<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
-----------------------
Date of Report (Date of earliest event reported):
July 13, 1998
USX Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 1-5153 25-0996816
----------------------- ------------ -----------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
600 Grant Street, Pittsburgh, PA 15219-4776
------------------------------------- -----------------
(Address of principal executive (zip code)
offices)
</TABLE>
(412) 433-1121
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On May 29, 1998, USX Corporation announced that its Marathon Oil Company
("Marathon") subsidiary had entered into an agreement to acquire Tarragon Oil
and Gas Limited ("Tarragon"), a Canadian corporation. A special meeting of
Tarragon securityholders is scheduled to be held on August 11, 1998, to request
securityholder approval of the proposed transaction whereby a Canadian
subsidiary of Marathon would acquire all of the issued and outstanding
securities of Tarragon. The board of directors of Tarragon has recommended that
securityholders vote to approve the transaction. The transaction is also subject
to approval by the Ontario Court (General Division), Ontario, Canada.
On July 13, 1998, Tarragon mailed its Notice of Special Meeting, Notice of
Motion and Information Circular ("Tarragon Information Circular") relating to
the special meeting of securityholders. Financial information related to the
acquisition of Tarragon by Marathon is not required under the materiality
requirements of the applicable sections of the Securities Exchange Act of 1934
or the Securities Act of 1933. However, unaudited pro forma financial statements
of the USX-Marathon Group, USX Corporation and Tarragon were included as
Appendix M in the Tarragon Information Circular. A copy of Appendix M is filed
herewith as an exhibit for the benefit of U.S. investors and shareholders of USX
Corporation.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99. Unaudited Pro Forma Financial Statements excerpted from the Tarragon
Information Circular
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C>
USX CORPORATION
By: /s/ Kenneth L. Matheny
-------------------------------------
Kenneth L. Matheny
Vice President and Comptroller
Dated: July 16, 1998
</TABLE>
<PAGE>
EXHIBIT 99.
APPENDIX M
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
M-1
<PAGE>
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
EXPLANATORY NOTE................................................................................................ M-3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF MARATHON GROUP:
Unaudited Pro Forma Combined Balance Sheet as of March 31, 1998............................................... M-5
Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997............................................ M-6
Unaudited Pro Forma Combined Statement of Operations for the three months ended
March 31, 1998.............................................................................................. M-7
Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1997..................... M-8
Unaudited Pro Forma Balance Sheet as of December 31, 1997..................................................... M-9
Unaudited Pro Forma Statement of Operations for the year ended December 31, 1997.............................. M-10
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS OF USX CORPORATION:
Unaudited Pro Forma Combined Consolidated Balance Sheet as of March 31, 1998.................................. M-11
Unaudited Pro Forma Combined Consolidated Balance Sheet as of December 31, 1997............................... M-12
Unaudited Pro Forma Combined Consolidated Statement of Operations for the three months ended March 31, 1998... M-13
Unaudited Pro Forma Combined Consolidated Statement of Operations for the year ended December 31, 1997........ M-14
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997........................................ M-15
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997........................................................................................... M-16
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF TARRAGON OIL AND GAS, LTD.:
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1998........................................... M-17
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997........................................ M-18
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 1998............ M-19
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997........................................................................................... M-20
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS............................................................... M-21
</TABLE>
M-2
<PAGE>
EXPLANATORY NOTE
Unless otherwise defined herein, the capitalized terms used in this
explanatory note, the following unaudited pro forma financial statements and the
notes appended thereto are as defined in the Glossary of Terms to the
Information Circular. UNLESS OTHERWISE INDICATED, ALL AMOUNTS ARE REPORTED IN
U.S. DOLLARS.
USX Corporation ("USX") is a diversified company which is principally
engaged in the energy business through its Marathon Group and in the steel
business through its U. S. Steel Group. USX has two classes of common stock,
USX-Marathon Group Common Stock ("Marathon Stock") and USX-U. S. Steel Group
Common Stock ("Steel Stock"). Each class of Common Stock is intended to provide
stockholders of that class with a separate security reflecting the performance
of the related group.
The financial statements of the Marathon Group include the financial
position and results of operations for the businesses of Marathon Oil Company
("Marathon") 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. The Marathon Group
financial statements are prepared using the amounts included in the USX
consolidated financial statements.
Although the financial statements of the Marathon Group and the U. S. Steel
Group separately report the assets, liabilities (including contingent
liabilities) and stockholders' equity of USX attributed to each such group, such
attribution of assets, liabilities (including contingent liabilities) and
stockholders' equity among 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 or responsibility for such liabilities. Holders of Marathon
Stock and Steel Stock are holders of common stock of USX and continue to be
subject to all the risks associated with an investment in USX and all of its
businesses and liabilities. Financial impacts arising from one Group that affect
the overall cost of USX's capital could affect the results of operations and
financial condition of the other Group. In addition, net losses of either 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 both
classes of Common Stock. Accordingly, the USX consolidated financial information
should be read in connection with the Marathon Group financial information.
The unaudited pro forma combined financial statements of the Marathon Group
(pages M-5 through M-8) and USX (pages M-11 through M-14) have been prepared
assuming the Tarragon acquisition is accounted for as a purchase of Tarragon Oil
and Gas Limited ("Tarragon") by Marathon under U.S. GAAP. USX follows the
successful efforts method of accounting for oil and gas exploration and
development. Tarragon follows the full cost method of accounting for exploration
and development. Pro forma adjustments to conform the unaudited pro forma
consolidated financial statements of Tarragon to the successful efforts method,
as well as pro forma adjustments to conform Tarragon's unaudited pro forma
consolidated financial statements from Canadian GAAP to U.S. GAAP, are presented
in the unaudited pro forma combined financial statements of USX and the Marathon
Group. Additionally, under U.S. GAAP, the functional currency for Tarragon has
been assumed to be the U.S. dollar for financial statement reporting purposes.
The unaudited pro forma financial statements of the Marathon Group (pages
M-9 and M-10) and USX (pages M-15 and M-16) for the periods presented have been
prepared by USX to give effect to the January 1, 1998 acquisition of Ashland
RM&T, as described in Note 1.
The unaudited pro forma consolidated financial statements of Tarragon (pages
M-17 through M-20) for the periods presented have been prepared by Tarragon to
give effect to the April 15, 1998 acquisition of Unocal Canada as described in
Note 1. The historical consolidated financial statements of Tarragon, which are
incorporated by reference in this Information Circular, were prepared under
Canadian GAAP and in Canadian dollars. In the unaudited pro forma consolidated
financial statements of Tarragon, the historical consolidated financial
statements of Tarragon have been converted to U.S. dollars using the period end
exchange rate for the balance sheets and the average exchange rate for the
statements of operations for the respective periods. In addition, certain
reclassifications have been made to the historical consolidated financial
statements of Tarragon to conform with USX's financial statement presentation.
