<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):
February 17, 2000
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)
<PAGE>
Item 5. Other Events
The audited Financial Statements and Supplementary Data for USX
Corporation for the fiscal year ended December 31, 1999, reports of the
independent accountants and Financial Data Schedule are filed herewith.
Item 7. Financial Statements and Exhibits
(c) Exhibits
23. Consent of PricewaterhouseCoopers LLP
27. Financial Data Schedule
99.1 USX Consolidated Financial Statements
99.2 Marathon Group Financial Statements
99.3 U. S. Steel Group Financial Statements
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.
USX CORPORATION
By /s/ Kenneth L. Matheny
------------------------------
Kenneth L. Matheny
Vice President and Comptroller
Dated: February 17, 2000
<PAGE>
USX
Index to Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
----
<S> <C>
USX Consolidated............................................... U-1
Marathon Group................................................. M-1
U. S. Steel Group.............................................. S-1
</TABLE>
<PAGE>
Exhibit 23.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectuses
constituting part of the Registration Statements listed below of our reports
dated February 8, 2000, relating to the Consolidated Financial Statements of USX
Corporation, the Financial Statements of the Marathon Group, and the Financial
Statements of the U.S. Steel Group, which appear on pages U-1, M-1, and S-1
respectively, of this Form 8-K:
On Form S-3: Relating to:
File No. 33-57997 Marathon Group Dividend Reinvestment Plan
33-60172 U.S. Steel Group Dividend Reinvestment Plan
333-56867 USX Corporation Debt Securities, Preferred
Stock and Common Stock
333-88947 Marathon Group and U.S. Steel Group Dividend
Reinvestment and Direct Stock Purchase Plans
333-88797 USX Corporation Debt Securities, Preferred
Stock and Common Stock
On Form S-8: Relating to:
File No. 33-41864 1990 Stock Plan
33-54333 Parity Investment Bonus
33-60667 Parity Investment Bonus
33-56828 Marathon Oil Company Thrift Plan
33-52917 Savings Fund Plan
333-00429 Savings Fund Plan
333-29699 1990 Stock Plan
333-29709 Marathon Oil Company Thrift Plan
333-52751 1990 Stock Plan
333-86847 1990 Stock Plan
PricewaterhouseCoopers LLP
Pittsburgh, Pa
February 17, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
OPERATIONS AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 133
<SECURITIES> 0
<RECEIVABLES> 2,708
<ALLOWANCES> 12
<INVENTORY> 2,627
<CURRENT-ASSETS> 5,977
<PP&E> 29,608
<DEPRECIATION> 16,799
<TOTAL-ASSETS> 22,962
<CURRENT-LIABILITIES> 4,316
<BONDS> 4,222
183
3
<COMMON> 400<F1>
<OTHER-SE> 6,453
<TOTAL-LIABILITY-AND-EQUITY> 22,962
<SALES> 29,534
<TOTAL-REVENUES> 29,583
<CGS> 27,720
<TOTAL-COSTS> 27,720
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362
<INCOME-PRETAX> 1,054
<INCOME-TAX> 349
<INCOME-CONTINUING> 705
<DISCONTINUED> 0
<EXTRAORDINARY> 7
<CHANGES> 0
<NET-INCOME> 698
<EPS-BASIC> 0<F2>
<EPS-DILUTED> 0<F3>
<FN>
<F1>CONSISTS OF MARATHON STOCK ISSUED, $312; STEEL STOCK ISSUED, $88.
<F2>BASIC EARNINGS PER SHARE APPLICABLE TO MARATHON STOCK, $2.11;
STEEL STOCK, $.40.
<F3>DILUTED EARNINGS PER SHARE APPLICABLE TO MARATHON STOCK, $2.11;
STEEL STOCK, $.40.
</FN>
</TABLE>
<PAGE>
Exhibit 99.1
USX
Index to 1999 Consolidated Financial Statements and
Supplementary Data
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Report............................................ U-1
Audited Consolidated Financial Statements:
Report of Independent Accountants............................. U-1
Consolidated Statement of Operations.......................... U-2
Consolidated Balance Sheet.................................... U-4
Consolidated Statement of Cash Flows.......................... U-5
Consolidated Statement of Stockholders' Equity................ U-6
Notes to Consolidated Financial Statements.................... U-8
Selected Quarterly Financial Data.............................. U-29
Principal Unconsolidated Affiliates............................ U-30
Supplementary Information...................................... U-30
</TABLE>
<PAGE>
USX
Explanatory Note Regarding Financial Information
Although the financial statements of the Marathon Group and the
U. S. Steel Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of USX
attributed to each such Group, such attribution does not affect
legal title to such assets and responsibility for such liabilities.
Holders of USX - Marathon Group Common Stock and USX - U. S. Steel
Group Common Stock are holders of common stock of USX and continue
to be subject to all the risks associated with an investment in USX
and all of its businesses and liabilities. Financial impacts
arising from one Group that affect the overall cost of USX's
capital could affect the results of operations and financial
condition of the other Group. In addition, net losses of either
Group, as well as dividends or distributions on any class of USX
Common Stock or series of Preferred Stock and repurchases of any
class of USX Common Stock or series of Preferred Stock, will reduce
the funds of USX legally available for payment of dividends on both
classes of USX Common Stock.
<PAGE>
Management's Report
The accompanying consolidated financial statements of USX Corporation
and Subsidiary Companies (USX) are the responsibility of and have been
prepared by USX in conformity with accounting principles generally
accepted in the United States. They necessarily include some amounts
that are based on best judgments and estimates. The consolidated
financial information displayed in other sections of this report is
consistent with these consolidated financial statements.
USX seeks to assure the objectivity and integrity of its
financial records by careful selection of its managers, by
organizational arrangements that provide an appropriate division of
responsibility and by communications programs aimed at assuring that
its policies and methods are understood throughout the organization.
USX has a comprehensive formalized system of internal accounting
controls designed to provide reasonable assurance that assets are
safeguarded and that financial records are reliable. Appropriate
management monitors the system for compliance, and the internal
auditors independently measure its effectiveness and recommend
possible improvements thereto. In addition, as part of their audit of
the consolidated financial statements, USX's independent accountants,
who are elected by the stockholders, review and test the internal
accounting controls selectively to establish a basis of reliance
thereon in determining the nature, extent and timing of audit tests to
be applied.
The Board of Directors pursues its oversight role in the area of
financial reporting and internal accounting control through its Audit
Committee. This Committee, composed solely of nonmanagement directors,
regularly meets (jointly and separately) with the independent
accountants, management and internal auditors to monitor the proper
discharge by each of its responsibilities relative to internal
accounting controls and the consolidated financial statements.
<TABLE>
<S> <C> <C>
Thomas J. Usher Robert M. Hernandez Kenneth L. Matheny
Chairman, Board of Directors Vice Chairman Vice President
& Chief Executive Officer & Chief Financial Officer & Comptroller
</TABLE>
Report of Independent Accountants
To the Stockholders of USX Corporation:
In our opinion, the accompanying consolidated financial statements
appearing on pages U-2 through U-28 present fairly, in all material
respects, the financial position of USX Corporation and its
subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial
statements are the responsibility of USX's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
February 8, 2000
U-1
<PAGE>
Consolidated Statement of Operations
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales (Note 6) $29,534 $27,789 $22,467
Dividend and affiliate income (loss) (20) 96 105
Net gains on disposal of assets 21 82 94
Gain on ownership change in
Marathon Ashland Petroleum LLC (Note 3) 17 245 -
Other income 31 25 14
------- ------- -------
Total revenues 29,583 28,237 22,680
------- ------- -------
Costs and expenses:
Cost of sales (excludes items shown below) 22,143 20,371 16,047
Selling, general and administrative expenses 203 304 218
Depreciation, depletion and amortization 1,254 1,224 967
Taxes other than income taxes 4,433 4,241 3,270
Exploration expenses 238 313 189
Inventory market valuation charges (credits) (Note 17) (551) 267 284
------- ------- -------
Total costs and expenses 27,720 26,720 20,975
------- ------- -------
Income from operations 1,863 1,517 1,705
Net interest and other financial costs (Note 7) 362 279 347
Minority interest in income of
Marathon Ashland Petroleum LLC (Note 3) 447 249 -
------- ------- -------
Income from continuing operations before income taxes 1,054 989 1,358
Provision for estimated income taxes (Note 12) 349 315 450
------- ------- -------
Income from continuing operations 705 674 908
------- ------- -------
Discontinued operations (Note 5):
Loss from operations (net of income tax) - - (1)
Gain on disposal (net of income tax) - - 81
------- ------- -------
Income from discontinued operations - - 80
------- ------- -------
Extraordinary losses (Note 8) 7 - -
------- ------- -------
Net income 698 674 988
Noncash credit from exchange of preferred stock (Note 23) - - 10
Dividends on preferred stock (9) (9) (13)
------- ------- -------
Net income applicable to common stocks $ 689 $ 665 $ 985
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
U-2
<PAGE>
Income Per Common Share
<TABLE>
<CAPTION>
(Dollars in millions, except per share data) 1999 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C>
CONTINUING OPERATIONS
Applicable to Marathon Stock:
Net income $ 654 $ 310 $ 456
Per Share Data:
Basic 2.11 1.06 1.59
Diluted 2.11 1.05 1.58
-------------------------------------------------------------------
Applicable to Steel Stock:
Income before extraordinary losses $ 42 $ 355 $ 449
Extraordinary losses 7 - -
----- ----- -----
Net income $ 35 $ 355 $ 449
Per Share Data
Basic:
Income before extraordinary losses $ .48 $4.05 $5.24
Extraordinary losses .08 - -
----- ----- -----
Net income $ .40 $4.05 $5.24
Diluted:
Income before extraordinary losses $ .48 $3.92 $4.88
Extraordinary losses .08 - -
----- ----- -----
Net income $ .40 $3.92 $4.88
-------------------------------------------------------------------
DISCONTINUED OPERATIONS
Applicable to Delhi Stock:
Net income $79.7
Per Share Data:
Basic 8.43
Diluted 8.41
-------------------------------------------------------------------
</TABLE>
See Note 22, for a description and computation of income per common
share.
The accompanying notes are an integral part of these consolidated
financial statements.
U-3
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Dollars in millions) December 31 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 4) $ 133 $ 146
Receivables, less allowance for doubtful accounts of
$12 and $12 (Note 16) 2,696 1,663
Inventories (Note 17) 2,627 2,008
Deferred income tax benefits (Note 12) 303 217
Other current assets 218 172
------- -------
Total current assets 5,977 4,206
Investments and long-term receivables, less reserves of
$3 and $10 (Note 14) 1,247 1,249
Property, plant and equipment - net (Note 13) 12,809 12,929
Prepaid pensions (Note 10) 2,629 2,413
Other noncurrent assets 300 336
------- -------
Total assets $22,962 $21,133
------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Notes payable $ - $ 145
Accounts payable 3,397 2,438
Distribution payable to minority shareholder of
Marathon Ashland Petroleum LLC (Note 4) - 103
Payroll and benefits payable 468 520
Accrued taxes 283 245
Accrued interest 107 97
Long-term debt due within one year (Note 16) 61 71
------- -------
Total current liabilities 4,316 3,619
Long-term debt (Note 16) 4,222 3,920
Deferred income taxes (Note 12) 1,839 1,579
Employee benefits (Note 10) 2,809 2,868
Deferred credits and other liabilities 734 720
Preferred stock of subsidiary (Note 23) 250 250
USX obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely junior subordinated
convertible debentures of USX (Note 23) 183 182
Minority interest in Marathon Ashland Petroleum LLC (Note 3) 1,753 1,590
Stockholders' Equity (Details on pages U-6 and U-7)
Preferred stock (Note 24) -
6.50% Cumulative Convertible issued - 2,715,287 shares and
2,767,787 shares ($136 and $138 liquidation preference, respectively) 3 3
Common stocks:
Marathon Stock issued - 311,767,181 shares and 308,458,835 shares
(par value $1 per share, authorized 550,000,000 shares) 312 308
Steel Stock issued - 88,397,714 shares and 88,336,439 shares
(par value $1 per share, authorized 200,000,000 shares) 88 88
Securities exchangeable solely into Marathon Stock -
issued - 288,621 shares and 507,324 shares (Note 3) - 1
Additional paid-in capital 4,673 4,587
Deferred compensation - (1)
Retained earnings 1,807 1,467
Accumulated other comprehensive income (loss) (27) (48)
------- -------
Total stockholders' equity 6,856 6,405
------- -------
Total liabilities and stockholders' equity $22,962 $21,133
------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
U-4
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income $ 698 $ 674 $ 988
Adjustments to reconcile to net cash provided
from operating activities:
Extraordinary losses 7 - -
Minority interest in income of
Marathon Ashland Petroleum LLC 447 249 -
Depreciation, depletion and amortization 1,254 1,224 987
Exploratory dry well costs 109 186 78
Inventory market valuation charges (credits) (551) 267 284
Pensions and other postretirement benefits (220) (181) (342)
Deferred income taxes 212 184 228
Gain on disposal of the Delhi Companies - - (287)
Gain on ownership change in
Marathon Ashland Petroleum LLC (17) (245) -
Net gains on disposal of assets (21) (82) (94)
Changes in: Current receivables - sold (320) (30) (390)
- operating turnover (977) 451 16
Inventories (77) (6) (39)
Current accounts payable and accrued expenses 1,240 (497) 91
All other - net 152 (172) (56)
------- ------- -------
Net cash provided from operating activities 1,936 2,022 1,464
------- ------- -------
Investing activities:
Capital expenditures (1,665) (1,580) (1,373)
Acquisition of Tarragon Oil and Gas Limited - (686) -
Proceeds from sale of the Delhi Companies - - 752
Disposal of assets 366 86 481
Restricted cash - withdrawals 60 241 108
- deposits (61) (67) (205)
Affiliates - investments (74) (115) (219)
- loans and advances (70) (104) (46)
- returns and repayments 1 71 10
All other - net (25) (4) (3)
------- ------- -------
Net cash used in investing activities (1,468) (2,158) (495)
------- ------- -------
Financing activities:
Commercial paper and revolving credit arrangements - net (381) 724 41
Other debt - borrowings 810 1,036 11
- repayments (242) (1,445) (786)
Common stock - issued 89 668 82
- repurchased - (195) -
Preferred stock repurchased (2) (8) -
Dividends paid (354) (342) (316)
Distributions to minority shareholder of
Marathon Ashland Petroleum LLC (400) (211) -
------- ------- -------
Net cash provided from (used in) financing activities (480) 227 (968)
------- ------- -------
Effect of exchange rate changes on cash (1) 1 (2)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (13) 92 (1)
Cash and cash equivalents at beginning of year 146 54 55
------- ------- -------
Cash and cash equivalents at end of year $ 133 $ 146 $ 54
-----------------------------------------------------------------------------------------------------------
</TABLE>
See Note 18, for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated
financial statements.
U-5
<PAGE>
Consolidated Statement of Stockholders' Equity
After the redemption of the USX - Delhi Group Common Stock (Delhi
Stock) on January 26, 1998 (Note 5), USX has two classes of common
stock: USX - Marathon Group Common Stock (Marathon Stock) and USX -
U. S. Steel Group Common Stock (Steel Stock), which are intended to
reflect the performance of the Marathon and U. S. Steel Groups,
respectively. (See Note 9, for a description of the two Groups.)
During 1998, USX issued 878,074 Exchangeable Shares (exchangeable
solely into Marathon Stock) related to the purchase of a Canadian
company. (See Note 3.)
On all matters where the holders of Marathon Stock and Steel
Stock vote together as a single class, Marathon Stock has one vote
per share and Steel Stock has a fluctuating vote per share based on
the relative market value of a share of Steel Stock to the market
value of a share of Marathon Stock. In the event of a disposition
of all or substantially all the properties and assets of the U. S.
Steel Group, USX must either distribute the net proceeds to the
holders of the Steel Stock as a special dividend or in redemption
of the stock, or exchange the Steel Stock for the Marathon Stock.
In the event of liquidation of USX, the holders of the Marathon
Stock and Steel Stock will share in the funds remaining for common
stockholders based on the relative market capitalization of the
respective Marathon Stock and Steel Stock to the aggregate market
capitalization of both classes of common stock.
<TABLE>
<CAPTION>
Dollars in millions Shares in thousands
--------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock (Note 24) -
6.50% Cumulative Convertible:
Outstanding at beginning of year $ 3 $ 3 $ 7 2,768 2,962 6,900
Repurchased - - - (53) (194) -
Exchanged for trust preferred securities - - (4) - - (3,938)
----- ----- ----- ------- ------- -------
Outstanding at end of year $ 3 $ 3 $ 3 2,715 2,768 2,962
----------------------------------------------------------------------------------------------------------------------
Common stocks:
Marathon Stock:
Outstanding at beginning of year $ 308 $ 289 $ 288 308,459 288,786 287,525
Issued in public offering - 17 - 67 17,000 -
Issued for:
Employee stock plans 3 2 1 2,903 2,236 1,209
Dividend Reinvestment and
Direct Stock Purchase Plan - - - 120 66 52
Exchangeable Shares 1 - - 218 371 -
----- ----- ----- ------- ------- -------
Outstanding at end of year $ 312 $ 308 $ 289 311,767 308,459 288,786
----------------------------------------------------------------------------------------------------------------------
Steel Stock:
Outstanding at beginning of year $ 88 $ 86 $ 85 88,336 86,578 84,885
Issued for:
Employee stock plans - 2 1 62 1,733 1,416
Dividend Reinvestment and
Direct Stock Purchase Plan - - - - 25 277
----- ----- ----- ------- ------- -------
Outstanding at end of year $ 88 $ 88 $ 86 88,398 88,336 86,578
----------------------------------------------------------------------------------------------------------------------
Delhi Stock:
Outstanding at beginning of year $ - $ - $ 9 - - 9,448
Canceled - employee stock plans - - - - - (3)
Reclassified to redeemable Delhi Stock - - (9) - - (9,445)
----- ----- ----- ------- ------- -------
Outstanding at end of year $ - $ - $ - - - -
----------------------------------------------------------------------------------------------------------------------
Securities exchangeable solely into
Marathon Stock:
Outstanding at beginning of year $ 1 $ - $ - 507 - -
Issued to acquire Tarragon stock - 1 - - 878 -
Exchanged for Marathon Stock (1) - - (218) (371) -
----- ----- ----- ------- ------- -------
Outstanding at end of year $ - $ 1 $ - 289 507 -
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Table continued on next page)
U-6
<PAGE>
<TABLE>
<CAPTION>
Stockholders' Equity Comprehensive Income
--------------------------------- -----------------------------
(Dollars in millions) 1999 1998 1997 1999 1998 1997
--------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Additional paid-in capital:
Balance at beginning of year $4,587 $3,924 $4,150
Marathon Stock issued 92 598 38
Steel Stock issued 2 57 52
Exchangeable Shares:
Issued - 28 -
Exchanged for Marathon Stock (6) (12) -
6.50% preferred stock:
Repurchased (2) (8) -
Exchanged for trust preferred securities - - (188)
Reclassified to redeemable Delhi Stock - - (128)
------ ------ ------
Balance at end of year $4,673 $4,587 $3,924
--------------------------------------------------------------------------------------
Deferred compensation (Note 19) $ - $ (1) $ (3)
--------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year $1,467 $1,138 $ 517
Net income 698 674 988 $ 698 $ 674 $ 988
Dividends on preferred stock (9) (9) (13)
Dividends on Marathon Stock
(per share: $.84 in 1999 and
1998 and $.76 in 1997) (261) (248) (219)
Dividends on Steel Stock (per share $1.00) (88) (88) (86)
Dividends on Delhi Stock (per share $.15) - - (1)
Reclassified to redeemable Delhi Stock - - (58)
Noncash credit from exchange of
preferred stock - - 10
------ ------ ------
Balance at end of year $1,807 $1,467 $1,138
--------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss):
Minimum pension liability adjustments:
Balance at beginning of year $ (37) $ (32) $ (22)
Changes during year, net of taxes/(a)/ 27 (5) (10) 27 (5) (10)
------ ------ ------
Balance at end of year (10) (37) (32)
------ ------ ------
Foreign currency translation adjustments:
Balance at beginning of year $ (11) $ (8) $ (8)
Changes during year, net of taxes/(a)/ (6) (3) - (6) (3) -
------ ------ ------
Balance at end of year (17) (11) (8)
------ ------ ------
Unrealized holding gains on investments:
Balance at beginning of year $ - $ 3 $ -
Changes during year, net of taxes/(a)/ (1) 2 3 (1) 2 3
Reclassification adjustment
included in net income 1 (5) - 1 (5) -
------ ------ ------
Balance at end of year - - 3
--------------------------------------------------------------------------------------
Total balances at end of year $ (27) $ (48) $ (37)
---------------------------------------------------------------------------------------------------------------------
Total comprehensive income/(b)/ $ 719 $ 663 $ 981
---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $6,856 $6,405 $5,400
--------------------------------------------------------------------------------------
/(a)/ Related income tax provision (credit): 1999 1998 1997
---- ---- ----
Minimum pension liability adjustments $ (13) $ 3 $ 5
Foreign currency translation adjustments 3 4 -
Unrealized holding gains on investments - 2 (1)
/(b)/ Total comprehensive income by Group:
Marathon Group $ 660 $ 306 $ 457
U. S. Steel Group 59 357 444
Delhi Group - - 80
------ ------ ------
Total $ 719 $ 663 $ 981
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
U-7
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Principal Accounting Policies
Principles applied in consolidation - The consolidated financial
statements include the accounts of USX Corporation and the
majority-owned subsidiaries which it controls (USX).
Investments in unincorporated oil and gas joint ventures,
undivided interest pipelines and jointly owned gas processing
plants are consolidated on a pro rata basis.
