable movements. Levels of hedging activity vary among
competitors and could affect the Delhi Group's competitive position
with respect to those competitors.
The Delhi Group obtains natural gas supplies from various sources,
including major oil and gas companies, other pipeline companies and
independent producers, marketers and brokers. Certain of these
supplies are subject to natural declines in production from wells
connected to the Delhi Group's systems. The Delhi Group's ability to
contract for additional dedicated natural gas reserves to offset such
declines depends, in part, on the level and success of drilling by
producers in areas in which the Delhi Group operates. Levels of
hydrocarbon drilling in these areas, and other areas of the United
States, typically fluctuate based on the market price of natural gas
and constraints of environmental regulation, among other factors.
Market demand for natural gas is influenced by the seasonal requirements of
purchasers using gas for space heating and generation of electricity
for air conditioning, levels of imported natural gas, particularly
from Canada, and the prices of competing fuels.
The Delhi Group processes natural gas (extracts NGLs from the gas stream)
in plants connected to its pipeline systems, and, in some cases, has
its natural gas processed by third parties. Gross margins on gas
processing vary with fluctuations in the market price of NGLs (which
tend to parallel fluctuations in market prices for crude oil), the
demand for NGLs and the price volatility, availability and quality of
natural gas. Gross margins on gas processing accounted for 23%, 23%
and 14% of total Delhi Group gross margins for the years 1996, 1995
and 1994, respectively, and 25% for the first quarter of 1997.
<PAGE> 68
Part II - Other Information (continued)
- ---------------------------------------
Operational Factors
-------------------
The Delhi Group's natural gas purchasing, gathering, processing, treating,
transportation and marketing operations are subject to business
interruption, liability and other risks of unforeseen events such as
explosions, fires, natural disasters, leaks and uncontrollable flows
of natural gas or NGLs.
The viability and timing of growth strategies through capital development
projects, acquisition, or joint ventures can be affected by external
factors such as legal or regulatory delays, competing bids or
competitor development activity.
Contingency Factors
-------------------
Future operating results could be affected by litigation settlements,
judgments, or other contingencies, and by changes in federal, state
and local laws and regulations, including environmental regulations
and FERC regulations.
Other Factors
-------------
Holders of USX-Delhi Group Common Stock are holders of common stock of USX
and are subject to all the risks associated with an investment in USX
and all of its businesses and liabilities. Financial impacts, arising
from any of the groups, which affect the overall cost of USX's capital
could affect the results of operations and financial condition of all
groups.
For further discussion of certain of the factors described herein, and
their potential effects on the businesses of the Delhi Group, see Item
1. Business, and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in the USX Corporation
Form 10-K for the fiscal year ended December 31, 1996, and
Management's Discussion and Analysis of Financial Condition and
Results of Operations herein.
<PAGE> 69
Part II - Other Information (continued)
- --------------------------------------
Item 5. OTHER INFORMATION
(b) 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>
<CAPTION>
(In millions)
-------------------
First Quarter Ended
March 31
1997 1996
---- ----
<S> <C> <C>
INCOME DATA:
Revenues $4,076 $3,612
Operating income 222 382
Net income 98 208
</TABLE>
<TABLE>
<CAPTION>
(In millions)
----------------------
March 31 December 31
1997 1996
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Assets:
Current assets $3,366 $3,271
Noncurrent assets 7,978 7,977
------ ------
Total assets $11,344 $11,248
====== ======
Liabilities and Stockholder's Equity:
Current liabilities $1,825 $2,197
Noncurrent liabilities 7,569 7,199
Stockholder's equity 1,950 1,852
------ ------
Total liabilities and stockholder's equity $11,344 $11,248
====== ======
</TABLE>
<PAGE> 70
Part II - Other Information (continued):
- ----------------------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3. Articles of Incorporation and By-Laws
(a)USX Restated Certificate of Incorporation dated September 1,
1996
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
12.2 Computation of Ratio of Earnings to Fixed Charges
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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/ Kenneth L. Matheny
Kenneth L. Matheny
Vice President &
Comptroller
May 12, 1997
Exhibit 12.1
<TABLE>
<CAPTION>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
TOTAL ENTERPRISE BASIS - (Unaudited)
----------------------------------------------------------
(Dollars in Millions)
Three Months
Ended Year Ended December 31
March 31 --------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Portion of rentals
representing interest $20 $20 $80 $78 $85 $84 $87
Capitalized interest 4 3 11 13 58 105 78
Other interest and fixed
charges 89 107 399 464 464 372 408
Pretax earnings which would
be required to cover
preferred stock dividend
requirements of parent 9 9 36 46 49 44 14
---- ---- ---- ---- ---- ---- ----
Combined fixed charges
and preferred stock
dividends (A) $122 $139 $526 $601 $656 $605 $587
==== ==== ==== ==== ==== ==== ====
Earnings-pretax income
with applicable
adjustments (B) $403 $526 $1,867 $902 $1,263 $280 $376
==== ==== ==== ==== ==== ==== ====
Ratio of (B) to (A) 3.31 3.78 3.55 1.50 1.92 (a) (a)
==== ==== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover combined fixed charges and preferred stock
dividends by $325 million for 1993 and by $211 million for 1992.
</TABLE>
<TABLE>
Exhibit 12.2
<CAPTION>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TOTAL ENTERPRISE BASIS - (Unaudited)
-------------------------------------------------
(Dollars in Millions)
Three Months
Ended Year Ended December 31
March 31 --------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Portion of rentals
representing interest $20 $20 $80 $78 $85 $84 $87
Capitalized interest 4 3 11 13 58 105 78
Other interest and fixed
charges 89 107 399 464 464 372 408
---- ---- ---- ---- ----- ---- ----
Total fixed charges (A) $113 $130 $490 $555 $607 $561 $573
==== ==== ==== ==== ==== ==== ====
Earnings-pretax income
with applicable
adjustments (B) $403 $526 $1,867 $902 $1,263 $280 $376
==== ==== ==== ==== ==== ==== ====
Ratio of (B) to (A) 3.57 4.04 3.81 1.63 2.08 (a) (a)
==== ==== ==== ==== ==== ==== ====
<FN>
(a) Earnings did not cover fixed charges by $281 million for 1993 and by $197
million for 1992.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 1027
<ALLOWANCES> 8
<INVENTORY> 1855
<CURRENT-ASSETS> 3093
<PP&E> 25749
<DEPRECIATION> 15426
<TOTAL-ASSETS> 16719
<CURRENT-LIABILITIES> 3369
<BONDS> 3535
0
7
<COMMON> 382<F1>
<OTHER-SE> 4763
<TOTAL-LIABILITY-AND-EQUITY> 16719
<SALES> 5997
<TOTAL-REVENUES> 5997
<CGS> 5655
<TOTAL-COSTS> 5655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 287
<INCOME-TAX> 91
<INCOME-CONTINUING> 196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F3>
<FN>
<F1>CONSISTS OF MARATHON STOCK ISSUED, $288; STEEL STOCK ISSUED, $85; DELHI
STOCK ISSUED, $9.
<F2>PRIMARY EARNINGS (LOSS) PER SHARE APPLICABLE TO MARATHON STOCK, $.37; STEEL
STOCK, $.96; DELHI STOCK $.15.
<F3>FULLY DILUTED EARNINGS (LOSS) PER SHARE APPLICABLE TO MARATHON STOCK, $.37;
STEEL STOCK, $.93; DELHI STOCK, $.15.
</FN>
</TABLE>
<PAGE>
EXHIBIT 4.1
USX CORPORATION
------------
RESTATED
CERTIFICATE OF INCORPORATION
------------
FILED IN OFFICE OF SECRETARY OF STATE,
STATE OF DELAWARE
SEPTEMBER 1, 1996
===============================================================================
<PAGE>
TABLE OF CONTENTS
Article First--Corporate Name 1
Article Second--Registered Office 1
Article Third--Corporate Purpose 1
Fourth--Capital Stock 1
Division I--Common Stock 1
1. Dividend Rights 1
2. Exchange and Redemption 2
3. Voting Rights 7
4. Liquidation Rights 9
5. Definitions 9
6. Determinations of the Board of Directors 12
Division II--Preferred Stock 12
Series A Junior Preferred Stock 13
6.50% Cumulative Convertible Preferred Stock 19
Article Fifth--Perpetual Existence 35
Article Sixth--Stockholder Liability 35
Article Seventh--Board of Directors 35
Article Eighth--By-laws 36
Article Ninth--Inspection of Accounts 36
Article Tenth--Dividends and Debt Obligations 36
Article Eleventh--Director Liability 36
Article Twelfth--Power and Authority 36
Article Thirteenth--Amendment of Certificate of Incorporation 37
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
USX CORPORATION
(Originally incorporated under the name of U.S. Steel Company on September 10,
1965)
---------------
First: The name of the Corporation (which is hereinafter referred to as the
"Corporation") is
USX CORPORATION
Second: Its registered office and place of business in the State of
Delaware is located at 1013 Centre Rd., City of Wilmington, County of New
Castle. The registered agent in charge thereof upon whom process against the
Corporation may be served, is The Prentice-Hall Corporation System, Inc.
Third: The purposes of the Corporation are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware, and without limiting the foregoing to engage in integrated
steel operations and to develop, mine, produce, manufacture, construct,
transport, buy, hold, sell and generally deal in products, materials, property,
both tangible and intangible, and services of all kinds.
Fourth: The total number of shares of capital stock which the Corporation shall
have authority to issue is Eight Hundred Forty Million (840,000,000), of which
Forty Million (40,000,000) shares shall be shares of Preferred Stock, without
par value (hereinafter called "Preferred Stock"), Five Hundred Fifty Million
(550,000,000) shares shall be shares of a class of common stock designated as
USX-Marathon Group Common Stock, par value $1.00 per share ("Marathon Stock"),
Two Hundred Million (200,000,000) shares shall be shares of a class of common
stock designated as USX-U.S. Steel Group Common Stock, par value $1.00 per share
("Steel Stock"), and Fifty Million (50,000,000) shares shall be shares of a
class of common stock designated as USX-Delhi Group Common Stock, par value
$1.00 per share ("Delhi Stock"). The Marathon Stock, the Steel Stock and the
Delhi Stock shall hereinafter collectively be called the "Common Stock".
DIVISION I
The powers and rights of the shares of each class of Common Stock, and the
qualifications, limitations or restrictions thereof, are as follows:
1. Dividend Rights. Subject to the express terms of any outstanding series
of Preferred Stock, dividends may be declared and paid upon each class of the
Common Stock upon the terms provided for below with respect to each such class
solely in the discretion of the Board of Directors:
(a) Dividends on Marathon Stock. Dividends on the Marathon Stock may be
declared and paid out of funds of the Corporation legally available therefor.
(b) Dividends on Steel Stock. Dividends on the Steel Stock may be declared
and paid only out of the lesser of (i) funds of the Corporation legally
available therefor and (ii) the Available Steel Dividend Amount.
(c) Dividends on Delhi Stock. Dividends on the Delhi Stock may be
declared and paid only out of the lesser of (i) funds of the Corporation
legally available therefor and (ii) the Available Delhi Dividend Amount.
(d) Discrimination Between Classes of Common Stock. The Board of
Directors, subject to the provisions of Sections 1(a), 1(b) and 1(c), may, in
its sole discretion, declare and pay dividends exclusively on any class or
classes of Common Stock in equal or unequal amounts, notwithstanding the amounts
of funds available for dividends on each class, the respective voting and
liquidation rights of each class, the amount of prior dividends declared on each
class or any other factor.
1
<PAGE>
2. Exchange and Redemption. Shares of each class of Common Stock are
subject to exchange or redemption, as the case may be, upon the terms provided
below with respect to each such class; provided that no such class may be
exchanged or redeemed in its entirety if all of the other classes have been, or
are at the time being, exchanged or redeemed in their entirety:
(a) Exchange and Redemption of Marathon Stock.
(i) At any time on or after the date on which the Corporation has
transferred all of the assets and liabilities of the Marathon Group to a wholly
owned subsidiary of the Corporation (the "Marathon Group Subsidiary"), the Board
of Directors may, in its sole discretion and by a majority vote of the directors
then in office, provided that there are funds of the Corporation legally
available therefor, declare that all of the outstanding shares of Marathon Stock
shall be exchanged on an Exchange Date set forth in a notice to holders of
Marathon Stock pursuant to Section 2(d)(i), for all of the outstanding shares of
common stock of the Marathon Group Subsidiary, on a pro rata basis, each of
which shall, upon such issuance, be fully paid and nonassessable.
(ii) After any Exchange Date for Marathon Stock, any share of Marathon
Stock that is issued on conversion or exercise of any Convertible Securities
shall, to the extent of funds of the Corporation legally available therefor,
immediately upon issuance pursuant to such conversion or exercise and without
any notice or any other action on the part of the Corporation or its Board of
Directors or the holder of such share of Marathon Stock, be redeemed for $.01 in
cash.
(b) Exchange and Redemption of Steel Stock.
(i) In the event of the Disposition, in one transaction or a series of
related transactions, by the Corporation of all or substantially all of the
properties and assets of the U.S. Steel Group (other than in connection with the
Disposition by the Corporation of all of its properties and assets in one
transaction) to any person, entity or group (other than (A) the holders of all
outstanding shares of Steel Stock on a pro rata basis or (B) any person, entity
or group in which the Corporation, directly or indirectly, owns a majority
equity interest), the Corporation shall, on or prior to the first Business Day
following the 60th day following the consummation of such Disposition, either:
(A) subject to paragraph 1(b) above, declare and pay a dividend in
cash and/or in securities or other property received as proceeds of such
Disposition to the holders of Steel Stock in an amount equal to the Net Proceeds
of such Disposition; or
(B) to the extent that there are funds of the Corporation legally
available therefor, redeem the number of whole shares of outstanding Steel Stock
that has an aggregate average Market Value, during the ten-Business Day period
beginning on the first Business Day following such consummation, closest to the
value of the Net Proceeds of such Disposition, for cash and/or securities or
other property received as proceeds of such Disposition in an amount equal to
such Net Proceeds; or
(C) exchange each outstanding share of Steel Stock for a number of
fully paid and nonassessable shares of Marathon Stock or, if there are no shares
of Marathon Stock outstanding on the Exchange Date and shares of Delhi Stock are
then outstanding, of Delhi Stock equal to 110% of the average daily ratio
(calculated to the nearest five decimal places) of the Market Value of one share
of Steel Stock to the Market Value of one share of Marathon Stock or one share
of Delhi Stock, as the case may be, during such ten-Business Day period.
For purposes of this Section 2(b)(i):
(x) as of any date, "substantially all of the properties and assets of the
U.S. Steel Group" shall mean a portion of such properties and assets that
represents at least 80% of either of the then-current market value of, or the
aggregate revenues for the immediately preceding twelve fiscal quarterly periods
of the Corporation derived from, the properties and assets of the U.S. Steel
Group as of such date (excluding the properties and assets of any person, entity
or group in which the Corporation, directly or indirectly, owns less than a
majority equity interest);
2
<PAGE>
(y) if immediately after any event, the Corporation, directly or
indirectly, owns less than a majority equity interest in any person, entity or
group in which the Corporation, directly or indirectly, owned a majority equity
interest immediately prior to the occurrence of such event, a Disposition of all
of the properties and assets of the U.S. Steel Group owned by such person,
entity or group shall be deemed to have occurred; and
(z) in the case of a Disposition of properties and assets in a series of
related transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions.
(ii) The Board of Directors may, by a majority vote of the directors then in
office, at any time after a dividend or redemption pursuant to clause (A) or
(B), respectively, of Section 2(b)(i), declare that each of the remaining
outstanding shares of Steel Stock shall be exchanged, on an Exchange Date set
forth in a notice to holders of Steel Stock pursuant to Section 2(d)(i), for a
number of fully paid and nonassessable shares of Marathon Stock or, if there are
no shares of Marathon Stock outstanding on such Exchange Date and shares of
Delhi Stock are then outstanding, of Delhi Stock, equal to 110% of the Market
Value Ratio as of the fifth Business Day prior to the date such notice is mailed
to such holders. For purposes of the preceding sentence, "Market Value Ratio",
as of any date, shall mean the highest of the following (calculated to the
nearest five decimal places): (A) the average ratio of S/X for the five-Business
Day period ending on such date, (B) the quotient of (1) the sum of (w) four
times the average ratio of S/X for the five-Business Day period ending on such
date, (x) three times the average ratio of S/X for the next preceding five-
Business Day period, (y) two times the average ratio of S/X for the next
preceding five-Business Day period and (z) the average ratio of S/X for the next
preceding five-Business Day period, divided by (2) ten and (C) if the dividend
pursuant to clause (A) of Section 2(b)(i) was declared and paid or the
redemption pursuant to (B) of Section 2(b)(i) was made prior to the commencement
of the most recently completed fiscal quarter of the Corporation, the average
ratio of S/X for such fiscal quarter, where S is the Market Value of one share
of Steel Stock and X is the Market Value of one share of Marathon Stock or one
share of Delhi Stock, as the case may be.