M-3
<PAGE>
The unaudited pro forma balance sheets as of March 31, 1998 and statements
of operations for the three months ended March 31, 1998 of USX and the Marathon
Group are based on the unaudited financial statements of USX and the Marathon
Group which include, in the opinion of USX management, all adjustments necessary
to present fairly the results for such periods. The unaudited pro forma balance
sheets as of December 31, 1997 and statements of operations for the year ended
December 31, 1997 of USX and the Marathon Group have been derived from, and
should be read in conjunction with, the audited financial statements of USX and
the Marathon Group and the related notes thereto included in this Information
Circular.
The unaudited pro forma balance sheet as of March 31, 1998 and statement of
operations for the three months ended March 31, 1998 of Tarragon are based on
the unaudited financial statements of Tarragon which include, in the opinion of
Tarragon management, all adjustments necessary to present fairly the results for
such periods. The unaudited pro forma balance sheet as of December 31, 1997 and
statement of operations for the year ended December 31, 1997 of Tarragon have
been derived from, and should be read in conjunction with, the audited financial
statements of Tarragon and the related notes thereto incorporated by reference
in this Information Circular.
The unaudited pro forma financial statements are presented for illustrative
purposes only and are not necessarily indicative of actual results of operations
or financial position that would have been achieved had the Tarragon, Unocal and
Ashland RM&T acquisitions been consummated at the dates of, for the periods
presented, nor are they necessarily indicative of future results or financial
positions.
M-4
<PAGE>
USX-MARATHON GROUP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
MARATHON PRO FORMA PRO FORMA MARATHON
GROUP TARRAGON ADJUSTMENTS GROUP
-------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 475 $-- $-- $ 475
Cash in trust....................................................... -- 7 (7) (a) --
Receivables, less allowance for doubtful accounts................... 1,321 33 -- 1,354
Inventories......................................................... 1,641 8 -- 1,649
Other current assets................................................ 223 -- -- 223
-------- --------- ----- ---------
Total current assets.............................................. 3,660 48 (7) 3,701
Investments and long-term receivables, less reserves.................. 557 -- -- 557
Property, plant and equipment--net.................................... 9,026 919 259 (d) 10,204
Prepaid pensions...................................................... 294 -- -- 294
Other noncurrent assets............................................... 221 3 7 (a) 228
(3) (b)
-------- --------- ----- ---------
Total assets...................................................... $13,758 $970 $ 256 $14,984
-------- --------- ----- ---------
-------- --------- ----- ---------
LIABILITIES
Current liabilities:
Accounts payable.................................................... $ 2,204 $ 44 $ 7 (c) $ 2,255
Payroll and benefits payable........................................ 173 -- -- 173
Accrued taxes....................................................... 128 -- -- 128
Deferred income taxes............................................... 61 -- -- 61
Accrued interest.................................................... 50 -- -- 50
Long-term debt due within one year.................................. 462 -- -- 462
-------- --------- ----- ---------
Total current liabilities......................................... 3,078 44 7 3,129
Long-term debt, less unamortized discount............................. 2,837 354 504 (i) 3,695
Long-term deferred income taxes....................................... 1,364 71 197 (e) 1,418
(214) (f)
Employee benefits..................................................... 536 -- -- 536
Deferred credits and other liabilities................................ 331 10 (5) (h) 336
Preferred stock of subsidiary......................................... 184 -- -- 184
Minority interest in Marathon Ashland Petroleum LLC................... 1,682 -- -- 1,682
STOCKHOLDERS' EQUITY.................................................. 3,746 491 (491) (g) 4,004
258 (j)
-------- --------- ----- ---------
Total liabilities and stockholders' equity........................ $13,758 $970 $ 256 $14,984
-------- --------- ----- ---------
-------- --------- ----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-5
<PAGE>
USX-MARATHON GROUP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
MARATHON PRO FORMA PRO FORMA MARATHON
GROUP TARRAGON ADJUSTMENTS GROUP
--------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 49 $-- $-- $ 49
Cash in trust....................................................... -- 10 (10) (a) --
Receivables, less allowance for doubtful accounts................... 1,490 42 -- 1,532
Inventories......................................................... 1,563 9 -- 1,572
Other current assets................................................ 170 -- -- 170
--------- --------- ----- ---------
Total current assets.............................................. 3,272 61 (10) 3,323
Investments and long-term receivables, less reserves.................. 522 -- -- 522
Property, plant and equipment--net.................................... 9,120 888 258 (d) 10,266
Prepaid pensions...................................................... 290 -- -- 290
Other noncurrent assets............................................... 261 3 10 (a) 271
(3) (b)
--------- --------- ----- ---------
Total assets...................................................... $13,465 $952 $ 255 $14,672
--------- --------- ----- ---------
--------- --------- ----- ---------
LIABILITIES
Current liabilities:
Notes payable....................................................... $ 108 $-- $-- $ 108
Accounts payable.................................................... 2,141 41 7 (c) 2,189
Payroll and benefits payable........................................ 174 -- -- 174
Accrued taxes....................................................... 110 -- -- 110
Deferred income taxes............................................... 61 -- -- 61
Accrued interest.................................................... 84 -- -- 84
Long-term debt due within one year.................................. 417 -- -- 417
--------- --------- ----- ---------
Total current liabilities......................................... 3,095 41 7 3,143
Long-term debt, less unamortized discount............................. 2,476 346 501 (i) 3,323
Long-term deferred income taxes....................................... 1,414 70 196 (e) 1,467
(213) (f)
Employee benefits..................................................... 529 -- -- 529
Deferred credits and other liabilities................................ 342 9 (5) (h) 346
Preferred stock of subsidiary......................................... 184 -- -- 184
Minority interest in Marathon Ashland Petroleum LLC................... 1,654 -- -- 1,654
STOCKHOLDERS' EQUITY.................................................. 3,771 486 (486) (g) 4,026
255 (j)
--------- --------- ----- ---------
Total liabilities and stockholders' equity........................ $13,465 $952 $ 255 $14,672
--------- --------- ----- ---------
--------- --------- ----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-6
<PAGE>
USX-MARATHON GROUP
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
MARATHON PRO FORMA PRO FORMA MARATHON
GROUP TARRAGON ADJUSTMENTS GROUP
-------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales............................................................... $ 5,224 $42 $-- $ 5,266
Dividend and affiliate income....................................... 10 -- -- 10
Gain on disposal of assets.......................................... 3 -- -- 3
Gain on ownership change in Marathon Ashland Petroleum LLC.......... 248 -- -- 248
Other income........................................................ 13 -- -- 13
-------- --- ---- ---------
Total revenues.................................................... 5,498 42 -- 5,540
-------- --- ---- ---------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below).......................... 3,822 11 -- 3,833
Selling, general and administrative expenses........................ 131 1 -- 132
Depreciation, depletion and amortization............................ 270 22 3 (p) 295