Investments in entities over which USX has significant
influence are accounted for using the equity method of accounting
and are carried at USX's share of net assets plus loans and
advances.
Investments in companies whose stock is publicly traded are
carried at market value. The difference between the cost of these
investments and market value is recorded in other comprehensive
income (net of tax). Investments in companies whose stock has no
readily determinable fair value are carried at cost.
Use of estimates - Generally accepted accounting principles require
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at year-end and the reported
amounts of revenues and expenses during the year. Significant items
subject to such estimates and assumptions include the carrying
value of long-lived assets; valuation allowances for receivables,
inventories and deferred income tax assets; environmental
liabilities; liabilities for potential tax deficiencies and
potential litigation claims and settlements; and assets and
obligations related to employee benefits. Additionally, certain
estimated liabilities are recorded when management commits to a
plan to close an operating facility or to exit a business activity.
Actual results could differ from the estimates and assumptions
used.
Revenue recognition - Revenues principally include sales, dividend
and affiliate income, gains or losses on the disposal of assets and
gains or losses from changes in ownership interests.
Sales - Sales are recognized when products are shipped or
services are provided to customers. Consumer excise taxes on
petroleum products and merchandise and matching crude oil and
refined products buy/sell transactions settled in cash are
included in both revenues and costs and expenses, with no
effect on income.
Dividend and Affiliate Income - Dividend and affiliate income
includes USX's proportionate share of income from equity method
investments and dividend income from other investments.
Dividend income is recognized when dividend payments are
received.
Disposal of Assets - When long-lived assets depreciated on an
individual basis are sold or otherwise disposed of, any gains
or losses are reflected in income. Gains on disposal of long-
lived assets are recognized when earned, which is generally at
the time of closing. If a loss on disposal is expected, such
losses are recognized when long-lived assets are reclassified
as assets held for sale. Proceeds from disposal of long-lived
assets depreciated on a group basis are credited to accumulated
depreciation, depletion and amortization with no immediate
effect on income.
Gas Balancing - USX follows the sales method of accounting for
gas production imbalances and would recognize a liability if
the existing proved reserves were not adequate to cover the
current imbalance situation.
Changes in Ownership Interest - Gains or losses from a change
in ownership of a consolidated subsidiary or an unconsolidated
affiliate are recognized in revenues in the period of change.
Cash and cash equivalents - Cash and cash equivalents include cash
on hand and on deposit and investments in highly liquid debt
instruments with maturities generally of three months or less.
Inventories - Inventories are carried at lower of cost or market.
Cost of inventories is determined primarily under the last-in,
first-out (LIFO) method.
Derivative instruments - USX uses commodity-based and foreign
currency derivative instruments to manage its exposure to price
risk. Management is authorized to use futures, forwards, swaps and
options related to the purchase, production or sale of crude oil,
natural gas, refined products, nonferrous metals and electricity.
While USX's risk management activities generally reduce market risk
exposure due to unfavorable commodity price changes for raw
material purchases and products sold, such activities can also
encompass strategies which assume price risk.
U-8
<PAGE>
Commodity-Based Hedging Transactions - For transactions that
qualify for hedge accounting, the resulting gains or losses are
deferred and subsequently recognized in income from operations,
as a component of sales or cost of sales, in the same period as
the underlying physical transaction. To qualify for hedge
accounting, derivative positions cannot remain open if the
underlying physical market risk has been removed. If such
derivative positions remain in place, they would be marked-to-
market and accounted for as trading or other activities.
Recorded deferred gains or losses are reflected within other
current and noncurrent assets or accounts payable and deferred
credits and other liabilities, as appropriate.
Commodity-Based Trading and Other Activities - Derivative
instruments used for trading and other activities are
marked-to-market and the resulting gains or losses are
recognized in the current period within income from operations.
This category also includes the use of derivative instruments
that have no offsetting underlying physical market risk.
Foreign Currency Transactions - USX uses forward exchange
contracts to manage currency risks. Gains or losses related to
firm commitments are deferred and recognized concurrent with
the underlying transaction. All other gains or losses are
recognized in income in the current period as sales, cost of
sales, interest income or expense, or other income, as
appropriate. Forward exchange contracts are recorded as
receivables or payables, as appropriate.
Exploration and development - USX follows the successful efforts
method of accounting for oil and gas exploration and development.
Long-lived assets - Except for oil and gas producing properties,
depreciation is generally computed on the straight-line method
based upon estimated lives of assets. USX's method of computing
depreciation for steel producing assets modifies straight-line
depreciation based on the level of production. The modification
factors range from a minimum of 85% at a production level below 81%
of capability, to a maximum of 105% for a 100% production level. No
modification is made at the 95% production level, considered the
normal long-range level.
Depreciation and depletion of oil and gas producing properties
are computed using predetermined rates based upon estimated proved
oil and gas reserves applied on a units-of-production method.
Depletion of mineral properties, other than oil and gas, is
based on rates which are expected to amortize cost over the
estimated tonnage of minerals to be removed.
USX evaluates impairment of its oil and gas producing assets
primarily on a field-by-field basis using undiscounted cash flows
based on total proved reserves. Other assets are evaluated on an
individual asset basis or by logical groupings of assets. Assets
deemed to be impaired are written down to their fair value,
including any related goodwill, using discounted future cash flows
and, if available, comparable market values.
Environmental liabilities - USX provides for remediation costs and
penalties when the responsibility to remediate is probable and the
amount of associated costs is reasonably determinable. Generally,
the timing of remediation accruals coincides with completion of a
feasibility study or the commitment to a formal plan of action.
Remediation liabilities are accrued based on estimates of known
environmental exposure and are discounted in certain instances. If
recoveries of remediation costs from third parties are probable, a
receivable is recorded. Estimated abandonment and dismantlement
costs of offshore production platforms are accrued based on
production of estimated proved oil and gas reserves.
Postemployment benefits - USX recognizes an obligation to provide
postemployment benefits, primarily for disability-related claims
covering indemnity and medical payments. The obligation for these
claims and the related periodic costs are measured using actuarial
techniques and assumptions, including an appropriate discount rate,
analogous to the required methodology for measuring pension and
other postretirement benefit obligations. Actuarial gains and
losses are deferred and amortized over future periods.
Insurance - USX is insured for catastrophic casualty and certain
property and business interruption exposures, as well as those
risks required to be insured by law or contract. Costs resulting
from noninsured losses are charged against income upon occurrence.
Reclassifications - Certain reclassifications of prior years' data
have been made to conform to 1999 classifications.
U-9
<PAGE>
- --------------------------------------------------------------------------------
2. New Accounting Standards
Effective January 1, 1997, USX adopted American Institute of
Certified Public Accountants Statement of Position No. 96-1,
"Environmental Remediation Liabilities" (SOP 96-1), which provides
additional interpretation of existing accounting standards related
to recognition, measurement and disclosure of environmental
remediation liabilities. As a result of adopting SOP 96-1, USX
identified additional environmental remediation liabilities of $46
million, of which $28 million was discounted to a present value of
$13 million and $18 million was not discounted. Assumptions used in
the calculation of the present value amount included an inflation
factor of 2% and an interest rate of 7% over a range of 22 to 30
years. Estimated receivables for recoverable costs related to
adoption of SOP 96-1 were $4 million. The net unfavorable effect of
adoption on income from operations at January 1, 1997, was $27
million.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (SFAS No. 133).
This new Standard requires recognition of all derivatives as either
assets or liabilities at fair value. SFAS No. 133 may result in
additional volatility in both current period earnings and other
comprehensive income as a result of recording recognized and
unrecognized gains and losses resulting from changes in the fair
value of derivative instruments. The transition adjustment
resulting from adoption of SFAS No. 133 will be reported as a
cumulative effect of a change in accounting principle.
Under the new Standard, USX may elect not to designate certain
derivative instruments as hedges even if the strategy qualifies for
hedge accounting treatment. This approach would eliminate the
administrative effort needed to measure effectiveness and monitor
such instruments; however, this approach also may result in
additional volatility in current period earnings.
USX cannot reasonably estimate the effect of adoption on either
the financial position or results of operations. It is not possible
to estimate what effect this Statement will have on future results
of operations, although greater period-to-period volatility is
likely. USX plans to adopt the Standard effective January 1, 2001.
- --------------------------------------------------------------------------------
3. Business Combinations
In August 1998, Marathon Oil Company (Marathon) acquired Tarragon
Oil and Gas Limited (Tarragon), a Canadian oil and gas exploration
and production company. Securityholders of Tarragon received, at
their election, Cdn$14.25 for each Tarragon share, or the economic
equivalent in Exchangeable Shares of an indirect Canadian
subsidiary of Marathon, which are exchangeable solely on a one-for-
one basis into Marathon Stock. The purchase price included cash
payments of $686 million, issuance of 878,074 Exchangeable Shares
valued at $29 million and the assumption of $345 million in debt.
The Exchangeable Shares are exchangeable at the option of the
holder at any time and automatically redeemable on August 11, 2003
(and, in certain circumstances, as early as August 11, 2001). The
holders of Exchangeable Shares are entitled to receive declared
dividends equivalent to dividends declared from time to time by USX
on Marathon Stock.
USX accounted for the acquisition using the purchase method of
accounting. The 1998 results of operations include the operations
of Marathon Canada Limited, formerly known as Tarragon, commencing
August 12, 1998.
During 1997, Marathon and Ashland Inc. (Ashland) agreed to
combine the major elements of their refining, marketing and
transportation (RM&T) operations. On January 1, 1998, Marathon
transferred certain RM&T net assets to Marathon Ashland Petroleum
LLC (MAP), a new consolidated subsidiary. Also on January 1, 1998,
Marathon acquired certain RM&T net assets from Ashland in exchange
for a 38% interest in MAP. The acquisition was accounted for under
the purchase method of accounting. The purchase price was
determined to be $1.9 billion, based upon an external valuation.
The change in Marathon's ownership interest in MAP resulted in a
gain of $245 million, which is included in 1998 revenues. In
accordance with MAP closing agreements, Marathon and Ashland made
capital contributions to MAP for environmental improvements. The
closing agreements stipulate that ownership interests in MAP will
not be adjusted as a result of such contributions. Accordingly,
Marathon recognized a gain on ownership change of $17 million in
1999.
U-10
<PAGE>
In connection with the formation of MAP, Marathon and Ashland
entered into a Limited Liability Company Agreement dated January 1,
1998 (the LLC Agreement). The LLC Agreement provides for an initial
term of MAP expiring on December 31, 2022 (25 years from its
formation). The term will automatically be extended for ten-year
periods, unless a termination notice is given by either party.
Also in connection with the formation of MAP, the parties
entered into a Put/Call, Registration Rights and Standstill
Agreement (the Put/Call Agreement). The Put/Call Agreement provides
that at any time after December 31, 2004, Ashland will have the
right to sell to Marathon all of Ashland's ownership interest in
MAP, for an amount in cash and/or Marathon or USX debt or equity
securities equal to the product of 85% (90% if equity securities
are used) of the fair market value of MAP at that time, multiplied
by Ashland's percentage interest in MAP. Payment could be made at
closing, or at Marathon's option, in three equal annual
installments, the first of which would be payable at closing. At
any time after December 31, 2004, Marathon will have the right to
purchase all of Ashland's ownership interests in MAP, for an amount
in cash equal to the product of 115% of the fair market value of
MAP at that time, multiplied by Ashland's percentage interest in
MAP.
The following unaudited pro forma data for USX includes the
results of operations of Tarragon for 1998 and 1997, and the
Ashland RM&T net assets for 1997, giving effect to the acquisitions
as if they had been consummated at the beginning of the years
presented. The pro forma data is based on historical information
and does not necessarily reflect the actual results that would have
occurred nor is it necessarily indicative of future results of
operations.
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $28,331 $30,259
Net income 643/(a)/ 989/(a)/
Net income per common share of Marathon Stock -
Basic and diluted .95 1.58
--------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Excluding the pro forma inventory market valuation
adjustment, pro forma net income would have been $747
million in 1998 and $1,151 million in 1997. Reported net
income, excluding the reported inventory market valuation
adjustment, would have been $778 million in 1998 and $1,167
million in 1997.
- --------------------------------------------------------------------------------
4. Transactions Between MAP and Ashland
At December 31, 1999 and 1998, MAP had current receivables from
Ashland of $26 million and $22 million, respectively, and current
payables to Ashland of $2 million at December 31, 1999, and at
December 31, 1998, $106 million, including distributions payable.
At December 31, 1998, MAP's cash and cash equivalents included
a $103 million demand note invested with Ashland, which was repaid
in January 1999.
MAP has a $190 million short-term revolving credit agreement
with Ashland. Interest on borrowings is based on the Federal Funds
Rate in effect each day during the period plus 0.30 of 1%. At
December 31, 1999, there were no borrowings against this facility.
During 1999 and 1998, MAP's sales to Ashland consisting
primarily of petroleum products, were $198 million and $185
million, respectively, and MAP's purchases of products and services
from Ashland were $25 million and $45 million, respectively. These
transactions were conducted under terms comparable to those with
unrelated parties.
- --------------------------------------------------------------------------------
5. Discontinued Operations
Effective October 31, 1997, USX sold its stock in Delhi Gas
Pipeline Corporation and other subsidiaries of USX that comprised
all of the Delhi Group (Delhi Companies). The transaction involved
a gross purchase price of $762 million. Under the USX Restated
Certificate of Incorporation (USX Certificate), USX was required to
elect one of three options to return the value of the net proceeds
received in the transaction to the holders of shares in Delhi Stock
(Delhi shareholders). Of the three options, USX elected to use the
net proceeds of $195 million, or $20.60 per share, to redeem all
shares of Delhi Stock. The net proceeds were distributed to the
Delhi shareholders on January 26, 1998. After the redemption,
50,000,000 shares of Delhi Stock remain authorized but unissued.
The sale of the Delhi Companies resulted in a gain on disposal
of $81 million, net of $206 million income taxes.
The financial results of the Delhi Group have been reclassified
as discontinued operations for 1997 as presented in the
Consolidated Statement of Operations and are summarized as follows:
<TABLE>
<CAPTION>
(In millions) 1997/(a)/
-----------------------------------------------------------------------------------
<S> <C>
Revenues $1,205
Costs and expenses 1,190
------
Income from operations 15
Net interest and other financial costs 23
------
Loss before income taxes (8)
Credit for estimated income taxes (7)
------
Net loss $ (1)
-----------------------------------------------------------------------------------
</TABLE>
/(a)/ Represents ten months of operations.
U-11
<PAGE>
- --------------------------------------------------------------------------------
6. Revenues
The items below are included in revenues and costs and expenses,
with no effect on income.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer excise taxes on petroleum products
and merchandise $3,973 $3,824 $2,828
Matching crude oil and refined product
buy/sell transactions settled in cash 3,539 3,948 2,436
----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
7. Other Items
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest and other financial costs from continuing operations
Interest and other financial income:
Interest income $ 16 $ 35 $ 11
Other (13) 4 (6)
------ ------ ------
Total 3 39 5
------ ------ ------
Interest and other financial costs:
Interest incurred 326 325 289
Less interest capitalized 26 46 31
------ ------ ------
Net interest 300 279 258
Interest on tax issues 20 21 20
Financial costs on trust preferred securities 13 13 10
Financial costs on preferred stock of subsidiary 22 22 21
Amortization of discounts 3 6 6
Expenses on sales of accounts receivable 15 21 40
Adjustment to settlement value of indexed debt (13) (44) (10)
Other 5 - 7
------ ------ ------
Total 365 318 352
------ ------ ------
Net interest and other financial costs $ 362 $ 279 $ 347
----------------------------------------------------------------------------------------------
</TABLE>
Foreign currency transactions
For 1999, 1998 and 1997, the aggregate foreign currency
transaction gains (losses) included in determining income from
continuing operations were $(12) million, $13 million and $4
million, respectively.
- --------------------------------------------------------------------------------
8. Extraordinary Losses
In 1999, USX irrevocably deposited with a trustee the entire 5.5
million common shares it owned in RTI International Metals, Inc.
(RTI). The deposit of the shares resulted in the satisfaction of
USX's obligation under its 6 3/4% Exchangeable Notes (indexed debt)
due February 1, 2000. Under the terms of the indenture, the trustee
exchanged one RTI share for each note at maturity. All shares were
required for satisfaction of the indexed debt; therefore, none
reverted back to USX.
As a result of the above transaction, USX recorded in 1999 an
extraordinary loss of $5 million, net of a $3 million income tax
benefit, representing prepaid interest expense and the write-off of
unamortized debt issue costs, and a pretax charge of $22 million,
representing the difference between the carrying value of the
investment in RTI and the carrying value of the indexed debt, which
is included in net gains on disposal of assets.
In December 1996, USX had issued $117 million of notes indexed
to the common share price of RTI. At maturity, USX would have been
required to exchange the notes for shares of RTI common stock, or
redeem the notes for the equivalent amount of cash. Since USX's
investment in RTI was attributed to the U. S. Steel Group, the
indexed debt was also attributed to the U. S. Steel Group. USX had
a 26% investment in RTI and accounted for its investment using the
equity method of accounting.
Republic Technologies International, LLC, an equity method
affiliate of USX, recorded in 1999 an extraordinary loss related to
the early extinguishment of debt. As a result, USX recorded an
extraordinary loss of $2 million, net of a $1 million income tax
benefit, representing its share of the extraordinary loss.
U-12
<PAGE>
- --------------------------------------------------------------------------------
9. Group and Segment Information
After the redemption of the Delhi Stock on January 26, 1998, USX has two classes
of common stock: Marathon Stock and Steel Stock, which are intended to reflect
the performance of the Marathon Group and the U. S. Steel Group, respectively.
A description of each group and its products and services is as follows:
Marathon Group - The Marathon Group includes Marathon Oil Company and certain
other subsidiaries of USX. Marathon Group revenues as a percentage of total
consolidated USX revenues were 82% in 1999, 78% in 1998 and 69% in 1997.
U. S. Steel Group - The U. S. Steel Group consists of U. S. Steel, the largest
domestic integrated steel producer. U. S. Steel Group revenues as a percentage
of total consolidated USX revenues were 18% in 1999, 22% in 1998 and 31% in
1997.
<TABLE>
<CAPTION>
Group Operations:
Income
From Net Capital
(In millions) Year Revenues Operations Income Expenditures Assets
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marathon Group 1999 $24,327 $1,713 $ 654 $1,378 $15,705
1998 21,977 938 310 1,270 14,544
1997 15,846 932 456 1,038 10,565
- -------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group 1999 5,314 150 44 287 7,525
1998 6,283 579 364 310 6,749
1997 6,941 773 452 261 6,694
- -------------------------------------------------------------------------------------------------------------------------
Adjustments for 1999 (58) - - - (268)
Discontinued 1998 (23) - - - (160)
Operations and 1997 (107) - 80 74 25
Eliminations
- -------------------------------------------------------------------------------------------------------------------------
Total USX 1999 $29,583 $1,863 $ 698 $1,665 $22,962
Corporation 1998 28,237 1,517 674 1,580 21,133
1997 22,680 1,705 988 1,373 17,284
- -------------------------------------------------------------------------------------------------------------------------
Sales by Product:
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Marathon Group
Refined products $10,873 $8,750 $ 7,012
Merchandise 2,088 1,873 1,045
Liquid hydrocarbons 2,159 1,818 941
Natural gas 1,381 1,144 1,331
Transportation and other products 199 271 167
- -------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group
Sheet and semi-finished steel products $ 3,345 $3,501 $ 3,820
Tubular, plate and tin mill products 1,118 1,513 1,754
Raw materials (coal, coke and iron ore) 505 679 724
Other/(a)/ 414 490 517
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Includes revenue from the sale of steel production by-products,
engineering and consulting services, real estate development and resource
management.
Operating Segments:
USX's reportable operating segments are business units within the Marathon and
U. S. Steel Groups, each providing their own unique products and services. Each
operating segment is independently managed and requires different technology and
marketing strategies. Segment income represents income from operations allocable
to operating segments. The following items included in income from operations
are not allocated to operating segments:
. Gain on ownership change in MAP
. Pension credits associated with pension plan assets and liabilities
allocated to pre-1987 retirees and former businesses
. Certain costs related to former U. S. Steel Group business activities
. Certain general and administrative costs related to all Marathon Group
operating segments in excess of amounts billed to MAP under service
contracts and amounts charged out to operating segments under
Marathon's shared services procedures
. USX corporate general and administrative costs. These costs primarily
consist of employment costs including pension effects, professional
services, facilities and other related costs associated with corporate
activities.
. Inventory market valuation adjustments
. Certain other items not allocated to operating segments for business
performance reporting purposes (see (a) in reconcilement table on page
U-15)
U-13
<PAGE>
The Marathon Group's operations consists of three reportable operating segments:
1) Exploration and Production - explores for and produces crude oil and natural
gas on a worldwide basis; 2) Refining, Marketing and Transportation - refines,
markets and transports crude oil and petroleum products, primarily in the
Midwest and southeastern United States through MAP; and 3) Other Energy Related
Businesses. Other Energy Related Businesses is an aggregation of two segments
which fall below the quantitative reporting thresholds: 1) Natural Gas and Crude
Oil Marketing and Transportation - markets and transports its own and third-
party natural gas and crude oil in the United States; and 2) Power Generation -
develops, constructs and operates independent electric power projects worldwide.
The U. S. Steel Group consists of a single operating segment, U. S. Steel. U. S.
Steel is engaged in the production and sale of steel mill products, coke and
taconite pellets; the management of mineral resources; domestic coal mining;
engineering and consulting services; and real estate development and management.