(iii) At any time on or after the date on which the Corporation has
transferred all of the assets and liabilities of the U.S. Steel Group (and no
other assets or liabilities) to a wholly owned subsidiary of the Corporation
(the "U.S. Steel Group Subsidiary"), the Board of Directors may, in its sole
discretion and by a majority vote of the directors then in office, provided that
there are funds of the Corporation legally available therefor, declare that all
of the outstanding shares of Steel Stock shall be exchanged on an Exchange Date
set forth in a notice to holders of Steel Stock pursuant to Section (d)(i), for
all of the outstanding shares of common stock of the U.S. Steel Group
Subsidiary, on a pro rata basis, each of which shall, upon such issuance, be
fully paid and nonassessable.
(iv) After any Exchange Date or Redemption Date on which all outstanding
Steel Stock was exchanged or redeemed, any share of Steel Stock that is issued
on conversion or exercise of any Convertible Securities shall, immediately upon
issuance pursuant to such conversion or exercise and without any notice or any
other action on the part of the Corporation or its Board of Directors or the
holder of such share of Steel Stock:
(A) in the event the then-outstanding Steel Stock was exchanged or
Marathon Stock or Delhi Stock on such Exchange Date pursuant to Section 2(b)(i)
or 2(b)(ii), be exchanged for the kind and amount of shares of capital stock and
other securities and property that a holder of such Convertible Security would
have been entitled to receive pursuant to the terms of such Convertible Security
had such terms provided that the conversion privilege in effect immediately
prior to any exchange by the Corporation of any of its capital stock for shares
of any other capital stock of the Corporation would be adjusted so that the
holder of any such Convertible Security thereafter surrendered for conversion
would be entitled to receive the number of shares of capital stock of the
Corporation and other securities and property he would have owned immediately
following such action had such Convertible Security been converted immediately
prior thereto; or
(B) in the event the then-outstanding Steel Stock was redeemed in
whole pursuant to clause (B) of Section 2(b)(i) or exchanged for common stock of
the U.S. Steel Group Subsidiary pursuant to Section 2(b)(iii), be redeemed, to
the extent of funds of the Corporation legally available therefor, for $.01 in
cash.
3
<PAGE>
The provisions of clause (A) of this Section 2(b)(iv) shall not apply
to the extent that equivalent adjustments are otherwise made pursuant to the
provisions of such Convertible Securities.
(c) Exchange and Redemption of Delhi Stock.
(i) In the event of the Disposition, in one transaction or a series of
related transactions, by the Corporation of all or substantially all of the
properties and assets of the Delhi Group (other than in connection with the
Disposition by the Corporation of all of its properties and assets in one
transaction) to any person, entity or group (other than (A) the holders of all
outstanding shares of Delhi Stock on a pro rata basis or (B) any person, entity
or group in which the Corporation, directly or indirectly, owns a majority
equity interest), the Corporation shall, on or prior to the first Business Day
following the 60th day following the consummation of such Disposition, either:
(A) subject to paragraph 1(c) above, declare and pay a dividend in
cash and/or in securities or other property received as proceeds of such
Disposition to the holders of Delhi Stock in an amount equal to the product of
the Delhi Fraction and the Net Proceeds of such Disposition; or
(B) to the extent that there are funds of the Corporation legally
available therefor, redeem the number of whole shares of outstanding Delhi Stock
that has an aggregate average Market Value, during the ten-Business Day period
beginning on the first Business Day following such consummation, closest to the
value of the product of the Delhi Fraction and the Net Proceeds of such
Disposition, for cash and/or securities or other property re-ceived as proceeds
of such Disposition in an amount equal to such product; or
(C) exchange each outstanding share of Delhi Stock for a number of
fully paid and nonassessable shares of Marathon Stock or, if there are no shares
of Marathon Stock outstanding on such Exchange Date and shares of Steel Stock
are then outstanding, of Steel Stock, equal to 110% of the average daily ratio
(calculated to the nearest five decimal places) of the Market Value of one share
of Delhi Stock to the Market Value of one share of Marathon Stock or one share
of Steel Stock, as the case may be, during such ten-Business Day period.
For purposes of this Section 2(c)(i):
(x) as of any date, "substantially all of the properties and assets of the
Delhi Group" shall mean a portion of such properties and assets that represents
at least 80% of either of the then-current market value of, or the aggregate
revenues for the immediately preceding twelve fiscal quarterly periods of the
Corporation derived from, the properties and assets of the Delhi Group as of
such date (excluding the properties and assets of any person, entity or group in
which the Corporation, directly or indirectly, owns less than a majority equity
interest);
(y) if immediately after any event, the Corporation, directly or
indirectly, owns less than a majority equity interest in any person, entity or
group in which the Corporation, directly or indirectly, owned a majority equity
interest immediately prior to the occurrence of such event, a Disposition of all
of the properties and assets of the Delhi Group owned by such person, entity or
group shall be deemed to have occurred; and
(z) in the case of a Disposition of properties and assets in a series of
related transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions.
(ii) The Board of Directors may, by a majority vote of the directors then
in office, at any time after a dividend or redemption pursuant to clause (A) or
(B), respectively, of Section 2(c)(i), declare that each of the remaining
outstanding shares of Delhi Stock shall be exchanged, on an Exchange Date set
forth in a notice to holders of Delhi Stock pursuant to Section 2(d)(i), for a
number of fully paid and nonassessable shares of Marathon Stock or, if there are
no shares of Marathon Stock outstanding on such Exchange Date and shares of
Steel Stock are then outstanding, of Steel Stock equal to 110% of the Market
Value Ratio as of the fifth Business Day prior to the date such notice is mailed
to such holders.
4
<PAGE>
(iii) The Board of Directors may, by a majority vote of the directors then
in office, at any time declare that each of the outstanding shares of Delhi
Stock shall be exchanged, on an Exchange Date set forth in a notice to holders
of Delhi Stock pursuant to Section 2(d)(i), for a number of fully paid and
nonassessable shares of Marathon Stock or, if there are no shares of Marathon
Stock outstanding on such Exchange Date, of Steel Stock equal to 115% of the
Market Value Ratio as of the fifth Business Day prior to the date such notice is
mailed to such holders.
(iv) For purposes of Section 2(c)(ii) and (iii), the "Market Value Ratio", as of
any date, shall mean the highest of the following (calculated to the nearest
five decimal places): (A) the average ratio of D/X for the five-Business Day
period ending on such date, (B) the quotient of (1) the sum of (w) four times
the average ratio of D/X for the five-Business Day period ending on such date,
(x) three times the average ratio of D/X for the next preceding five-Business
Day period, (y) two times the average ratio of D/X for the next preceding five-
Business Day period and (z) the average ratio of D/X for the next preceding
five-Business Day period, divided by (2) ten and (C) if the dividend pursuant to
clause (A) of Section 2(c)(i) was declared and paid or the redemption pursuant
to clause (B) of Section 2(c)(i) was made prior to the commencement of the most
recently completed fiscal quarter of the Corporation, the average ratio of D/X
for such fiscal quarter, where D is the Market Value of one share of Delhi Stock
and X is the Market Value of one share of Marathon Stock or one share of Steel
Stock, as the case may be.
(v) At any time on or after the date on which the Corporation has
transferred all of the assets and liabilities of the Delhi Group (and no other
assets or liabilities) to a wholly owned subsidiary of the Corporation (the
"Delhi Group Subsidiary"), the Board of Directors may, in its sole discretion
and by a majority vote of the directors then in office, provided that there are
funds of the Corporation legally available therefor, declare that all of the
outstanding shares of Delhi Stock shall be exchanged on an Exchange Date set
forth in a notice to holders of Delhi Stock pursuant to Section 2(d)(i), for a
number of outstanding shares of common stock of the Delhi Group Subsidiary equal
to the product of the Delhi Fraction and the number of all outstanding shares of
common stock of the Delhi Group Subsidiary, on a pro rata basis, each of which
shall, upon such issuance, be fully paid and nonassessable.
(vi) After any Exchange Date or Redemption Date on which all outstanding
Delhi Stock was exchanged or redeemed, any share of Delhi Stock that is issued
on conversion or exercise of any Convertible Securities shall, immediately upon
issuance pursuant to such conversion or exercise and without any notice or any
other action on the part of the Corporation or its Board of Directors or the
holder of such share of Delhi Stock:
(A) in the event the then-outstanding Delhi Stock was exchanged for
Marathon Stock or Steel Stock on such Exchange Date pursuant to Section 2(c)(i),
2(c)(ii) or 2(c)(iii), be exchanged for the kind and amount of shares of capital
stock and other securities and property that a holder of such Convertible
Security would have been entitled to receive pursuant to the terms of such
Convertible Security had such terms provided that the conversion privilege in
effect immediately prior to any exchange by the Corporation of any of its
capital stock for shares of any other capital stock of the Corporation would be
adjusted so that the holder of any such Convertible Security thereafter
surrendered for conversion would be entitled to receive the number of shares of
capital stock of the Corporation and other securities and property he would have
owned immediately following such action had such Convertible Security been
converted immediately prior thereto; or
(B) in the event the then-outstanding Delhi Stock was redeemed in
whole pursuant to clause (B) of Section 2(c)(i) or exchanged for common stock of
the Delhi Group Subsidiary pursuant to Section 2(c)(v), be redeemed, to the
extent of funds of the Corporation legally available therefor, for $.01 in cash.
The provisions of clause (A) of this Section 2(c)(vi) shall not apply to
the extent that equivalent adjustments are otherwise made pursuant to the
provisions of such Convertible Securities.
(d) General Exchange and Redemption Provisions.
(i) In the event of any exchange or redemption pursuant to this
Section 2 (other than Section 2(a)(ii), 2(b)(iv), or 2(c)(vi)), the Corporation
shall cause to be given to each holder of the class of Common Stock to be so
exchanged or redeemed a notice stating (A) that shares of such class
5
<PAGE>
of Common Stock shall be exchanged or redeemed, as the case may be, (B) the
Exchange Date or the Redemption Date, (C) in the event of a partial redemption
of Steel Stock or Delhi Stock, as the case may be, pursuant to clause (B) of
Section 2(b)(i) or clause (B) of Section 2(c)(i), respectively, the number of
shares of Steel Stock or Delhi Stock, as the case may be, to be redeemed, (D)
the kind and amount of shares of capital stock or cash and/or securities or
other property to be received by such holder with respect to each share of such
class of Common Stock held by such holder, including details as to the
calculation thereof, (E) the place or places where certificates for shares of
such class of Common Stock, properly endorsed or assigned for transfer (unless
the Corporation shall waive such requirement), are to be surrendered for
delivery of certificates for shares of such capital stock or cash and/or
securities or other property and (F) that, subject to Section 2(d)(iv) hereof,
dividends on such shares of Common Stock will cease to be paid as of such
Exchange Date or Redemption Date. Such notice shall be sent by first-class mail,
postage prepaid, not less than 30 nor more than 60 days prior to the Exchange
Date or Redemption Date, as the case may be, and in any case to each holder of
the class of Common Stock to be exchanged or redeemed, at such holder's address
as the same appears on the stock transfer books of the Corporation. Neither the
failure to mail such notice to any particular holder of such class of Common
Stock nor any defect therein shall affect the sufficiency thereof with respect
to any other holder of such class of Common Stock.
(ii) If less than all of the outstanding shares of Steel Stock or Delhi
Stock, as the case may be, are to be redeemed pursuant to clause (B) of Section
2(b)(i) or clause (B) of Section 2(c)(i), respectively, such shares shall be
redeemed by the Corporation pro rata among the holders of such class of Common
Stock or by such other method as may be determined by the Board of Directors to
be equitable.
(iii) The Corporation shall not be required to issue or deliver fractional
shares of any class of capital stock or any fractional securities to any holder
of any class of Common Stock upon any exchange, redemption, dividend or other
distribution pursuant to this Section 2. If more than one share of any class of
Common Stock shall be held at the same time by the same holder, the Corporation
may aggregate the number of shares of any class of capital stock that shall be
issuable or the amount of securities that shall be deliverable to such holder
upon any exchange, redemption, dividend or other distribution (including any
fractions of shares or securities). If the number of shares of any class of
capital stock or the amount of securities remaining to be issued or delivered to
any holder of any class of Common Stock is a fraction, the Corporation shall, if
such fraction is not issued or delivered to such holder, pay a cash adjustment
in respect of such fraction in an amount equal to the fair market value of such
fraction on the fifth Business Day prior to the date such payment is to be made.
For purposes of the preceding sentence, "fair market value" of any fraction
shall be (i) in the case of any fraction of a share of capital stock of the
Corporation, the product of such fraction and the Market Value of one share of
such capital stock and (ii) in the case of any other fractional security, such
value as is determined by the Board of Directors.
(iv) No adjustments in respect of dividends shall be made upon the exchange
or redemption of any shares of any class of Common Stock; provided, however,
that if the Exchange Date or Redemption Date with respect to any class of Common
Stock shall be subsequent to the record date for the payment of a dividend or
other distribution thereon or with respect thereto, the holders of shares of
such class of Common Stock at the close of business on such record date shall be
entitled to receive the dividend or other distribution payable on or with
respect to such shares on the date set for payment of such dividend or other
distribution, notwithstanding the exchange or redemption of such shares or the
Corporation's default in payment of the dividend or distribution due on such
date.
(v) Before any holder of shares of any class of Common Stock shall be
entitled to receive certificates representing shares of any capital stock or
cash and/or securities or other property to be received by such holder with
respect to such shares of such class of Common Stock pursuant to this Section 2,
such holder shall surrender at such office as the Corporation shall specify
certificates for such shares of such class of Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement). The
Corporation will as soon as practicable after such surrender of certificates
representing such shares of such class of Common Stock deliver to the person for
whose account such shares of such class of Common Stock
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were so surrendered, or to his nominee or nominees, certificates representing
the number of whole shares of the kind of capital stock or cash and/or
securities or other property to which he shall be entitled as aforesaid,
together with any fractional payment contemplated by Section 2(d)(iii). If
less than all of the shares of any class of Common Stock, represented by any
one certificate are to be redeemed, the Corporation shall issue and deliver a
new certificate for the shares of such class of Common Stock not redeemed.
(vi) From and after any applicable Exchange Date or Redemption Date, all
rights of a holder of shares of any class of Common Stock that were exchanged or
redeemed shall cease except for the right, upon surrender of the certificates
representing such shares of Common Stock, to receive certificates representing
shares of the kind and amount of capital stock or cash and/or securities or
other property for which such shares were exchanged or redeemed, together with
any fractional payment contemplated by Section 2(d)(iii) and rights to dividends
as provided in Section 2(d)(iv). No holder of a certificate, that immediately
prior to the applicable Exchange Date for any class of Common Stock represented
shares of such class of Common Stock, shall be entitled to receive any dividend
or other distribution with respect to shares of any kind of capital stock into
which such class of Common Stock was exchanged until surrender of such holder's
certificate for a certificate or certificates representing shares of such kind
of capital stock. Upon such surrender, there shall be paid to the holder the
amount of any dividends or other distributions (without interest) which
theretofore became payable with respect to a record date after the Exchange
Date, but that were not paid by reason of the foregoing, with respect to the
number of whole shares of the kind of capital stock represented by the
certificate or certificates issued upon such surrender. From and after an
Exchange Date for any class of Common Stock, the Corporation shall, however, be
entitled to treat the certificates for such class of Common Stock that have not
yet been surrendered for exchange as evidencing the ownership of the number of
whole shares of the kind or kinds of capital stock for which the shares of such
class of Common Stock represented by such certificates shall have been
exchanged, notwithstanding the failure to surrender such certificates.
(vii) The Corporation will pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issue or delivery
of any shares of capital stock on exchange of shares of any class of Common
Stock pursuant hereto. The Corporation shall not, however, be required to pay
any tax that may be payable in respect of any transfer involved in the issue and
delivery of any shares of capital stock in a name other than that in which the
shares of the class of Common Stock so exchanged were registered, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax, or has established
to the satisfaction of the Corporation that such tax has been paid.