Taxes other than income taxes....................................... 816 -- -- 816
Exploration expenses................................................ 82 -- 4 (n) 86
Inventory market valuation credits.................................. (25) -- -- (25)
-------- --- ---- ---------
Total costs and expenses.......................................... 5,096 34 7 5,137
-------- --- ---- ---------
INCOME FROM OPERATIONS................................................ 402 8 (7) 403
Net interest and other financial costs................................ 54 5 8 (o) 67
Minority interest in income of Marathon Ashland Petroleum LLC......... 54 -- -- 54
-------- --- ---- ---------
INCOME BEFORE INCOME TAXES............................................ 294 3 (15) 282
Provision for estimated income taxes.................................. 111 2 (6) (r) 107
-------- --- ---- ---------
NET INCOME............................................................ $ 183 $ 1 $ (9) $ 175
-------- --- ---- ---------
-------- --- ---- ---------
MARATHON STOCK DATA:
Net income per share:
Basic............................................................. $ .63 $ .59
Diluted........................................................... .63 .59
Weighted average shares (in thousands):
Basic............................................................. 288,846 296,205
Diluted........................................................... 289,490 296,849
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-7
<PAGE>
USX-MARATHON GROUP
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
MARATHON PRO FORMA PRO FORMA MARATHON
GROUP TARRAGON ADJUSTMENTS GROUP
--------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales............................................................... $ 22,943 $225 $-- $ 23,168
Dividend and affiliate income....................................... 41 -- -- 41
Gain on disposal of assets.......................................... 37 -- -- 37
Other income........................................................ 87 -- -- 87
--------- --------- ---- ---------
Total revenues.................................................... 23,108 225 -- 23,333
--------- --------- ---- ---------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below).......................... 15,853 51 6 (n) 15,910
Selling, general and administrative expenses........................ 834 6 3 (n) 843
Depreciation, depletion and amortization............................ 754 90 16 (p) 857
(3) (q)
Taxes other than income taxes....................................... 3,933 -- -- 3,933
Exploration expenses................................................ 189 -- 21 (n) 210
Inventory market valuation charges.................................. 416 -- -- 416
--------- --------- ---- ---------
Total costs and expenses.......................................... 21,979 147 43 22,169
--------- --------- ---- ---------
INCOME FROM OPERATIONS................................................ 1,129 78 (43) 1,164
Net interest and other financial costs................................ 260 16 31 (o) 312
5 (s)
Minority interest in income of Marathon Ashland Petroleum LLC......... 173 -- -- 173
--------- --------- ---- ---------
INCOME BEFORE INCOME TAXES............................................ 696 62 (79) 679
Provision for estimated income taxes.................................. 225 24 (33) (r) 216
--------- --------- ---- ---------
NET INCOME............................................................ $ 471 $ 38 $(46) $ 463
--------- --------- ---- ---------
--------- --------- ---- ---------
MARATHON STOCK DATA:
Net income per share:
Basic............................................................. $ 1.64 $ 1.57
Diluted........................................................... 1.63 1.56
Weighted average shares (in thousands):
Basic............................................................. 288,038 295,332
Diluted........................................................... 290,520 297,814
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-8
<PAGE>
USX-MARATHON GROUP
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MARATHON GROUP ADJUSTMENTS MARATHON GROUP
-------------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 36 $ 13 (k) $ 49
Receivables, less allowance for doubtful accounts................... 856 634 (k) 1,490
Inventories......................................................... 980 583 (k) 1,563
Other current assets................................................ 146 24 (k) 170
------- ------ -------
Total current assets.............................................. 2,018 1,254 3,272
Investments and long-term receivables, less reserves.................. 455 67 (k) 522
Property, plant and equipment--net.................................... 7,566 1,554 (k) 9,120
Prepaid pensions...................................................... 290 -- 290
Other noncurrent assets............................................... 236 25 (k) 261
------- ------ -------
Total assets...................................................... $10,565 $2,900 $13,465
------- ------ -------
------- ------ -------
LIABILITIES
Current liabilities:
Notes payable....................................................... $ 108 $ -- $ 108
Accounts payable.................................................... 1,348 793 (k) 2,141
Payroll and benefits payable........................................ 142 32 (k) 174
Accrued taxes....................................................... 102 8 (k) 110
Deferred income taxes............................................... 61 -- 61
Accrued interest.................................................... 84 -- 84
Long-term debt due within one year.................................. 417 -- 417
------- ------ -------
Total current liabilities......................................... 2,262 833 3,095
Long-term debt, less unamortized discount............................. 2,476 -- 2,476
Long-term deferred income taxes....................................... 1,318 3 (k) 1,414
93 (l)
Employee benefits..................................................... 375 154 (k) 529
Deferred credits and other liabilities................................ 332 10 (k) 342
Preferred stock of subsidiary......................................... 184 -- 184
Minority interest in Marathon Ashland Petroleum LLC................... -- 1,654 (m) 1,654
STOCKHOLDERS' EQUITY.................................................. 3,618 153 (l) 3,771
------- ------ -------
Total liabilities and stockholders' equity........................ $10,565 $2,900 $13,465
------- ------ -------
------- ------ -------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-9
<PAGE>
USX-MARATHON GROUP
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASHLAND PRO FORMA PRO FORMA
MARATHON GROUP RM&T ADJUSTMENTS MARATHON GROUP
-------------- ------- ----------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales............................................................... $15,668 $6,518 $ (369) (t) $22,943
1,126 (u)
Dividend and affiliate income....................................... 36 5 -- 41
Gain on disposal of assets.......................................... 37 -- -- 37
Other income........................................................ 13 74 -- 87
------- ------- ------ -------
Total revenues.................................................... 15,754 6,597 757 23,108
------- ------- ------ -------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below).......................... 10,392 4,721 (369) (t) 15,853
1,126 (u)
(17) (v)
Selling, general and administrative expenses........................ 355 479 -- 834
Depreciation, depletion and amortization............................ 664 162 (72) (w) 754
Taxes other than income taxes....................................... 2,938 995 -- 3,933
Exploration expenses................................................ 189 -- -- 189
Inventory market valuation charges.................................. 284 -- 132 (x) 416
------- ------- ------ -------
Total costs and expenses.......................................... 14,822 6,357 800 21,979
------- ------- ------ -------
INCOME FROM OPERATIONS................................................ 932 240 (43) 1,129
Net interest and other financial costs................................ 260 -- -- 260
Minority interest in income of Marathon Ashland Petroleum LLC......... -- -- 173 (y) 173
------- ------- ------ -------
INCOME BEFORE INCOME TAXES............................................ 672 240 (216) 696
Provision for estimated income taxes.................................. 216 -- 9 (z) 225