<TABLE>
<CAPTION>
Refining, Other
Exploration Marketing Energy Total
and and Related Marathon
(In millions) Production Transportation Businesses Segments U. S. Steel Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Revenues:
Customer $3,230 $20,210 $731 $24,171 $5,363 $29,534
Intersegment/(a)/ 202 47 40 289 - 289
Intergroup/(a)/ 19 - 22 41 17 58
Equity in earnings (losses) of
unconsolidated affiliates (2) 17 26 41 (43) (2)
Other 30 48 15 93 46 139
------ ------- ---- ------- ------ -------
Total revenues $3,479 $20,322 $834 $24,635 $5,383 $30,018
====== ======= ==== ======= ====== =======
Segment income (loss) $ 618 $ 611 $ 61 $ 1,290 $ (128) $ 1,162
Significant noncash items included in
segment income:
Depreciation, depletion and amortization/(b)/ 638 280 5 923 304 1,227
Pension expenses/(c)/ 3 32 2 37 219 256
Capital expenditures/(d)/ 744 612 4 1,360 286 1,646
Affiliates - investments 56 - 3 59 15 74
- --------------------------------------------------------------------------------------------------------------------------------
1998
Revenues:
Customer $2,085 $19,192 $306 $21,583 $6,180 $27,763
Intersegment/(a)/ 144 10 17 171 - 171
Intergroup/(a)/ 13 - 7 20 2 22
Equity in earnings of
unconsolidated affiliates 2 12 14 28 46 74
Other 26 40 11 77 55 132
------ ------- ---- -------- ------- --------
Total revenues $2,270 $19,254 $355 $21,879 $6,283 $28,162
====== ======= ==== ======== ======= ========
Segment income $ 278 $ 896 $ 33 $ 1,207 $ 330 $ 1,537
Significant noncash items included in
segment income:
Depreciation, depletion and amortization/(b)/ 581 272 6 859 283 1,142
Pension expenses/(c)/ 3 16 2 21 187 208
Capital expenditures/(d)/ 839 410 8 1,257 305 1,562
Affiliates - investments/(e)/ - 22 17 39 71 110
- --------------------------------------------------------------------------------------------------------------------------------
1997
Revenues:
Customer $1,575 $13,698 $381 $15,654 $6,812 $22,466
Intersegment/(a)/ 619 - - 619 - 619
Intergroup/(a)/ 99 - 6 105 2 107
Equity in earnings of
unconsolidated affiliates 14 4 7 25 69 94
Other 7 20 30 57 58 115
------ ------- ---- ------- ------ -------
Total revenues $2,314 $13,722 $424 $16,460 $6,941 $23,401
====== ======= ==== ======= ====== =======
Segment income $ 773 $ 563 $ 48 $ 1,384 $ 618 $ 2,002
Significant noncash items included in
segment income:
Depreciation, depletion and amortization/(b)/ 469 173 7 649 303 952
Pension expenses/(c)/ 3 8 1 12 169 181
Capital expenditures/(d)/ 810 205 6 1,021 256 1,277
Affiliates - investments/(e)/ 114 - 73 187 26 213
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Intersegment and intergroup sales and transfers were conducted under
terms comparable to those with unrelated parties.
/(b)/ Differences between segment totals and consolidated totals represent
amounts included in administrative expenses and, in 1999 and 1998,
certain international and domestic exploration and production property
impairments.
/(c)/ Differences between segment totals and consolidated totals represent
unallocated pension credits and amounts included in administrative
expenses.
/(d)/ Differences between segment totals and consolidated totals represent
amounts related to corporate administrative activities and, in 1997,
discontinued operations.
/(e)/ Differences between segment totals and consolidated totals represent
amounts related to corporate administrative activities.
U-14
<PAGE>
The following reconciles segment revenues and income to amounts reported in
the Groups' financial statements:
<TABLE>
<CAPTION>
Marathon Group U. S. Steel Group
-------------------------------------- -----------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Revenues of reportable segments $24,635 $21,879 $16,460 $5,383 $6,283 $6,941
Items not allocated to segments:
Gain on ownership change in MAP 17 245 - - - -
Losses related to investments in
equity affiliates - - - (69) - -
Other (36) 24 - - - -
Elimination of intersegment revenues (289) (171) (619) - - -
Administrative revenues - - 5 - - -
------- ------- ------- ------ ------ ------
Total Group revenues $24,327 $21,977 $15,846 $5,314 $6,283 $6,941
======= ======= ======= ====== ====== ======
Income:
Income (loss) for reportable segments $ 1,290 $ 1,207 $ 1,384 $ (128) $ 330 $ 618
Items not allocated to segments:
Gain on ownership change in MAP 17 245 - - - -
Administrative expenses (108) (106) (168) (17) (24) (33)
Pension credits - - - 447 373 313
Costs related to former business activities - - - (83) (100) (125)
Inventory market valuation adjustments 551 (267) (284) - - -
Other/(a)/ (37) (141) - (69) - -
------- ------- ------- ------ ------ ------
Total Group income from operations $ 1,713 $ 938 $ 932 $ 150 $ 579 $ 773
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Represents in 1999, for the Marathon Group, primarily certain domestic
exploration and production impairments, costs of a voluntary early
retirement program and net losses on certain asset sales and, for the U.
S. Steel Group, certain losses related to investments in equity method
affiliates. Represents in 1998 certain international exploration and
production property impairments, certain suspended exploration well
write-offs, a gas contract settlement and MAP transition charges.
Geographic Area:
The information below summarizes the operations in different geographic
areas. Transfers between geographic areas are at prices which approximate
market.
<TABLE>
<CAPTION>
Revenues
-------------------------------------------
Within Between
(In millions) Year Geographic Areas Geographic Areas Total Assets/(a)/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marathon Group:
United States 1999 $23,337 $ - $23,337 $ 7,555
1998 21,191 - 21,191 7,659
1997 15,123 - 15,123 5,578
Canada 1999 425 521 946 1,112
1998 209 368 577 1,094
United Kingdom 1999 459 - 459 1,581
1998 462 - 462 1,739
1997 593 - 593 1,856
Other Foreign Countries 1999 106 88 194 735
1998 115 52 167 468
1997 130 39 169 530
Eliminations 1999 - (609) (609) -
1998 - (420) (420) -
1997 - (39) (39) -
Total Marathon Group 1999 $24,327 $ - $24,327 $10,983
1998 21,977 - 21,977 10,960
1997 15,846 - 15,846 7,964
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. Steel Group:
United States 1999 $ 5,296 $ - $ 5,296 $ 2,889
1998 6,266 - 6,266 3,043
1997 6,926 - 6,926 3,023
Foreign Countries 1999 18 - 18 63
1998 17 - 17 69
1997 15 - 15 1
Total U. S. Steel Group 1999 $ 5,314 $ - $ 5,314 $ 2,952
1998 6,283 - 6,283 3,112
1997 6,941 - 6,941 3,024
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments for Discontinued 1999 $ (58) $ - $ (58) $ -
Operations and Eliminations 1998 (23) - (23) -
1997 (107) - (107) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total USX Corporation 1999 $29,583 $ - $29,583 $13,935
1998 28,237 - 28,237 14,072
1997 22,680 - 22,680 10,988
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Includes property, plant and equipment and investments in affiliates.
U-15
<PAGE>
- --------------------------------------------------------------------------------
10. Pensions and Other Postretirement Benefits
USX has noncontributory defined benefit pension plans covering
substantially all employees. Benefits under these plans are
primarily based upon years of service and final average pensionable
earnings, or a minimum benefit based upon years of service,
whichever is greater. In addition, pension benefits based upon a
percent of total career pensionable earnings cover certain
participating salaried employees.
USX also has defined benefit retiree health and life insurance
plans (other benefits) covering most employees upon their
retirement. Health benefits are provided through comprehensive
hospital, surgical and major medical benefit provisions or through
health maintenance organizations, both subject to various cost
sharing features. Life insurance benefits are provided to certain
nonunion and union represented retiree beneficiaries primarily
based on employees' annual base salary at retirement. For most
union retirees, benefits are provided for the most part based on
fixed amounts negotiated in labor contracts with the appropriate
unions. Except for certain life insurance benefits paid from
reserves held by insurance carriers and benefits required to be
funded by union contracts, most other benefits have not been
prefunded.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------ -----------------
(In millions) 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligations
Benefit obligations at January 1 $ 8,629 $ 8,085 $ 2,710 $ 2,451
Service cost 152 119 32 27
Interest cost 540 544 169 172
Plan amendments 399 /(a)/ 14 (30) (20)
Actuarial (gains) losses (1,019) 637 (333) 135
Plan mergers and acquisitions 56 145 11 98
Settlements, curtailments and termination benefits (329) 10 - 7
Benefits paid (844) (925) (185) (160)
-------- ------- ------- -------
Benefit obligations at December 31 $ 7,584 $ 8,629 $ 2,374 $ 2,710
-----------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $ 11,574 $10,925 $ 265 $ 258
Actual return on plan assets 865 1,507 20 31
Plan merger and acquisitions 38 55 1 -
Employer contributions 2 8 34 -
Trustee distributions/(b)/ (30) (14) - -
Settlements paid (306) - - -
Benefits paid from plan assets (838) (907) (39) (24)
-------- ------- ------- -------
Fair value of plan assets at December 31 $ 11,305 $11,574 $ 281 $ 265
-----------------------------------------------------------------------------------------------------
Funded status of plans at December 31 $ 3,721 /(c)/ $ 2,945/(c)/ $(2,093) $(2,445)
Unrecognized net gain from transition (95) (175) - -
Unrecognized prior service costs (credits) 880 566 (53) (28)
Unrecognized net actuarial gains (1,945) (993) (458) (110)
Additional minimum liability/(d)/ (24) (75) - -
-------- ------- ------- -------
Prepaid (accrued) benefit cost $ 2,537 $ 2,268 $(2,604) $(2,583)
-----------------------------------------------------------------------------------------------------
/(a)/ Results primarily from a new five-year labor contract with the United Steelworkers of America
ratified in August 1999.
/(b)/ Represents transfers of excess pension assets to fund retiree health care benefits accounts
under Section 420 of the Internal Revenue Code.
/(c)/ Includes several plans that have accumulated
benefit obligations in excess of plan assets:
Aggregate accumulated benefit obligations $ (53) $ (98)
Aggregate projected benefit obligations (76) (120)
Aggregate plan assets - -
/(d)/ Additional minimum liability recorded
was offset by the following:
Intangible asset $ 9 $ 18
-------- -------
Accumulated other comprehensive income
(losses):
Beginning of year $ (37) $ (32)
Change during year (net of tax) 27 (5)
-------- -------
Balance at end of year $ (10) $ (37)
--------------------------------------------------------------------------------------------------
</TABLE>
U-16
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------------- --------------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost (credit)
Service cost $ 152 $ 119 $ 96 $ 32 $ 27 $ 21
Interest cost 540 544 562 169 172 175
Expected return on plan assets (895) (876) (828) (21) (21) (11)
Amortization - net transition gain (72) (74) (74) -- -- --
- prior service costs (credits) 87 75 73 (4) 1 1
- actuarial (gains) losses 7 6 4 (5) (13) (13)
Multiemployer and other USX plans 5 6 6 7 /(a)/ 13 /(a)/ 15 /(a)/
Settlement and termination (gains) losses (42) /(b)/ 10 /(b)/ 4 -- -- --
------ ------ ------ ------ ------ ------
Net periodic benefit cost (credit) $ (218) $ (190) $ (157) $ 178 $ 179 $ 188
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Represents payments to a multiemployer health care benefit plan
created by the Coal Industry Retiree Health Benefit Act of 1992
based on assigned beneficiaries receiving benefits. The present
value of this unrecognized obligation is broadly estimated to
be $90 million, including the effects of future medical
inflation, and this amount could increase if additional
beneficiaries are assigned.
/(b)/ Relates primarily to the 1999 Marathon Group and 1998 U. S.
Steel Group voluntary early retirement programs.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------ -------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average actuarial assumptions
at December 31:
Discount rate 8.0% 6.5% 8.0% 6.5%
Expected annual return on plan assets 8.6% 9.1% 8.5% 9.0%
Increase in compensation rate 4.1% 4.1% 4.1% 4.1%
-------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 7.6% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2000.
The rate was assumed to decrease gradually to 5% until 2005 for the U.
S. Steel Group and until 2006 for the Marathon Group and remain at
that level thereafter.
A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
(In millions) Point Increase Point Decrease
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 22 $ (18)
Effect on other postretirement benefit obligations 207 (175)
-----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
11. Leases
Future minimum commitments for capital leases (including sale-
leasebacks accounted for as financings) and for operating leases
having remaining noncancelable lease terms in excess of one year are
as follows:
<TABLE>
<CAPTION>
Capital Operating
(In millions) Leases Leases
------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 13 $ 302
2001 13 199
2002 13 115
2003 13 76
2004 13 65
Later years 119 200
Sublease rentals - (104)
----- -----
Total minimum lease payments 184 $ 853
----- =====
Less imputed interest costs (77)
-----
Present value of net minimum lease payments
included in long-term debt $ 107
------------------------------------------------------------------------------------
</TABLE>
Operating lease rental expense from continuing operations:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rental $ 266 $ 288 $ 232
Contingent rental 29 29 25
Sublease rentals (12) (14) (14)
----- ----- -----
Net rental expense $ 283 $ 303 $ 243
---------------------------------------------------------------------------------------------------
</TABLE>
USX leases a wide variety of facilities and equipment under
operating leases, including land and building space, office equipment,
production facilities and transportation equipment. Most long-term
leases include renewal options and, in certain leases, purchase
options. In the event of a change in control of USX, as defined in the
agreements, or certain other circumstances, operating lease
obligations totaling $105 million may be declared immediately due and
payable.
U-17
<PAGE>
- --------------------------------------------------------------------------------
12. Income Taxes
Provisions (credits) for estimated income taxes on income from
continuing operations were:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ---------------------------- -----------------------------
(In millions) Current Deferred Total Current Deferred Total Current Deferred Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $107 $ 257 $364 $102 $ 168 $ 270 $ 208 $ 163 $ 371
State and local 4 1 5 33 18 51 7 32 39
Foreign 26 (46) (20) (4) (2) (6) 12 28 40
---- ----- ---- ---- ----- ----- ----- ----- ------
Total $137 $ 212 $349 $131 $ 184 $ 315 $227 $ 223 $ 450
------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of federal statutory tax rate (35%) to
total provisions from continuing operations follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to income from continuing operations
before income taxes $ 369 $ 346 $ 475
Effects of foreign operations, including foreign tax credits (20) (37) (11)
State and local income taxes after federal income tax effects 3 33 25
Credits other than foreign tax credits (10) (12) (24)
Excess percentage depletion (7) (11) (10)
Effects of partially owned companies (5) (4) (9)
Dispositions of subsidiary investments 7 - -
Adjustment of prior years' federal income taxes 4 (5) 2
Adjustment of valuation allowances - - (5)
Other 8 5 7
----- ----- ------
Total provisions on income from continuing operations $ 349 $ 315 $ 450
--------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax assets and liabilities resulted from the
following:
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Minimum tax credit carryforwards $ 131 $ 200
State tax loss carryforwards (expiring in 2000 through 2019) 122 118
Foreign tax loss carryforwards (portion of which expire in 2000 through 2014) 382 414
Employee benefits 1,204 1,170
Expected federal benefit for:
Crediting certain foreign deferred income taxes 530 528
Deducting state and other foreign deferred income taxes 36 48
Receivables, payables and debt 82 65
Contingency and other accruals 202 188
Investments in foreign subsidiaries 52 52
Other 45 50
Valuation allowances:
Federal (30) (30)
State (52) (52)
Foreign (282) (260)
------- -------
Total deferred tax assets/(a)/ 2,422 2,491
------- -------
Deferred tax liabilities:
Property, plant and equipment 2,339 2,430
Prepaid pensions 1,048 917
Inventory 340 186
Investments in subsidiaries and affiliates 76 94
Other 155 190
------- -------
Total deferred tax liabilities 3,958 3,817
------- -------
Net deferred tax liabilities $ 1,536 $ 1,326
-----------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ USX expects to generate sufficient future taxable income to realize the
benefit of its deferred tax assets. In addition, the ability to realize
the benefit of foreign tax credits is based upon certain assumptions
concerning future operating conditions (particularly as related to
prevailing oil prices), income generated from foreign sources and USX's
tax profile in the years that such credits may be claimed.
The consolidated tax returns of USX for the years 1990 through 1997 are
under various stages of audit and administrative review by the IRS. USX believes
it has made adequate provision for income taxes and interest which may become
payable for years not yet settled.
Pretax income (loss) from continuing operations included $63 million,
$(75) million and $250 million attributable to foreign sources in 1999, 1998 and
1997, respectively.
Undistributed earnings of certain consolidated foreign subsidiaries at
December 31, 1999, amounted to $150 million. No provision for deferred U.S.
income taxes has been made for these subsidiaries because USX intends to
permanently reinvest such earnings in those foreign operations. If such earnings
were not permanently reinvested, a deferred tax liability of $53 million would
have been required.
U-18
<PAGE>
- --------------------------------------------------------------------------------
13. Property, Plant and Equipment
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marathon Group $20,860 $20,728
U. S. Steel Group 8,748 8,439
------- -------
Total 29,608 29,167
Less accumulated depreciation, depletion and amortization 16,799 16,238
------- -------
Net $12,809 $12,929
---------------------------------------------------------------------------------------
</TABLE>
Property, plant and equipment includes gross assets acquired
under capital leases (including sale-leasebacks accounted for as
financings) of $125 million at December 31, 1999, and $108
million at December 31, 1998; related amounts in accumulated
depreciation, depletion and amortization were $81 million and $77
million, respectively.
- --------------------------------------------------------------------------------
14. Investments and Long-Term Receivables
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity method investments $1,055 $1,062
Other investments 71 81
Receivables due after one year 67 56
Deposits of restricted cash 22 21
Other 32 29
------ ------
Total $1,247 $1,249
--------------------------------------------------------------------------------------------------
</TABLE>
Summarized financial information of affiliates accounted for
by the equity method of accounting follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income data - year:
Revenues $3,449 $3,510 $3,705
Operating income 95 324 342
Net income (loss) (74) 176 191
---------------------------------------------------------------------------------------------------
Balance sheet data - December 31:
Current assets $1,382 $1,290
Noncurrent assets 5,008 4,382
Current liabilities 1,481 874
Noncurrent liabilities 2,317 2,137
---------------------------------------------------------------------------------------------------
</TABLE>
In 1999, USX and Kobe Steel, Ltd. (Kobe Steel) completed a
transaction that combined the steelmaking and bar producing
assets of USS/Kobe Steel Company (USS/Kobe) with companies
controlled by Blackstone Capital Partners II. The combined entity
was named Republic Technologies International, LLC (Republic). In
addition, USX made a $15 million equity investment in Republic.
USX owned 50% of USS/Kobe and now owns 16% of Republic. USX
accounts for its investment in Republic under the equity method
of accounting. Dividend and affiliate income (loss) in 1999
includes $47 million in charges related to the impairment of the
carrying value of USX's investment in USS/Kobe and costs related
to the formation of Republic. The seamless pipe business of
USS/Kobe was excluded from this transaction. That business, now
known as Lorain Tubular Company, LLC, became a wholly owned
subsidiary of USX at the close of business on December 31, 1999.
Dividends and partnership distributions received from equity
affiliates were $46 million in 1999, $42 million in 1998 and $34
million in 1997.
USX purchases from equity affiliates totaled $411 million,
$395 million and $461 million in 1999, 1998 and 1997,
respectively. USX sales to equity affiliates totaled $853
million, $747 million and $838 million in 1999, 1998 and 1997,
respectively.
- --------------------------------------------------------------------------------
15. Short-Term Credit Agreement
USX has a short-term credit agreement totaling $125 million at
December 31, 1999. Interest is based on the bank's prime rate or
London Interbank Offered Rate (LIBOR), and carries a facility fee
of .15%. Certain other banks provide short-term lines of credit
totaling $150 million which require a .125% fee or maintenance of
compensating balances of 3%. At December 31, 1999, there were no
borrowings against these facilities.
U-19
<PAGE>
________________________________________________________________________________
16. Long-Term Debt
<TABLE>
<CAPTION>
Interest December 31
(In millions) Rates - % Maturity 1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USX Corporation:
Revolving credit facility/(a)/ 2001 $ 300 $ 700
Commercial paper/(a)/ 6.71 165 -
Notes payable 6 13/20 - 9 4/5 2000 - 2023 2,525 2,267
Obligations relating to Industrial Development and
Environmental Improvement Bonds and Notes/(b)/ 3 9/20 - 6 7/8 2009 - 2033 494 494
Receivables facility/(a)(c)/ 2004 350 -
Indexed debt (Note 8) 6 3/4 - 69
All other obligations, including sale-leaseback
financing and capital leases 2000 - 2012 92 94
Consolidated subsidiaries:
Revolving credit facilities/(d)/ 2000 - 2003 - -
Guaranteed Notes 7 2002 135 135
Guaranteed Loan/(e)/ 9 1/20 2000 - 2006 223 245
Notes payable 8 1/2 2000 - 2001 1 2
All other obligations, including capital leases 2000 - 2011 26 11
------ ------
Total/(f)(g)/ 4,311 4,017
Less unamortized discount 28 26
Less amount due within one year 61 71
------ ------
Long-term debt due after one year $4,222 $3,920
------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ An amended agreement which terminates in August 2001, provides
for borrowing under a $2,350 million revolving credit facility.
Interest is based on defined short-term market rates. During
the term of this agreement, USX is obligated to pay a variable
facility fee on total commitments, which was .15 % at December
31, 1999. If the receivables facility discussed in (c) is not
renewed annually, the balance outstanding of such facility
could be refinanced by the revolving credit facility, or
another long-term debt source; and therefore, is classified as
long-term debt. The commercial paper is supported by the $2,050
million in unused and available credit and, accordingly, is
classified as long-term debt.