3. Voting Rights.
(a) Except as provided in clauses (c), (d) or (e) below, the holders of all
classes of Common Stock shall vote together as a single class on all matters as
to which holders of Common Stock are entitled to vote. On all matters to be
voted on by the holders of all classes of Common Stock together as a single
class, (i) each outstanding share of Marathon Stock shall have one vote, (ii)
each outstanding share of any other class of Common Stock shall have a number of
votes equal to the quotient (calculated to the nearest three decimal places), as
of the fifth Business Day prior to the applicable record date or as of any other
applicable date,of (A) the sum of (1) four times the average ratio of X/Y for
the five-Business Day period ending on such fifth Business Day, (2) three times
the average ratio of X/Y for the next preceding five-Business Day period, (3)
two times the average ratio of X/Y for the next preceding five-Business Day
period and (4) the average ratio of X/Y for the next preceding five-Business Day
period, divided by (B) ten, where X is the Market Value of such class of Common
Stock and Y is the Market Value of the Marathon Stock or if there are no shares
of Marathon Stock outstanding on such record or other applicable date or on any
of the twenty-five Business Days prior thereto, the sum of the Market Values of
the Steel Stock and of the Delhi Stock; provided that until the Delhi Stock has
een traded regular way on the New York Stock Exchange for at least twenty-five
Business Days, each outstanding share of the Delhi Stock shall have a number of
votes equal to the ratio of A/B (calculated to the nearest three decimal
places), where A is the average of the high and low reported sales prices of a
share of the Delhi Stock on the New York Stock Exchange, and B is the average of
the high and low reported sales prices of a share of Marathon Stock or, if there
are no shares of Marathon Stock outstanding, the sum of the average of the high
and low
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reported sales prices of a share of the Steel Stock and a share of the Delhi
Stock on such Exchange, in each case on the Effective Date, or on the first
Business Day thereafter on which shares of the Delhi Stock are traded on such
Exchange. If shares of only one class of Common Stock are outstanding, each
share of that class shall have one vote.
(b) Unless the vote or consent of a greater number of shares shall then be
required by law, the vote or consent of the holders of a majority of all of the
shares of any class of Common Stock then outstanding, voting as a separate
class, shall be necessary for authorizing, effecting or validating the merger or
consolidation of the Corporation into or with any other corporation if such
merger or consolidation would adversely affect the powers or special rights of
such class of Common Stock either directly by amendment of this Restated
Certificate of Incorporation or indirectly by requiring the holders of such
class to accept or retain, in such merger or consolidation, anything other than
(i) shares of such class or (ii) shares of the surviving or resulting
corporation having, in either case, powers and special rights identical to those
of such class prior to such merger or consolidation.
(c) Unless the vote or consent of a greater number of shares shall then be
required by law, the vote or consent of the holders of at least 66 2/3% of all
of the shares of Steel Stock then outstanding, voting as a separate class, shall
be necessary for:
(i) the declaration or payment of any dividend on, or the making of any other
payment or distribution with respect to any shares of any other class of Common
Stock, if such dividend, payment or distribution is to be made with (A) proceeds
from the Disposition of any of the properties and assets of the U.S. Steel Group
or (B) any portion of an equity interest in a person, entity or group that owns
any of the properties or assets of the U.S. Steel Group; or
(ii) the use, or reservation for use, of any proceeds from the Disposition of
any of the properties and assets of the U.S. Steel Group, or any of the
properties and assets acquired with such proceeds, in any business of the
Corporation other than a business of the U.S. Steel Group;
provided such vote shall not be required if such proceeds are loaned at a rate
or rates representative of actual borrowings and short-term investments by the
Corporation.
(d) Unless the vote or consent of a greater number of shares shall then be
required by law, the vote or consent of the holders of at least 66 2/3% of all
the shares of Marathon Stock then outstanding, voting as a separate class, shall
be necessary for:
(i) the declaration or payment of any dividend on, or the making of any other
payment or distribution with respect to, any shares of any other class of Common
Stock, if such dividend, payment or distribution is to be made with (A) proceeds
from the Disposition of any of the properties and assets of the Marathon Group
or (B) any portion of an equity interest in a person, entity or group that owns
any of the properties and assets of the Marathon Group; or
(ii) the use, or reservation for use, of any proceeds from the Disposition of
any of the properties and assets of the Marathon Group, or any of the properties
and assets acquired with such proceeds, in any business of the Corporation other
than a business of the Marathon Group;
provided such vote shall not be required to the extent such proceeds are loaned
at a rate or rates representative of actual borrowings and short-term
investments by the Corporation.
(e) Unless the vote or consent of a greater number of shares shall then be
required by law, the vote or consent of the holders of at least 66 2/3% of all
of the shares of Delhi Stock then outstanding, voting as a separate class, shall
be necessary for:
(i) the declaration or payment of any dividend on, or the making of any other
payment or distribution with respect to any shares of any other class of Common
Stock, if such dividend, payment or distribution is to be made with (A) proceeds
from the Disposition of any of the properties and assets of the Delhi Group or
(B) any portion of an equity interest in a person, entity or group that owns any
of the properties or assets of the Delhi Group; or
(ii) the use, or reservation for use, of any proceeds from the Disposition of
any of the properties and assets of the Delhi Group, or any of the properties
and assets acquired with such proceeds, in any business of the Corporation other
than a business of the Delhi Group;
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provided such vote shall not be required if such proceeds are loaned at a rate
or rates representative of actual borrowings and short-term investments by the
Corporation.
(f) The number of authorized shares of any class of Common Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of shares of Common Stock
having a majority of the votes entitled to be cast by the holders of all classes
of Common Stock, voting together as provided for in Section 3(a) and without a
separate vote of the holders of any class.
4. Liquidation Rights. In the event of the dissolution, liquidation or winding-
up of the Corporation, whether voluntary or involuntary, after there shall have
been paid or set apart for the holders of Preferred Stock the full preferential
amounts to which they are entitled, the holders of the outstanding shares of
each class of Common Stock shall be entitled to receive a fraction of the funds
of the Corporation remaining for distribution to its stockholders, where such
fraction is equal to the quotient of (A) the sum of (1) four times the average
ratio of x/y for the five-Business Day period ending on the Business Day prior
to the date of the public announcement of (I) a voluntary dissolution,
liquidation or winding-up by the Corporation or (II) the institution of the
proceeding for the involuntary dissolution, liquidation or winding-up of the
Corporation, (2) three times the average ratio of x/y for the next preceding
five-Business Day period, (3) two times the average ratio of x/y for the next
preceding five-Business Day period and (4) the average ratio of x/y for the next
preceding five-Business Day period, divided by (B) ten, where x is the Market
Capitalization of such class of Common Stock, and y is the aggregate Market
Capitalization of all classes of Common Stock. For purposes of the preceding
sentence, "Market Capitalization" of any class of Common Stock on any day shall
mean the product of (i) the Market Value of such class of Common Stock on such
day and (ii) the number of shares of such class of Common Stock outstanding on
such day.
5. Definitions. As used in this Division I, the following terms shall have
the following meanings (with terms defined in the singular having comparable
meaning when used in the plural and vice versa), unless another definition is
provided or the context otherwise requires:
"Available Delhi Dividend Amount", on any date, shall mean the product of
the Delhi Fraction and either (a) the greater of (i) an amount equal to (x)
$172.9 million, increased or decreased, as appropriate, to reflect, from June
30, 1992, (A) Delhi Net Income, (B) any dividends or other distributions
declared or paid with respect to, or repurchases or issuances of, any shares of
Marathon Stock prior to the close of business on the date Delhi Stock is first
issued attributed to the Delhi Group, (C) any dividends or other distributions
declared or paid with respect to, or repurchases or issuances of, any shares of
Delhi Stock or any shares of Preferred Stock attributed to the Delhi Group, (D)
assets or properties of the Delhi Group that are no longer included as part of
the Delhi Group as a result of any such dividend, distribution or repurchase
pursuant to the provison to the definition of "Delhi Group" and (E) any other
adjustments to stockholders' equity of the Delhi Group made in accordance with
generally accepted accounting principles, less (y) the sum of the aggregate
stated capital of all outstanding Preferred Stock attributed to the Delhi Group
and the quotient of the aggregate par value of all outstanding Delhi Stock
divided by the Delhi Fraction and (ii) the excess of the fair market value of
the net assets of the Delhi Group over the sum of the aggregate stated capital
of all outstanding Preferred Stock attributed to the Delhi Group, and the
quotient of the aggregate par value of all outstanding Delhi Stock divided by
the Delhi Fraction, or (b) in case there shall be no such amount, an amount
equal to Delhi Net Income (if positive) for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
"Available Steel Dividend Amount", on any date, shall mean either (a) the
greater of (i) an amount equal to (x) $2.244 billion, increased or decreased, as
appropriate, to reflect (A) Steel Net Income from the close of business on
December 31, 1990, (B) any dividends or other distributions declared or paid
with respect to, or repurchases or issuances of, any shares of common stock of
the Corporation after December 31, 1990 and prior to the close of business on
May 6, 1991 attributed to the U.S. Steel Group, (C) any dividends or other
distributions declared or paid with respect to, or repurchases or issuances of,
any shares of Steel Stock or any shares of Preferred Stock attributed to the
U.S. Steel Group and (D) any other adjustments to stockholders' equity of the
U.S. Steel Group made in accordance with generally accepted accounting
principles, less (y) the sum of the aggregate par value of all outstanding Steel
Stock and the aggregate stated capital of all outstanding Preferred Stock
attributed to the U.S. Steel Group and (ii) the excess of the fair market value
of the net assets of the U.S. Steel Group over the sum of the aggregate par
value of all outstanding Steel Stock and the aggregate stated capital of all
outstanding Preferred Stock attributed to the U.S. Steel Group, in
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the case of each of clause (i) and clause (ii) increased by an amount equal to
any effects of the recognition of the transition obligation upon the adoption of
Statement of Financial Accounting Standards (SFAS) No. 106, "Employer's
Accounting for Postretirement Benefits Other than Pensions" (including any
amendments thereto) and any cumulative effects of the adoption of SFAS No. 109,
"Accounting for Income Taxes" (including any amendments thereto) in the year of
adoption or (b) in case there shall be no such amount, an amount equal to Steel
Net Income (if positive) for the fiscal year in which the dividend is declared
and/or the preceding fiscal year.
"Business Day" shall mean each weekday other than any day on which any
relevant class of Common Stock is not traded on any national securities exchange
or the National Association of Securities Dealers Automated Quotations National
Market System or in the over-the-counter market.
"Convertible Securities" shall mean any securities of the Corporation that
are convertible into or evidence the right to purchase any shares of any class
of Common Stock, pursuant to antidilution provisions of such securities or
otherwise.
The "Delhi Fraction" as of any date is a fraction the numerator of which
shall be the number of shares of Delhi Stock outstanding on such date and the
denominator of which shall be initially 14,000,000 provided that such fraction
shall in no event be greater than one. The denominator of the Delhi Fraction
shall be adjusted from time to time as appropriate to reflect (i) subdivisions
(by stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the Delhi Stock and stock dividends payable in shares of Delhi
Stock to holders of Delhi Stock and other reclassifications of Delhi Stock, (ii)
the issuance of Delhi Stock, the proceeds of which are attributed to the Delhi
Group and (iii) repurchases by the Corporation of outstanding shares of Delhi
Stock.
"Delhi Group" shall mean, (i) all of the businesses in which any of Delhi
Gas Pipeline Corporation, The Nueces Company, Delhi Gasmark, Inc. (previously
Texas Gasmark, Inc.), Tonkawa Gas Processing Company, Delhi Gas Marketing Corp.
(previously TXO Gas Marketing Corp.), Delhi Gas Ventures Corp. (previously TXO
Gas Ventures Corp.), Red River Gas Pipeline Corporation, Ozark Gas Pipeline
Corporation, Sweetwater Pipeline Corporation, Western Gas Transmission, Inc.,
and Western Gas Corporation (or any of their predecessors or successors) is or
has been engaged, directly or indirectly, (ii) all assets and liabilities of the
Corporation to the extent attributed to any of such businesses, whether or not
such assets or liabilities are or were assets and liabilities of such companies,
and (iii) such businesses, assets and liabilities acquired by the Corporation
for the Delhi Group as determined by the Board of Directors to be included in
the Delhi Group; provided that, from and after any dividend or distribution with
respect to any shares of Delhi Stock, or any repurchase of shares of Delhi
Stock from holders of Delhi Stock generally, the Delhi Group shall no longer
include an amount of assets on properties of the Delhi Group equal to the
aggregate amount of such kind of assets or properties so paid in respect of
shares of Delhi Stock multiplied by a fraction, the numerator of which is equal
to one less the Delhi Fraction and the denominator of which is equal to the
Delhi Fraction. From and after the date on which all of the outstanding shares
of Steel Stock are exchanged for shares of Delhi Stock pursuant to any provision
of Section 2, all of the businesses, assets and liabilities of the U.S. Steel
Group shall be included in the Delhi Group.
"Delhi Group Subsidiary" shall have the meaning set forth in Section
2(c)(v).
"Delhi Net Income" shall mean the net income or loss of the Delhi Group
determined in accordance with generally accepted accounting principles,
including income and expenses of the Corporation attributed to the operations of
the Delhi Group on a substantially consistent basis, including, without
limitation, corporate administrative costs, net interest and other financial
costs and income taxes.
"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets or
stock or otherwise) of properties or assets.
"Exchange Date" shall mean any date fixed for an exchange of shares of any class
of Common Stock, as set forth in a notice to holders of such class of Common
Stock pursuant to Section 2(d)(i).
"Marathon Group" shall mean, at any time, (i) all of the businesses in
which any of Marathon Oil Company, Texas Oil & Gas Corp., Carnegie Natural Gas
Company and Apollo Gas Company (or any of their predecessors or successors) is
or has been engaged, directly or indirectly, other than the businesses of the
Delhi Group after the date of the first issuance of Delhi Stock, (ii) all assets
and liabilities of the Corporation to the extent attributed to any of such
businesses, whether or not such
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assets or liabilities are or were assets and liabilities of such companies,
(iii) a proportionate interest in the business, assets and liabilities of the
Delhi Group equal to one less the Delhi Fraction, and (iv) such businesses,
assets, and liabilities acquired by the Corporation for the Marathon Group after
May 6, 1991 and as determined by the Board of Directors to be included in the
Marathon Group; provided that, from and after any dividend or distribution with
respect to any shares of Delhi Stock, or any repurchase of shares of Delhi Stock
from holders of Delhi Stock generally, the Marathon Group shall include an
amount of assets or properties of the Delhi Group equal to the aggregate amount
of such kind of assets or properties so paid in respect of shares of Delhi Stock
multiplied by a fraction, the numerator of which is equal to one less the Delhi
Fraction and the denominator of which is equal to the Delhi Fraction. From and
after the date on which there are no shares of Steel Stock outstanding (other
than as a result of an exchange for shares of Delhi Stock pursuant to any
provision of Section 2), all of the businesses, assets and liabilities of the
U.S. Steel Group shall be included in the Marathon Group.
"Marathon Group Subsidiary" shall have the meaning set forth in Section
2(a)(i).
"Market Value" of any class of capital stock of the Corporation on any
business Day shall mean the average of the high and low reported sales prices
regular way of a share of such class on such Business Day or in case no such
reported sale takes place on such Business Day the average of the reported
closing bid and asked prices regular way of a share of such class on such
Business Day, in either case on the New York Stock Exchange Composite Tape, or
if the shares of such class are not listed or admitted to trading on such
Exchange on such Business Day, on the principal national securities exchange in
the United States on which the shares of such class are listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange on such Business Day, on the National Association of Securities Dealers
Automated Quotations National Market System, or if the shares of such class are
not listed or admitted to trading on any national securities exchange or quoted
on such National Market System on such Business Day, the average of the closing
bid and asked prices of a share of such class in the over-the-counter market on
such Business Day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation, or if such closing bid and asked
prices are not made available by any such New York Stock Exchange member firm on
such Business Day, the market value of a share of such class as determined by
the Board of Directors; provided that (i) for purposes of determining the ratios
set forth in Sections 2(b)(i), 2(b)(ii), 2(c)(i), 2(c)(ii), 2(c)(iii), 3(a) and
4, the "Market Value" of any share of any class of Common Stock on any day prior
to the "ex" date or any similar date for any dividend or distribution paid or to
be paid with respect to such class of Common Stock (other than a regular
quarterly cash dividend or a dividend or distribution in shares of such class of
Common Stock) shall be reduced by the fair market value of the per share amount
of such dividend or distribution and (ii) for purposes of determining the ratios
set forth in Sections 2(b)(i), 2(b)(ii), 2(c)(i), 2(c)(ii), 2(c)(iii) and 3(a),
the "Market Value" of any share of any class of Common Stock on any day prior to
(A) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of such
class of Common Stock or (B) the "ex" date or any similar date for any dividend
or distribution with respect to either such class of Common Stock in shares of
such class of Common Stock shall be appropriately adjusted to reflect such
subdivision, combination, dividend or distribution. For the purposes of the
foregoing clause (i) the Board of Directors shall determine the fair market
value of any dividend or distribution.