------- ------- ------ -------
NET INCOME............................................................ $ 456 $ 240 $ (225) $ 471
------- ------- ------ -------
------- ------- ------ -------
MARATHON STOCK DATA:
Net income per share:
Basic............................................................. $ 1.59 $ 1.64
Diluted........................................................... 1.58 1.63
Weighted average shares (in thousands):
Basic............................................................. 288,038 288,038
Diluted........................................................... 290,520 290,520
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-10
<PAGE>
USX CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA COMBINED
USX TARRAGON ADJUSTMENTS USX
------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 487 $-- $-- $ 487
Cash in trust....................................................... -- 7 (7) (a) --
Receivables, less allowance for doubtful accounts................... 1,826 33 -- 1,859
Inventories......................................................... 2,359 8 -- 2,367
Deferred income tax benefits........................................ 229 -- -- 229
Other current assets................................................ 172 -- -- 172
------- --------- ----- ---------
Total current assets.............................................. 5,073 48 (7) 5,114
Investments and long-term receivables, less reserves.................. 1,201 -- -- 1,201
Property, plant and equipment--net.................................... 11,501 919 259 (d) 12,679
Prepaid pensions...................................................... 2,308 -- -- 2,308
Other noncurrent assets............................................... 259 3 7 (a) 266
(3) (b)
------- --------- ----- ---------
Total assets...................................................... $20,342 $970 $ 256 $21,568
------- --------- ----- ---------
------- --------- ----- ---------
LIABILITIES
Current liabilities:
Accounts payable.................................................... $ 2,854 $ 44 $ 7 (c) $ 2,905
Payroll and benefits payable........................................ 537 -- -- 537
Accrued taxes....................................................... 331 -- -- 331
Accrued interest.................................................... 58 -- -- 58
Long-term debt due within one year.................................. 518 -- -- 518
------- --------- ----- ---------
Total current liabilities......................................... 4,298 44 7 4,349
Long-term debt, less unamortized discount............................. 3,313 354 504 (i) 4,171
Long-term deferred income taxes....................................... 1,443 71 197 (e) 1,497
(214) (f)
Employee benefits..................................................... 2,872 -- -- 2,872
Deferred credits and other liabilities................................ 707 10 (5) (h) 712
Preferred stock of subsidiary......................................... 250 -- -- 250
USX obligated mandatorily redeemable convertible preferred
securities.......................................................... 182 -- -- 182
Minority interest in Marathon Ashland Petroleum LLC................... 1,682 -- -- 1,682
STOCKHOLDERS' EQUITY
Preferred stock....................................................... 3 -- -- 3
Common stocks......................................................... 376 -- -- 376
Exchangeable Shares................................................... -- -- 7 (j) 7
Additional paid-in capital............................................ 3,931 404 (404) (g) 4,182
251 (j)
Retained earnings..................................................... 1,323 87 (87) (g) 1,323
Accumulated other comprehensive loss.................................. (36) -- -- (36)
Deferred compensation adjustments..................................... (2) -- -- (2)
------- --------- ----- ---------
Total stockholders' equity........................................ 5,595 491 (233) 5,853
------- --------- ----- ---------
Total liabilities and stockholders' equity........................ $20,342 $970 $ 256 $21,568
------- --------- ----- ---------
------- --------- ----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-11
<PAGE>
USX CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA COMBINED
USX TARRAGON ADJUSTMENTS USX
--------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 67 $-- $-- $ 67
Cash in trust....................................................... -- 10 (10) (a) --
Receivables, less allowance for doubtful accounts................... 2,051 42 -- 2,093
Inventories......................................................... 2,268 9 -- 2,277
Deferred income tax benefits........................................ 229 -- -- 229
Other current assets................................................ 111 -- -- 111
--------- --------- ----- ---------
Total current assets.............................................. 4,726 61 (10) 4,777
Investments and long-term receivables, less reserves.................. 1,095 -- -- 1,095
Property, plant and equipment--net.................................... 11,616 888 258 (d) 12,762
Prepaid pensions...................................................... 2,247 -- -- 2,247
Other noncurrent assets............................................... 305 3 10 (a) 315
(3) (b)
Cash restricted for redemption of Delhi Stock......................... 195 -- -- 195
--------- --------- ----- ---------
Total assets...................................................... $20,184 $952 $ 255 $21,391
--------- --------- ----- ---------
--------- --------- ----- ---------
LIABILITIES
Current liabilities:
Notes payable....................................................... $ 121 $-- $-- $ 121
Accounts payable.................................................... 2,804 41 7 (c) 2,852
Payroll and benefits payable........................................ 553 -- -- 553
Accrued taxes....................................................... 312 -- -- 312
Accrued interest.................................................... 95 -- -- 95
Long-term debt due within one year.................................. 471 -- -- 471
--------- --------- ----- ---------
Total current liabilities......................................... 4,356 41 7 4,404
Long-term debt, less unamortized discount............................. 2,932 346 501 (i) 3,779
Long-term deferred income taxes....................................... 1,449 70 196 (e) 1,502
(213) (f)
Employee benefits..................................................... 2,867 -- -- 2,867
Deferred credits and other liabilities................................ 746 9 (5) (h) 750
Preferred stock of subsidiary......................................... 250 -- -- 250
USX obligated mandatorily redeemable convertible preferred
securities.......................................................... 182 -- -- 182
Minority interest in Marathon Ashland Petroleum LLC................... 1,654 -- -- 1,654
Redeemable Delhi Stock................................................ 195 -- -- 195
STOCKHOLDERS' EQUITY
Preferred stock....................................................... 3 -- -- 3
Common stocks......................................................... 375 -- -- 375
Exchangeable Shares................................................... -- -- 7 (j) 7
Additional paid-in capital............................................ 3,924 400 (400) (g) 4,172
248 (j)
Retained earnings..................................................... 1,291 86 (86) (g) 1,291
Other equity adjustments.............................................. (40) -- -- (40)
--------- --------- ----- ---------
Total stockholders' equity........................................ 5,553 486 (231) 5,808
--------- --------- ----- ---------
Total liabilities and stockholders' equity........................ $20,184 $952 $ 255 $21,391
--------- --------- ----- ---------
--------- --------- ----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-12
<PAGE>
USX CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA COMBINED
USX TARRAGON ADJUSTMENTS USX
------ --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales............................................................... $6,887 $42 $-- $6,929
Dividend and affiliate income....................................... 25 -- -- 25
Gain on disposal of assets.......................................... 14 -- -- 14
Gain on ownership change in Marathon Ashland Petroleum LLC.......... 248 -- -- 248
Other income........................................................ 13 -- -- 13