/(b)/ At December 31, 1999, USX had outstanding obligations relating
to Environmental Improvement Bonds in the amount of $141
million, which were supported by letter of credit arrangements
that could become short-term obligations under certain
circumstances.
/(c)/ In December 1999, USX entered into an agreement under which the
U. S. Steel Group participates in a program to sell an
undivided interest in certain accounts receivable. A previous
program expired in October 1999 and was accounted for as a
transfer of receivables. The new program is accounted for as a
secured borrowing. Payments are collected from sold accounts
receivable and invested in new accounts receivable for the
purchaser and a yield, based on short-term market rates, is
transferred to the purchaser. If the U. S. Steel Group does not
have sufficient eligible receivables to reinvest for the
purchaser, the size of the program is reduced accordingly. The
purchaser has a security interest in a pool of receivables to
secure USX's obligations under the program. The amounts sold
under the previous receivables' programs averaged $291 million,
$347 million and $705 million for the years 1999, 1998 and
1997, respectively. (The Marathon and Delhi Groups had a
separate accounts receivable program that was terminated in
late 1997.)
/(d)/ MAP has a revolving credit facility for $100 million that
terminates in July 2000 and a $400 million revolving credit
facility that terminates in July 2003. Interest is based on
defined short-term market rates for both facilities. During the
terms of the agreements, MAP is obligated to pay a variable
facility fee on total commitments. At December 31, 1999, the
facility fee was .11% for the $100 million facility and .125%
for the $400 million facility. At December 31, 1999, the unused
and available credit was $429 million, which reflects
reductions for outstanding letters of credit. In the event that
MAP defaults on indebtedness (as defined in the agreement) in
excess of $100 million, USX has guaranteed the payment of any
outstanding obligations.
/(e)/ The guaranteed loan was used to fund a portion of the costs in
connection with the development of the East Brae Field and the
SAGE pipeline in the North Sea. A portion of proceeds from a
long-term gas sales contract is dedicated to loan service under
certain circumstances. Prepayment of the loan may be required
under certain situations, including events impairing the
security interest.
/(f)/ Required payments of long-term debt for the years 2001-2004 are
$747 million, $210 million, $187 million and $690 million,
respectively.
/(g)/ In the event of a change in control of USX, as defined in the
related agreements, debt obligations totaling $3,332 million
may be declared immediately due and payable. The principal
obligations subject to such a provision are Notes payable -
$2,525 million; and Guaranteed Loan - $223 million. In such
event, USX may also be required to either repurchase the leased
Fairfield slab caster for $104 million or provide a letter of
credit to secure the remaining obligation.
U-20
<PAGE>
- --------------------------------------------------------------------------------
17. Inventories
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
-------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 830 $ 916
Semi-finished products 392 282
Finished products 1,239 1,205
Supplies and sundry items 166 156
------ ------
Total (at cost) 2,627 2,559
Less inventory market valuation reserve - 551
------ ------
Net inventory carrying value $2,627 $2,008
-------------------------------------------------------------------
</TABLE>
At December 31, 1999 and 1998, the LIFO method accounted for
91% and 90%, respectively, of total inventory value. Current
acquisition costs were estimated to exceed the above inventory
values at December 31 by approximately $570 million and $310
million in 1999 and 1998, respectively.
The inventory market valuation reserve reflects the extent
that the recorded LIFO cost basis of crude oil and refined products
inventories exceeds net realizable value. The reserve is decreased
to reflect increases in market prices and inventory turnover and
increased to reflect decreases in market prices. Changes in the
inventory market valuation reserve result in noncash charges or
credits to costs and expenses.
- --------------------------------------------------------------------------------
18. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash used in operating activities included:
Interest and other financial costs paid
(net of amount capitalized) $ (366) $ (336) $ (382)
Income taxes paid (98) (183) (400)
-----------------------------------------------------------------------------------------------------------
Commercial paper and revolving credit arrangements - net:
Commercial paper - issued $ 6,282 $ - $ -
- repayments (6,117) - -
Credit agreements - borrowings 5,529 17,486 10,454
- repayments (5,980) (16,817) (10,449)
Other credit arrangements - net (95) 55 36
------- -------- --------
Total $ (381) $ 724 $ 41
-----------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
Common stock issued for dividend reinvestment and
employee stock plans $ 6 $ 5 $ 10
Marathon Stock issued for Exchangeable Shares 7 11 -
Trust preferred securities exchanged for preferred stock - - 182
Affiliate preferred stock received in conversion of affiliate loan 142 - -
Disposal of assets:
Deposit of RTI common shares in satisfaction of indexed debt 56 - -
Interest in USS/Kobe contributed to Republic 40 - -
Other disposals of assets:
Notes or common stock received 20 2 -
Liabilities assumed by buyers - - 240
Business combinations:
Acquisition of Tarragon:
Exchangeable Shares issued - 29 -
Liabilities assumed - 433 -
Acquisition of Ashland RM&T net assets:
38% interest in MAP - 1,900 -
Liabilities assumed - 1,038 -
Other acquisitions:
Liabilities assumed 42 - -
Affiliate liabilities consolidated in step acquisition 26 - -
-----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
19. Stock-Based Compensation Plans
The 1990 Stock Plan, as amended and restated, authorizes the
Compensation Committee of the Board of Directors to grant
restricted stock, stock options and stock appreciation rights to
key management employees. Such employees are generally granted
awards of the class of common stock intended to reflect the
performance of the group(s) to which their work relates. Up to .5
percent of the outstanding Marathon Stock and .8 percent of the
outstanding Steel Stock, as determined on December 31 of the
preceding year, are available for grants during each calendar year
the 1990 Plan is in effect. In addition, awarded shares that do not
result in shares being issued are available for subsequent grant,
and any ungranted shares from prior years' annual allocations are
available for subsequent grant
U-21
<PAGE>
during the years the 1990 Plan is in effect. As of December 31,
1999, 8,744,297 Marathon Stock shares and 2,540,519 Steel Stock
shares were available for grants in 2000. The Stock-Based
Compensation Plans' activity below includes the Delhi Stock prior
to its January 1998 redemption (Note 5).
Restricted stock represents stock granted for such
consideration, if any, as determined by the Compensation Committee,
subject to provisions for forfeiture and restricting transfer.
Those restrictions may be removed as conditions such as
performance, continuous service and other criteria are met.
Restricted stock is issued at the market price per share at the
date of grant and vests over service periods that range from one to
five years.
Deferred compensation is charged to stockholders' equity when
the restricted stock is granted and subsequently adjusted for
changes in the market value of the underlying stock. The deferred
compensation is expensed over the balance of the vesting period and
adjusted if conditions of the restricted stock grant are not met.
The following table presents information on restricted stock
grants:
<TABLE>
<CAPTION>
Marathon Stock Steel Stock
--------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of shares granted 28,798 25,378 20,430 18,272 17,742 11,942
Weighted-average grant-date
fair value per share $ 29.38 $ 34.00 $ 29.38 $ 28.22 $ 37.28 $ 32.00
-----------------------------------------------------------------------------------------------
</TABLE>
Stock options represent the right to purchase shares of
Marathon Stock, Steel Stock or Delhi Stock at the market value of
the stock at date of grant. Certain options contain the right to
receive cash and/or common stock equal to the excess of the fair
market value of shares of common stock, as determined in accordance
with the plan, over the option price of shares. Stock options vest
after a one-year service period and expire 10 years from the date
they are granted. The following is a Summary of Stock option
activity:
<TABLE>
<CAPTION>
Marathon Stock Steel Stock Delhi Stock
------------------------ ---------------------- --------------------------
Shares Price/(a)/ Shares Price/(a)/ Shares Price/(a)/
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 5,230,570 $23.78 1,345,595 $34.85 326,950 $15.60
Granted 756,260 29.38 457,590 32.00 94,250 13.31
Exercised (2,215,665) 23.86 (158,265) 31.85 (6,300) 12.21
Canceled (76,300) 26.91 (11,820) 34.36 (6,650) 15.73
---------- --------- -------
Balance December 31, 1997 3,694,865 24.81 1,633,100 34.35 408,250 15.13
Granted 987,535 34.00 611,515 37.28
Exercised (594,260) 27.61 (230,805) 32.00
Canceled (13,200) 27.22 (21,240) 35.89
Redeemed - - (408,250) 20.60 /(b)/
---------- --------- -------
Balance December 31, 1998 4,074,940 26.62 1,992,570 35.50 -
Granted 1,005,000 29.38 656,400 28.22
Exercised (176,160) 27.27 (2,580) 24.92
Canceled (121,055) 30.19 (20,005) 38.51
---------- --------- -------
Balance December 31, 1999 4,782,725 27.08 2,626,385 33.67 -
---------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Weighted-average exercise price
/(b)/ Redemption price
The weighted-average grant-date fair value per option for the
Marathon Stock was $8.89 in 1999, $10.43 in 1998 and $9.01 in 1997.
For the Steel Stock such amounts were $6.95 in 1999, $8.29 in 1998
and $6.72 in 1997.
The following table represents stock options at December 31,
1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------- ----------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of of Shares Remaining Average of Shares Average
Exercise Under Contractual Exercise Under Exercise
Prices Option Life Price Option Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marathon Stock $ 17.00-23.44 1,679,060 4.6 years $20.60 1,679,060 $20.60
25.38-26.88 164,825 1.4 25.45 164,825 25.45
29.08-34.00 2,938,840 7.8 30.88 1,959,335 31.63
--------- ----------
Total 4,782,725 3,803,220
--------- ----------
Steel Stock $ 22.46-28.22 685,340 9.0 years $28.07 29,395 $24.82
31.69-34.44 1,073,095 6.2 32.57 1,073,095 32.57
37.28-44.19 867,950 6.8 39.45 867,950 39.45
--------- ----------
Total 2,626,385 1,970,440
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Actual stock-based compensation expense (credit) was $(3)
million in 1999 and 1998 and $30 million in 1997. Incremental
compensation expense, as determined under a fair value model, was
not material ($.02 or less per share for all years presented).
Therefore, pro forma net income and earnings per share data have
been omitted.
U-22
<PAGE>
Effective January 1, 1997, USX created a deferred compensation
plan for non-employee directors of its Board of Directors. The plan
permits participants to defer some or all of their annual retainers
in the form of common stock units or cash and it requires new
directors to defer at least half of their annual retainer in the
form of common stock units. Common stock units are book entry units
equal in value to a share of Marathon Stock or Steel Stock.
Deferred stock benefits are distributed in shares of common stock
within five business days after a participant leaves the Board of
Directors. During 1999, 10,541 shares of Marathon Stock and 3,798
shares of Steel Stock were issued. During 1998 and 1997, no shares
of common stock were distributed.
- --------------------------------------------------------------------------------
20. Dividends
In accordance with the USX Certificate, dividends on the Marathon
Stock and Steel Stock are limited to the legally available funds of
USX. Net losses of any Group, as well as dividends and
distributions on any class of USX Common Stock or series of
preferred stock and repurchases of any class of USX Common Stock or
series of preferred stock at prices in excess of par or stated
value, will reduce the funds of USX legally available for payment
of dividends on all classes of Common Stock. Subject to this
limitation, the Board of Directors intends to declare and pay
dividends on the Marathon Stock and Steel Stock based on the
financial condition and results of operations of the related group,
although it has no obligation under Delaware law to do so. In
making its dividend decisions with respect to each of the Marathon
Stock and Steel Stock, the Board of Directors considers, among
other things, the long-term earnings and cash flow capabilities of
the related group as well as the dividend policies of similar
publicly traded companies.
Dividends on the Steel Stock are further limited to the
Available Steel Dividend Amount. At December 31, 1999, the
Available Steel Dividend Amount was at least $3,300 million. The
Available Steel Dividend Amount will be increased or decreased, as
appropriate, to reflect U. S. Steel Group net income, dividends,
repurchases or issuances with respect to the Steel Stock and
preferred stock attributed to the U. S. Steel Group and certain
other items.
- --------------------------------------------------------------------------------
21. Stockholder Rights Plan
On September 28, 1999, USX's Board of Directors adopted a new
Stockholder Rights Plan and declared a dividend distribution of one
right for each outstanding share of Marathon Stock and Steel Stock
(referred to together as "Voting Stock") to stockholders of record
on October 9, 1999. Each right becomes exercisable, at a price of
$110, after any person or group has acquired, obtained the right to
acquire or made a tender or exchange offer for 15% or more of the
outstanding voting power represented by the outstanding Voting
Stock, except pursuant to a qualifying all-cash tender offer for
all outstanding shares of Voting Stock which results in the offeror
owning shares of Voting Stock representing a majority of the voting
power (other than Voting Stock beneficially owned by the offeror
immediately prior to the offer). Each right entitles the holder,
other than the acquiring person or group, to purchase one one-
hundredth of a share of Series A Junior Preferred Stock or, upon
the acquisition by any person of 15% or more of the outstanding
voting power represented by the outstanding Voting Stock, Marathon
Stock or Steel Stock (or, in certain circumstances, other property)
having a market value of twice the exercise price. After a person
or group acquires 15% or more of the outstanding voting power, if
USX engages in a merger or other business combination where it is
not the surviving corporation or where it is the surviving
corporation and the Voting Stock is changed or exchanged, or if 50%
or more of USX's assets, earnings power or cash flow are sold or
transferred, each right entitles the holder to purchase common
stock of the acquiring entity having a market value of twice the
exercise price. The rights and the exercise price are subject to
adjustment. The rights will expire on October 9, 2009, unless such
date is extended or the rights are earlier redeemed by USX for one
cent per right at any time prior to the point they become
exercisable. Under certain circumstances, the Board of Directors
has the option to exchange one share of the respective class of
Voting Stock for each exercisable right.
- --------------------------------------------------------------------------------
22. Income Per Common Share
The method of calculating net income per share for the Marathon
Stock, the Steel Stock and, prior to November 1, 1997, the Delhi
Stock reflects the USX Board of Directors' intent that the
separately reported earnings and surplus of the Marathon Group, the
U. S. Steel Group and the Delhi Group, as determined consistent
with the USX Certificate, are available for payment of dividends on
the respective classes of stock, although legally available funds
and liquidation preferences of these classes of stock do not
necessarily correspond with these amounts. The financial statements
of the Marathon Group, the U. S. Steel Group and the Delhi Group,
taken together, include all accounts which comprise the
corresponding consolidated financial statements of USX.
Basic net income per share is calculated by adjusting net
income for dividend requirements of preferred stock and, in 1997,
the noncash credit on exchange of preferred stock and is based on
the weighted average number of common shares outstanding.
Diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes
exercise of stock options, provided in each case, the effect is not
antidilutive.
U-23
<PAGE>
<TABLE>
<CAPTION>
COMPUTATION OF INCOME PER SHARE
1999 1998 1997
------------------- ------------------ ------------------
Basic Diluted Basic Diluted Basic Diluted
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS
Marathon Group
- --------------
Net income (millions):
Net income $ 654 $ 654 $ 310 $ 310 $ 456 $ 456
Dilutive effect of convertible debentures - - - - - 3
------- ------- ------- ------- ------- -------
Net income assuming conversions $ 654 $ 654 $ 310 $ 310 $ 456 $ 459
======= ======= ======= ======= ======= =======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 309,696 309,696 292,876 292,876 288,038 288,038
Effect of dilutive securities:
Convertible debentures - - - - - 1,936
Stock options - 314 - 559 - 546
------- ------- ------- ------- ------- -------
Average common shares and dilutive effect 309,696 310,010 292,876 293,435 288,038 290,520
======= ======= ======= ======= ======= =======
Net income per share $ 2.11 $ 2.11 $ 1.06 $ 1.05 $ 1.59 $ 1.58
- ----------------------------------------------------------------------------------------------------------------------
U.S. Steel Group
- ----------------
Net income (millions):
Income before extraordinary losses $ 51 $ 51 $ 364 $ 364 $ 452 $ 452
Noncash credit from exchange of preferred stock - - - - 10 -
Dividends on preferred stock (9) (9) (9) - (13) -
Extraordinary losses (7) (7) - - - -
------- ------- ------- ------- ------- -------
Net income applicable to Steel Stock 35 35 355 364 449 452
Effect of dilutive securities:
Trust preferred securities - - - 8 - 6
Convertible debentures - - - - - 2
------- ------- ------- ------- ------- -------
Net income assuming conversions $ 35 $ 35 $ 355 $ 372 $ 449 $ 460
======= ======= ======= ======= ======= =======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 88,392 88,392 87,508 87,508 85,672 85,672
Effect of dilutive securities:
Trust preferred securities - - - 4,256 - 2,660
Preferred stock - - - 3,143 - 4,811
Convertible debentures - - - - - 1,025
Stock options - 4 - 36 - 35
------- ------- ------- ------- ------- -------
Average common shares and dilutive effect 88,392 88,396 87,508 94,943 85,672 94,203
======= ======= ======= ======= ======= =======
Per share:
Income before extraordinary losses $ .48 $ .48 $ 4.05 $ 3.92 $ 5.24 $ 4.88
Extraordinary losses .08 .08 - - - -
------- ------- ------- ------- ------- -------
Net income $ .40 $ .40 $ 4.05 $ 3.92 $ 5.24 $ 4.88
- ----------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Delhi Group
- -----------
Net income (millions) $ 79.7 $ 79.7
======= =======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 9,449 9,449
Stock options - 21
------- -------
Average common shares and dilutive effect 9,449 9,470
======= =======
Net income per share $ 8.43 $ 8.41
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
U-24
<PAGE>
23. Preferred Stock of Subsidiary and Trust Preferred Securities
USX Capital LLC, a wholly owned subsidiary of USX, sold
10,000,000 shares (carrying value of $250 million) of 8 3/4%
Cumulative Monthly Income Preferred Shares (MIPS) (liquidation
preference of $25 per share) in 1994. Proceeds of the issue were
loaned to USX. USX has the right under the loan agreement to
extend interest payment periods for up to 18 months, and as a
consequence, monthly dividend payments on the MIPS can be
deferred by USX Capital LLC during any such interest payment
period. In the event that USX exercises this right, USX may not
declare dividends on any share of its preferred or common stocks.
The MIPS are redeemable at the option of USX Capital LLC and
subject to the prior consent of USX, in whole or in part from
time to time, for $25 per share, and will be redeemed from the
proceeds of any repayment of the loan by USX. In addition, upon
final maturity of the loan, USX Capital LLC is required to redeem
the MIPS. The financial costs are included in net interest and
other financial costs.
In 1997, USX exchanged approximately 3.9 million 6.75%
Convertible Quarterly Income Preferred Securities (Trust
Preferred Securities) of USX Capital Trust I, a Delaware
statutory business trust (Trust), for an equivalent number of
shares of its 6.50% Cumulative Convertible Preferred Stock (6.50%
Preferred Stock) (Exchange). The Exchange resulted in the
recording of Trust Preferred Securities at a fair value of $182
million and a noncash credit to Retained Earnings of $10 million.
USX owns all of the common securities of the Trust, which
was formed for the purpose of the Exchange. (The Trust Common
Securities and the Trust Preferred Securities are together
referred to as the Trust Securities.) The Trust Securities
represent undivided beneficial ownership interests in the assets
of the Trust, which consist solely of USX 6.75% Convertible
Junior Subordinated Debentures maturing March 31, 2037
(Debentures), having an aggregate principal amount equal to the
aggregate initial liquidation amount ($50.00 per security and
$203 million in total) of the Trust Securities issued by the
Trust. Interest and principal payments on the Debentures will be
used to make quarterly distributions and to pay redemption and
liquidation amounts on the Trust Preferred Securities. The
quarterly distributions, which accumulate at the rate of 6.75%
per annum on the Trust Preferred Securities and the accretion
from fair value to the initial liquidation amount, are charged to
income and included in net interest and other financial costs.
Under the terms of the Debentures, USX has the right to
defer payment of interest for up to 20 consecutive quarters and,
as a consequence, monthly distributions on the Trust Preferred
Securities will be deferred during such period. If USX exercises
this right, then, subject to limited exceptions, it may not pay
any dividend or make any distribution with respect to any shares
of its capital stock.
The Trust Preferred Securities are convertible at any time
prior to the close of business on March 31, 2037 (unless such
right is terminated earlier under certain circumstances) at the
option of the holder, into shares of Steel Stock at a conversion
price of $46.25 per share of Steel Stock (equivalent to a
conversion ratio of 1.081 shares of Steel Stock for each Trust
Preferred Security), subject to adjustment in certain
circumstances.
The Trust Preferred Securities may be redeemed at any time
at the option of USX, at a premium of 102.60% of the initial
liquidation amount through March 31, 2000, and thereafter,
declining annually to the initial liquidation amount on April 1,
2003, and thereafter. They are mandatorily redeemable at March
31, 2037, or earlier under certain circumstances.
Payments related to quarterly distributions and to the
payment of redemption and liquidation amounts on the Trust
Preferred Securities by the Trust are guaranteed by USX on a
subordinated basis. In addition, USX unconditionally guarantees
the Trust's Debentures. The obligations of USX under the
Debentures, and the related indenture, trust agreement and
guarantee constitute a full and unconditional guarantee by USX of
the Trust's obligations under the Trust Preferred Securities.
- --------------------------------------------------------------------------------
24. Preferred Stock
USX is authorized to issue 40,000,000 shares of preferred stock,
without par value -
6.50% Cumulative Convertible Preferred Stock (6.50% Preferred
Stock) - As of December 31, 1999, 2,715,287 shares (stated value
of $1.00 per share; liquidation preference of $50.00 per share)
were outstanding. The 6.50% Preferred Stock is convertible at any
time, at the option of the holder, into shares of Steel Stock at
a conversion price of $46.125 per share of Steel Stock, subject
to adjustment in certain circumstances. This stock is redeemable
at USX's sole option, at a price of $51.30 per share beginning
April 1, 1999, and thereafter at prices declining annually on
each April 1 to an amount equal to $50.00 per share on and after
April 1, 2003.