"Net Proceeds", as of any date, from any Disposition of any of the
properties and assets of the U.S. Steel Group or the Delhi Group, as the case
may be, shall mean an amount, if any, equal to the gross proceeds of such
Disposition after any payment of, or reasonable provision for, (i) any taxes
payable by the Corporation in respect of such Disposition, (ii) any taxes
payable by the Corporation in respect of any dividend or redemption pursuant to
clause (A) or (B), respectively, of Sections 2(b)(i) or 2(c)(i), respectively,
(iii) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (iv) any liabilities
(contingent or otherwise) of, or allocated to, the U.S. Steel Group or the Delhi
Group, as the case may be, including, without limitation, any indemnity
obligations incurred in connection with the Disposition. For purposes of this
definition, any properties and assets of the Steel Group or the Delhi Group, as
the case may be, remaining after such Disposition shall constitute "reasonable
provision" for such amount of taxes, costs and liabilities (contingent or
otherwise) as can be supported by such properties and assets. To the extent the
proceeds of any Disposition include any securities or other property other than
cash, the Board of Directors shall determine the value of such securities or
property.
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"Redemption Date" shall mean any date fixed for a redemption of shares of
any class of Common Stock, as set forth in a notice to holders of such class of
Common Stock pursuant to Section 2(d)(i).
"Steel Net Income" shall mean the net income or loss of the U.S. Steel
Group determined in accordance with generally accepted accounting principles,
including income and expenses of the Corporation attributed to the operations of
the Steel Group on a substantially consistent basis, including, without
limitation, corporate administrative costs, net interest and other financial
costs and income taxes.
"U.S. Steel Group" shall mean, at any time, all of the businesses in which
the Corporation is or has been engaged, directly or indirectly, and all assets
and liabilities of the Corporation, other than any businesses, assets or
liabilities of the Marathon Group or the Delhi Group if any shares of Marathon
Stock or Delhi Stock are outstanding.
"U.S. Steel Group Subsidiary" shall have the meaning set forth in Section
2(b)(iii).
6. Determinations by the Board of Directors. Any determinations made by
the Board of Directors of the Corporation under any provision in this Division I
of Article Fourth shall be final and binding on all stockholders of the
Corporation.
DIVISION II
A statement of the designations of the Preferred Stock or of any series
thereof, and the powers, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
or of the authority of the Board of Directors to fix by resolution or
resolutions such designations and other terms not fixed by the Certificate of
Incorporation, is as follows:
1. The Preferred Stock may be issued in one or more series, from time to
time, with each such series to have such designation, powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation, subject to the limitations prescribed by
law and in accordance with the provisions hereof, the Board of Directors being
hereby expressly vested with authority to adopt any such resolution or
resolutions. The authority of the Board of Directors with respect to each such
series shall include, but not limited to, the determination or fixing of the
following: (i) The distinctive designation and number of shares comprising
such series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below the
number of shares then oustanding) from time to time by like action of the Board
of Directors;
(ii) The dividend rate of such series, the conditions and times upon which
such dividends shall be payable, the relation which such dividends shall bear to
the dividends payable on any other class or classes of stock or series thereof,
or any other series of the same class, and whether dividends shall be cumulative
or non-cumulative;
(iii) The conditions upon which the shares of such series shall be subject
to redemption by the Corporation and the times, prices and other terms and
provisions upon which the shares of the series may be redeemed;
(iv) Whether or not the shares of the series shall be subject to the
operation of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if such retirement or sinking fund be
established, the annual amount thereof and the terms and provisions relative to
the operation thereof;
(v) Whether or not the shares of the series shall be convertible into or
exchangeable for shares of any other class or classes, with or without par
value, or of any other series of the same class, and, if provision is made for
conversion or exchange, the times, prices, rates, adjustments, and other terms
and conditions of such conversion or exchange;
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(vi) Whether or not the shares of the series shall have voting rights, in
addition to the voting rights provided by law, and, if so, subject to the
limitation hereinafter set forth, the terms of such voting rights;
(vii) The rights of the shares of the series in the event of voluntary or
involuntary liquidation, dissolution, or upon the distribution of assets of the
Corporation;
(viii) Any other powers, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of the shares of such series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the provisions of this
Certificate of Incorporation.
2. The holders of shares of the Preferred Stock of each series shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, dividends at the rates
fixed by the Board of Directors for such series, and no more, before any
dividends, other than dividends payable in Common Stock, shall be declared and
paid, or set apart for payment, on the Common Stock with respect to the same
dividend period.
3. Whenever, at any time, dividends on the then outstanding Preferred Stock
as may be required with respect to any series outstanding shall have been paid
or declared and set apart for payment on the then outstanding Preferred Stock,
and after complying with respect to any retirement or sinking fund or funds for
any series of Preferred Stock, the Board of Directors may, subject to the
provisions of the resolution or resolutions creating any series of Preferred
Stock, declare and pay dividends on the Common Stock, and the holders of shares
of the Preferred Stock shall not be entitled to share therein.
4. The holders of shares of the Preferred Stock of each series shall be
entitled upon liquidation or dissolution or upon the distribution of the assets
of the Corporation to such preferences as provided in the resolution or
resolutions creating such series of Preferred Stock, and no more, before any
distribution of the assets of the Corporation shall be made to the holders of
shares of the Common Stock.
5. Except as otherwise provided by a resolution or resolutions of the Board
of Directors creating any series of Preferred Stock or by the General
Corporation Law of Delaware, the holders of shares of the Common Stock issued
and outstanding shall have and possess the exclusive right to notice of
stockholders' meetings and the exclusive power to vote. The holders of shares of
the Preferred Stock issued and outstanding shall, in no event, be entitled to
more than one vote for each share of Preferred Stock held by them unless
otherwise required by law.
Terms of the Preferred Stocks are as follows:
SERIES A JUNIOR PREFERRED STOCK
Section 1. Designation and Amount. This resolution shall provide for a single
series of preferred stock, the designation of which shall be "Series A Junior
Preferred Stock", without par value, and the number of shares constituting such
series shall be Eight Million (8,000,000).
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Junior Preferred Stock with respect to dividends, the holders of shares
of Series A Junior Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $5.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by
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reclassification or otherwise), to be or being declared on the Common Stock, par
value $1.00 per share, of the Corporation (the "Common Stock") with respect to
the same dividend period. If the Quarterly Dividend Payment Date is a Saturday,
Sunday or legal holiday then such Quarterly Dividend Payment Date shall be the
first immediately preceding calendar day which is not a Saturday, Sunday or
legal holiday. In the event the Corporation shall at any time after October 10,
1989 (the "Rights Declaration Date") (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of Series A Junior
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Junior Preferred Stock as provided in paragraph (A) above immediately prior to
the time it declares a dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall be declared on the Common Stock with respect to a
particular dividend period, a dividend of $5.00 per share on the Series A Junior
Preferred Stock shall nevertheless be payable on such Quarterly Dividend Payment
Date with respect to such quarterly period.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Junior Preferred Stock,
unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the date
of issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Junior Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Junior Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof. Dividends in arrears may be
declared and paid at any time, without reference to any Quarterly Dividend
Payment Date, to holders of record on such date, not exceeding 45 days preceding
the payment date thereof, as may be fixed by the Board of Directors.
(D) Except as hereinafter provided, no dividends shall be declared or paid
or set apart for payment on the shares of Series A Junior Preferred Stock for
any period if the Corporation shall be in default in the payment of any
dividends (including cumulative dividends, if applicable) on any shares of
Preferred Stock ranking, as to dividends, prior to the Series A Junior Preferred
Stock, unless the same shall be contemporaneously declared and paid.
(E) Dividends payable on the Series A Junior Preferred Stock for the
initial dividend period and for any period less than a full quarterly period,
shall be computed on the basis of a 360-day year of 30-day months.
Section 3. Voting Rights. The holders of shares of Series A Junior Preferred
Stock shall have the following voting rights:
(A) Each share of Series A Junior Preferred Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the stockholders of
the Corporation. The holders of Series A Junior Preferred Stock shall be
entitled to notice of all meetings of the stockholders of the Corporation.
(B) Except as otherwise provided herein or by law, the holders of shares of
Series A Junior Preferred Stock and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of stockholders of
the Corporation.
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(C) If, on the date used to determine stockholders of record for any
meeting of stockholders for the election of directors, a default in preference
dividends on the Preferred Stock shall exist, the number of directors
constituting the Board of Directors of the Corporation shall be increased by
two, and the holders of the Preferred Stock of all series (whether or not the
holders of such series of Preferred Stock would be entitled to vote for the
election of directors if such default in preference dividends did not exist),
shall have the right at such meeting, voting together as a single class without
regard to series, to the exclusion of the holders of Common Stock, to elect two
directors of the Corporation to fill such newly created directorships. Each
director elected by the holders of shares of Preferred Stock (herein called a
"Preferred Director"), shall continue to serve as such director for the full
term for which he shall have been elected, notwithstanding that prior to the end
of such term a default in preference dividends shall cease to exist. Any
Preferred Director may be removed by, and shall not be removed except by, the
vote of the holders of record of the outstanding shares of Preferred Stock,
voting together as a single class without regard to series, at a meeting of the
stockholders, or of the holders of shares of Preferred Stock, called for the
purpose. So long as a default in any preference dividends on the Preferred Stock
shall exist (i) any vacancy in the office of a Preferred Director may be filled
(except as provided in the following clause (ii)) by an instrument in writing
signed by the remaining Preferred Director and filed with the Corporation and
(ii) in the case of the removal of any Preferred Director, the vacancy may be
filled by the vote of the holders of the outstanding shares of Preferred Stock,
voting together as a single class without regard to series, at the same meeting
at which such removal shall be voted. Each director appointed as aforesaid by
the remaining Preferred Director shall be deemed, for all purposes hereof, to be
a Preferred Director. Whenever the term of office of the Preferred Directors
shall end and no default in preference dividends shall exist, the number of
directors constituting the Board of Directors of the Corporation shall be
reduced by two. For the purposes of this paragraph (C), a "default in preference
dividends" on the Preferred Stock shall be deemed to have occurred whenever the
amount of accrued and unpaid dividends upon any series of the Preferred Stock
shall be equivalent to six full quarterly dividends or more, and, having so
occurred, such default shall be deemed to exist thereafter until, but only
until, all accrued dividends on all shares of Preferred Stock of each and every
series then outstanding shall have been paid through the last Quarterly Dividend
Payment Date.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Junior Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on (other
than a dividend in Common Stock or in any other stock of the Corporation ranking
junior to the Series A Junior Preferred Stock as to dividends and upon
liquidation, dissolution or winding up and other than as provided in
subparagraph (ii) of this section), or redeem or purchase or otherwise acquire
for consideration (except by conversion into or exchange for stock of the
Corporation ranking junior to the Series A Junior Preferred Stock as to
dividends and upon dissolution, liquidation or winding up), any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Preferred Stock, except
dividends paid ratably on the Series A Junior Preferred Stock and all stock
ranking on a parity with the Series A Junior Preferred Stock as to dividends on
which dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Preferred Stock, provided
that the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior (as to dividends and upon dissolution, liquidation or
winding up) to the Series A Junior Preferred Stock;
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(iv) purchase or otherwise acquire for consideration any shares of Series A
Junior Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of the Series A Junior Preferred
Stock shall be entitled to receive the greater of (a) $100 per share, plus
accrued dividends to the date of distribution, whether or not earned or
declared, or (b) an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to be distributed
per share to holders of Common Stock (the "Series A Liquidation Preference"). In
the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount to
which holders of shares of Series A Junior Preferred Stock were entitled
immediately prior to such event pursuant to clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any, which
rank on a parity with the Series A Junior Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Junior Preferred Stock shall at the same time be similarly exchanged or changed
in an amount per share (subject to the provision for adjustment hereinafter set
forth) equal to 100 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Junior Preferred Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. Optional Redemption.
(A) The Corporation shall have the option to redeem the whole or any part
of the Series A Junior Preferred Stock at any time on at least 30 days notice in
accordance with the provisions of paragraph
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(B) of this Section 8 at a redemption price equal to, subject to the
provision for adjustment hereinafter set forth, 100 times the "current per share
market price" of the Common Stock on the date of the mailing of the notice of
redemption, together with unpaid accumulated dividends to the date of such
redemption. In the event the Corporation shall at any time after October 10,
1989 (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
to which holders of shares of Series A Junior Preferred Stock were otherwise
entitled immediately prior to such event under the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices regular way,
in either cases as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Common Stock is not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the principal national securities exchange on which the Common Stock
is listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then
in use or, if on any such date the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Corporation. If on such date no such market maker is making a market in the
Common Stock, the fair value of the Common Stock on such date as determined in
good faith by the Board of Directors of the Corporation shall be used. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the State of New York are
not authorized or obligated by law or executive order to close.
(B) Whenever shares of Series A Junior Preferred Stock are to be redeemed,
the Corporation shall mail a notice ("Notice of Redemption") by first-class
mail, postage prepaid, to each holder of record of shares of Series A Junior
Preferred Stock to be redeemed and to the transfer agent for the Series A Junior
Preferred Stock. The Notice of Redemption shall be addressed to the holder at
the address of the holder appearing on the stock transfer books of the
Corporation maintained by the transfer agent for the Series A Junior Preferred
Stock. The Notice of Redemption shall include a statement of (i) the redemption
date, (ii) the redemption price, (iii) the number of shares of Series A Junior
Preferred Stock to be redeemed, (iv) the place or places where shares of the
Series A Junior Preferred Stock are to be surrendered for payment of the
redemption price, (v) that the dividends on the shares to be redeemed will cease
to accrue on such redemption date, and (vi) the provision under which redemption
is made. No defect in the Notice of Redemption or in the mailing thereof shall
affect the validity of the redemption proceedings, except as required by law.
From the date on which a Notice of Redemption shall have been given as aforesaid
and the Corporation shall have deposited with the transfer agent for the Series
A Junior Preferred Stock a sum sufficient to redeem the shares of Series A
Junior Preferred Stock as to which Notice of Redemption has been given, with
irrevocable instructions and authority to pay the redemption price to the
holders thereof, or if no such deposit is made, then upon such date fixed for
redemption (unless the Corporation shall default in making payment of the
redemption price), all rights of the holders thereof as stockholders of the
Corporation by reason of the ownership of such shares (except their right to
receive the redemption price thereof, but without interest), shall terminate
including, but not limited to, their right to receive dividends, and such shares
shall no longer be deemed outstanding. The Corporation shall be entitled to
receive, from time to time, from the transfer agent for Series A Junior
Preferred Stock the interest, if any, on such monies deposited with it and the
holders of any shares so redeemed shall have no claim to any such interest. In
case the holder of any shares so called for redemption shall not claim the
redemption price
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for his shares within one year after the date of redemption, the transfer agent
for the Series A Junior Preferred Stock shall, upon demand, pay over to the
Corporation such amount remaining on deposit and the transfer agent for the
Series A Junior Preferred Stock shall thereupon be relieved of all
responsibility to the holders of such shares and such holder of the shares of
the Series A Junior Preferred Stock so called for redemption shall look only to
the Corporation for the payment thereof.
(C) In the event that fewer than all the outstanding shares of the Series A
Junior Preferred Stock are to be redeemed, the number of shares to be redeemed
shall be determined by the Board of Directors and the shares to be redeemed
shall be determined by lot or pro rata as may be determined by the Board of
Directors or by any other method as may be determined by the Board of Directors
in its sole discretion to be equitable.
(D) If the Corporation shall be in default in the payment of any dividends
(including cumulative dividends, if applicable) on any shares of Preferred Stock
ranking, as to dividends, prior to the Series A Junior Preferred Stock, then no
shares of the Series A Junior Preferred Stock shall be redeemed and the
Corporation shall not purchase or otherwise acquire any shares of the Series A
Junior Preferred Stock.
Section 9. Ranking.
(A) The Series A Junior Preferred Stock shall rank junior to all other
series of the Corporation's Preferred Stock as to the payment of dividends and
the distribution of assets upon liquidation, dissolution or winding up, unless
the terms of any such series shall provide otherwise.
(B) For purposes of this resolution, any stock of any class or classes of
the Corporation shall be deemed to rank:
(i) prior to the shares of the Series A Junior Preferred Stock, either as
to dividends or upon liquidation, dissolution or winding up, if the holders of
such class or classes shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, as the case may be, in preference
or priority to the holders of shares of the Series A Junior Preferred Stock.