------ --- ----- ---------
Total revenues.................................................... 7,187 42 -- 7,229
------ --- ----- ---------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below).......................... 5,270 11 -- 5,281
Selling, general and administrative expenses........................ 85 1 -- 86
Depreciation, depletion and amortization............................ 347 22 3 (p) 372
Taxes other than income taxes....................................... 864 -- -- 864
Exploration expenses................................................ 82 -- 4 (n) 86
Inventory market valuation credits.................................. (25) -- -- (25)
------ --- ----- ---------
Total costs and expenses.......................................... 6,623 34 7 6,664
------ --- ----- ---------
INCOME FROM OPERATIONS................................................ 564 8 (7) 565
Net interest and other financial costs................................ 82 5 8 (o) 95
Minority interest in income of Marathon Ashland Petroleum LLC......... 54 -- -- 54
------ --- ----- ---------
INCOME BEFORE INCOME TAXES............................................ 428 3 (15) 416
Provision for estimated income taxes.................................. 158 2 (6) (r) 154
------ --- ----- ---------
NET INCOME............................................................ 270 1 (9) 262
Dividends on preferred stock.......................................... 2 -- -- 2
------ --- ----- ---------
NET INCOME APPLICABLE TO COMMON STOCKS................................ $ 268 $ 1 $ (9) $ 260
------ --- ----- ---------
------ --- ----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-13
<PAGE>
USX CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA COMBINED
USX TARRAGON ADJUSTMENTS USX
--------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales............................................................... $29,650 $225 $-- $29,875
Dividend and affiliate income....................................... 110 -- -- 110
Gain on disposal of assets.......................................... 94 -- -- 94
Other income........................................................ 88 -- -- 88
--------- --------- ---- ---------
Total revenues.................................................... 29,942 225 -- 30,167
--------- --------- ---- ---------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below).......................... 21,508 51 6 (n) 21,565
Selling, general and administrative expenses........................ 697 6 3 (n) 706
Depreciation, depletion and amortization............................ 1,057 90 16 (p) 1,160
(3) (q)
Taxes other than income taxes....................................... 4,173 -- -- 4,173
Exploration expenses................................................ 189 -- 21 (n) 210
Inventory market valuation charges.................................. 416 -- -- 416
--------- --------- ---- ---------
Total costs and expenses.......................................... 28,040 147 43 28,230
--------- --------- ---- ---------
INCOME FROM OPERATIONS................................................ 1,902 78 (43) 1,937
Net interest and other financial costs................................ 347 16 31 (o) 399
5 (s)
Minority interest in income of Marathon Ashland Petroleum LLP......... 173 -- -- 173
--------- --------- ---- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES................. 1,382 62 (79) 1,365
Provision for estimated income taxes.................................. 459 24 (33) (r) 450
--------- --------- ---- ---------
Income from continuing operations..................................... 923 38 (46) 915
--------- --------- ---- ---------
DISCONTINUED OPERATIONS:
Income (loss) from operations (net of income tax)..................... (1) -- -- (1)
Gain on disposal (net of income tax).................................. 81 -- -- 81
--------- --------- ---- ---------
INCOME FROM DISCONTINUED OPERATIONS................................... 80 -- -- 80
--------- --------- ---- ---------
NET INCOME............................................................ 1,003 38 (46) 995
Noncash credit from exchange of preferred stock....................... 10 -- -- 10
Dividends on preferred stock.......................................... (13) -- -- (13)
--------- --------- ---- ---------
NET INCOME APPLICABLE TO COMMON STOCKS................................ $ 1,000 $ 38 $(46) $ 992
--------- --------- ---- ---------
--------- --------- ---- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-14
<PAGE>
USX CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
USX ADJUSTMENTS USX
------- ----------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 54 $ 13 (k) $ 67
Receivables, less allowance for doubtful accounts................... 1,417 634 (k) 2,051
Inventories......................................................... 1,685 583 (k) 2,268
Deferred income tax benefits........................................ 229 -- 229
Other current assets................................................ 87 24 (k) 111
------- ------ ---------
Total current assets.............................................. 3,472 1,254 4,726
Investments and long-term receivables, less reserves.................. 1,028 67 (k) 1,095
Property, plant and equipment--net.................................... 10,062 1,554 (k) 11,616
Prepaid pensions...................................................... 2,247 -- 2,247
Other noncurrent assets............................................... 280 25 (k) 305
Cash restricted for redemption of Delhi Stock......................... 195 -- 195
------- ------ ---------
Total assets...................................................... $17,284 $2,900 $20,184
------- ------ ---------
------- ------ ---------
LIABILITIES
Current liabilities:
Notes payable....................................................... $ 121 $ -- $ 121
Accounts payable.................................................... 2,011 793 (k) 2,804
Payroll and benefits payable........................................ 521 32 (k) 553
Accrued taxes....................................................... 304 8 (k) 312
Accrued interest.................................................... 95 -- 95
Long-term debt due within one year.................................. 471 -- 471
------- ------ ---------
Total current liabilities......................................... 3,523 833 4,356
Long-term debt, less unamortized discount............................. 2,932 -- 2,932
Long-term deferred income taxes....................................... 1,353 3 (k) 1,449
93 (l)
Employee benefits..................................................... 2,713 154 (k) 2,867
Deferred credits and other liabilities................................ 736 10 (k) 746
Preferred stock of subsidiary......................................... 250 -- 250
USX obligated mandatorily redeemable convertible preferred
securities.......................................................... 182 -- 182
Minority interest in Marathon Ashland Petroleum LLC................... -- 1,654 (m) 1,654
Redeemable Delhi Stock................................................ 195 -- 195
STOCKHOLDERS' EQUITY
Preferred stock....................................................... 3 -- 3
Common stocks......................................................... 375 -- 375
Additional paid-in capital............................................ 3,924 -- 3,924
Retained earnings..................................................... 1,138 153 (l) 1,291
Other equity adjustments.............................................. (40) -- (40)
------- ------ ---------
Total stockholders' equity........................................ 5,400 153 5,553
------- ------ ---------
Total liabilities and stockholders' equity........................ $17,284 $2,900 $20,184
------- ------ ---------
------- ------ ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-15
<PAGE>
USX CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
ASHLAND PRO FORMA PRO FORMA
USX RM&T ADJUSTMENTS USX
--------- ----------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................................................................ $ 22,375 $ 6,518 $ (369) (t) $ 29,650
1,126 (u)
Dividend and affiliate income........................................ 105 5 -- 110
Gain on disposal of assets........................................... 94 -- -- 94
Other income......................................................... 14 74 -- 88
--------- ----------- --------- -----------
Total revenues..................................................... 22,588 6,597 757 29,942