U-25
<PAGE>
- --------------------------------------------------------------------------------
25. Derivative Instruments
USX remains at risk for possible changes in the market value of the derivative
instrument; however, such risk should be mitigated by price changes in the
underlying hedged item. USX is also exposed to credit risk in the event of
nonperformance by counterparties. The credit worthiness of counterparties is
subject to continuing review, including the use of master netting agreements to
the extent practical, and full performance is anticipated.
The following table sets forth quantitative information by class of
derivative instrument for derivative instruments categorized as trading or other
than trading:
<TABLE>
<CAPTION>
Recognized
Fair Carrying Trading Recorded
Value Amount Gain or Deferred Aggregate
Assets Assets (Loss) for Gain or Contract
(In millions) (Liabilities)/(a)(b)/ (Liabilities) the Year (Loss) Values/(c)/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999:
Exchange-traded commodity futures:
Trading $ - $ - $ 4 $ - $ 8
Other than trading - - - 28 344
Exchange-traded commodity options:
Trading - - 4 - 179
Other than trading (6) /(d)/ (6) - (10) 1,262
OTC commodity swaps/(e)/:
Trading - - - - -
Other than trading 6 /(f)/ 6 - 5 193
OTC commodity options:
Trading - - - - -
Other than trading 4 /(g)/ 4 - 5 238
------------ ------------ ---------- -------- ---------
Total commodities $ 4 $ 4 $ 8 $ 28 $ 2,224
------------ ------------ ---------- -------- ---------
Forward exchange contracts/(h)/:
- receivable $ 52 $ 52 $ - $ - $ 51
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1998:
Exchange-traded commodity futures $ - $ - $ (2) $ 104
Exchange-traded commodity options 3 /(d)/ 2 3 776
OTC commodity swaps (9) /(f)/ (9) (7) 297
OTC commodity options 3 /(g)/ 3 3 147
------------ ------------ -------- ---------
Total commodities $ (3) $ (4) $ (3) $ 1,324
============ ------------ ======== =========
Forward exchange contracts:
- receivable $ 36 $ 36 $ - $ 36
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ The fair value amounts for OTC positions are based on various indices or
dealer quotes. The fair value amounts for currency contracts are based on
dealer quotes of forward prices covering the remaining duration of the
forward exchange contract. The exchange-traded futures contracts and
certain option contracts do not have a corresponding fair value since
changes in the market prices are settled on a daily basis.
/(b)/ The aggregate average fair value of all trading activities for the period
ending December 31, 1999, was $3 million. Detail by class of instrument
was not available.
/(c)/ Contract or notional amounts do not quantify risk exposure, but are used
in the calculation of cash settlements under the contracts. The contract
or notional amounts do not reflect the extent to which positions may
offset one another.
/(d)/ Includes fair values as of December 31, 1999 and 1998, for assets of $11
million and $23 million and for liabilities of $(17) million and $(20)
million, respectively.
/(e)/ The OTC swap arrangements vary in duration with certain contracts
extending into 2008.
/(f)/ Includes fair values as of December 31, 1999 and 1998, for assets of $11
million and $29 million and for liabilities of $(5) million and $(38)
million, respectively.
/(g)/ Includes fair values as of December 31, 1999 and 1998, for assets of $5
million and for liabilities of $(1) million and $(2) million,
respectively.
/(h)/ The forward exchange contracts relating to USX's foreign operations have
various maturities ending in December 2000.
U-26
<PAGE>
- --------------------------------------------------------------------------------
26. Fair Value of Financial Instruments
Fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or
settled, nor does the fair value amount consider the tax
consequences of realization or settlement. The following table
summarizes financial instruments, excluding derivative financial
instruments disclosed in Note 25, by individual balance sheet
account:
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
Fair Carrying Fair Carrying
(In millions) December 31 Value Amount Value Amount
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 133 $ 133 $ 146 $ 146
Receivables 2,696 2,696 1,663 1,663
Investments and long-term receivables 190 134 180 124
------ ------ ------ ------
Total financial assets $3,019 $2,963 $1,989 $1,933
---------------------------------------------------------------------------------------------------------
Financial liabilities:
Notes payable $ - $ - $ 145 $ 145
Accounts payable 3,397 3,397 2,438 2,438
Distribution payable to minority shareholder of MAP - - 103 103
Accrued interest 107 107 97 97
Long-term debt (including amounts due within one year) 4,278 4,176 4,203 3,896
Preferred stock of subsidiary and trust
preferred securities 408 433 414 432
------ ------ ------ ------
Total financial liabilities $8,190 $8,113 $7,400 $7,111
---------------------------------------------------------------------------------------------------------
</TABLE>
Fair value of financial instruments classified as current
assets or liabilities approximates carrying value due to the short-
term maturity of the instruments. Fair value of investments and
long-term receivables was based on discounted cash flows or other
specific instrument analysis. Fair value of preferred stock of
subsidiary and trust preferred securities was based on market
prices. Fair value of long-term debt instruments was based on
market prices where available or current borrowing rates available
for financings with similar terms and maturities.
USX's unrecognized financial instruments consist of
receivables sold in 1998 and financial guarantees. It is not
practicable to estimate the fair value of these forms of financial
instrument obligations because there are no quoted market prices
for transactions which are similar in nature. For details relating
to financial guarantees, see Note 27.
- -------------------------------------------------------------------------------
27. Contingencies and Commitments
USX is the subject of, or party to, a number of pending or
threatened legal actions, contingencies and commitments involving a
variety of matters, including laws and regulations relating to the
environment. Certain of these matters are discussed below. The
ultimate resolution of these contingencies could, individually or
in the aggregate, be material to the consolidated financial
statements. However, management believes that USX will remain a
viable and competitive enterprise even though it is possible that
these contingencies could be resolved unfavorably.
Environmental matters -
USX is subject to federal, state, local and foreign laws and
regulations relating to the environment. These laws generally
provide for control of pollutants released into the environment and
require responsible parties to undertake remediation of hazardous
waste disposal sites. Penalties may be imposed for noncompliance.
At December 31, 1999 and 1998, accrued liabilities for remediation
totaled $170 million and $145 million, respectively. It is not
presently possible to estimate the ultimate amount of all
remediation costs that might be incurred or the penalties that may
be imposed. Receivables for recoverable costs from certain states,
under programs to assist companies in cleanup efforts related to
underground storage tanks at retail marketing outlets, were $52
million at December 31, 1999, and $41 million at December 31, 1998.
For a number of years, USX has made substantial capital
expenditures to bring existing facilities into compliance with
various laws relating to the environment. In 1999 and 1998, such
capital expenditures totaled $78 million and $132 million,
respectively. USX anticipates making additional such expenditures
in the future; however, the exact amounts and timing of such
expenditures are uncertain because of the continuing evolution of
specific regulatory requirements.
At December 31, 1999 and 1998, accrued liabilities for
platform abandonment and dismantlement totaled $152 million and
$141 million, respectively.
U-27
<PAGE>
Guarantees -
Guarantees of the liabilities of affiliated entities by USX
and its consolidated subsidiaries totaled $219 million at December
31, 1999, and $212 million at December 31, 1998. In the event that
any defaults of guaranteed liabilities occur, USX has access to its
interest in the assets of most of the affiliates to reduce
potential losses resulting from these guarantees. As of December
31, 1999, the largest guarantee for a single affiliate was $131
million.
At December 31, 1999 and 1998, USX's pro rata share of
obligations of LOOP LLC and various pipeline affiliates secured by
throughput and deficiency agreements totaled $146 million and $164
million, respectively. Under the agreements, USX is required to
advance funds if the affiliates are unable to service debt. Any
such advances are prepayments of future transportation charges.
Commitments -
At December 31, 1999 and 1998, contract commitments to
acquire property, plant and equipment and long-term investments
totaled $568 million and $812 million, respectively.
USX entered into a 15-year take-or-pay arrangement in 1993,
which requires USX to accept pulverized coal each month or pay a
minimum monthly charge of approximately $1 million. Charges for
deliveries of pulverized coal totaled $23 million in both 1999 and
1998. If USX elects to terminate the contract early, a maximum
termination payment of $102 million, which declines over the
duration of the agreement, may be required.
USX is a party to a 15-year transportation services
agreement with a natural gas transmission company. The contract
requires USX to pay a minimum annual demand charge of approximately
$5 million starting in the year 2000 and concluding in the year
2014. The payments are required even if the transportation facility
is not utilized.
<PAGE>
Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------
(In millions, except per
share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $8,950 $7,813 /(a)/ $6,766 $6,054
Income (loss) from
operations 425 535 502 401
Includes:
Inventory market
valuation
charges (credits) - (136) (66) (349)
Gain on ownership
change in MAP (6) (11) - -
Income (loss) before
extraordinary losses 205 201 /(a)/ 189 110
Net income (loss) 205 199 189 105
- -----------------------------------------------------------------------------------------------------
Marathon Stock data:
- --------------------
Net income (loss) $ 171 $ 230 $ 134 $ 119
- Per share: basic .55 .74 .43 .38
diluted .55 .74 .43 .38
Dividends paid per share .21 .21 .21 .21
Price range of Marathon
Stock/(c)/:
- Low 23- 5/8 28- 1/2 25- 13/16 19- 5/8
- High 30- 5/8 33- 7/8 32- 3/4 31- 3/8
- -----------------------------------------------------------------------------------------------------
Steel Stock data:
- -----------------
Income (loss) before
extraordinary losses
applicable to Steel Stock $ 32 $ (31) /(a)/ $ 52 $ (11)
- Per share: basic .35 (.35) /(a)/ .60 (.13)
diluted .35 (.35) /(a)/ .59 (.13)
Dividends paid per share .25 .25 .25 .25
Price range of Steel
Stock/(c)/:
- Low 21- 3/4 24- 9/16 23- 1/2 22- 1/4
- High 33 30- 1/16 34- 1/4 29- 1/8
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------------------------
(In millions, except per
share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $6,686 /(b)/ $7,091/(b)/ $7,260/(b)/ $7,200/(b)/
Income (loss) from
operations (37) 320 670 564
Includes:
Inventory market
valuation
charges (credits) 245 50 (3) (25)
Gain on ownership
change in MAP - 1 2 (248)
Income (loss) before
extraordinary losses (10) 116 298 270
Net income (loss) (10) 116 298 270
- -----------------------------------------------------------------------------------------------------
Marathon Stock data:
- --------------------
Net income (loss) $ (86) $ 51 $ 162 $ 183
- Per share: basic (.29) .18 .56 .63
diluted (.29) .17 .56 .63
Dividends paid per share .21 .21 .21 .21
Price range of Marathon
Stock/(c)/:
- Low 26- 11/16 25 32- 3/16 31
- High 38- 1/8 37- 1/8 38- 7/8 40- 1/2
- -----------------------------------------------------------------------------------------------------
Steel Stock data:
- -----------------
Income (loss) before
extraordinary losses
applicable to Steel Stock $ 74 $ 63 $ 133 $ 85
- Per share: basic .83 .72 1.53 .98
diluted .81 .71 1.46 .95
Dividends paid per share .25 .25 .25 .25
Price range of Steel
Stock/(c)/:
- Low 21- 5/8 20- 7/16 31 28- 7/16
- High 27- 3/4 33- 1/2 43- 1/16 42- 1/8
- --------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Restated to reflect current classifications.
/(b)/ Reclassified to conform to 1999 classifications.
/(c)/ Composite tape.
U-29
<PAGE>
Principal Unconsolidated Affiliates (Unaudited)
<TABLE>
<CAPTION>
December 31, 1999
Company Country Ownership Activity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Clairton 1314B Partnership, L.P. United States 10% Coke & Coke By-Products
CLAM Petroleum B.V. Netherlands 50% Oil & Gas Production
Double Eagle Steel Coating Company United States 50% Steel Processing
Kenai LNG Corporation United States 30% Natural Gas Liquification
LOCAP, Inc. United States 50% /(a)/ Pipeline & Storage Facilities
LOOP LLC United States 47% /(a)/ Offshore Oil Port
Manta Ray Offshore Gathering Company, LLC United States 24% Natural Gas Transmission
Minnesota Pipe Line Company United States 33% /(a)/ Pipeline Facility
Nautilus Pipeline Company, LLC United States 24% Natural Gas Transmission
Odyssey Pipeline LLC United States 29% Pipeline Facility
Poseidon Oil Pipeline Company, LLC United States 28% Crude Oil Transportation
PRO-TEC Coating Company United States 50% Steel Processing
Republic Technologies International, LLC United States 16% Steel Products
Sakhalin Energy Investment Company Ltd. Russia 38% Oil & Gas Development
Transtar, Inc. United States 46% Transportation
USS-POSCO Industries United States 50% Steel Processing
VSZ U. S. Steel, s. r.o. Slovak Republic 50% Tin Mill Products
Worthington Specialty Processing United States 50% Steel Processing
</TABLE>
/(a)/ Represents the ownership of MAP.
Supplementary Information on Mineral Reserves (Unaudited)
Mineral Reserves (other than oil and gas)
<TABLE>
<CAPTION>
Reserves at December 31/(a)/ Production
---------------------------- ---------------------
(Million tons) 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Iron/(b)/ 726.1 738.6 754.8 14.3 15.8 16.8
Coal/(c)/ 787.4 789.7 798.8 6.2 7.3 7.5
- ----------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Commercially recoverable reserves include demonstrated (measured and
indicated) quantities which are expressed in recoverable net product
tons.
/(b)/ In 1999, iron ore reserves decreased due to production, lease activity
and engineering revisions. In 1998, iron ore reserves decreased due to
production and engineering revisions.
/(c)/ In 1999 and 1998, coal reserves decreased due to production, lease
activity and engineering revisions.
Supplementary Information on Oil and Gas Producing Activities (Unaudited)
Capitalized Costs and Accumulated Depreciation, Depletion and Amortization/(a)/
<TABLE>
<CAPTION>
United Other Equity
(In millions) December 31 States Europe Intl. Consolidated Affiliates Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Capitalized costs:
Proved properties $8,270 $4,465 $1,270 $14,005 $612 $14,617
Unproved properties 349 55 187 591 123 714
------ ------ ------ ------- ---- -------
Total 8,619 4,520 1,457 14,596 735 15,331
------ ------ ------ ------- ---- -------
Accumulated depreciation,
depletion and amortization:
Proved properties 5,019 2,859 136 8,014 169 8,183
Unproved properties 78 - 6 84 - 84
------ ------ ------ ------- ---- -------
Total 5,097 2,859 142 8,098 169 8,267
------ ------ ------ ------- ---- -------
Net capitalized costs $3,522 $1,661 $1,315 $ 6,498 $566 $ 7,064
- ---------------------------------------------------------------------------------------------------------------------
1998
Capitalized costs:
Proved properties $8,366 $4,430 $1,288 $14,084 $628 $14,712
Unproved properties 400 43 90 533 7 540
------ ------ ------ ------- ---- -------
Total 8,766 4,473 1,378 14,617 635 15,252
------ ------ ------ ------- ---- -------
Accumulated depreciation,
depletion and amortization:
Proved properties 5,020 2,685 135 7,840 156 7,996
Unproved properties 91 - 5 96 - 96
------ ------ ------ ------- ---- -------
Total 5,111 2,685 140 7,936 156 8,092
------ ------ ------ ------- ---- -------
Net capitalized costs $3,655 $1,788 $1,238 $ 6,681 $479 $ 7,160
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Prior year amounts have been changed to conform with current year
reporting practices.
<PAGE>
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED
Results of Operations for Oil and Gas Producing Activities, Excluding Corporate
Overhead and Interest Costs/(a)/
<TABLE>
<CAPTION>
United Other Equity
(In millions) States Europe Intl. Consolidated Affiliates Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999: Revenues:
Sales/(b)/ $ 474 $ 431 $ 198 $ 1,103 $ 33 $ 1,136
Transfers 882 - 88 970 - 970
------ ----- ----- ------- ---- -------
Total revenues 1,356 431 286 2,073 33 2,106
Expenses:
Production costs (322) (137) (99) (558) (25) (583)
Exploration expenses (134) (42) (51) (227) (4) (231)
Depreciation, depletion and amortization/(c)/ (378) (143) (99) (620) (13) (633)
Other expenses (28) (7) (15) (50) - (50)
------ ----- ----- ------- ---- -------
Total expenses (862) (329) (264) (1,455) (42) (1,497)
Other production-related earnings/(d)/ 1 4 4 9 1 10
------ ----- ----- ------- ---- -------
Results before income taxes 495 106 26 627 (8) 619
Income taxes (credits) 168 33 (7) 194 (3) 191
------ ----- ----- ------- ---- -------
Results of operations $ 327 $ 73 $ 33 $ 433 $ (5) $ 428
- ------------------------------------------------------------------------------------------------------------------------------------
1998: Revenues:
Sales/(b)/ $ 518 $ 454 $ 71 $ 1,043 $ 28 $ 1,071
Transfers 536 - 51 587 - 587
------ ----- ----- ------- ---- -------
Total revenues 1,054 454 122 1,630 28 1,658
Expenses:
Production costs (295) (153) (57) (505) (8) (513)
Exploration expenses/(e)/ (179) (45) (86) (310) (5) (315)
Depreciation, depletion and amortization/(c)/ (339) (150) (68) (557) (8) (565)
Other expenses (37) (3) (11) (51) - (51)
------ ----- ----- ------- ---- -------
Total expenses (850) (351) (222) (1,423) (21) (1,444)
Other production-related earnings/(d)/ 1 15 3 19 1 20
------ ----- ----- ------- ---- -------
Results before income taxes 205 118 (97) 226 8 234
Income taxes (credits) 61 22 (28) 55 3 58
------ ----- ----- ------- ---- -------
Results of operations $ 144 $ 96 $ (69) $ 171 $ 5 $ 176
- ------------------------------------------------------------------------------------------------------------------------------------
1997: Revenues:
Sales/(b)/ $ 581 $ 572 $ 21 $ 1,174 $ 42 $ 1,216
Transfers 724 - 38 762 - 762
------ ----- ----- ------- ---- -------
Total revenues 1,305 572 59 1,936 42 1,978
Expenses:
Production costs (337) (162) (12) (511) (15) (526)
Exploration expenses (127) (34) (25) (186) (1) (187)
Depreciation, depletion and amortization (300) (130) (16) (446) (8) (454)
Other expenses (32) (3) (13) (48) - (48)
------ ----- ----- ------- ---- -------
Total expenses (796) (329) (66) (1,191) (24) (1,215)
Other production-related earnings/(d)/ - 28 1 29 1 30
------ ----- ----- ------- ---- -------
Results before income taxes 509 271 (6) 774 19 793
Income taxes (credits) 170 79 4 253 4 257
------ ----- ----- ------- ---- -------
Results of operations $ 339 $ 192 $ (10) $ 521 $ 15 $ 536
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Includes the results of using derivative instruments to manage commodity
and foreign currency risks.
/(b)/ Includes net gains on asset dispositions and natural gas contract
settlements, as of December 31, 1999, 1998 and 1997, of $2 million, $43
million and $7 million, respectively.
/(c)/ Includes domestic property impairments of $16 million as of December 31,
1999 and international property impairments of $10 million as of
December 31, 1998.
/(d)/ Includes revenues, net of associated costs, from third-party activities
that are an integral part of USX's production operations. Third-party
activities may include the processing and/or transportation of third-
party production, and the purchase and subsequent resale of gas utilized
in reservoir management.
/(e)/ Includes international property impairments and suspended exploration
well write-offs of $73 million.
<PAGE>
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED
Costs Incurred for Property Acquisition, Exploration and Development - Including
Capital Expenditures/(a)/
<TABLE>
<CAPTION>
United Other Equity
(In millions) States Europe Intl. Consolidated Affiliates Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999: Property acquisition:
Proved $ 17 $ - $ 10 $ 27 $ - $ 27
Unproved 56 12 107 175 - 175
Exploration 141 47 64 252 7 259
Development 205 34 117 356 84 440
1998: Property acquisition:
Proved $ 3 $ 3 $ 1,051 $1,057 $ - $1,057
Unproved 82 - 57 139 - 139
Exploration 217 39 75 331 11 342
Development 431 39 46 516 165 681
1997: Property acquisition:
Proved $ 16 $ - $ - $ 16 $ - $ 16
Unproved 50 - - 50 - 50
Exploration 170 53 43 266 3 269
Development 477 67 27 571 135 706
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Prior year amounts have been changed to conform with current year
reporting practices.
Estimated Quantities of Proved Oil and Gas Reserves
The following estimates of net reserves have been determined by deducting
royalties of various kinds from USX's gross reserves. The reserve estimates are
believed to be reasonable and consistent with presently known physical data
concerning size and character of the reservoirs and are subject to change as
additional knowledge concerning the reservoirs becomes available. The estimates
include only such reserves as can reasonably be classified as proved; they do
not include reserves which may be found by extension of proved areas or reserves
recoverable by secondary or tertiary recovery methods unless these methods are
in operation and are showing successful results. Undeveloped reserves consist of
reserves to be recovered from future wells on undrilled acreage or from existing
wells where relatively major expenditures will be required to realize
production. USX did not have any quantities of oil and gas reserves subject to
long-term supply agreements with foreign governments or authorities in which USX
acts as producer.