Each holder of any share of the Series A Junior Preferred Stock, by his
acceptance thereof, expressly covenants and agrees that the rights of the
holders of any shares of any other series of Preferred Stock of the Corporation
to receive dividends or amounts distributable upon dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, shall be and
hereby are expressly prior to his rights unless in the case of any particular
series of Preferred Stock the certificate or other instrument creating or
evidencing the same expressly provides that the rights of the holders of such
series shall not be prior to the shares of the Series A Junior Preferred Stock;
and
(ii) on a parity with shares of the Series A Junior Preferred Stock, either
as to dividends or upon liquidation, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share or sinking fund
provisions, if any, be different from those of the Series A Junior Preferred
Stock, if the holders of such stock shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, as the case may be, in
proportion to their respective dividend rates or liquidation prices, without
preference or priority, one over the other, as between the holders of such stock
and the holders of shares of the Series A Junior Preferred Stock; and
(iii) junior to shares of the Series A Junior Preferred Stock, either as to
dividends or upon liquidation, if such class or classes shall be Common Stock or
if the holders of shares of the Series A Junior Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
as the case may be, in preference or priority to the holders of shares of such
class or classes.
Section 10. Amendment. Except as otherwise set forth in this Certificate of
Designation, Preferences and Rights with respect to the Series A Junior
Preferred Stock, holders of Series A Junior Preferred Stock shall not have any
special powers and their consent shall not be required for taking any corporate
action, provided, however, that:
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(A) Unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the consent of the holders of at least 66 2/3% of
all of the shares of the Series A Junior Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of shares of the Series A
Junior Preferred Stock shall vote together as a separate class, shall be
necessary for authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of the Restated Certificate of Incorporation or
of any certificate amendatory thereof or supplemental thereto (including any
Certificate of Designation, Preferences and Rights or any similar document
relating to any series of Preferred Stock) so as to affect adversely the powers,
preferences, or rights, of this Series A Junior Preferred Stock. The increase of
the authorized amount of the Preferred Stock, or the creation, authorization or
issuance of any shares of any other class of stock of the Corporation ranking
prior to or on a parity with the shares of the Series A Junior Preferred Stock
as to dividends or upon liquidation, or the reclassification of any authorized
or outstanding stock of the Corporation into any such prior or parity shares, or
the creation, authorization or issuance of any obligation or security
convertible into or evidencing the right to purchase any such prior or parity
shares shall not be deemed to affect adversely the powers, preferences or rights
of the Series A Junior Preferred Stock.
Section 11. Fractional Shares. Series A Junior Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Junior Preferred Stock.
6.50% CUMULATIVE CONVERTIBLE PREFERRED STOCK (WITHOUT PAR VALUE)
1. Designation. This resolution shall provide for a single series of
Preferred Stock, the designation of which shall be "6.50% Cumulative Convertible
Preferred Stock", without par value (hereinafter called this "Series"), and the
number of authorized shares constituting this Series is 6,900,000. Shares of
this Series shall have a stated value of $1.00 per share (which shall also be
the stated capital of each share). The number of authorized shares of this
Series may be reduced by further resolution adopted by the Board of Directors
and by the filing of a certificate pursuant to the provisions of the General
Corporation Law of the State of Delaware stating that such reduction has been so
authorized, but the number of authorized shares of this Series shall not be so
increased.
2. Dividends.
(a) The holders of shares of this Series shall be entitled to receive
dividends payable in cash at a rate of 6.50% per annum per share on the initial
liquidation preference of $50.00 per share. Such dividends shall be cumulative
from the date of original issue of such shares, and shall be payable, when, as
and if declared by the Board of Directors, out of funds legally available for
such purpose, on the last calendar day of March, June, September and December of
each year, commencing June 30, 1993, except that if such date is a Saturday,
Sunday or legal holiday, then such dividend shall be payable on the first
immediately preceding calendar day which is not a Saturday, Sunday or legal
holiday.
(b) Each dividend on shares of this Series shall be paid to the holders of
record of such shares as they appear on the stock transfer books of the
Corporation on such record date, not exceeding 30 days preceding the payment
date thereof, as shall be fixed by the Board of Directors. Dividends in arrears
for any past dividend period or any part thereof may be declared and paid at any
time, without reference to any regular dividend payment date, to holders of
record on such date, not exceeding 45 days preceding the payment date thereof,
as may be fixed by the Board of Directors.
(c) Except as hereinafter provided, no dividends shall be declared or paid
or set apart for payment on the Preferred Stock of any series ranking, as to
dividends, on a parity with or junior to this Series for any period unless full
cumulative dividends have been or contemporaneously are declared and paid on
this Series for all past dividend periods. When dividends are not paid in full,
as aforesaid, upon the shares of this Series and any other Preferred Stock
ranking on a parity as to dividends with this Series, all dividends declared
upon shares of this Series and any other Preferred Stock ranking on a parity as
to dividends with this Series shall be declared pro rata so that the amount of
dividends declared per share on this Series and such other Preferred Stock shall
in all cases bear to each other the same ratio that accrued dividends per share
on the shares of this Series and such
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other Preferred Stock bear to each other. Holders of shares of this Series shall
not be entitled to any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends, as herein provided, on this Series. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on this Series which may be in arrears.
(d) So long as any shares of this Series are outstanding, no dividend
(other than a dividend in Common Stock or in any other stock of the Corporation
ranking junior to this Series as to dividends and upon liquidation and other
than as provided in Section 2(c)) shall be declared or paid or set aside for
payment or other distribution declared or made upon the Common Stock or any
other stock of the Corporation ranking junior to or on a parity with this Series
as to dividends or upon liquidation, nor shall any Common Stock nor any other
stock of the Corporation ranking junior to or on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation (except
by conversion into or exchange for stock of the Corporation ranking junior to
this Series as to dividends and upon liquidation) unless, in each case, the full
cumulative dividends on all outstanding shares of this Series shall have been
paid or contemporaneously are declared and paid for all past dividend periods.
(e) Dividends payable on this Series for each full quarterly dividend
period shall be computed by dividing the annual dividend rate by four and
multiplying by the initial liquidation preference of $50.00 per share. Dividends
payable on this Series for any period shorter or longer than a full quarterly
dividend period, including for the initial dividend period, shall be computed on
the basis of a 360-day year of twelve 30-day months.
3. Optional Redemption; Provision for U.S. Steel Group Special Events;
Related Provisions.
(a) Except as provided in Section 3(b), the shares of this Series shall not
be redeemable by the Corporation prior to April 1, 1996. On and after April 1,
1996, shares of this Series may, subject to the satisfaction of the condition
set forth in the last sentence of this Section 3(a), be redeemed, in whole at
any time or in part from time to time, at the option of the Corporation, out of
funds legally available for such purpose, for cash in an amount equal to the
following redemption prices per share if redeemed during the twelve-month period
beginning April 1 of the year indicated below, upon giving notice as
provided below:
<TABLE>
<CAPTION>
Redemption Price
(As a percentage of Dollar
initial liquidation Equivalent
Year preference) Per Share
---- ------------------- ----------
<C> <C> <C>
1996 104.55% $52.275
1997 103.90 51.950
1998 103.25 51.625
1999 102.60 51.300
2000 101.95 50.975
2001 101.30 50.650
2002 100.65 50.325
2003 and thereafter 100.00 50.000
and thereafter at the initial liquidation preference of $50.00 per share, plus,
in each case, an amount equal to all accrued and unpaid dividends thereon to the
date fixed for redemption. No shares of this Series may be redeemed in
accordance with this Section 3(a) if the Corporation shall be advised on or
prior to the related Redemption Date by either Moody's Investors Service, Inc.
("Moody's") (provided that Moody's is then rating the senior unsecured debt of
the Corporation) or Standard & Poor's Corporation ("S&P") (provided that S&P is
then rating the senior unsecured debt of the Corporation) that such redemption
would result in an immediate lowering by Moody's or S&P, as the case may be, of
the credit rating on the Corporation's senior unsecured debt from its then
existing level, unless the Corporation shall have received from the issuance of
common stock of the Corporation, since the date which is two years prior to the
related Redemption Date, net proceeds in an aggregate amount at least equal to
the product of the initial liquidation preference of $50.00 per share times the
number of shares of this Series to be redeemed.
20
<PAGE>
(b) (i) The shares of this Series shall be redeemed by the Corporation, in
whole, out of funds legally available for such purpose, for cash in an amount
equal to the Redemption Price if any of the following events with respect to the
U.S. Steel Group occur (such events, collectively, the "U.S. Steel Group Special
Events"):
(A) (1) The Corporation exchanges all of the outstanding shares of Steel Stock
for all of the outstanding shares of common stock of the U.S. Steel Group
Subsidiary (as provided in Section 2(b)(iii) of Division I of the Certificate of
Incorporation) (the "Steel Group Subsidiary Exchange") or (2) in the event of a
Disposition of all or substantially all of the properties and assets of the U.S.
Steel Group, the Corporation either pays a dividend on the Steel Stock in, or
redeems a number of shares of Steel Stock for, an amount equal to the Net
Proceeds of such Disposition (as provided in Section 2(b)(i)(A) or Section
2(b)(i)(B), respectively, of Division I of the Certificate of Incorporation)
(the "Steel Group Disposition Dividend" or the "Steel Group Disposition
Redemption", respectively); or
(B) The Corporation pays a dividend on, or the Corporation or any of its
Subsidiaries consummates a tender offer or exchange offer for, shares of Steel
Stock and the aggregate amount of such dividend or the consideration paid in
such tender offer or exchange offer is an amount equal to all or substantially
all of the properties and assets of the U.S. Steel Group (the "Steel Group
Special Dividend" or the "Steel Group Tender or Exchange Offer", respectively);
provided that the calculation of all or substantially all of the properties and
assets of the U.S. Steel Group shall be made without giving effect to any money
borrowed by the Corporation or any of its Subsidiaries in connection with such
dividend or tender offer or exchange offer, as the case may be.
The Redemption Date of shares of this Series pursuant to this Section 3(b)(i)
shall be, if the applicable U.S. Steel Group Special Event is (I) the Steel
Group Subsidiary Exchange, the date of such exchange, (II) the Steel Group
Disposition Dividend or the Steel Group Special Dividend, the date such dividend
is paid, (III) the Steel Group Disposition Redemption, the date of such
redemption or (IV) the Steel Group Tender or Exchange Offer, the date such
tender offer or exchange offer is consummated. Notwithstanding anything to the
contrary contained in this Section 3(b)(i), any redemption pursuant to this
Section 3(b)(i) shall be conditioned upon the actual exchange of Steel Stock for
shares of common stock of the U.S. Steel Group Subsidiary, payment of the Steel
Group Disposition Dividend or the amount due as a result of the Steel Group
Disposition Redemption (in each case in the required kind of capital stock,
cash, securities and/or other property), payment of the Steel Group Special
Dividend or the consummation of the Steel Group Tender or Exchange Offer, as the
case may be.
(ii) The shares of this Series shall be redeemed by the Corporation, in whole,
out of funds legally available for such purpose, for cash in an amount equal to
the Redemption Price if following the Disposition of all or substantially all of
the properties and assets of the U.S. Steel Group, the Corporation exchanges all
of the outstanding shares of Steel Stock for Marathon Stock (as provided in
Section 2(b)(i)(C) of Division I of the Certificate of Incorporation) and, at
any time subsequent to such exchange, any of the following events with respect
to the Marathon Group occur (such events, collectively, the "Marathon Group
Special Events"):
(A) The Corporation exchanges all of the outstanding shares of Marathon Stock
for all of the outstanding shares of common stock of the Marathon Group
Subsidiary (as provided in Section 2(a)(i) of Division I of the Certificate of
Incorporation) (the "Marathon Group Subsidiary Exchange"); or
(B) The Corporation pays a dividend on, or the Corporation or any of its
Subsidiaries consummates a tender offer or exchange offer for, shares of
Marathon Stock and the aggregate amount of such dividend or the consideration
paid in such tender offer or exchange offer is an amount equal to all or
substantially all of the properties and assets of the Marathon Group (the
"Marathon Group Special Dividend" or the "Marathon Group Tender or Exchange
Offer", respectively); provided that the calculation of all or substantially all
of the properties and assets of the Marathon Group shall be made without giving
effect to any money borrowed by the Corporation or any of its Subsidiaries in
connection with such dividend or tender offer or
21
<PAGE>
exchange offer, as the case may be; provided, further, that, at the time of the
payment of such dividend on, or the consummation of such tender or exchange
offer for, Marathon Stock, there is another class of common stock, other than
Marathon Stock, of the Corporation then outstanding.
The Redemption Date of shares of this Series pursuant to this Section 3(b)(ii)
shall be, if the applicable Marathon Group Special Event is (I) the Marathon
Group Subsidiary Exchange, the date of such exchange, (II) the Marathon Group
Special Dividend, the date such dividend is paid or (III) the Marathon Group
Tender or Exchange Offer, the date such tender offer or exchange offer is
consummated. Notwithstanding anything to the contrary contained in this Section
3(b)(ii), any redemption pursuant to this Section 3(b)(ii) shall be conditioned
upon the actual exchange of Marathon Stock for shares of common stock of the
Marathon Group Subsidiary, payment of the Marathon Group Special Dividend or the
consummation of the Marathon Group Tender or Exchange Offer, as the case may be.
(c) The following general redemption provisions shall apply, as the context
requires, to any redemption of any shares of this Series pursuant to this
Section 3:
(i) In the event that fewer than all the outstanding shares of this Series are
to be redeemed, the number of shares to be redeemed shall be determined by the
Board of Directors and the shares to be redeemed shall be determined by lot or
pro rata as may be determined by the Board of Directors or by any other method
as may be determined by the Board of Directors in its sole discretion to be
equitable, provided that the Corporation may redeem any number of shares of this
Series owned by holders whose aggregate holdings of such shares do not exceed
100 as may be specified by the Corporation.
(ii) In the event the Corporation shall redeem shares of this Series pursuant to
this Section 3, notice of such redemption shall be given, (x) if such redemption
is a result of the Steel Group Tender or Exchange Offer or the Marathon Group
Tender or Exchange Offer, on the date of the public announcement of such tender
offer or exchange offer by the Corporation or any of its Subsidiaries, but in
any event not less than 30 days prior to such redemption, and on the date of the
public announcement of any extension thereof, (y) if such redemption is a result
of the Steel Group Disposition Dividend or the Steel Group Disposition
Redemption, on a date not less than 45 days prior to the date selected by the
Board of Directors for the payment of such dividend or such redemption and (z)
otherwise, on a date at least 30 days but not more than 60 days prior to the
date fixed for such redemption by the Board of Directors, in each case to each
holder of record of the shares of this Series to be redeemed. Such notice shall
be given by first class mail, postage prepaid, at such holder's address as the
same appears on the stock transfer books of the Corporation. Neither the failure
to mail, to any particular holder, any notice required by this Section 3(c)(ii)
nor any defect therein or in the mailing thereof, shall affect the sufficiency
of the notice or the validity of the proceedings for redemption with respect to
any other holder. Any notice which was mailed in the manner herein provided
shall be conclusively presumed to have been duly given on the date mailed
whether or not the holder receives the notice. Each such notice shall state, as
appropriate: (A) the Redemption Date; (B) the number of shares of this Series to
be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (C) the
Redemption Price to be paid in respect of the redemption; (D) the place or
places where certificates for such shares are to be surrendered for the payment
of the Redemption Price; (E) the then current Conversion Price and, if any event
then known to the Corporation will result in an adjustment to the Conversion
Price on or prior to the Redemption Date, such adjusted Conversion Price and the
date of such adjustment; (F) if such redemption of shares of this Series is the
result of a U.S. Steel Group Special Event or a Marathon Group Special Event,
that such redemption is conditioned upon the occurrence of the applicable U.S.
Steel Group Special Event or Marathon Group Special Event and if that U.S. Steel
Group Special Event is the Steel Group Disposition Dividend or the Steel Group
Disposition Redemption, the last date on which the shares of this Series may be
converted into shares of Steel Stock, determined as set forth in Section 4(a);
and (G) that dividends on the shares of this Series to be redeemed shall cease
to accrue on the Redemption Date, provided that if such redemption of shares of
this Series is the result of a U.S. Steel Group Special Event or a Marathon
Group Special Event, the conditions to such redemption shall have been
satisfied.