--------- ----------- --------- -----------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below)........................... 16,047 4,721 (369) (t) 21,508
1,126 (u)
(17) (v)
Selling, general and administrative expenses......................... 218 479 -- 697
Depreciation, depletion and amortization............................. 967 162 (72) (w) 1,057
Taxes other than income taxes........................................ 3,178 995 -- 4,173
Exploration expenses................................................. 189 -- -- 189
Inventory market valuation charges................................... 284 -- 132 (x) 416
--------- ----------- --------- -----------
Total costs and expenses........................................... 20,883 6,357 800 28,040
--------- ----------- --------- -----------
INCOME FROM OPERATIONS................................................. 1,705 240 (43) 1,902
Net interest and other financial costs................................. 347 -- -- 347
Minority interest in income of Marathon Ashland
Petroleum LLC........................................................ -- -- 173 (y) 173
--------- ----------- --------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES.................. 1,358 240 (216) 1,382
Provision for estimated income taxes................................... 450 -- 9 (z) 459
--------- ----------- --------- -----------
INCOME FROM CONTINUING OPERATIONS...................................... 908 240 (225) 923
--------- ----------- --------- -----------
DISCONTINUED OPERATIONS:
Income (loss) from operations (net of income tax).................... (1) -- -- (1)
Gain on disposal (net of income tax)................................. 81 -- -- 81
--------- ----------- --------- -----------
INCOME FROM DISCONTINUED OPERATIONS.................................... 80 -- -- 80
--------- ----------- --------- -----------
NET INCOME............................................................. 988 240 (225) 1,003
Noncash credit from exchange of preferred stock........................ 10 -- -- 10
Dividends on preferred stock........................................... (13) -- -- (13)
--------- ----------- --------- -----------
NET INCOME APPLICABLE TO COMMON STOCKS................................. $ 985 $ 240 $ (225) $ 1,000
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-16
<PAGE>
TARRAGON OIL AND GAS LIMITED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TARRAGON ADJUSTMENTS TARRAGON
-------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash in trust............... $ 7 $-- $ 7
Receivables, less allowance
for doubtful accounts..... 33 -- 33
Inventories................. 8 -- 8
-------- ----- ---------
Total current assets...... 48 -- 48
Property, plant and
equipment--net.............. 699 220(aa) 919
Other noncurrent assets....... 3 -- 3
-------- ----- ---------
Total assets.............. $750 $ 220 $970
-------- ----- ---------
-------- ----- ---------
LIABILITIES
Current liabilities--accounts
payable..................... $ 42 $ 2(aa) $ 44
Long-term debt................ 283 71(aa) 354
Long-term deferred income
taxes....................... 71 -- 71
Deferred credits and other
liabilities................. 10 -- 10
STOCKHOLDERS' EQUITY
Additional paid-in capital.... 257 147(aa) 404
Retained earnings............. 87 -- 87
-------- ----- ---------
Total stockholders'
equity.................. 344 147 491
-------- ----- ---------
Total liabilities and
stockholders' equity.... $750 $ 220 $970
-------- ----- ---------
-------- ----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-17
<PAGE>
TARRAGON OIL AND GAS LIMITED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TARRAGON ADJUSTMENTS TARRAGON
-------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash in trust............................................. $ 10 $-- $ 10
Receivables, less allowance for doubtful accounts......... 42 -- 42
Inventories............................................... 9 -- 9
-------- ----- ---------
Total current assets.................................... 61 -- 61
Property, plant and equipment--net.......................... 670 218(aa) 888
Other noncurrent assets..................................... 3 -- 3
-------- ----- ---------
Total assets............................................ $734 $ 218 $952
-------- ----- ---------
-------- ----- ---------
LIABILITIES
Current liabilities--accounts payable....................... $ 38 $ 3(aa) $ 41
Long-term debt.............................................. 276 70(aa) 346
Long-term deferred income taxes............................. 70 -- 70
Deferred credits and other liabilities...................... 9 -- 9
STOCKHOLDERS' EQUITY
Additional paid-in capital.................................. 255 145(aa) 400
Retained earnings........................................... 86 -- 86
-------- ----- ---------
Total stockholders' equity.............................. 341 145 486
-------- ----- ---------
Total liabilities and stockholders' equity.............. $734 $ 218 $952
-------- ----- ---------
-------- ----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-18
<PAGE>
TARRAGON OIL AND GAS LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
UNOCAL PRO FORMA PRO FORMA
TARRAGON CANADA ADJUSTMENTS TARRAGON
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES.................................................... $ 29 $ 13 $-- $ 42
-------- ------ ----------- ---------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below)................ 8 3 -- 11
Selling, general and administrative expenses.............. 1 -- -- 1
Depreciation, depletion and amortization.................. 15 -- 7(bb) 22
-------- ------ ----------- ---------
Total costs and expenses................................ 24 3 7 34
-------- ------ ----------- ---------
INCOME FROM OPERATIONS...................................... 5 10 (7) 8
Net interest and other financial costs...................... 4 -- 1(cc) 5
-------- ------ ----------- ---------
INCOME BEFORE INCOME TAXES.................................. 1 10 (8) 3
Provision for estimated income taxes........................ 1 -- 1(dd) 2
-------- ------ ----------- ---------
NET INCOME.................................................. $-- $ 10 $ (9) $ 1
-------- ------ ----------- ---------
-------- ------ ----------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-19
<PAGE>
TARRAGON OIL AND GAS LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
UNOCAL PRO FORMA PRO FORMA
TARRAGON CANADA ADJUSTMENTS TARRAGON
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES.................................................... $154 $ 71 $-- $225
-------- ------ ----- ---------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below)................ 35 16 -- 51
Selling, general and administrative expenses.............. 5 -- 1(ff) 6
Depreciation, depletion and amortization.................. 63 -- 25(bb) 90
2(bb)
-------- ------ ----- ---------
Total costs and expenses................................ 103 16 28 147
-------- ------ ----- ---------
INCOME FROM OPERATIONS...................................... 51 55 (28) 78
Net interest and other financial costs...................... 12 -- 4(cc) 16
-------- ------ ----- ---------
INCOME BEFORE INCOME TAXES.................................. 39 55 (32) 62
Provision for estimated income taxes........................ 15 -- 8(dd) 24
1(ee)
-------- ------ ----- ---------
NET INCOME.................................................. $ 24 $ 55 $ (41) $ 38
-------- ------ ----- ---------
-------- ------ ----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
M-20
<PAGE>
NOTES TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 1. BASIS OF PRESENTATION
DESCRIPTION OF THE TRANSACTION. In accordance with the Arrangement
Agreement, each Tarragon Securityholder will ultimately receive, at the option
of such holder, cash in the amount of C$14.25 per share or a number of
Exchangeable Shares equal to the quotient of C$14.25 divided by the Average
Closing Price per share of the Marathon Stock multiplied by the number of
Tarragon Securities tendered. The Exchangeable Shares entitle the holders to
declared dividends and other rights economically equivalent to those of holders
of Marathon Stock. The Exchangeable Shares will represent ownership in an
indirect wholly owned Canadian subsidiary of Marathon and will be exchangeable
only into Marathon Stock on a one-for-one basis. As set forth in the Arrangement
Agreement, at least 10 percent of the total consideration is required to be in
cash.