<TABLE>
<CAPTION>
United Other Equity
(Millions of barrels) States Europe Intl. Consolidated Affiliates Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liquid Hydrocarbons
Proved developed and undeveloped reserves:
Beginning of year - 1997 589 177 26 792 - 792
Purchase of reserves in place 2 - - 2 - 2
Revisions of previous estimates 9 (1) 3 11 - 11
Improved recovery 22 - - 22 - 22
Extensions, discoveries and other additions 31 - - 31 82 113
Production (42) (15) (3) (60) - (60)
Sales of reserves in place (2) - - (2) - (2)
------- ----- ----- ----- -------- --------
End of year - 1997 609 161 26 796 82 878
Purchase of reserves in place 1 - 156/(a) 157 - 157
Revisions of previous estimates (1) (28) 1 (28) (2) (30)
Improved recovery 3 - - 3 - 3
Extensions, discoveries and other additions 10 4 18 32 - 32
Production (49) (15) (7) (71) - (71)
Sales of reserves in place (5) - - (5) - (5)
------- ----- ----- ----- -------- --------
End of year - 1998 568 122 194 884 80 964
Purchase of reserves in place 14 - 7 21 - 21
Revisions of previous estimates 2 (20) - (18) (3) (21)
Improved recovery 11 - 1 12 - 12
Extensions, discoveries and other additions 9 - 5 14 - 14
Production (53) (12) (11) (76) - (76)
Sales of reserves in place (12) - (9) (21) - (21)
------- ----- ----- ----- -------- --------
End of year - 1999 539 90 187 816 77 893
- -------------------------------------------------------------------------------------------------------------------------------
Proved developed reserves:
Beginning of year - 1997 443 163 11 617 - 617
End of year - 1997 486 161 12 659 - 659
End of year - 1998 489 119 67 675 - 675
End of year - 1999 476 90 72 638 69 707
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Represents reserves related to the acquisition of Tarragon Oil and Gas
Limited in August 1998.
<PAGE>
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED
Estimated Quantities of Proved Oil and Gas Reserves (continued)
<TABLE>
<CAPTION>
United Other Equity
(Billions of cubic feet) States Europe Intl. Consolidated Affiliates Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas
Proved developed and
undeveloped reserves:
Beginning of year - 1997 2,239 1,178 21 3,438 132 3,570
Purchase of reserves in place 31 - - 31 - 31
Revisions of previous estimates (39) 9 6 (24) (6) (30)
Improved recovery - - - - - -
Extensions, discoveries and
other additions 262 - - 262 - 262
Production (264) (139) (4) (407) (15) (422)
Sales of reserves in place (9) - - (9) - (9)
----- ----- --- ----- ----- -----
End of year - 1997 2,220 1,048 23 3,291 111 3,402
Purchase of reserves in place 10 - 782 /(a)/ 792 - 792
Revisions of previous estimates (16) 10 (1) (7) 5 (2)
Improved recovery - - - - - -
Extensions, discoveries and
other additions 238 32 55 325 5 330
Production (272) (124) (29) (425) (11) (436)
Sales of reserves in place (29) - - (29) - (29)
----- ----- --- ----- ----- -----
End of year - 1998 2,151 966 830 3,947 110 4,057
Purchase of reserves in place 5 - 11 16 - 16
Revisions of previous estimates (83) (81) (3) (167) 13 (154)
Improved recovery 8 - 2 10 - 10
Extensions, discoveries and
other additions 281 - 94 375 13 388
Production (275) (111) (59) (445) (13) (458)
Sales of reserves in place (42) - (42) (84) - (84)
----- ----- --- ----- ----- -----
End of year - 1999 2,045 774 833 3,652 123 3,775
- ----------------------------------------------------------------------------------------------------------------------------
Proved developed reserves:
Beginning of year - 1997 1,720 1,133 16 2,869 100 2,969
End of year - 1997 1,702 1,024 19 2,745 78 2,823
End of year - 1998 1,678 909 534 3,121 76 3,197
End of year - 1999 1,550 741 497 2,788 65 2,853
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Represents reserves related to the acquisition of Tarragon Oil and Gas
Limited in August 1998.
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves
Estimated discounted future net cash flows and changes therein were
determined in accordance with Statement of Financial Accounting Standards No.
69. Certain information concerning the assumptions used in computing the
valuation of proved reserves and their inherent limitations are discussed below.
USX believes such information is essential for a proper understanding and
assessment of the data presented.
Future cash inflows are computed by applying year-end prices of oil and gas
relating to USX's proved reserves to the year-end quantities of those reserves.
Future price changes are considered only to the extent provided by contractual
arrangements in existence at year-end.
The assumptions used to compute the proved reserve valuation do not
necessarily reflect USX's expectations of actual revenues to be derived from
those reserves nor their present worth. Assigning monetary values to the
estimated quantities of reserves, described on the preceding page, does not
reduce the subjective and ever-changing nature of such reserve estimates.
Additional subjectivity occurs when determining present values because the
rate of producing the reserves must be estimated. In addition to uncertainties
inherent in predicting the future, variations from the expected production rate
also could result directly or indirectly from factors outside of USX's control,
such as unintentional delays in development, environmental concerns, changes in
prices or regulatory controls.
The reserve valuation assumes that all reserves will be disposed of by
production. However, if reserves are sold in place or subjected to participation
by foreign governments, additional economic considerations also could affect the
amount of cash eventually realized.
Future development and production costs, including abandonment and
dismantlement costs, are computed by estimating the expenditures to be incurred
in developing and producing the proved oil and gas reserves at the end of the
year, based on year-end costs and assuming continuation of existing economic
conditions.
Future income tax expenses are computed by applying the appropriate year-
end statutory tax rates, with consideration of future tax rates already
legislated, to the future pretax net cash flows relating to USX's proved oil and
gas reserves. Permanent differences in oil and gas related tax credits and
allowances are recognized.
Discount was derived by using a discount rate of 10 percent a year to
reflect the timing of the future net cash flows relating to proved oil and gas
reserves.
<PAGE>
Supplementary Information on Oil and Gas Producing Activities
(Unaudited) CONTINUED
Standardized Measure of Discounted Future Net Cash Flows Relating
to Proved Oil and Gas Reserves (continued)
<TABLE>
<CAPTION>
United Other Equity
(In millions) States Europe Intl. Consolidated Affiliates Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
Future cash inflows $ 15,817 $ 4,426 $ 5,242 $ 25,485 $ 2,154 $27,639
Future production costs (4,690) (1,864) (1,107) (7,661) (850) (8,511)
Future development costs (465) (86) (315) (866) (88) (954)
Future income tax expenses (3,232) (987) (1,581) (5,800) (328) (6,128)
-------- ------- --------- ------- --------- -------
Future net cash flows 7,430 1,489 2,239 11,158 888 12,046
10% annual discount for
estimated timing of
cash flows (3,451) (374) (862) (4,687) (372) (5,059)
-------- ------- --------- ------- --------- -------
Standardized measure of
discounted future net cash
flows relating to proved oil
and gas reserves $ 3,979 $ 1,115 $ 1,377 $ 6,471 $ 516 $ 6,987
-------------------------------------------------------------------------------------------------------------
December 31, 1998:
Future cash inflows $ 8,615 $ 3,850 $ 2,686 $ 15,151 $ 1,036 $16,187
Future production costs (3,781) (2,240) (950) (6,971) (586) (7,557)
Future development costs (585) (130) (323) (1,038) (124) (1,162)
Future income tax expenses (850) (630) (542) (2,022) (45) (2,067)
-------- ------- --------- ------- ---------- -------
Future net cash expenses 3,399 850 871 5,120 281 5,401
10% annual discount for
estimated timing of cash flows (1,498) (256) (392) (2,146) (136) (2,282)
-------- ------- --------- ------- ---------- -------
Standardized measure of
discounted future net cash
flows relating to proved oil
and gas reserves $ 1,901 $ 594 $ 479 $ 2,974 145 $ 3,119
-------------------------------------------------------------------------------------------------------------
December 31, 1997:
Future cash inflows $ 13,902 $ 6,189 $ 484 $ 20,575 $ 1,714 $22,289
Future production costs (4,739) (2,310) (172) (7,221) (643) (7,864)
Future development costs (702) (162) (18) (882) (200) (1,082)
Future income tax expenses (2,413) (1,371) (62) (3,846) (232) (4,078)
-------- ------- --------- ------- ---------- -------
Future net cash flows 6,048 2,346 232 8,626 639 9,265
10% annual discount for
estimated timing of cash flows (2,696) (1,011) (52) (3,759) (367) (4,126)
-------- ------- --------- ------- ---------- -------
Standardized measure of
discounted future net cash
flows relating to proved oil
and gas reserves $ 3,352 $ 1,335 $ 180 $ 4,867 $ 272 $ 5,139
-------------------------------------------------------------------------------------------------------------
</TABLE>
Summary of Changes in Standardized Measure of Discounted Future
Net Cash Flows Relating to Proved Oil and Gas Reserves/(a)/
<TABLE>
<CAPTION>
Consolidated Equity Affiliates Total
------------------------------ ----------------------------- -----------------------------
(In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and transfers of
oil and gas produced,
net of production
costs $(1,516) $(1,125) $(1,424) $ (8) $ (20) $ (28) $(1,524) $(1,145) $(1,452)
Net changes in prices and
production costs related
to future production 6,061 (3,662) (3,677) 484 (372) (36) 6,545 (4,034) (3,713)
Extensions, discoveries and
improved recovery, less
related costs 566 284 458 9 4 263 575 288 721
Development costs incurred
during the period 356 516 571 84 165 135 440 681 706
Changes in estimated future
development costs (38) (306) (302) (52) (100) (121) (90) (406) (423)
Revisions of previous
quantity estimates (348) (110) 43 (8) (2) (5) (356) (112) 38
Net changes in purchases
and sales of
minerals in place 68 636 14 - - - 68 636 14
Accretion of discount 386 639 1,065 18 39 13 404 678 1,078
Net change in income taxes (2,062) 869 1,350 (117) 57 (29) (2,179) 926 1,321
Other 24 366 (764) (39) 102 (4) (15) 468 (768)
----------------------------------------------------------------------------------------------------------------------
Net change for the year 3,497 (1,893) (2,666) 371 (127) 188 3,868 (2,020) (2,478)
Beginning of year 2,974 4,867 7,533 145 272 84 3,119 5,139 7,617
----------------------------------------------------------------------------------------------------------------------
End of year $ 6,471 $ 2,974 $ 4,867 $ 516 $ 145 $ 272 $ 6,987 $ 3,119 $ 5,139
----------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Prior year amounts have been changed to conform with current
year reporting practices.
U-34
<PAGE>
Exhibit 99.2
Marathon Group
Index to 1999 Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Report....................................... M-1
Audited Financial Statements:
Report of Independent Accountants....................... M-1
Statement of Operations................................. M-2
Balance Sheet........................................... M-3
Statement of Cash Flows................................. M-4
Notes to Financial Statements........................... M-5
Selected Quarterly Financial Data......................... M-21
Principal Unconsolidated Affiliates....................... M-21
Supplementary Information................................. M-21
</TABLE>
<PAGE>
Marathon Group
Explanatory Note Regarding Financial Information
Although the financial statements of the Marathon Group and the
U. S. Steel Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of
USX attributed to each such Group, such attribution does not
affect legal title to such assets and responsibility for such
liabilities. Holders of USX - Marathon Group Common Stock and
USX -U. S. Steel Group Common Stock are holders of common stock
of USX and continue to be subject to all the risks associated
with an investment in USX and all of its businesses and
liabilities. Financial impacts arising from one Group that affect
the overall cost of USX's capital could affect the results of
operations and financial condition of the other Group. In
addition, net losses of either Group, as well as dividends or
distributions on any class of USX Common Stock or series of
Preferred Stock and repurchases of any class of USX Common Stock
or series of Preferred Stock, will reduce the funds of USX
legally available for payment of dividends on both classes of USX
Common Stock. Accordingly, the USX consolidated financial
information should be read in connection with the Marathon Group
financial information.
<PAGE>
Management's Report
The accompanying financial statements of the Marathon Group are the
responsibility of and have been prepared by USX Corporation (USX)
in conformity with accounting principles generally accepted in the
United States. They necessarily include some amounts that are based
on best judgments and estimates. The Marathon Group financial
information displayed in other sections of this report is
consistent with these financial statements.
USX seeks to assure the objectivity and integrity of its
financial records by careful selection of its managers, by
organizational arrangements that provide an appropriate division of
responsibility and by communications programs aimed at assuring
that its policies and methods are understood throughout the
organization.
USX has a comprehensive formalized system of internal
accounting controls designed to provide reasonable assurance that
assets are safeguarded and that financial records are reliable.
Appropriate management monitors the system for compliance, and the
internal auditors independently measure its effectiveness and
recommend possible improvements thereto. In addition, as part of
their audit of the financial statements, USX's independent
accountants, who are elected by the stockholders, review and test
the internal accounting controls selectively to establish a basis
of reliance thereon in determining the nature, extent and timing of
audit tests to be applied.
The Board of Directors pursues its oversight role in the area
of financial reporting and internal accounting control through its
Audit Committee. This Committee, composed solely of nonmanagement
directors, regularly meets (jointly and separately) with the
independent accountants, management and internal auditors to
monitor the proper discharge by each of its responsibilities
relative to internal accounting controls and the consolidated and
group financial statements.
<TABLE>
<S> <C> <C>
Thomas J. Usher Robert M. Hernandez Kenneth L. Matheny
Chairman, Board of Directors Vice Chairman Vice President
& Chief Executive Officer & Chief Financial Officer & Comptroller
</TABLE>
Report of Independent Accountants
To the Stockholders of USX Corporation:
In our opinion, the accompanying financial statements appearing on
pages M-2 through M-20 present fairly, in all material respects,
the financial position of the Marathon Group at December 31, 1999
and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of
USX's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
The Marathon Group is a business unit of USX Corporation (as
described in Note 1, page M-5); accordingly, the financial
statements of the Marathon Group should be read in connection with
the consolidated financial statements of USX Corporation.
PricewaterhouseCoopers LLP
600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
February 8, 2000
M-1
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales (Note 7) $24,212 $21,628 $15,760
Dividend and affiliate income 69 50 36
Net gains on disposal of assets - 28 37
Gain on ownership change in
Marathon Ashland Petroleum LLC (Note 5) 17 245 -
Other income 29 26 13
------- ------- -------
Total revenues 24,327 21,977 15,846
------- ------- -------
Costs and expenses:
Cost of sales (excludes items shown below) 17,273 14,984 10,392
Selling, general and administrative expenses 486 505 355
Depreciation, depletion and amortization 950 941 664
Taxes other than income taxes 4,218 4,029 3,030
Exploration expenses 238 313 189
Inventory market valuation charges (credits) (Note 20) (551) 267 284
------- ------- -------
Total costs and expenses 22,614 21,039 14,914
------- ------- -------
Income from operations 1,713 938 932
Net interest and other financial costs (Note 8) 288 237 260
Minority interest in income of
Marathon Ashland Petroleum LLC (Note 5) 447 249 -
------- ------- -------
Income before income taxes 978 452 672
Provision for estimated income taxes (Note 18) 324 142 216
------- ------- -------
Net income $ 654 $ 310 $ 456
-------------------------------------------------------------------------------------
Income Per Common Share
1999 1998 1997
-------------------------------------------------------------------------------------
Basic $ 2.11 $ 1.06 $ 1.59
Diluted 2.11 1.05 1.58
-------------------------------------------------------------------------------------
</TABLE>
See Note 22, for a description and computation of income per common
share.
The accompanying notes are an integral part of these financial
statements.
M-2
<PAGE>
Balance Sheet
<TABLE>
<CAPTION>
(Dollars in millions) December 31 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 6) $ 111 $ 137
Receivables, less allowance for doubtful accounts
of $2 and $3 1,866 1,277
Inventories (Note 20) 1,884 1,310
Other current assets 241 252
------- -------
Total current assets 4,102 2,976
Investments and long-term receivables (Note 19) 772 603
Property, plant and equipment - net (Note 16) 10,293 10,429
Prepaid pensions (Note 14) 225 241
Other noncurrent assets 313 295
------- -------
Total assets $15,705 $14,544
------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Notes payable $ - $ 132
Accounts payable 2,659 1,940
Income taxes payable (Note 23) 97 -
Distribution payable to minority shareholder of
Marathon Ashland Petroleum LLC (Note 6) - 103
Payroll and benefits payable 146 190
Accrued taxes 107 99
Accrued interest 92 87
Long-term debt due within one year (Note 12) 48 59
------- -------
Total current liabilities 3,149 2,610
Long-term debt (Note 12) 3,320 3,456
Deferred income taxes (Note 18) 1,495 1,450
Employee benefits (Note 14) 564 553
Deferred credits and other liabilities (Note 23) 440 389
Preferred stock of subsidiary (Note 9) 184 184
Minority interest in Marathon Ashland Petroleum LLC (Note 5) 1,753 1,590
Common Stockholders' Equity (Note 17) 4,800 4,312
------- -------
Total liabilities and common stockholders' equity $15,705 $14,544
-----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
M-3
<PAGE>
Statement of Cash Flows
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income $ 654 $ 310 $ 456
Adjustments to reconcile to net cash
provided from operating activities:
Minority interest in income of
Marathon Ashland Petroleum LLC 447 249 -
Depreciation, depletion and amortization 950 941 664
Exploratory dry well costs 109 186 78
Inventory market valuation charges (credits) (551) 267 284
Pensions and other postretirement benefits 36 34 6
Deferred income taxes 105 26 30
Gain on ownership change in
Marathon Ashland Petroleum LLC (17) (245) -
Net gains on disposal of assets - (28) (37)
Changes in: Current receivables - sold - - (340)
- operating turnover (833) 240 97
Inventories (63) (13) 18
Current accounts payable and accrued expenses 1,095 (233) 11
All other - net 84 (92) (21)
------- ------- -------
Net cash provided from operating activities 2,016 1,642 1,246
------- ------- -------
Investing activities:
Capital expenditures (1,378) (1,270) (1,038)
Acquisition of Tarragon Oil and Gas Limited - (686) -
Disposal of assets 356 65 60
Restricted cash - withdrawals 45 11 108
- deposits (44) (32) (10)
Affiliates - investments (59) (42) (193)
- loans and advances (70) (103) (46)
- returns and repayments 1 71 8
All other - net (25) (18) (2)
------- ------- -------
Net cash used in investing activities (1,174) (2,004) (1,113)
------- ------- -------
Financing activities (Note 9):
Increase (decrease) in Marathon Group's
portion of USX consolidated debt (296) 329 97
Specifically attributed debt:
Borrowings 141 366 -
Repayments (144) (389) (39)
Marathon Stock issued 89 613 34
Dividends paid (257) (246) (219)
Distributions to minority shareholder of
Marathon Ashland Petroleum LLC (400) (211) -
------- ------- -------
Net cash provided from (used in) financing activities (867) 462 (127)
------- ------- -------
Effect of exchange rate changes on cash (1) 1 (2)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (26) 101 4
Cash and cash equivalents at beginning of year 137 36 32
------- ------- -------
Cash and cash equivalents at end of year $ 111 $ 137 $ 36
----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 13, for supplemental cash flow information.
The accompanying notes are an integral part of these financial
statements.
M-4
<PAGE>
Notes to Financial Statements
1. Basis of Presentation
After the redemption of the USX - Delhi Group stock on January
26, 1998, USX Corporation (USX) has two classes of common stock:
USX - Marathon Group Common Stock (Marathon Stock) and USX -
U. S. Steel Group Common Stock (Steel Stock), which are intended
to reflect the performance of the Marathon Group and the U. S.
Steel Group, respectively.
The financial statements of the Marathon Group include the
financial position, results of operations and cash flows 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. For a
description of the Marathon Group's operating segments, see Note
10.
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 between 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.
- --------------------------------------------------------------------------------
2. Summary of Principal Accounting Policies
Principles applied in consolidation - These financial statements
include the accounts of the businesses comprising the Marathon
Group. The Marathon Group and the U. S. Steel Group financial
statements, taken together, comprise all of the accounts included
in the USX consolidated financial statements.
Investments in unincorporated oil and gas joint ventures,
undivided interest pipelines and jointly owned gas processing
plants are consolidated on a pro rata basis.
Investments in entities over which the Marathon Group has
significant influence are accounted for using the equity method
of accounting and are carried at the Marathon Group's share of
net assets plus loans and advances.
Investments in companies whose stock is publicly traded are
carried at market value. The difference between the cost of these
investments and market value is recorded in other comprehensive
income (net of tax). Investments in companies whose stock has no
readily determinable fair value are carried at cost.
Use of estimates - Generally accepted accounting principles
require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at year-end and the reported
amounts of revenues and expenses during the year. Significant
items subject to such estimates and assumptions include the
carrying value of long-lived assets; valuation allowances for
receivables, inventories and deferred income tax assets;
environmental liabilities; liabilities for potential tax
deficiencies and potential litigation claims and settlements; and
assets and obligations related to employee benefits.
Additionally, certain estimated liabilities are recorded when
management commits to a plan to close an operating facility or to
exit a business activity. Actual results could differ from the
estimates and assumptions used.
M-5
<PAGE>
Revenue recognition - Revenues principally include sales,
dividend and affiliate income, gains or losses on the disposal of
assets and gains or losses from changes in ownership interests.
Sales - Sales are recognized when products are shipped or
services are provided to customers. Consumer excise taxes on
petroleum products and merchandise and matching crude oil
and refined products buy/sell transactions settled in cash
are included in both revenues and costs and expenses, with
no effect on income.
Dividend and Affiliate Income - Dividend and affiliate
income includes the Marathon Group's proportionate share of
income from equity method investments and dividend income
from other investments. Dividend income is recognized when
dividend payments are received.