(iii) Notice having been given as provided in Section 3(c)(ii), from and after
the Redemption Date (unless default shall be made by the Corporation in
providing an adequate amount of money
22
<PAGE>
for the payment of the Redemption Price necessary to effect such redemption in
accordance with the terms hereof) (A) except if the redemption is the result of
a U.S. Steel Group Special Event or a Marathon Group Special Event and the
conditions to such redemption shall not have been satisfied, dividends on the
shares of this Series so called for redemption shall cease to accrue, (B) such
shares shall no longer be deemed to be outstanding and (C) all rights of the
holders thereof as holders of shares of this Series shall cease (except the
right to receive from the Corporation the Redemption Price, without interest
thereon, upon surrender and endorsement of their certificates). Upon surrender
in accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, unless the Corporation shall waive
such requirement), such shares shall be so redeemed by the Corporation.
(iv) The Corporation's obligation to provide an adequate amount of money for the
payment of the Redemption Price necessary to effect any redemption in accordance
with this Section 3 shall be deemed fulfilled if, on or before the applicable
Redemption Date, the Corporation shall deposit with a bank or trust company that
has an office in the Borough of Manhattan, City of New York, and that has, or is
an affiliate of a bank or trust company that has, a capital and surplus of at
least $50,000,000, an amount of money adequate for the payment of the aggregate
Redemption Price necessary for such redemption in accordance with the terms
hereof, in trust, with irrevocable instructions that such money be applied to
the redemption of the shares of this Series so called for redemption. If such
redemption is conditioned upon the payment of the Steel Group Disposition
Dividend or payment of the amount due as a result of the Steel Group Disposition
Redemption, the Corporation shall deposit such moneys and give such irrevocable
instructions in respect of such redemption, subject to the payment of such Steel
Group Disposition Dividend or payment of the amount due as a result of such
Steel Group Disposition Redemption, not later than the 30th day prior to the
date selected by the Board for the payment of such dividend on, or the
redemption of, Steel Stock, but in any event prior to the date the Corporation
declares such dividend or gives notice of such redemption, each in accordance
with Section 2 of Division I of the Certificate of Incorporation. No interest
shall accrue for the benefit of the holders of shares of this Series to be
redeemed on any money so payable by the Corporation in respect of any
redemption. Subject to applicable escheat laws, any money unclaimed at the end
of two years from the related Redemption Date shall revert to the general funds
of the Corporation, after which reversion the holders of such shares so called
for redemption shall look only to the general funds of the Corporation for the
payment of such money. In case fewer than all the shares of this Series
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.
(v) Any shares of this Series which shall at any time have been redeemed shall,
upon the taking of any action required by law, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors.
(vi) Notwithstanding the foregoing provisions of this Section 3, unless the full
cumulative dividends on all outstanding shares of this Series shall have been
paid or contemporaneously are declared and paid for all past dividend periods,
no shares of this Series shall be redeemed unless all outstanding shares of this
Series are simultaneously redeemed, and the Corporation shall not purchase or
otherwise acquire any shares of this Series; provided, however, that the
foregoing shall not prevent the purchase or acquisition of shares of this Series
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of this Series.
4. Conversion or Exchange. Holders of shares of this Series shall have the right
to convert all or a portion of such shares into shares of Steel Stock, as
follows:
(a) Subject to and upon compliance with the provisions of this Section 4, a
holder of shares of this Series shall have the right, at such holder's option,
at any time, to convert such shares into the number of fully paid and
nonassessable shares of Steel Stock equal to the quotient of (i) the product of
the initial liquidation preference for shares of this Series of $50.00 per share
for such shares times the number of shares of this Series to be converted,
divided by (ii) the Conversion Price (as in effect on the date provided for in
the last paragraph of Section 4(b)) by surrendering the certificates
representing such shares to be converted, such surrender to be made in the
manner provided in accordance with this Section 4; provided that the right to
convert shares of this Series called for
23
<PAGE>
redemption pursuant to Section 3 shall terminate at the close of business on the
related Redemption Date, unless the Corporation shall default in making payment
of any moneys payable upon such redemption under Section 3 or, if the redemption
of shares of this Series is the result of a Steel Group Special Event or a
Marathon Group Special Event, the conditions to such redemption shall not have
been satisfied; and, provided, further, that if the Corporation has given notice
of a redemption pursuant to Section 3(c) which is conditioned on the occurrence
of the Steel Group Disposition Dividend or the Steel Group Disposition
Redemption, the right to convert shares of this Series shall terminate on the
31st day prior to the date selected by the Board of Directors for such
redemption. Any holder of any share or shares of this Series may only convert
whole shares of this Series and the Corporation shall not be obligated to issue
any fractional shares of this Series.
(b) In order to exercise the conversion right, the holder of any shares of this
Series to be converted shall surrender the certificate representing such shares,
duly endorsed or assigned to the Corporation or in blank, at the office of the
Transfer Agent, accompanied by written notice to the Corporation that the holder
thereof elects to convert such shares or a specified portion thereof. Unless the
shares issuable on conversion are to be issued in the same name as the name in
which such shares of this Series are registered, any shares surrendered for
conversion shall be accompanied by instruments of transfer, in form satisfactory
to the Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that such
taxes have been paid).
Holders of shares of this Series at the close of business on a record date for
determining stockholders entitled to receive a dividend shall be entitled to
receive the dividend payable on such shares on the corresponding dividend
payment date (except that holders of shares called for redemption on a
Redemption Date between such record date and the dividend payment date shall not
be entitled to receive such dividend on such dividend payment date)
notwithstanding the conversion thereof following such dividend record date and
prior to such dividend payment date. However, shares of this Series surrendered
for conversion during the period between the close of business on any dividend
record date and the opening of business on the corresponding dividend payment
date (except shares called for redemption on a Redemption Date during such
period) must be accompanied by payment of an amount equal to the dividend
payable on such shares on such dividend payment date. A holder of shares of this
Series on a dividend record date who (or whose transferee) tenders any such
shares for conversion into shares of Steel Stock on a dividend payment date will
receive the dividend payable by the Corporation on such shares of this Series on
such date, and the converting holder need not include payment of the amount of
such dividend upon surrender of such shares for conversion. Except as provided
above, the Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the shares of
Steel Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates for shares of
this Series as aforesaid, the Corporation shall issue and shall deliver at such
office to such holder, or on such holder's written order, a certificate or
certificates for the number of full shares of Steel Stock issuable upon the
conversion of such shares in accordance with the provisions of this Section 4,
and any fractional interest in respect of a share of Steel Stock arising upon
such conversion shall be settled as provided in Section 4(c).
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which the certificates for shares of this
Series shall have been surrendered and the notice referred to in the third
preceding paragraph (and, if applicable, payment of an amount equal to the
dividend payable on such shares as described in the second preceding paragraph)
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Steel Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date
and such conversion shall be at the Conversion Price in effect at such time on
such date.
(c) No fractional shares or scrip representing fractions of shares of Steel
Stock or any other common stock of the Corporation shall be issued upon
conversion of any share of this Series. Instead of any fractional interest in a
share of Steel Stock or such other common stock that would otherwise be
deliverable upon the conversion of a share of this Series, the Corporation shall
pay to the holder
24
<PAGE>
of such share an amount in cash based upon the Closing Price of Steel Stock or
such other common stock on the Trading Day immediately preceding the date of
conversion. If more than one share shall be surrendered for conversion at one
time by the same holder, the number of full shares of Steel Stock or such other
common stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of this Series so surrendered.
(d) The Conversion Price per share of Steel Stock shall be adjusted from time to
time as follows:
(i) If the Corporation shall after the date on which shares of this Series are
initially issued (A) pay a dividend or make a distribution on any class of its
capital stock in shares of Steel Stock, (B) subdivide the outstanding Steel
Stock into a greater number of shares or (C) combine the outstanding Steel Stock
into a smaller number of shares, then the Conversion Price in effect at the
opening of business on the day next following the date fixed for the
determination of stockholders entitled to receive such dividend or distribution
or at the opening of business on the day next following the day on which such
subdivision or combination becomes effective, as the case may be, shall be
adjusted so that the holder of any share of this Series thereafter surrendered
for conversion shall be entitled to receive the number of shares of Steel Stock
that such holder would have owned or have been entitled to receive after the
happening of any of the events described above had such share been converted
immediately prior to the record date in the case of a dividend or distribution
or the effective date in the case of a subdivision or combination. An adjustment
made pursuant to this Section 4(d)(i) shall become effective immediately after
the opening of business on the day next following the record date (except as
provided in Section 4(m)) in the case of a dividend or distribution and shall
become effective immediately after the opening of business on the day next
following the effective date in the case of a subdivision or combination.
(ii) If the Corporation shall issue after the date on which shares of this
Series are initially issued rights or warrants (other than any rights or
warrants (including the Rights) referred to in Section 4(d)(iii) below) to all
holders of Steel Stock entitling them (for a period expiring within 45 days
after the record date mentioned below) to subscribe for or purchase Steel Stock
at a price per share less than the Current Market Price per share of Steel Stock
on the record date for the determination of stockholders entitled to receive
such rights or warrants, then the Conversion Price in effect at the opening of
business on the day next following such record date shall be adjusted to equal
the price determined by multiplying (I) the Conversion Price in effect
immediately prior to the opening of business on the day next following the date
fixed for such determination by (II) a fraction, the numerator of which shall be
the sum of (A) the number of shares of Steel Stock outstanding on the close of
business on the date fixed for such determination and (B) the number of shares
that the aggregate proceeds to the Corporation from the exercise of such rights
or warrants for Steel Stock would purchase at such Current Market Price, and the
denominator of which shall be the sum of (A) the number of shares of Steel Stock
outstanding on the close of business on the date fixed for such determination
and (B) the number of additional shares of Steel Stock offered for subscription
or purchase pursuant to such rights or warrants. Such adjustment shall become
effective immediately after the opening of business on the day next following
such record date (except as provided in Section 4(m)). In determining whether
any rights or warrants entitle the holders of Steel Stock to subscribe for or
purchase shares of Steel Stock at less than the Current Market Price thereof,
there shall be taken into account any consideration received by the Corporation
upon issuance and upon exercise of such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of Directors.
(iii) If the Corporation shall distribute to all holders of the Steel Stock any
shares of capital stock (other than common stock of the Corporation), evidences
of indebtedness, cash or other assets of the Corporation (including securities,
but excluding (w) any dividend or distribution referred to in Section 4(d)(i),
(x) any rights or warrants referred to in Section 4(d)(ii) or in the second or
third paragraph of this Section 4(d)(iii), (y) any dividend or distribution paid
exclusively in cash or (z) any stocks, securities or other property received as
a result of a transaction referred to in Section 4(f)) (any of the foregoing
being hereinafter referred to in this Section 4(d)(iii) as the "Securities"),
then in each such case the Conversion Price shall be adjusted so that it shall
equal the price determined by multiplying (I) the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such
25
<PAGE>
distribution by (II) a fraction, the numerator of which shall be the Current
Market Price per share of the Steel Stock on the record date mentioned below
less the then fair market value (as determined by the Board of Directors) of the
portion of the Securities so distributed to one share of Steel Stock, and the
denominator of which shall be the Current Market Price per share of the Steel
Stock on the record date mentioned below. Such adjustment shall become effective
immediately at the opening of business on the day next following the record date
for the determination of stockholders entitled to receive such distribution
(except as provided in Section 4(m)).
With respect to the Amended and Restated Rights Agreement, dated as of October
1, 1992 (as amended or otherwise modified from time to time, the "Restated
Rights Agreement"), between the Corporation and Mellon Bank, N.A. (terms used in
this paragraph and not otherwise defined herein having the meanings set forth in
the Restated Rights Agreement), the Conversion Price will be adjusted only when
the Rights issuable pursuant thereto become exercisable after the Corporation's
right of redemption thereunder has expired. Subject to the foregoing, upon the
later to occur of the Distribution Date and a Section 11(a)(ii) Event (the
"Adjustment Date"), the Conversion Price in effect at the opening of business on
the Adjustment Date shall be adjusted to equal the price determined by
multiplying such Conversion Price by a fraction the numerator of which shall be
equal to the Current Market Price per share of the Steel Stock on the Trading
Day immediately prior to the Adjustment Date less an amount equal to the
quotient of (x) the aggregate fair market value on the Adjustment Date (as
determined by the Board of Directors) of the Rights distributed under the
Restated Rights Agreement divided by (y) the number of shares of Steel Stock
outstanding on such day prior to the Adjustment Date and the denominator of
which shall be equal to such Current Market Price per share of the Steel Stock.
Such adjustment shall become effective immediately after the opening of business
on the day next following such Adjustment Date.
In case the Corporation shall (other than pursuant to the Restated Rights
Agreement) distribute rights or warrants to purchase Steel Stock pro rata to all
holders of Steel Stock which rights or warrants are not at such time immediately
exercisable but, upon the occurrence of a specified event or events ("Exercise
Trigger Date") will become exercisable and once they become exercisable will
entitle, or upon the occurrence of an additional specified event or events
("Price Trigger Date") will entitle, the holder thereof to purchase Steel Stock
at a price per share of Steel Stock less than the Current Market Price of the
Steel Stock on the Trading Day next succeeding the later of the Exercise Trigger
Date or the Price Trigger Date ("Adjustment Trigger Date") and there shall have
occurred such Adjustment Trigger Date, thus permitting the holders of such
rights or warrants irrevocably to exercise any exchange, subscription or
purchase rights conferred by such rights or warrants at a price per share of
Steel Stock less than such Current Market Price, then the Conversion Price in
effect at the opening of business on the Adjustment Trigger Date shall be
adjusted by multiplying (I) such Conversion Price by (II) a fraction, the
numerator of which shall be equal to the Current Market Price per share of the
Steel Stock on the Trading Day immediately prior to the Adjustment Trigger Date
less an amount equal to the quotient of (x) the aggregate fair market value on
the Adjustment Trigger Date of the rights or warrants so distributed (as
determined by the Board of Directors) divided by (y) the number of shares of
Steel Stock outstanding on such day prior to the Adjustment Trigger Date and the
denominator of which shall be equal to such Current Market Price per share of
the Steel Stock. Such adjustment shall become effective immediately after the
opening of business on the day next following such Adjustment Trigger Date.
(iv) If the Corporation shall, by dividend or otherwise, at any time distribute
to all holders of the Steel Stock cash (excluding any regular quarterly dividend
payable solely in cash, any cash that is distributed as part of a distribution
requiring a Conversion Price adjustment pursuant to Section 4(d)(iii) and cash
that is distributed in a merger or consolidation to which Section 4(f) applies)
in an aggregate amount that, together with (A) the aggregate amount of any other
distributions to all holders of the Steel Stock made exclusively in cash (to
which this Section 4(d)(iv) would otherwise apply) within the 12 months
preceding the date of payment of such distribution and in respect of which no
Conversion Price adjustment has been made and (B) all Excess Purchase Payments
in respect of each tender offer or exchange offer or other negotiated purchase
for Steel Stock concluded by the Corporation or any of its Subsidiaries within
the 12 months preceding the date of payment of such distribution and in respect
of which no Conversion Price adjustment has been made, exceeds an amount equal
to 12 1/2% of the product of the
26
<PAGE>
Current Market Price per share of Steel Stock on the date fixed for
determination of holders of Steel Stock entitled to receive such distribution
times the number of shares of Steel Stock outstanding on such date, then the
Conversion Price shall be adjusted so that it shall equal the price determined
by multiplying (I) such Conversion Price in effect immediately prior to the
Conversion Price adjustment contemplated by this Section 4(d)(iv) by (II) a
fraction the numerator of which shall be the Current Market Price per share of
the Steel Stock on the date fixed for determination of holders of Steel Stock
entitled to receive such distribution less the combined amount of such cash and
such Excess Purchase Payments so distributed applicable to one share of Steel
Stock and the denominator of which shall be such Current Market Price per share
of the Steel Stock on such date of determination. Such adjustment shall become
effective immediately prior to the opening of business on the day next following
the date fixed for such determination.
(v) In case a tender offer or exchange offer or other negotiated purchase made
by the Corporation or any of its Subsidiaries for all or any portion of the
Steel Stock shall be consummated, if the aggregate amount of any Excess Purchase
Payment, together with (A) the aggregate amount of any distributions made to all
holders of Steel Stock made exclusively in cash (excluding any regular quarterly
dividend payable solely in cash, any cash that is distributed as part of a
distribution requiring a Conversion Price adjustment pursuant to Section
4(d)(iii) and cash that is distributed in a merger or consolidation to which
Section 4(f) applies) within the 12 months preceding the consummation of such
tender or exchange offer or other negotiated purchase and in respect of which no
Conversion Price adjustment has been made, and (B) all other Excess Purchase
Payments in respect of each tender or exchange offer or other negotiated
purchase for Steel Stock concluded by the Corporation or any of its Subsidiaries
within the 12 months preceding the consummation of such tender or exchange offer
or other negotiated purchase and in respect of which no Conversion Price
adjustment has been made, exceeds an amount equal to 12 1/2% of the product of
the Current Market Price per share of Steel Stock on the consummation date of
such tender or exchange offer or other negotiated purchase (any such date, the
"Purchase Date") times the number of shares of Steel Stock outstanding
(including any tendered, exchanged or purchased shares) on such Purchase Date,
then the Conversion Price shall be adjusted so that it shall equal the price
determined by multiplying (I) such Conversion Price in effect immediately prior
to such Purchase Date by (II) a fraction, the numerator of which shall be the
Current Market Price per share of the Steel Stock on such Purchase Date less the
combined amount of Excess Purchase Payments and such cash so distributed
applicable to one share of Steel Stock and the denominator of which shall be
such Current Market Price per share on such Purchase Date. Such adjustment shall
become effective immediately prior to the opening of business on the day next
following such Purchase Date.