The exact amount of cash or Exchangeable Shares to be elected in the
Tarragon acquisition cannot be determined at this time. For purposes of the
unaudited pro forma financial statements, it was assumed that holders of 65
percent of Tarragon shares and special warrants received cash and 35 percent
received Exchangeable Shares. If it is assumed that all holders of Tarragon
shares elect to receive cash, or if it is assumed that 90 percent of the holders
of Tarragon shares elect to receive Exchangeable Shares, net income per share
(basic and diluted) would not change by more than one cent per share from the
amounts presented for both periods in the unaudited pro forma combined financial
statements.
DESCRIPTION OF PRO FORMA FINANCIAL STATEMENTS. The unaudited pro forma
combined financial statements of the Marathon Group (pages M-5 through M-8) and
USX (pages M-11 through M-14) have been prepared assuming the Tarragon
acquisition is accounted for as a purchase of Tarragon by Marathon under U.S.
GAAP. USX follows the successful efforts method of accounting for oil and gas
exploration and development. Tarragon follows the full cost method of accounting
for exploration and development. Pro forma adjustments to conform the unaudited
pro forma consolidated financial statements of Tarragon to the successful
efforts method, as well as pro forma adjustments to conform Tarragon's unaudited
pro forma consolidated financial statements from Canadian GAAP to U.S. GAAP, are
presented in the unaudited pro forma combined financial statements of USX and
the Marathon Group. Additionally, under U.S. GAAP, the functional currency for
Tarragon has been assumed to be the U.S. dollar for financial statement
reporting purposes.
The unaudited pro forma financial statements of the Marathon Group (pages
M-9 and M-10) and USX (pages M-15 and M-16) for the periods presented have been
prepared by USX to give effect to the acquisition of Ashland RM&T, as described
below.
The unaudited pro forma consolidated financial statements of Tarragon (pages
M-17 through M-20) for the periods presented have been prepared by Tarragon to
give effect to the acquisition of Unocal Canada as described below. The
historical consolidated financial statements of Tarragon, which are incorporated
by reference in this Information Circular, were prepared under Canadian GAAP and
in Canadian dollars. In the unaudited pro forma consolidated financial
statements of Tarragon, the historical consolidated financial statements of
Tarragon have been converted to U.S. dollars using the period end exchange rate
for the balance sheets and the average exchange rate for the statements of
operations for the respective periods. In addition, certain reclassifications
have been made to the historical consolidated financial statements of Tarragon
to conform with USX's financial statement presentation.
The unaudited pro forma combined balance sheets of USX and the Marathon
Group as of March 31, 1998 and December 31, 1997 have been prepared to give
effect to the Tarragon acquisition as if such transaction occurred on those
respective dates. The unaudited pro forma combined statements of operations of
USX and the Marathon Group for the three months ended March 31, 1998 and the
year ended December 31, 1997 have been prepared to give effect to the Tarragon
acquisition as if such transaction occurred at the beginning of the periods
presented.
M-21
<PAGE>
NOTES TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 1. BASIS OF PRESENTATION (CONTINUED)
The unaudited pro forma balance sheets of USX and the Marathon Group as of
December 31, 1997 have been prepared to give effect to the Ashland RM&T
acquisition as if such transaction occurred on that date. The unaudited pro
forma statements of operations of USX and the Marathon Group for the year ended
December 31, 1997 have been prepared to give effect to the Ashland RM&T
acquisition as if such transaction occurred at the beginning of the period.
The unaudited pro forma consolidated balance sheets of Tarragon as of March
31, 1998 and December 31, 1997 have been prepared to give effect to the Unocal
Canada acquisition as if such transaction occurred on those respective dates.
The unaudited pro forma consolidated statements of operations of Tarragon for
the three months ended March 31, 1998 and the year ended December 31, 1997 have
been prepared to give effect to the Unocal Canada acquisition as if such
transaction occurred at the beginning of the periods presented.
The following is a description of the individual columns included in the
unaudited pro forma financial statements:
USX--Represents the consolidated balance sheets of USX as of March 31,
1998 and December 31, 1997 and the consolidated statements of operations of
USX for the three months ended March 31, 1998 and for the year ended
December 31, 1997.
MARATHON GROUP--Represents the balance sheets of the Marathon Group as
of March 31, 1998 and December 31, 1997 and the statements of operations of
the Marathon Group for the three months ended March 31, 1998 and for the
year ended December 31, 1997.
PRO FORMA USX AND PRO FORMA MARATHON GROUP--Represents the balance
sheets and statements of operations of USX and the Marathon Group on a pro
forma basis solely to give effect to the acquisition of Ashland RM&T, as
defined below.
ASHLAND RM&T--Represents the results of operations of the refining,
marketing and transportation businesses of Ashland Inc. (Ashland RM&T) for
the year ended December 31, 1997, on a historical basis. On January 1, 1998,
Marathon transferred certain refining, marketing and transportation net
assets to a new consolidated subsidiary, which was named Marathon Ashland
Petroleum LLC (MAP). Also on January 1, 1998, Marathon acquired the Ashland
RM&T net assets in exchange for a 38% interest in MAP. The acquisition was
accounted for as a purchase.
TARRAGON--Represents the consolidated balance sheets of Tarragon as of
March 31, 1998 and December 31, 1997 and the consolidated statements of
operations of Tarragon for the three months ended March 31, 1998 and for the
year ended December 31, 1997 prepared under Canadian GAAP and converted to
U.S. dollars utilizing the exchange rates of Canadian dollars to U.S.
dollars as listed below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ---------------
<S> <C> <C>
Balance Sheets................................................................. $ .706 $ .700
Statements of Operations....................................................... .700 .720
</TABLE>
PRO FORMA TARRAGON--Represents the balance sheets and statements of
operations for Tarragon on a pro forma basis solely to give effect to the
acquisition of Unocal Canada, as defined below.
UNOCAL CANADA--Represents revenues and production expenses from certain
assets of Unocal Canada Limited, Unocal Canada Resources and Unocal Canada
Exploration Limited (Unocal Canada) for the three months ended March 31,
1998 and the year ended December 31, 1997, which were prepared under
M-22
<PAGE>
NOTES TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 1. BASIS OF PRESENTATION (CONTINUED)
Canadian GAAP and converted to U.S. dollars utilizing the above exchange
rates. On April 15, 1998, Tarragon acquired the Unocal Canada assets.