Disposal of Assets - When long-lived assets depreciated on
an individual basis are sold or otherwise disposed of, any
gains or losses are reflected in income. Gains on disposal
of long-lived assets are recognized when earned, which is
generally at the time of closing. If a loss on disposal is
expected, such losses are recognized when long-lived assets
are reclassified as assets held for sale. Proceeds from
disposal of long-lived assets depreciated on a group basis
are credited to accumulated depreciation, depletion and
amortization with no immediate effect on income.
Gas Balancing - The Marathon Group follows the sales method
of accounting for gas production imbalances and would
recognize a liability if the existing proved reserves were
not adequate to cover the current imbalance situation.
Change in Ownership Interest - Gains or losses from a change
in ownership of a consolidated subsidiary or an
unconsolidated affiliate are recognized in revenues in the
period of change.
Cash and cash equivalents - Cash and cash equivalents include
cash on hand and on deposit and investments in highly liquid debt
instruments with maturities generally of three months or less.
Inventories - Inventories are carried at lower of cost or market.
Cost of inventories is determined primarily under the last-in,
first-out (LIFO) method.
Derivative instruments - The Marathon Group uses commodity-based
and foreign currency derivative instruments to manage its
exposure to price risk. Management is authorized to use futures,
forwards, swaps and options related to the purchase, production
or sale of crude oil, natural gas, refined products and
electricity. While the Marathon Group's risk management
activities generally reduce market risk exposure due to
unfavorable commodity price changes for raw material purchases
and products sold, such activities can also encompass strategies
which assume price risk.
Commodity-Based Hedging Transactions - For transactions that
qualify for hedge accounting, the resulting gains or losses
are deferred and subsequently recognized in income from
operations, as a component of sales or cost of sales, in the
same period as the underlying physical transaction. To
qualify for hedge accounting, derivative positions cannot
remain open if the underlying physical market risk has been
removed. If such derivative positions remain in place, they
would be marked-to-market and accounted for as trading or
other activities. Recorded deferred gains or losses are
reflected within other current and noncurrent assets or
accounts payable and deferred credits and other liabilities,
as appropriate.
Commodity-Based Trading and Other Activities - Derivative
instruments used for trading and other activities are
marked-to-market and the resulting gains or losses are
recognized in the current period within income from
operations. This category also includes the use of
derivative instruments that have no offsetting underlying
physical market risk.
Foreign Currency Transactions - The Marathon Group uses
forward exchange contracts to manage currency risks. Gains
or losses related to firm commitments are deferred and
recognized concurrent with the underlying transaction. All
other gains or losses are recognized in income in the
current period as sales, cost of sales, interest income or
expense, or other income, as appropriate. Forward exchange
contracts are recorded as receivables or payables, as
appropriate.
Exploration and development - The Marathon Group follows the
successful efforts method of accounting for oil and gas
exploration and development.
M-6
<PAGE>
Long-lived assets - Depreciation and depletion of oil and gas
producing properties are computed using predetermined rates based
upon estimated proved oil and gas reserves applied on a units-of-
production method. Other items of property, plant and equipment
are depreciated principally by the straight-line method.
The Marathon Group evaluates impairment of its oil and gas
producing assets primarily on a field-by-field basis using
undiscounted cash flows based on total proved reserves. Other
assets are evaluated on an individual asset basis or by logical
groupings of assets. Assets deemed to be impaired are written
down to their fair value, including any related goodwill, using
discounted future cash flows and, if available, comparable market
values.
Environmental liabilities - The Marathon Group provides for
remediation costs and penalties when the responsibility to
remediate is probable and the amount of associated costs is
reasonably determinable. Generally, the timing of remediation
accruals coincides with completion of a feasibility study or the
commitment to a formal plan of action. Remediation liabilities
are accrued based on estimates of known environmental exposure
and are discounted in certain instances. If recoveries of
remediation costs from third parties are probable, a receivable
is recorded. Estimated abandonment and dismantlement costs of
offshore production platforms are accrued based upon estimated
proved oil and gas reserves on a units-of-production method.
Insurance - The Marathon Group is insured for catastrophic
casualty and certain property and business interruption
exposures, as well as those risks required to be insured by law
or contract. Costs resulting from noninsured losses are charged
against income upon occurrence.
Reclassifications - Certain reclassifications of prior years'
data have been made to conform to 1999 classifications.
- --------------------------------------------------------------------------------
3. New Accounting Standards
Effective January 1, 1997, USX adopted American Institute of
Certified Public Accountants Statement of Position No. 96-1,
"Environmental Remediation Liabilities" (SOP 96-1), which
provides additional interpretation of existing accounting
standards related to recognition, measurement and disclosure of
environmental remediation liabilities. As a result of adopting
SOP 96-1, the Marathon Group identified 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 of adoption on the Marathon
Group's income from operations at January 1, 1997, was $7
million.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133). This new Standard requires recognition of all
derivatives as either assets or liabilities at fair value. SFAS
No. 133 may result in additional volatility in both current
period earnings and other comprehensive income as a result of
recording recognized and unrecognized gains and losses resulting
from changes in the fair value of derivative instruments. The
transition adjustment resulting from adoption of SFAS No. 133
will be reported as a cumulative effect of a change in accounting
principle.
Under the new Standard, USX may elect not to designate
certain derivative instruments as hedges even if the strategy
qualifies for hedge accounting treatment. This approach would
eliminate the administrative effort needed to measure
effectiveness and monitor such instruments; however, this
approach also may result in additional volatility in current
period earnings.
USX cannot reasonably estimate the effect of adoption on
either the financial position or results of operations. It is not
possible to estimate what effect this Statement will have on
future results of operations, although greater period-to-period
volatility is likely. USX plans to adopt the Standard effective
January 1, 2001.
M-7
<PAGE>
- --------------------------------------------------------------------------------
4. Corporate Activities
Financial activities - As a matter of policy, USX manages most
financial activities on a centralized, consolidated basis. Such
financial activities include the investment of surplus cash; the
issuance, repayment and repurchase of short-term and long-term
debt; the issuance, repurchase and redemption of preferred stock;
and the issuance and repurchase of common stock. Transactions
related primarily to invested cash, short-term and long-term debt
(including convertible debt), related net interest and other
financial costs, and preferred stock and related dividends are
attributed to the Marathon Group, the U. S. Steel Group and,
prior to November 1, 1997, the Delhi Group based upon the cash
flows of each group for the periods presented and the initial
capital structure of each group. Most financing transactions are
attributed to and reflected in the financial statements of all
groups. See Note 9, for the Marathon Group's portion of USX's
financial activities attributed to all groups. However,
transactions such as leases, certain collaterized financings,
certain indexed debt instruments, financial activities of
consolidated entities which are less than wholly owned by USX and
transactions related to securities convertible solely into any
one class of common stock are or will be specifically attributed
to and reflected in their entirety in the financial statements of
the group to which they relate.
Corporate general and administrative costs - Corporate general
and administrative costs are allocated to the Marathon Group, the
U. S. Steel Group and, prior to November 1, 1997, the Delhi Group
based upon utilization or other methods management believes to be
reasonable and which consider certain measures of business
activities, such as employment, investments and sales. The costs
allocated to the Marathon Group were $26 million in 1999, $28
million in 1998 and $37 million in 1997, and primarily consist of
employment costs including pension effects, professional
services, facilities and other related costs associated with
corporate activities.
Income taxes - All members of the USX affiliated group are
included in the consolidated United States federal income tax
return filed by USX. Accordingly, the provision for federal
income taxes and the related payments or refunds of tax are
determined on a consolidated basis. The consolidated provision
and the related tax payments or refunds have been reflected in
the Marathon Group, the U. S. Steel Group and, prior to November
1, 1997, the Delhi Group financial statements in accordance with
USX's tax allocation policy. In general, such policy provides
that the consolidated tax provision and related tax payments or
refunds are allocated among the Marathon Group, the U. S. Steel
Group and, prior to November 1, 1997, 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.
For tax provision and settlement purposes, tax benefits
resulting from attributes (principally net operating losses and
various tax credits), which cannot be utilized by one of the
groups on a separate return basis but which can be utilized on a
consolidated basis in that year or in a carryback year, are
allocated to the group that generated the attributes. To the
extent that one of the groups is allocated a consolidated tax
attribute which, as a result of expiration or otherwise, is not
ultimately utilized on the consolidated tax return, the prior
years' allocation of such attribute is adjusted such that the
effect of the expiration is borne by the group that generated the
attribute. Also, if a tax attribute cannot be utilized on a
consolidated basis in the year generated or in a carryback year,
the prior years' allocation of such consolidated tax effects is
adjusted in a subsequent year to the extent necessary to allocate
the tax benefits to the group that would have realized the tax
benefits on a separate return basis. As a result, the allocated
group amounts of taxes payable or refundable are not necessarily
comparable to those that would have resulted if the groups had
filed separate tax returns.
- --------------------------------------------------------------------------------
5. Business Combinations
In August 1998, Marathon acquired Tarragon Oil and Gas Limited
(Tarragon), a Canadian oil and gas exploration and production
company. Securityholders of Tarragon received, at their election,
Cdn$14.25 for each Tarragon share, or the economic equivalent in
Exchangeable Shares of an indirect Canadian subsidiary of
Marathon, which are exchangeable solely on a one-for-one basis
into Marathon Stock. The purchase price included cash payments of
$686 million, issuance of 878,074 Exchangeable Shares valued at
$29 million and the assumption of $345 million in debt.
The Exchangeable Shares are exchangeable at the option of
the holder at any time and automatically redeemable on August 11,
2003 (and, in certain circumstances, as early as August 11,
2001). The holders of Exchangeable Shares are entitled to receive
declared dividends equivalent to dividends declared from time to
time by USX on Marathon Stock.
Marathon accounted for the acquisition using the purchase
method of accounting. The 1998 results of operations include the
operations of Marathon Canada Limited, formerly known as
Tarragon, commencing August 12, 1998.
M-8
<PAGE>
During 1997, Marathon and Ashland Inc. (Ashland) agreed to
combine the major elements of their refining, marketing and
transportation (RM&T) operations. On January 1, 1998, Marathon
transferred certain RM&T net assets to Marathon Ashland Petroleum
LLC (MAP), a new consolidated subsidiary. Also on January 1,
1998, Marathon acquired certain RM&T net assets from Ashland in
exchange for a 38% interest in MAP. The acquisition was accounted
for under the purchase method of accounting. The purchase price
was determined to be $1.9 billion, based upon an external
valuation. The change in Marathon's ownership interest in MAP
resulted in a gain of $245 million, which is included in 1998
revenues. In accordance with MAP closing agreements, Marathon and
Ashland made capital contributions to MAP for environmental
improvements. The closing agreements stipulate that ownership
interests in MAP will not be adjusted as a result of such
contributions. Accordingly, Marathon recognized a gain on
ownership change of $17 million in 1999.
In connection with the formation of MAP, Marathon and
Ashland entered into a Limited Liability Company Agreement dated
January 1, 1998 (the LLC Agreement). The LLC Agreement provides
for an initial term of MAP expiring on December 31, 2022 (25
years from its formation). The term will automatically be
extended for ten-year periods, unless a termination notice is
given by either party.
Also in connection with the formation of MAP, the parties
entered into a Put/Call, Registration Rights and Standstill
Agreement (the Put/Call Agreement). The Put/Call Agreement
provides that at any time after December 31, 2004, Ashland will
have the right to sell to Marathon all of Ashland's ownership
interest in MAP, for an amount in cash and/or Marathon or USX
debt or equity securities equal to the product of 85% (90% if
equity securities are used) of the fair market value of MAP at
that time, multiplied by Ashland's percentage interest in MAP.
Payment could be made at closing, or at Marathon's option, in
three equal annual installments, the first of which would be
payable at closing. At any time after December 31, 2004, Marathon
will have the right to purchase all of Ashland's ownership
interests in MAP, for an amount in cash equal to the product of
115% of the fair market value of MAP at that time, multiplied by
Ashland's percentage interest in MAP.
The following unaudited pro forma data for the Marathon
Group includes the results of operations of Tarragon for 1998 and
1997, and the Ashland RM&T net assets for 1997, giving effect to
the acquisitions as if they had been consummated at the beginning
of the years presented. The pro forma data is based on historical
information and does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of
future results of operations.
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 22,071 $ 23,425
Net income 279 /(a)/ 457 /(a)/
Net income per common share -
Basic and diluted .95 1.58
-------------------------------------------------------------------------------------
</TABLE>
/(a)/ Excluding the pro forma inventory market valuation
adjustment, pro forma net income would have been $383
million in 1998 and $619 million in 1997. Reported net
income, excluding the reported inventory market valuation
adjustment, would have been $414 million in 1998 and $635
million in 1997.
- --------------------------------------------------------------------------------
6. Transactions Between MAP and Ashland
At December 31, 1999 and 1998, MAP had current receivables from
Ashland of $26 million and $22 million, respectively, and current
payables to Ashland of $2 million at December 31, 1999, and at
December 31, 1998, $106 million, including distributions payable.
At December 31, 1998, MAP's cash and cash equivalents
included a $103 million demand note invested with Ashland, which
was repaid in January 1999.
MAP has a $190 million short-term revolving credit agreement
with Ashland. Interest on borrowings is based on the Federal
Funds Rate in effect each day during the period plus 0.30 of 1%.
At December 31, 1999, there were no borrowings against this
facility.
During 1999 and 1998, MAP's sales to Ashland consisting
primarily of petroleum products, were $198 million and $185
million, respectively, and MAP's purchases of products and
services from Ashland were $25 million and $45 million,
respectively. These transactions were conducted under terms
comparable to those with unrelated parties.
- --------------------------------------------------------------------------------
7. Revenues
The items below are included in revenues and costs and expenses,
with no effect on income.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer excise taxes on petroleum products
and merchandise $ 3,973 $ 3,824 $ 2,828
Matching crude oil and refined product
buy/sell transactions settled in cash 3,539 3,948 2,436
---------------------------------------------------------------------------------
</TABLE>
M-9
<PAGE>
- --------------------------------------------------------------------------------
8. Other Items
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest and other financial costs
Interest and other financial income/(a)/:
Interest income $ 15 $ 30 $ 7
Other (13) 4 (6)
----- ----- -----
Total 2 34 1
----- ----- -----
Interest and other financial costs/(a)/:
Interest incurred 281 285 232
Less interest capitalized 20 40 24
----- ----- -----
Net interest 261 245 208
Interest on tax issues 5 5 7
Financial costs on preferred stock of subsidiary 17 17 16
Amortization of discounts 2 4 4
Expenses on sales of accounts receivable - - 19
Other 5 - 7
----- ----- -----
Total 290 271 261
----- ----- -----
Net interest and other financial costs/(a)/ $ 288 $ 237 $ 260
-----------------------------------------------------------------------------------------------
</TABLE>
/(a)/ See Note 4, for discussion of USX net interest and
other financial costs attributable to the Marathon
Group.
----------------------------------------------------------------
Foreign currency transactions
For 1999, 1998 and 1997, the aggregate foreign currency
transaction gains (losses) included in determining net income
were $(12) million, $13 million and $4 million, respectively.
- --------------------------------------------------------------------------------
9. Financial Activities Attributed to Groups
The following is the portion of USX financial activities
attributed to the Marathon Group. These amounts exclude amounts
specifically attributed to the Marathon Group.
<TABLE>
<CAPTION>
Marathon Group Consolidated USX/(a)/
-------------- ---------------------
(In millions) December 31 1999 1998 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 8 $ 4 $ 9 $ 4
Other noncurrent assets 7 7 8 8
------ ------ ------ ------
Total assets $ 15 $ 11 $ 17 $ 12
------------------------------------------------------------------------------------------------------
Notes payable $ - $ 132 $ - $ 145
Accrued interest 82 80 95 88
Long-term debt due within one year (Note 12) 47 59 54 66
Long-term debt (Note 12) 3,305 3,456 3,771 3,762
Preferred stock of subsidiary 184 184 250 250
------ ------ ------ ------
Total liabilities $3,618 $3,911 $4,170 $4,311
------------------------------------------------------------------------------------------------------
Marathon Group/(b)/ Consolidated USX
------------------- ----------------
(In millions) 1999 1998 1997 1999 1998 1997
------------------------------------------------------------------------------------------------------------------
Net interest and other financial costs (Note 8) $ 295 $ 295 $ 246 $ 334 $ 324 $ 309
------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ For details of USX long-term debt and preferred stock of
subsidiary, see Notes 16 and 23, respectively, to the USX
consolidated financial statements.
/(b)/ The Marathon Group's net interest and other financial costs
reflect weighted average effects of all financial activities
attributed to all groups.
- --------------------------------------------------------------------------------
10. Segment Information
The Marathon Group's operations consists of three reportable
operating segments: 1) Exploration and Production - explores for
and produces crude oil and natural gas on a worldwide basis; 2)
Refining, Marketing and Transportation - refines, markets and
transports crude oil and petroleum products, primarily in the
Midwest and southeastern United States through MAP; and 3) Other
Energy Related Businesses. Other Energy Related Businesses is an
aggregation of two segments which fall below the quantitative
reporting thresholds: 1) Natural Gas and Crude Oil Marketing and
Transportation - markets and transports its own and third-party
natural gas and crude oil in the United States; and
2) Power Generation - develops, constructs and operates
independent electric power projects worldwide.
M-10
<PAGE>
Sales by product line are:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Refined products $10,873 $8,750 $7,012
Merchandise 2,088 1,873 1,045
Liquid hydrocarbons 2,159 1,818 941
Natural gas 1,381 1,144 1,331
Transportation and other products 199 271 167
- --------------------------------------------------------------------------------
</TABLE>
Segment income represents income from operations allocable to operating
segments. USX corporate general and administrative costs are not allocated to
operating segments. These costs primarily consist of employment costs including
pension effects, professional services, facilities and other related costs
associated with corporate activities. Certain general and administrative costs
related to all Marathon Group operating segments in excess of amounts billed to
MAP under service contracts and amounts charged out to operating segments under
Marathon's shared services procedures also are not allocated to operating
segments. Additionally, the following items are not allocated to operating
segments: inventory market valuation adjustments, gain on ownership change in
MAP and certain other items not allocated to operating segments for business
performance reporting purposes (see (a) in reconcilement table on page M-12).
<TABLE>
<CAPTION>
Refining, Other
Exploration Marketing Energy
and and Related
(In millions) Production Transportation Businesses Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues:
Customer $3,230 $20,210 $731 $24,171
Intersegment/(a)/ 202 47 40 289
Intergroup/(a)/ 19 - 22 41
Equity in earnings (losses) of unconsolidated affiliates (2) 17 26 41
Other 30 48 15 93
------ ------- ---- -------
Total revenues $3,479 $20,322 $834 $24,635
====== ======= ==== =======
Segment income $ 618 $ 611 $ 61 $ 1,290
Significant noncash items included in segment income:
Depreciation, depletion and amortization/(b)/ 638 280 5 923
Pension expenses/(c)/ 3 32 2 37
Capital expenditures/(d)/ 744 612 4 1,360
Affiliates - investments 56 - 3 59
- --------------------------------------------------------------------------------------------------------------------------------
1998
Revenues:
Customer $2,085 $19,192 $306 $21,583
Intersegment/(a)/ 144 10 17 171
Intergroup/(a)/ 13 - 7 20
Equity in earnings of unconsolidated affiliates 2 12 14 28
Other 26 40 11 77
------ ------- ---- -------
Total revenues $2,270 $19,254 $355 $21,879
====== ======= ==== =======
Segment income $ 278 $ 896 $ 33 $ 1,207
Significant noncash items included in segment income:
Depreciation, depletion and amortization/(b)/ 581 272 6 859
Pension expenses/(c)/ 3 16 2 21
Capital expenditures/(d)/ 839 410 8 1,257
Affiliates - investments/(d)/ - 22 17 39
- --------------------------------------------------------------------------------------------------------------------------------
1997
Revenues:
Customer $1,575 $13,698 $381 $15,654
Intersegment/(a)/ 619 - - 619
Intergroup/(a)/ 99 - 6 105
Equity in earnings of unconsolidated affiliates 14 4 7 25
Other 7 20 30 57
------ ------- ---- -------
Total revenues $2,314 $13,722 $424 $16,460
====== ======= ==== =======
Segment income $ 773 $ 563 $ 48 $ 1,384
Significant noncash items included in segment income:
Depreciation, depletion and amortization/(b)/ 469 173 7 649
Pension expenses/(c)/ 3 8 1 12
Capital expenditures/(d)/ 810 205 6 1,021
Affiliates - investments/(d)/ 114 - 73 187
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Intersegment and intergroup sales and transfers were conducted under
terms comparable to those with unrelated parties.
/(b)/ Differences between segment totals and group totals represent amounts
included in administrative expenses and, in 1999 and 1998, international
and domestic exploration and production property impairments.
/(c)/ Differences between segment totals and group totals represent amounts
included in administrative expenses.
/(d)/ Differences between segment totals and group totals represent amounts
related to corporate administrative activities.
<PAGE>
The following reconciles segment revenues and income to amounts reported in
the Marathon Group financial statements:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Revenues of reportable segments $24,635 $21,879 $16,460
Items not allocated to segments:
Gain on ownership change in MAP 17 245 -
Other (36) 24 -
Elimination of intersegment revenues (289) (171) (619)
Administrative revenues - - 5
------- ------- -------
Total Group revenues $24,327 $21,977 $15,846
======= ======= =======
Income:
Income for reportable segments $ 1,290 $ 1,207 $ 1,384
Items not allocated to segments:
Gain on ownership change in MAP 17 245 -
Administrative expenses (108) (106) (168)
Inventory market valuation adjustments 551 (267) (284)
Other/(a)/ (37) (141) -
------- ------- -------
Total Group income from operations $ 1,713 $ 938 $ 932
- ---------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Represents in 1999, primarily certain domestic exploration and production
impairments, net losses on certain asset sales and costs of a voluntary
early retirement program. Represents in 1998 certain international
exploration and production property impairments, certain suspended
exploration well write-offs, a gas contract settlement and MAP transition
charges.