(vi) The Corporation from time to time may reduce the Conversion Price by any
amount for any period of at least 20 business days (or such other period as may
then be required by applicable law), provided that the Board of Directors shall
have determined that such reduction is in the best interests of the Corporation.
No reduction in the Conversion Price pursuant to this Section 4(d)(vi) shall
become effective unless the Corporation shall have mailed a notice, at least 15
days prior to the date on which such reduction is scheduled to become effective,
to each holder of shares of this Series. Such notice shall be given by first
class mail, postage prepaid, at such holder's address as the same appears on the
stock transfer books of the Corporation. Such notice shall state the amount per
share by which the Conversion Price will be reduced and the period for which
such reduction will be in effect.
(vii) The Corporation may make such reductions in the Conversion Price, in
addition to those required by Sections 4(d)(i) through (v), as the Board
determines to be necessary in order that any event treated for Federal income
tax purposes as a dividend of stock or stock rights will not be taxable to the
recipients; provided that any such reduction shall not be effective until
written evidence of the action of the Board authorizing such reduction shall be
filed with the Secretary of the Corporation and notice thereof shall have been
given by first class mail, postage prepaid, to each holder of shares of this
Series at such holder's address as the same appears on the stock transfer books
of the Corporation.
(e) No adjustment in the Conversion Price shall be required unless such
adjustment would require a cumulative increase or decrease of at least 1% in
such price; provided, however, that any adjustments that by reason of this
Section 4(e) are not required to be made shall be carried forward
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and taken into account in any subsequent adjustment until made; and provided,
further, that any adjustment shall be required and made in accordance with the
provisions of this Section 4 (other than this Section 4(e)) not later than such
time as may be required in order to preserve the tax-free nature of a
distribution to the holders of shares of Steel Stock or any other common stock
into which shares of this Series are convertible. Notwithstanding any other
provisions of this Section 4, the Corporation shall not be required to make any
adjustment of any Conversion Price established hereunder for the issuance of any
shares of common stock of the Corporation (including Steel Stock) pursuant to
any plan providing for the reinvestment of dividends or interest payable on
securities of the Corporation and the investment of additional optional amounts
in shares of such common stock under such plan. All calculations under this
Section 4 shall be made to the nearest 1/100 of a cent (with $.00005 being
rounded upward) or to the nearest 1/10,000 of a share (with .00005 of a share
being rounded upward), as the case may be.
(f) If the Corporation shall be a party to any transaction (including without
limitation a merger or consolidation of the Corporation and excluding any
transaction as to which Sections 4(d)(i) through (vi) apply), in each case as a
result of which shares of Steel Stock shall be converted into the right to
receive stock, securities or other property (including cash or any combination
thereof), (each of the foregoing being referred to herein as a "Transaction"),
each share of this Series which is not converted into the right to receive
stock, securities or other property in connection with such Transaction shall
thereafter be convertible into the kind and amount of shares of stock,
securities and other property (including cash or any combination thereof)
receivable upon the consummation of such Transaction by a holder of that number
of shares or fraction thereof of Steel Stock into which one share of this Series
was convertible immediately prior to such Transaction, assuming such holder of
Steel Stock (i) is not a person with which the Corporation consolidated or into
which the Corporation merged or which merged into the Corporation or to which
such sale or transfer was made, as the case may be (a "Constituent Person"), or
an affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of stock, securities and other
property (including cash) receivable upon such Transaction (provided that if the
kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction is not the same for each share of Steel Stock
of the Corporation held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non- electing share"), then for the
purpose of this Section 4(f) the kind and amount of stock, securities and other
property (including cash) receivable upon such Transaction by each non-electing
share shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). The Corporation shall not be a party to
any Transaction unless the terms of such Transaction are consistent with the
provisions of this Section 4(f) and it shall not consent or agree to the
occurrence of any Transaction until the Corporation has entered into an
agreement with the other party or parties to such transaction for the benefit of
the holders of shares of this Series that will contain provisions enabling the
holders of such shares that remain outstanding after such Transaction to convert
into the consideration received by holders of Steel Stock at the Conversion
Price in effect immediately prior to such Transaction. The provisions of this
Section 4(f) shall similarly apply to successive Transactions.
(g) The reclassification of common stock into which shares of this Series are
then convertible into securities which include securities other than such common
stock (other than any reclassification upon a consolidation or merger to which
Section 4(f) applies), shall be deemed to involve (i) a distribution of such
securities other than such common stock to all holders of such common stock (and
the effective date of such reclassification shall be deemed to be "the date
fixed for the determination of stockholders entitled to receive such
distribution") and (ii) a subdivision or combination, as the case may be, of the
number of shares of such common stock outstanding immediately prior to such
reclassification into the number of shares of such common stock outstanding
immediately thereafter (and the effective date of such reclassification shall be
deemed to be the effective date of such subdivision or combination).
(h) If the Corporation shall, by dividend or otherwise, distribute to all
holders of Steel Stock or other class of common stock into which shares of this
Series are then convertible shares of common stock other than Steel Stock or any
class of common stock into which shares of this Series are then convertible,
each share of this Series shall be convertible, in addition to the number of
shares of Steel Stock and/or such other common stock into which such share is
then convertible, into the number of shares of such other common stock
receivable upon payment of such distribution to a holder of that number of
shares or fraction thereof of Steel Stock or such other common stock into which
one share
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of this Series was convertible immediately prior to the record date fixed for
the determination of stockholders entitled to receive such distribution. Shares
of this Series shall become so convertible immediately after the opening of
business on the day next following such record date (except as provided in
Section 4(m)). In addition, a Conversion Price shall be established with respect
to such common stock in an amount equal to the quotient of (i) the initial
liquidation preference of $50.00 per share of this Series divided by (ii) the
number of shares or fraction thereof of such common stock that a holder of one
share of Steel Stock or such other common stock into which shares of this Series
are then convertible would be entitled to receive on the payment date for such
distribution from and after any such date of determination of stockholders
entitled to receive such distribution and, thereafter, Conversion Price
adjustments as nearly as equivalent in type as may be practicable to the
adjustments pursuant to Sections 4(d) through (f) which are to be made in
respect of Steel Stock shall be made in respect of shares of such common stock.
Notwithstanding the foregoing and the provisions of Section 4(d)(iii), if the
Corporation shall make such a distribution in common stock and, thereafter, all
of the shares of such common stock cease to be outstanding, on the date such
shares of common stock cease to be outstanding (x) the shares of this Series
shall cease to be convertible into shares of such common stock, (y) a
distribution of shares of such common stock shall be deemed to have occurred on
such date and (z) the Conversion Price for the class of common stock upon which
such distribution was made, or if no shares of such class are then outstanding
because shares of such class were exchanged for shares of another class of
common stock, of such other class of common stock, shall be adjusted in the
manner set forth in Section 4(d)(iii) to the same extent as if shares of the
common stock in which such distribution was made were within the meaning of the
term "Securities" in Section 4(d)(iii).
(i) After the date, if any, on which all outstanding shares of Steel Stock or of
any other common stock into which shares of this Series are then convertible are
exchanged for shares of another class of common stock (as provided in the
Certificate of Incorporation), each share of this Series shall thereafter be
convertible into the number of shares of such other class of common stock
receivable upon such exchange by a holder of that number of shares or fraction
thereof of Steel Stock and/or such other common stock into which shares of this
Series are then convertible into which one share of this Series was convertible
immediately prior to such exchange. From and after any such exchange, Conversion
Price adjustments as nearly equivalent as may be practicable to the adjustments
pursuant to Sections 4(d) through 4(h) which, prior to such exchange, were made
in respect of Steel Stock and/or such other common stock into which shares of
this Series are then convertible shall instead be made pursuant to such Sections
4(d) through 4(h) in respect of shares of such other class of common stock.
(j) Subject to the provisions of Section 4(k), if:
(i) the Corporation takes any action that would require an adjustment of the
Conversion Price pursuant to Sections 4(d) through (i); or
(ii) there shall be any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is required,
or the sale or transfer of all or substantially all of the assets of the
Corporation or the U.S. Steel Group; or
(iii) there shall occur the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; or
(iv) the Corporation or any of its Subsidiaries shall commence a tender offer or
exchange offer for all or a portion of the outstanding shares of Steel Stock (or
shall amend any such tender or exchange offer), then the Corporation shall
cause to be filed with the Transfer Agent and shall cause to be mailed to the
holders of shares of this Series at their addresses as shown on the stock
transfer books of the Corporation, as promptly as possible, but at least 15 days
prior to the earliest applicable date hereinafter specified, a notice stating,
as applicable, (A) the proposed record date for a dividend or distribution or
the proposed effective date of a consolidation, merger, sale, transfer,
liquidation, dissolution or winding up, (B) the date as of which it is expected
that holders of Steel Stock of record shall be entitled to exchange their shares
of Steel Stock for securities or other property, if any, deliverable upon such
consolidation, merger, sale, transfer, liquidation, dissolution or winding up or
(C) the date on which such tender or exchange offer commenced, the date on
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which such tender or exchange offer is scheduled to expire unless extended, the
consideration offered and the other material terms thereof (or the material
terms of any amendment thereto). Failure to give or receive such notice or any
defect therein shall not affect the legality or validity of the related
transaction.
(k) If the Corporation intends:
(i) to effect a U.S. Steel Group Special Event or a Marathon Group
Special Event; or
(ii) exchange shares of Steel Stock for Marathon Stock or Delhi Stock following
a Disposition of all or substantially all of the properties and assets of the
U.S. Steel Group, then the Corporation shall cause to be filed with the
Transfer Agent and shall cause to be mailed to the holders of shares of this
Series at their addresses as shown on the stock transfer books of the
Corporation, not less than 45 days prior to the Steel Group Disposition Dividend
or the Steel Group Disposition Redemption and not less than 30 days prior to any
other U.S. Steel Group Special Event, any Marathon Group Special Event or any
such exchange of Steel Stock for shares of Marathon Stock or Delhi Stock, a
notice stating, as applicable, (A) the record date for any dividend that is a
U.S. Steel Group Special Event or a Marathon Group Special Event, (B) the date
on which any redemption or exchange that is a U.S. Steel Group Special Event, a
Marathon Group Special Event or an exchange of Steel Stock for shares of
Marathon Stock or Delhi Stock is expected to become effective, and the date as
of which it is expected that holders of record of Steel Stock or Marathon Stock
shall be entitled to exchange their shares of Steel Stock or Marathon Stock,
respectively, for securities or other property deliverable upon such redemption
or exchange or (C) the date on which the Steel Group Tender or Exchange Offer or
the Marathon Group Tender or Exchange Offer commenced, the consideration offered
and the other material terms thereof (or the material terms of any amendment
thereto). In addition, from and after any exchange of Steel Stock for Delhi
Stock, effected in accordance with Section 2(b)(i) of Division I of the
Certificate of Incorporation, the Corporation shall give similar notice of its
intention to exchange Delhi Stock for shares of the Delhi Group Subsidiary, if
Steel Stock has been exchanged therefor, or to pay a dividend on, or redeem
shares of, Delhi Stock following the Disposition of all or substantially all of
the properties and assets of the Delhi Group. Failure to give or receive any
such notice or any defect therein shall not affect the legality or validity of
the related transaction. In the event of any conflict between the notice
provisions of this paragraph (k) and paragraph (j) above, the notice provisions
of this paragraph (k) shall govern.
(l) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's certificate
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment, which certificate shall
be prima facie evidence of the correctness of such adjustment. Promptly after
delivery of such certificate, the Corporation shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted Conversion Price
and the effective date of such adjustment and shall send such notice of such
adjustment of the Conversion Price by first class mail, postage prepaid, to the
holder of each share of this Series at such holder's address as the same appears
on the stock transfer books of the Corporation.
(m) In any case in which Section 4(d) or 4(h) provides that an adjustment shall
become effective on the day next following a record date for an event, the
Corporation may defer until the occurrence of such event (A) issuing to the
holder of any share of this Series converted after such record date and before
the occurrence of such event the additional shares of Steel Stock or any other
common stock of the Corporation issuable upon such conversion by reason of the
adjustment required by such event over and above the number of shares of Steel
Stock or such other common stock issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount in cash in
lieu of any fraction thereof pursuant to Section 4(c).
(n) For purposes of this Section 4, the number of shares of Steel Stock or any
other common stock of the Corporation at any time outstanding shall not include
any shares of Steel Stock or such other common stock then owned or held by or
for the account of Corporation. The Corporation shall not pay a dividend or make
any distribution on shares of Steel Stock or such other common stock held in the
treasury of the Corporation.
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(o) There shall be no adjustment of the Conversion Price in case of the issuance
of any stock of the Corporation in a reorganization, acquisition or other
similar transaction except as specifically set forth in this Section 4. If any
action or transaction would require adjustment of any Conversion Price
established hereunder pursuant to more than one paragraph of this Section 4,
only the adjustment which would result in the largest reduction of such
Conversion Price shall be made.
(p) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Steel Stock and/or, if the shares of this Series are then
convertible into other common stock of the Corporation, such other common stock,
or its issued shares of Steel Stock or such other common stock, as the case may
be, held in its treasury, or both, for the purpose of effecting conversion of
shares of this series, the full number of shares of Steel Stock or such other
common stock deliverable upon the conversion of all outstanding shares of this
Series not theretofore converted. For purposes of this Section 4(p), the number
of shares of Steel Stock or such other common stock that shall be deliverable
upon the conversion of all outstanding shares of this Series shall be computed
as if at the time of computation all such outstanding shares were held by a
single holder.
The Corporation covenants that any shares of Steel Stock or other common stock
of the Corporation issued upon conversion of shares of this Series shall be
validly issued, fully paid and nonassessable.
The Corporation shall endeavor to list the shares of Steel Stock or other common
stock of the Corporation required to be delivered upon conversion of shares of
this Series, prior to such delivery, upon each national securities exchange, if
any, upon which the outstanding Steel Stock or such other common stock is listed
at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall be obligated
to deliver upon conversion of shares of this Series, the Corporation shall
endeavor to comply with all federal and state laws and regulations thereunder
requiring the registration of such securities with, or any approval of or
consent to the delivery thereof by, any governmental authority.
(q) The Corporation will pay any and all documentary, stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of Steel
Stock or other securities or property on conversion of shares of this Series
pursuant hereto; provided, however, that the Corporation shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issue or delivery of shares of Steel Stock or other securities or property in a
name other than that of the holder of such shares to be converted and no such
issue or delivery shall be made unless and until the person requesting such
issue or delivery has paid to the Corporation the amount of any such tax or
established, to the reasonable satisfaction of the Corporation, that such tax
has been paid.
5. Voting. The shares of this Series shall not have any voting powers, either
general or special, except that:
(a) Unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the consent of the holders of at least 66 2/3% of
all of the shares of this Series at the time outstanding, given in person or by
proxy, either in writing or by a vote at a meeting called for the purpose at
which the holders of shares of this Series shall vote together as a separate
class, shall be necessary for authorizing, effecting or validating the
amendment, alteration or repeal of any of the provisions of the Certificate of
Incorporation or of any certificate amendatory thereof or supplemental thereto
(including any Certificate of Designation and Terms or any similar document
relating to any series of Preferred Stock) so as to affect adversely the powers,
preferences, or rights, of this Series. The increase of the authorized amount of
the Preferred Stock, or the creation or authorization of any shares of any other
class of stock of the Corporation ranking prior to or on a parity with the
shares of this Series as to dividends or upon liquidation, or the
reclassification of any authorized stock of the Corporation into any such parity
shares, or the creation or authorization of any obligation or security
convertible into or evidencing the right to purchase any such prior or parity
shares shall not be deemed to affect adversely the powers, preferences or rights
of this Series. (b) Unless the vote or consent of the holders of a greater
number of shares shall then be required by law, the consent of the holders of at
least 66 2/3% of all of the shares of this Series and all other series of
Preferred Stock ranking on a parity with shares of this Series, either as to
dividends or upon
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liquidation, at the time outstanding, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose at which the holders of
shares of this Series and such other series of Preferred Stock shall vote
together as a single class without regard to series, shall be necessary for
authorizing, effecting or validating the issuance of any shares of any class of
stock of the Corporation ranking prior to the shares of this Series as to
dividends or upon liquidation, or the reclassification of any outstanding stock
of the Corporation into any such prior shares, or the issuance of any obligation
or security convertible into or evidencing the right to purchase any such prior
shares.