NOTE 2. ACQUISITION OF TARRAGON
The following table represents the pro forma allocation of the total
purchase price to the acquired assets and liabilities of Tarragon. The
allocation represents the fair values assigned to the assets acquired and
liabilities assumed using the purchase method of accounting. The actual
allocation of the purchase price is not anticipated to be materially different
from the table presented below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -------------
(IN MILLIONS)
<S> <C> <C>
Net working capital................................................................. $ (10) $ 3
Property, plant and equipment....................................................... 1,178(1) 1,146(1)
Other noncurrent assets............................................................. 7 10
Long-term debt...................................................................... (354) (346)
Deferred income tax liabilities..................................................... (54) (53)
Other noncurrent liabilities........................................................ (5) (4)
----------- ------
Total allocated purchase price.................................................. $ 762 $ 756
----------- ------
----------- ------
Consideration for Tarragon shares and special warrants.............................. $ 736(2) $ 730(2)
Consideration for Tarragon options.................................................. 14 14
Transaction costs................................................................... 12 12
----------- ------
Total consideration paid........................................................ $ 762 $ 756
----------- ------
----------- ------
</TABLE>
NOTES:
(1) Includes unproved properties investment of approximately $110 million.
(2) Represents the tendering of 73,156,896 Tarragon shares and special
warrants (the amount outstanding or issuable at May 29, 1998) at C$14.25
per share for cash totalling C$678 million and the issuance of
Exchangeable Shares totalling 7,358,907 shares and 7,294,273 shares at
March 31, 1998 and December 31, 1997, respectively. The ratio of
Exchangeable Shares for each tendered Tarragon share is based on an
assumed Average Closing Price of $35.00 per share of Marathon Stock
translated into Canadian dollars at the respective balance sheet currency
exchange rate disclosed in Note 1.
NOTE 3. PRO FORMA ENTRIES
USX AND MARATHON GROUP PRO FORMA ADJUSTMENTS GIVING EFFECT TO THE TARRAGON
(ENTRIES A THROUGH J) AND ASHLAND RM&T (ENTRIES K THROUGH M) ACQUISITIONS IN THE
UNAUDITED PRO FORMA BALANCE SHEETS REFLECT THE FOLLOWING:
(a) To reclassify cash held in trust relating to future fixed asset
expenditures from current to long-term assets in accordance with U.S.
GAAP.
(b) To reverse unrealized foreign currency exchange losses on U.S. dollar
debt that is deferred for Canadian GAAP purposes.
(c) To record the fair value of forward currency exchange contracts in
accordance with U.S. GAAP.
(d) To record the excess of fair value over recorded cost of the acquired
long-lived assets, primarily reserves and unproved properties.
M-23
<PAGE>
NOTES TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 3. PRO FORMA ENTRIES (CONTINUED)
(e) To record deferred Canadian income taxes based on the temporary
differences between tax basis and financial book basis of assets and
liabilities at the Canadian statutory rate.
(f) To record a deferred U.S. income tax benefit expected to be realized by
crediting future Canadian income tax payments against future U.S. income
tax liabilities at the U.S. statutory rate.
(g) To eliminate the historical stockholders' equity of Tarragon.
(h) To adjust accrued site restoration costs to conform to Marathon's
accounting policy.
(i) Represents anticipated borrowings to finance the assumed cash portion of
the acquisition.
(j) Represents anticipated issuance of Exchangeable Shares for the assumed
equity portion of the acquisition.
(k) To record the acquisition of certain refining, marketing and
transportation net assets from Ashland Inc. in exchange for a 38%
ownership interest in MAP. The acquisition was accounted for under the
purchase method of accounting. The purchase price of $1.9 billion was
allocated to the acquired assets and liabilities based on fair value.
(l) Represents adjustments to reflect a gain resulting from the change in
Marathon's ownership interest in MAP.
(m) Represents the minority interest in MAP.
USX AND MARATHON GROUP PRO FORMA ADJUSTMENTS GIVING EFFECT TO THE TARRAGON
(ENTRIES N THROUGH S) AND ASHLAND RM&T (ENTRIES T THROUGH Z) ACQUISITIONS IN THE
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS REFLECT THE FOLLOWING:
(n) To recognize as expense, in accordance with the successful efforts
method of accounting, amounts which were capitalized by Tarragon under
the full cost method of accounting.
(o) To record interest expense on the assumed incremental U.S. dollar
borrowings used to finance a portion of the acquisition and transaction
costs. The interest expense was determined by using interest rates of
6.0% and 6.2% which represent USX's estimated incremental borrowing rate
for the three months ended March 31, 1998 and the year ended December 31,
1997, respectively.
(p) To adjust depreciation, depletion and amortization of capitalized costs
allocated to oil and gas properties.
(q) To adjust site restoration costs to conform to Marathon's accounting
policy.
(r) To record the income tax effect of pro forma adjustments at the
applicable statutory rate.
(s) To record foreign currency remeasurement gains and losses in accordance
with U.S. GAAP.
(t) To record intercompany eliminations for crude oil and refined product
buy/sell transactions.
(u) To record Ashland RM&T crude oil and refined product buy/sell
transactions to conform to Marathon's accounting policy.
(v) To adjust cost of sales for operating lease expense recorded by Ashland
RM&T and to recognize additional environmental costs.
(w) To adjust depreciation resulting from the effect of purchase price
allocations for property, plant and equipment of Ashland RM&T.
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NOTES TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 3. PRO FORMA ENTRIES (CONTINUED)
(x) To adjust Ashland RM&T inventory value to market.
(y) To reflect minority interest in income of MAP.
(z) To record the income tax effect resulting from the inclusion of Ashland
RM&T operations, on a pro forma basis, at the statutory rate.
TARRAGON PRO FORMA ADJUSTMENTS GIVING EFFECT TO THE UNOCAL ACQUISITION IN
THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS
REFLECT THE FOLLOWING:
(aa) The pro forma adjustments reflect the completion of the transaction
under which Tarragon issued 21 million common shares and a C$100 million
subordinated debenture to Unocal Canada. The Tarragon common shares
issued have been valued at an ascribed price of C$9.90 per common share.
Other transaction costs have been estimated to be C$3.5 million at March
31, 1998 and December 31, 1997.
(bb) To record an increase to depletion, depreciation, amortization and site
restoration resulting from a higher cost base upon consolidation.
(cc) To record an increase in interest expense due to the issuance of the
subordinated debenture which bears interest at 1.50% over the three-year
Government of Canada Treasury Bond rate. There was also a reduction in
interest expense assuming the cash flow from the Unocal Canada
properties was used to reduce debt.
(dd) To record an increase to deferred taxes resulting from the inclusion of
the operations of Unocal Canada.
(ee) To record an increase to Large Corporation Tax resulting from an
increase in capitalization.
(ff) To record an increase in general and administrative expenses due to the
addition of certain Unocal Canada staff.
M-25