(c) Unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the consent of the holders of at least a majority
of all of the shares of this Series and all other series of Preferred Stock
ranking on a parity with this Series, either as to dividends or upon
liquidation, at the time outstanding, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose at which the holders of
shares of this Series and such other series of Preferred Stock shall vote
together as a single class without regard to series, shall be necessary for
authorizing, effecting or validating the merger or consolidation of the
Corporation into or with any other corporation if such merger or consolidation
would adversely affect the powers, preferences or rights of this Series or such
other series of Preferred Stock or if, after such merger or consolidation, there
shall be outstanding any shares of any class of stock ranking prior to the
shares of this Series as to dividends or upon liquidation or any obligation or
security convertible into or evidencing the right to purchase any such prior
shares (except such stock, securities or obligations of the Corporation as may
have been outstanding immediately preceding such merger or consolidation).
(d) If, on the date used to determine stockholders of record for any meeting of
stockholders for the election of directors, a default in preference dividends on
the Preferred Stock shall exist, the number of directors constituting the Board
of Directors shall be increased by two, and the holders of the Preferred Stock
of all series (whether or not the holders of such series of Preferred Stock
would be entitled to vote for the election of directors if such default in
preference dividends did not exist), shall have the right at such meeting,
voting together as a single class without regard to series, to the exclusion of
the holders of Common Stock of the Corporation, to elect two directors of the
Corporation to fill such newly created directorships. Each director elected by
the holders of shares of Preferred Stock (herein called a "Preferred Director"),
shall continue to serve as such director for the full term for which such
director shall have been elected, notwithstanding that prior to the end of such
term a default in preference dividends shall cease to exist. Any Preferred
Director may be removed without cause by, and shall not be removed without cause
except by, the vote of the holders of record of the outstanding shares of
Preferred Stock, voting together as a single class without regard to series, at
a meeting of the stockholders, or of the holders of shares of Preferred Stock,
called for the purpose. So long as a default in any preference dividends on the
Preferred Stock shall exist (A) any vacancy in the office of a Preferred
Director may be filled (except as provided in the following clause (B)) by an
instrument in writing signed by the remaining Preferred Director and filed with
the Corporation and (B) in the case of the removal of any Preferred Director,
the vacancy may be filled by the vote of the holders of the outstanding shares
of Preferred Stock, voting together as a single class without regard to series,
at the same meeting at which such removal shall be voted. Each director
appointed as aforesaid by the remaining Preferred Director shall be deemed, for
all purposes hereof, to be a Preferred Director. Whenever the term of office of
the Preferred Directors shall end and no default in preference dividends shall
exist, the number of directors constituting the Board of Directors shall be
reduced by two. For the purposes hereof, a "default in preference dividends" on
the Preferred Stock shall be deemed to have occurred whenever the amount of
accrued and unpaid dividends upon any series of the Preferred Stock shall be
equivalent to six full quarterly dividends or more (whether or not consecutive),
and, having so occurred, such default shall be deemed to exist thereafter until,
but only until, all accrued dividends on all shares of Preferred Stock of each
and every series then outstanding shall have been paid for all past dividend
periods.
6. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, the holders of the shares of this Series shall be
entitled to receive out of the assets of the Corporation available for
distribution to stockholders, before any payment or distribution shall be made
on any class of the common stock of the Corporation or on any other class of
stock ranking
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junior to the Preferred Stock upon liquidation, the amount of $50 per share,
plus a sum equal to all dividends (whether or not earned or declared) on such
shares accrued and unpaid thereon to the date of final distribution.
(b) Neither the sale, lease or exchange (for cash, shares of stock, securities
or other consideration) of all or substantially all the property and assets of
the Corporation nor the merger or consolidation of the Corporation into or with
any other corporation or the merger or consolidation of any other corporation
into or with the Corporation, shall be deemed to be a dissolution, liquidation
or winding up, voluntary or involuntary, for the purposes of this Section 6.
(c) After the payment to the holders of the shares of this Series of the full
preferential amounts provided for in this Section 6, the holders of shares of
this Series as such shall have no right or claim to any of the remaining assets
of the Corporation.
(d) In the event the assets of the Corporation available for distribution to the
holders of shares of this Series upon any dissolution, liquidation or winding up
of the Corporation, whether voluntary or involuntary, shall be insufficient to
pay in full all amounts to which such holders are entitled pursuant to Section
6(a), no such distribution shall be made on account of any shares of any other
class or series of Preferred Stock ranking on a parity with the shares of this
Series upon such dissolution, liquidation or winding up unless proportionate
distributive amounts shall be paid on account of the shares of this Series,
ratably, in proportion to the full distributable amounts for which holders of
all such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
7. Ranking. For purposes of this resolution, any stock of any class or classes
of the Corporation shall be deemed to rank:
(a) prior to the shares of this Series, either as to dividends or upon
liquidation, if the holders of such class or classes shall be entitled to the
receipt of dividends or of amounts distributable upon dissolution, liquidation
or winding up of the Corporation, whether voluntary or involuntary, as the case
may be, in preference or priority to the holders of shares of this Series;
(b) on a parity with the shares of this Series, either as to dividends or upon
liquidation, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share or sinking fund provisions, if any,
be different from those of this Series, if the holders of such stock shall be
entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary, as the case may be, in proportion to their respective dividend
rates or liquidation prices, without preference or priority, one over the other,
as between the holders of such stock and the holders of shares of this Series;
and
(c) junior to shares of this Series, either as to dividends or upon liquidation,
if such class or classes shall be the Series A Junior Preferred Stock issued by
the Corporation pursuant to the Restated Rights Agreement or if such class or
classes shall be any class of common stock of the Corporation or if the holders
of shares of this Series shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, as the case may be, in preference or priority
to the holders of shares of such class or classes.
8. Determinations by the Board of Directors. Any determinations made by the
Board of Directors of the Corporation under any provision of this Resolution
shall be final and binding on all stockholders (including holders of shares of
this Series) of the Corporation.
9. Definitions. Unless otherwise defined herein, terms used herein shall have
the meanings assigned to them in Division I of the Certificate of Incorporation
and the following terms shall have the following meanings: "Board of
Directors" or "Board" means, at any time, the duly elected or acting board of
directors (or duly authorized committee thereof) of the Corporation at such
time.
"Certificate of Incorporation" means the Corporation's Restated Certificate of
Incorporation, as amended, supplemented or otherwise modified from time to time.
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"Closing Price" of shares of any class of common stock of the Corporation
for any day shall mean the last reported sales price, regular way on such day,
or, if no reported sale takes place on such day, the average of the reported
closing bid and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange Composite Tape or, if such common stock
is not listed or admitted to trading on the NYSE, on the principal national
securities exchange on which such common stock is listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange, on
the National Market System of NASDAQ or, if such common stock is not quoted on
such National Market System, the average of the closing bid and asked prices on
such day in the over-the- counter market as reported by NASDAQ or, if closing
bid and asked prices for such common stock on such day shall not have been
reported through NASDAQ, the average of the closing bid and asked prices on such
day as furnished by any NYSE member firm regularly making a market in such
common stock selected for such purpose by the Board of Directors.
"Conversion Price" means the conversion price per share of Steel Stock and/or
other shares of common stock of the Corporation into which shares of this Series
are convertible, as such Conversion Price may be adjusted pursuant to Section 4.
The initial conversion price per share of Steel Stock will be $46.125
(equivalent to a conversion rate of 1.084 shares of Steel Stock for each share
of this Series).
"Current Market Price" shall mean, with respect to any class of common stock of
the Corporation, the average of the daily Closing Prices of a share of such
common stock during the five consecutive Trading Days selected by the
Corporation commencing not more than 20 Trading Days before, and ending not
later than, the date in question; provided, however, that (i) if the "ex" date
for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
Sections 4(d)(ii) through (v) occurs on or after the 20th Trading Day prior to
the day in question and prior to the "ex" date for the issuance or distribution
requiring such computation, the Closing Price for each Trading Day prior to the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (ii) if the "ex" date for any event
(other than the issuance or distribution requiring such computation) that
requires an adjustment to the Conversion Price pursuant to Sections 4(d) (ii)
through (v) occurs on or after the "ex" date for the issuance or distribution
requiring such computation and on or prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the reciprocal of the fraction
by which the Conversion Price is so required to be adjusted as a result of such
other event, and (iii) if the "ex" date for the issuance or distribution
requiring such computation is on or prior to the day in question, after taking
into account any adjustment required pursuant to clause (ii) of this proviso,
the Closing Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the amount of any cash and the fair market value on
the day in question (as determined by the Board of Directors in a manner
consistent with any determination of such value for purposes of Section 4(d)
(iii) or (iv)) of the evidences of indebtedness, shares of capital stock or
assets being distributed applicable to one share of the applicable class of
common stock of the Corporation as of the close of business on the day before
such "ex" date. For purposes of this definition, the term "ex" date, with
respect to any class of common stock of the Corporation, (i) when used with
respect to any issuance or distribution, means the first date on which such
common stock trades regular way on such exchange or in the relevant market from
which the Closing Price was obtained without the right to receive such issuance
or distribution, (ii) when used with respect to any subdivision or combination
of shares of such common stock, means the first date on which such common stock
trades regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective, and (iii) when used with
respect to any tender or exchange offer means the first date on which such
common stock trades regular way on such exchange or in such market after the
expiration time of such tender or exchange offer.
"Excess Purchase Payment" means the excess, if any, of (A) the aggregate of the
cash and the value (as determined by the Board of Directors) of all other
consideration paid by the Corporation or any of its Subsidiaries with respect to
the shares of the applicable class of common stock of the Corporation acquired
in a tender or exchange offer or other negotiated purchase respectively, over
(B) the product of the Current Market Price per share of such common stock times
the number of shares of such common stock acquired in such tender or exchange
offer or purchase.
"NASDAQ" means the National Association of Securities Dealers, Inc. Automated
Quotations System or any successor thereto.
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"NYSE" means the New York Stock Exchange, Inc. or any successor thereto.
"Redemption Date" means any date on which the Corporation redeems any
shares of this Series.
"Redemption Price" means (i) with respect to any redemption pursuant to Section
3(a), the applicable amount set forth in such Section and (ii) with respect to
any redemption pursuant to Section 3(b), an amount per share equal to the sum of
the initial liquidation preference of $50.00 per share of this Series, plus an
amount equal to all accrued and unpaid dividends thereon to the date fixed for
redemption.
"Restated Rights Agreement" shall have the meaning given to it in the second
paragraph of Section 4 (d)(iii).
"Rights" shall mean the rights of the Corporation which are issuable under the
Corporation's stockholder rights plan adopted by the Board of Directors, the
terms and conditions of which are set forth in the Restated Rights Agreement, or
rights to purchase any capital stock of the Corporation under any successor
shareholder rights plan or plan adopted in replacement of the Corporation's
stockholder rights plan.
"Subsidiary" means a corporation more than 50% of the outstanding voting stock
of which is owned, directly or indirectly, by the Corporation or by one or more
other Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
"substantially all of the properties and assets of the U.S. Steel Group" and
"substantially all of the properties and assets of the Marathon Group" shall
mean a portion of such properties and assets that represents at least 80% of
either of the then-current market value of, or the aggregate revenues for the
immediately preceding twelve fiscal quarterly periods of the Corporation derived
from, the properties and assets of the U.S. Steel Group or the Marathon Group,
respectively, as of such date (excluding the properties and assets of any
person, entity or group in which the Corporation, directly or indirectly, owns
less than a majority interest).
"Trading Day" shall mean, with respect to any class of common stock of the
Corporation, any day on which such common stock is traded on the NYSE, or if
such common stock is not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such common stock is listed or
admitted, or if not listed or admitted to trading on any national securities
exchange, on the National Market System of the NASDAQ, or if such common stock
is not quoted on such National Market System, in the applicable securities
market in which such common stock is traded.
"Transfer Agent" means the Corporation, through its Shareholder Services
Department, or such other agent or agents of the Corporation as may be
designated by the Board of Directors as the Transfer Agent for shares of this
Series.
Fifth: The existence of the Corporation is to be perpetual.
Sixth: The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
Seventh: The number of directors of the Corporation shall be fixed from time to
time by, or in the manner provided in, its by-laws and may be increased or
decreased as therein provided; but the number thereof shall not be less than
three.
The directors of the Corporation shall be divided into three classes: Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the whole number of the Board of Directors. In the election of
directors at the 1984 annual meeting of the stockholders, the Class I directors
shall be elected to hold office for a term to expire at the first annual meeting
of the stockholders thereafter; the Class II directors shall be elected to hold
office for a term to expire at the second annual meeting of the stockholders
thereafter; and the Class III directors shall be elected to hold office for a
term to expire at the third annual meeting of the stockholders thereafter, and
in the case of each class, until their respective successors are duly elected
and qualified. At each annual election held after the 1984 annual meeting of the
stockholders the directors elected to succeed those whose terms expire shall be
identified as being of the same class as the directors they
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succeed and shall be elected to hold office for a term to expire at the third
annual meeting of the stockholders after their election, and until their
respective successors are duly elected and qualified. If the number of directors
is changed, any increase or decrease in directors shall be apportioned among the
classes so as to maintain all classes as equal in number as possible, and any
additional director elected to any class shall hold office for a term which
shall coincide with the terms of the other directors in such class and until his
successor is duly elected and qualified.
In the case of any increase in the number of directors of the Corporation, the
additional director or directors shall be elected by the Board of Directors.
In the case of any vacancy in the Board of Directors from death, resignation,
disqualification or other cause, a successor to hold office for the unexpired
portion of the term of the director whose place shall be vacant, and until the
election of his successor, shall be elected by a majority of the Board of
Directors then in office, though less than a quorum. Directors of the
Corporation may be removed only for cause.
Eighth: The Board of Directors shall have power to adopt, amend and repeal the
by-laws at any regular or special meeting of the Board of Directors, provided
that notice of intention to adopt, amend or repeal the by-laws in whole or in
part shall have been included in the notice of meeting; or, without any such
notice, by a vote of two-thirds of the directors then in office.
Stockholders may adopt, amend and repeal the by-laws at any regular or special
meeting of the stockholders by an affirmative vote of two-thirds of the shares
outstanding and entitled to vote thereon, provided that notice of intention to
adopt, amend or repeal the by-laws in whole or in part shall have been included
in the notice of the meeting.
Any action required to be taken at any annual or special meeting of the
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders or otherwise, may not be taken without a
meeting, prior notice and a vote, and stockholders may not act by written
consent.
Ninth: The Board of Directors from time to time shall determine whether and to
what extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation, or any of them, shall be
open to the inspection of the stockholders, and no stockholder shall have any
right to inspect any account or book or document of the Corporation, except as
conferred by law or authorized by the Board of Directors, or by the
stockholders.
Tenth: The directors may from time to time declare such dividends as they shall
deem advisable and proper, subject to the provisions of Article Fourth and to
such restrictions as may be imposed by law, and pay the same to the stockholders
at such times as they shall fix.
The Board of Directors shall have power to issue bonds, debentures, or other
obligations, either non-convertible or convertible into the Corporation's stock,
subject to the provisions of Article Fourth and upon such terms, in such manner
and under such conditions in conformity with law, as may be fixed by the Board
of Directors prior to the issue of such bonds, debentures or other obligations.
Eleventh: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director, except (i) for breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article Eleventh shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
Twelfth: The powers and authorities hereinbefore conferred upon the Board of
Directors are in furtherance and not in limitation of those conferred by the
laws of the State of Delaware.
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Thirteenth: The Corporation reserves the right at any time and from time to time
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by law; and all rights
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the rights reserved in this Article.
In Witness Whereof, this Restated Certificate of Incorporation, which restates
and integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation, as heretofore amended and supplemented, there
being no discrepancies between those provisions and the provisions of this
Restated Certificate of Incorporation, and having been duly adopted by the Board
of Directors of the Corporation in accordance with the provisions of Section 245
of the General Corporation Law of the State of Delaware, has been executed on
the 1st day of September, 1996.
USX CORPORATION
By: /s/ T. J. Usher
- -------------------
T. J. Usher
Chairman of the Board of Directors
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