Geographic Area:
The information below summarizes the operations in different
geographic areas. Transfers between geographic areas are at prices which
approximate market.
<TABLE>
<CAPTION>
Revenues
--------------------------------------------
Within Between
(In millions) Year Geographic Areas Geographic Areas Total Assets/(a)/
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States 1999 $23,337 $ - $23,337 $ 7,555
1998 21,191 - 21,191 7,659
1997 15,123 - 15,123 5,578
Canada 1999 425 521 946 1,112
1998 209 368 577 1,094
United Kingdom 1999 459 - 459 1,581
1998 462 - 462 1,739
1997 593 - 593 1,856
Other Foreign Countries 1999 106 88 194 735
1998 115 52 167 468
1997 130 39 169 530
Eliminations 1999 - (609) (609) -
1998 - (420) (420) -
1997 - (39) (39) -
Total 1999 $24,327 $ - $24,327 $10,983
1998 21,977 - 21,977 10,960
1997 15,846 - 15,846 7,964
- ----------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Includes property, plant and equipment and investments in affiliates.
- --------------------------------------------------------------------------------
11. Leases
Future minimum commitments for capital leases (including sale-
leasebacks accounted for as financings) and for operating leases
having remaining noncancelable lease terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
Capital Operating
(In millions) Leases Leases
----------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 2 $ 198
2001 2 77
2002 2 64
2003 2 40
2004 2 33
Later years 14 120
Sublease rentals - (35)
------ ------
Total minimum lease payments 24 $ 497
====== ======
Less imputed interest costs (9)
------
Present value of net minimum lease payments
included in long-term debt $ 15
----------------------------------------------------------------------------------------
Operating lease rental expense:
(In millions) 1999 1998 1997
----------------------------------------------------------------------------------------
Minimum rental $ 142 $ 157 $ 102
Contingent rental 11 10 10
Sublease rentals (6) (7) (7)
----- ----- -----
Net rental expense $ 147 $ 160 $ 105
----------------------------------------------------------------------------------------
</TABLE>
M-12
<PAGE>
The Marathon Group leases a wide variety of facilities and
equipment under operating leases, including land and building
space, office equipment, production facilities and transportation
equipment. Most long-term leases include renewal options and, in
certain leases, purchase options. In the event of a change in
control of USX, as defined in the agreements, or certain other
circumstances, operating lease obligations totaling $104 million
may be declared immediately due and payable.
- --------------------------------------------------------------------------------
12. Long-Term Debt
The Marathon Group's portion of USX's consolidated long-term
debt is as follows:
<TABLE>
<CAPTION>
Marathon Group Consolidated USX/(a)/
---------------------- ----------------------
(In millions) December 31 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Specifically attributed debt/(b)/:
Receivables facility $ - $ - $ 350 $ -
Sale-leaseback financing and capital leases 15 - 107 95
Indexed debt less unamortized discount - - - 68
Other 1 - 1 -
------ ------ ------ ------
Total 16 - 458 163
Less amount due within one year 1 - 7 5
------ ------ ------ ------
Total specifically attributed long-term debt $ 15 $ - $ 451 $ 158
--------------------------------------------------------------------------------------------------
Debt attributed to groups/(c)/ $3,375 $3,537 $3,852 $3,853
Less unamortized discount 23 22 27 25
Less amount due within one year 47 59 54 66
------ ------ ------ ------
Total long-term debt attributed to groups $3,305 $3,456 $3,771 $3,762
--------------------------------------------------------------------------------------------------
Total long-term debt due within one year $ 48 $ 59 $ 61 $ 71
Total long-term debt due after one year 3,320 3,456 4,222 3,920
--------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ See Note 16, to the USX consolidated financial statements
for details of interest rates, maturities and other terms
of long-term debt.
/(b)/ As described in Note 4, certain financial activities are
specifically attributed only to the Marathon Group and the
U. S. Steel Group.
/(c)/ Most long-term debt activities of USX Corporation and its
wholly owned subsidiaries are attributed to all groups (in
total, but not with respect to specific debt issues) based
on their respective cash flows (Notes 4, 9 and 13).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
13. Supplemental Cash Flow Information
(In millions) 1999 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash used in operating activities included:
Interest and other financial costs paid (net of amount capitalized) $ (289) $ (260) $ (257)
Income taxes paid, including settlements with other groups (101) (154) (178)
------------------------------------------------------------------------------------------------------------
USX debt attributed to all groups - net:
Commercial paper - issued $ 6,282 $ - $ -
- repayments (6,117) - -
Credit agreements - borrowings 5,529 17,486 10,454
- repayments (5,980) (16,817) (10,449)
Other credit arrangements - net (95) 55 36
Other debt - borrowings 319 671 10
- repayments (87) (1,053) (741)
-------- -------- -------
Total $ (149) $ 342 $ (690)
------------------------------------------------------------------------------------------------------------
Marathon Group activity $ (296) $ 329 $ 97
U. S. Steel Group activity 147 13 (561)
Delhi Group activity - - (226)
-------- -------- -------
Total $ (149) $ 342 $ (690)
------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
Marathon Stock issued for dividend reinvestment and
employee stock plans $ 4 $ 3 $ 5
Marathon Stock issued for Exchangeable Shares 7 11 -
Affiliate preferred stock received in conversion of affiliate loan 142 - -
Disposal of assets:
Notes received 19 - -
Liabilities assumed by buyers - - 5
Business combinations:
Acquisition of Tarragon:
Exchangeable Shares issued - 29 -
Liabilities assumed - 433 -
Acquisition of Ashland RM&T net assets:
38% interest in MAP - 1,900 -
Liabilities assumed - 1,038 -
Other acquisitions - liabilities assumed 16 - -
------------------------------------------------------------------------------------------------------------
</TABLE>
M-13
<PAGE>
- --------------------------------------------------------------------------------
14. Pensions and Other Postretirement Benefits
The Marathon Group has noncontributory defined benefit pension
plans covering substantially all employees. Benefits under these
plans are based primarily upon years of service and final average
pensionable earnings. Certain subsidiaries provide benefits for
employees covered by other plans based primarily upon employees'
service and career earnings.
The Marathon Group also has defined benefit retiree health and
life insurance plans (other benefits) covering most employees upon
their retirement. Health benefits are provided through
comprehensive hospital, surgical and major medical benefit
provisions or through health maintenance organizations, both
subject to various cost sharing features. Life insurance benefits
are provided to certain nonunion and most union represented retiree
beneficiaries primarily based on employees' annual base salary at
retirement. Other benefits have not been prefunded.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------- ---------------------------
(In millions) 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligations
Benefit obligations at January 1 $ 1,080 $ 771 $ 597 $ 381
Service cost 65 48 17 12
Interest cost 67 57 36 31
Plan amendments 18 6 (44) (20)
Actuarial (gains) losses (197) 121 (108) 112
Plan merger and acquisition 14 145 4 98
Settlements, curtailments and termination benefits (122) - - -
Benefits paid (57) (68) (24) (17)
------------ ------------ ----------- --------------
Benefit obligations at December 31 $ 868 $ 1,080 $ 478 $ 597
-----------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $ 1,331 $ 1,150
Actual return on plan assets 136 199
Plan merger and acquisition 12 55
Employer contributions 2 8
Trustee distributions/(a)/ (16) (14)
Settlements paid (99) -
Benefits paid from plan assets (56) (67)
------------ ------------
Fair value of plan assets at December 31 $ 1,310 $ 1,331
-----------------------------------------------------------------------------------------------------------------------
Funded status of plans at December 31 $ 442 /(b)/ $ 251 /(b)/ $ (478) $ (597)
Unrecognized net gain from transition (26) (35) - -
Unrecognized prior service costs (credits) 63 48 (72) (35)
Unrecognized actuarial (gains) losses (306) (88) 68 182
Additional minimum liability/(c)/ (8) (18) - -
------------ ------------ ----------- --------------
Prepaid (accrued) benefit cost $ 165 $ 158 $ (482) $ (450)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
/(a)/ Represents transfers of excess pension assets to fund
retiree health care benefits accounts under Section 420 of
the Internal Revenue Code.
/(b)/ Includes several plans that have accumulated benefit
obligations in excess of plan assets:
Aggregate accumulated benefit obligations $(24) $(36)
Aggregate projected benefit obligations (37) (52)
Aggregate plan assets - -
/(c)/ Additional minimum liability recorded was offset
by the following:
Intangible asset $ 3 $ 2
---- ----
Accumulated other comprehensive income (losses):
Beginning of year $ (10) $ (7)
Change during year (net of tax) 7 (3)
---- ----
Balance at end of year $ (3) $(10)
-------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------------ ---------------------------
(In millions) 1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost (credit)
Service cost $ 65 $ 48 $ 31 $ 17 $ 12 $ 6
Interest cost 67 57 45 36 31 22
Expected return on plan assets (114) (107) (85) - - -
Amortization - net transition gain (5) (5) (5) - - -
- prior service costs 4 3 1 (8) (3) (3)
(credits)
- actuarial losses 1 - 1 7 3 -
Other plans 5 5 4 - - -
Settlement
and
termination
gain (7) /(a)/ - - - - -
----- ----- ----- ----- ----- -----
Net periodic benefit cost (credit) $ 16 $ 1 $ (8) $ 52 $ 43 $ 25
---------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Includes 1999 voluntary early retirement program.
M-14
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ----------------
1999 1998 1999 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average actuarial assumptions
at December 31:
Discount rate 8.0% 6.5% 8.0% 6.5%
Expected annual return on plan assets 9.5% 9.5% 9.5% 9.5%
Increase in compensation rate 5.0% 5.0% 5.0% 5.0%
------------------------------------------------------------------------------
</TABLE>
For measurement purposes, an 8% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
2000. The rate was assumed to decrease gradually to 5% for 2006 and
remain at that level thereafter.
A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
(In millions) Point Increase Point Decrease
------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 8 $ (6)
Effect on other postretirement benefit obligations 58 (48)
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
15. Dividends
In accordance with the USX Restated Certificate of Incorporation,
dividends on the Marathon Stock and Steel Stock are limited to the
legally available funds of USX. 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. Subject
to this limitation, the Board of Directors intends to declare and
pay dividends on the Marathon Stock based on the financial
condition and results of operations of the Marathon Group, although
it has no obligation under Delaware law to do so. In making its
dividend decisions with respect to Marathon Stock, the Board of
Directors considers among other things, the long-term earnings and
cash flow capabilities of the Marathon Group as well as the
dividend policies of similar publicly traded energy companies.
- --------------------------------------------------------------------------------
16. Property, Plant and Equipment
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Production $14,568 $14,707
Refining 2,439 2,251
Marketing 2,197 2,103
Transportation 1,374 1,402
Other 282 265
------- -------
Total 20,860 20,728
Less accumulated depreciation, depletion and amortization 10,567 10,299
------- -------
Net $10,293 $10,429
--------------------------------------------------------------------------------------------------
</TABLE>
Property, plant and equipment at December 31, 1999, includes
gross assets acquired under capital leases of $20 million with no
related amounts in accumulated depreciation, depletion and
amortization.
- --------------------------------------------------------------------------------
17. Common Stockholders' Equity
<TABLE>
<CAPTION>
(In millions, except per share data) 1999 1998 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $4,312 $3,618 $3,340
Net income 654 310 456
Marathon Stock issued 96 617 39
Exchangeable Shares:
Issued - 29 -
Exchanged for Marathon Stock (7) (12) -
Dividends on Marathon Stock
(per share: $.84 in 1999 and 1998 and $.76 in 1997) (261) (248) (219)
Deferred compensation - 2 1
Accumulated other comprehensive income (loss)/(a)/:
Foreign currency translation adjustments (1) 2 -
Minimum pension liability adjustments (Note 14) 7 (3) (2)
Unrealized holding gains (losses) on investments - (3) 3
------ ------ ------
Balance at end of year $4,800 $4,312 $3,618
---------------------------------------------------------------------------------
</TABLE>
/(a)/ See page U-7 of the USX consolidated financial statements
relative to the annual activity of these adjustments and
gains (losses). Total comprehensive income for the Marathon
Group for the years 1999, 1998 and 1997 was $660 million,
$306 million and $457 million, respectively.
M-15
<PAGE>
18. Income Taxes
Income tax provisions and related assets and liabilities attributed
to the Marathon Group are determined in accordance with the USX
group tax allocation policy (Note 4).
Provisions (credits) for estimated income taxes were:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- ---------------------------
(In millions) Current Deferred Total Current Deferred Total Current Deferred Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $191 $ 158 $349 $ 83 $ 19 $ 102 $ 171 $ (5) $ 166
State and local 3 (7) (4) 30 9 39 3 7 10
Foreign 25 (46) (21) 3 (2) 1 12 28 40
---- ----- ---- ---- ----- ----- ------ ----- ------
Total $219 $ 105 $324 $116 $ 26 $ 142 $ 186 $ 30 $ 216
------------------------------------------------------------------------------------------------------------
A reconciliation of federal statutory tax rate (35%) to
total provisions follows:
<CAPTION>
(In millions) 1999 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to income before income taxes $ 342 $ 158 $ 235
Effects of foreign operations, including foreign tax credits (18) (26) (8)
State and local income taxes after federal income tax effects (3) 25 6
Credits other than foreign tax credits (7) (9) (9)
Effects of partially owned companies (5) (4) (6)
Dispositions of subsidiary investments 7 - -
Adjustment of prior years' federal income taxes 4 (5) (4)
Adjustment of valuation allowances - - (4)
Other 4 3 6
----- ------ ------
Total provisions $ 324 $ 142 $ 216
------------------------------------------------------------------------------------------------------------
Deferred tax assets and liabilities resulted from the following:
<CAPTION>
(In millions) December 31 1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Minimum tax credit carryforwards $ - $ 15
State tax loss carryforwards (expiring in 2000 through 2018) 57 54
Foreign tax loss carryforwards (portion of which expire in 2000 through 2014) 382 414
Employee benefits 206 201
Receivables, payables, and debt 14 13
Expected federal benefit for:
Crediting certain foreign deferred income taxes 530 528
Deducting state and other foreign deferred income taxes 36 51
Contingency and other accruals 150 140
Investments in foreign subsidiaries 52 52
Investments in subsidiaries and affiliates 20 22
Other 34 38
Valuation allowances:
Federal (30) (30)
State (11) (8)
Foreign (282) (260)
-------- -------
Total deferred tax assets/(a)/ 1,158 1,230
-------- -------
Deferred tax liabilities:
Property, plant and equipment 2,065 2,158
Inventory 324 170
Prepaid pensions 127 125
Other 111 150
-------- -------
Total deferred tax liabilities 2,627 2,603
-------- -------
Net deferred tax liabilities $ 1,469 $ 1,373
------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ USX expects to generate sufficient future taxable income to
realize the benefit of the Marathon Group's deferred tax
assets. In addition, the ability to realize the benefit of
foreign tax credits is based upon certain assumptions
concerning future operating conditions (particularly as
related to prevailing oil prices), income generated from
foreign sources and USX's tax profile in the years that such
credits may be claimed.
The consolidated tax returns of USX for the years 1990
through 1997 are under various stages of audit and administrative
review by the IRS. USX believes it has made adequate provision for
income taxes and interest which may become payable for years not yet
settled.
Pretax income (loss) included $66 million, $(75) million
and $250 million attributable to foreign sources in 1999, 1998 and
1997, respectively.
Undistributed earnings of certain consolidated foreign
subsidiaries at December 31, 1999, amounted to $150 million. No
provision for deferred U.S. income taxes has been made for these
subsidiaries because the Marathon Group intends to permanently reinvest
such earnings in those foreign operations. If such earnings were not
permanently reinvested, a deferred tax liability of $53 million would
have been required.
M-16
<PAGE>
- --------------------------------------------------------------------------------
19. Investments and Long-Term Receivables
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity method investments $ 658 $ 498
Other investments 32 33
Receivables due after one year 56 46
Deposits of restricted cash 20 21
Other 6 5
------ ------
Total $ 772 $ 603
-------------------------------------------------------------------------------------------------------
</TABLE>
Summarized financial information of affiliates accounted for by the
equity method of accounting follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income data - year:
Revenues $ 422 $ 347 $ 562
Operating income 152 132 114
Net income 119 79 52
-------------------------------------------------------------------------------------------------------
Balance sheet data - December 31:
Current assets $ 387 $ 262
Noncurrent assets 2,606 2,233
Current liabilities 300 243
Noncurrent liabilities 1,066 1,254
-------------------------------------------------------------------------------------------------------
</TABLE>
Dividends and partnership distributions received from equity
affiliates were $44 million in 1999, $23 million in 1998 and $21
million in 1997.
Marathon Group purchases from equity affiliates totaled $50
million, $64 million and $37 million in 1999, 1998 and 1997,
respectively. Marathon Group sales to USX equity affiliates were $22
million in 1999 and 1998 and $36 million in 1997.
- --------------------------------------------------------------------------------
20. Inventories
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Crude oil and natural gas liquids $ 729 $ 731
Refined products and merchandise 1,046 1,023
Supplies and sundry items 109 107
------ ------
Total (at cost) 1,884 1,861
Less inventory market valuation reserve - 551
------ ------
Net inventory carrying value $1,884 $1,310
-------------------------------------------------------------------------------------------------------
</TABLE>
Inventories of crude oil and refined products are valued by the
LIFO method. The LIFO method accounted for 90% and 88% of total
inventory value at December 31, 1999 and 1998, respectively. Current
acquisition costs were estimated to exceed the above inventory values
at December 31, 1999, by approximately $200 million.
The inventory market valuation reserve reflects the extent that the
recorded LIFO cost basis of crude oil and refined products
inventories exceeds net realizable value. The reserve is decreased to
reflect increases in market prices and inventory turnover and
increased to reflect decreases in market prices. Changes in the
inventory market valuation reserve result in noncash charges or
credits to costs and expenses.
- --------------------------------------------------------------------------------
21. Stock-Based Compensation Plans and Stockholder Rights Plan
USX Stock-Based Compensation Plans and Stockholder Rights Plan are
discussed in Note 19, and Note 21, respectively, to the USX
consolidated financial statements.
The Marathon Group's actual stock-based compensation expense
(credit) was $(4) million in 1999, $(3) million in 1998 and $20
million in 1997. Incremental compensation expense, as determined
under a fair value model, was not material ($.02 or less per share
for all years presented). Therefore, pro forma net income and
earnings per share data have been omitted.
M-17
<PAGE>
- --------------------------------------------------------------------------------
22. Income Per Common Share
The method of calculating net income per share for the
Marathon Stock, the Steel Stock and, prior to November 1,
1997, the Delhi Stock reflects the USX Board of Directors'
intent that the separately reported earnings and surplus of
the Marathon Group, the U. S. Steel Group and the Delhi
Group, as determined consistent with the USX Restated
Certificate of Incorporation, are available for payment of
dividends to the respective classes of stock, although
legally available funds and liquidation preferences of these
classes of stock do not necessarily correspond with these
amounts.
Basic net income per share is based on the weighted
average number of common shares outstanding. Diluted net
income per share assumes conversion of convertible
securities for the applicable periods outstanding and
assumes exercise of stock options, provided in each case,
the effect is not antidilutive.
<TABLE>
<CAPTION>
1999 1998 1997
------------------- -------------------- --------------------
Computation of Income Per Share Basic Diluted Basic Diluted Basic Diluted
------------------------------- ----- ------- ----- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Net income (millions):
Net income $ 654 $ 654 $ 310 $ 310 $ 456 $ 456
Dilutive effect of convertible debentures - - - - - 3
-------- -------- -------- -------- -------- --------
Net income assuming conversions $ 654 $ 654 $ 310 $ 310 $ 456 $ 459
======== ======== ======== ======== ======== ========
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 309,696 309,696 292,876 292,876 288,038 288,038
Effect of dilutive securities:
Convertible debentures - - - - - 1,936
Stock options - 314 - 559 - 546
-------- -------- -------- -------- -------- --------
Average common shares and dilutive effect 309,696 310,010 292,876 293,435 288,038 290,520
======== ======== ======== ======== ======== ========
Net income per share $ 2.11 $ 2.11 $ 1.06 $ 1.05 $ 1.59 $ 1.58
======== ======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
23. Intergroup Transactions
Sales and purchases - Marathon Group sales to other groups
totaled $41 million, $21 million and $105 million in 1999,
1998 and 1997, respectively. Marathon Group purchases from
other groups totaled $17 million in 1999, $2 million in 1998
and $18 million in 1997. At December 31, 1999 and 1998,
Marathon Group receivables included $5 million and $3
million, respectively, related to transactions with the
U.S. Steel Group. These transactions were conducted under
terms comparable to those with unrelated parties. Since
October 31, 1997, transactions with the Delhi Companies are
third-party transactions.
Income taxes receivable from/payable to the U. S. Steel
Group -At December 31, 1999 and 1998, amounts receivable or
payable for income taxes were included in the balance sheet
as follows:
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Receivables $ 1 $ 2
Income taxes payable 97 -
Noncurrent:
Deferred credits and other liabilities 97 97
------------------------------------------------------------------------------------------------------------
</TABLE>
These amounts have been determined in accordance with
the tax allocation policy described in Note 4. Amounts
classified as current are settled in cash in the year
succeeding that in which such amounts are accrued.
Noncurrent amounts represent estimates of intergroup tax
effects of certain issues for years that are still under
various stages of audit and administrative review. Such tax
effects are not settled between the groups until the audit
of those respective tax years is closed. The amounts
ultimately settled for open tax years will be different than
recorded noncurrent amounts based on the final resolution of
all of the audit issues for those years.
- --------------------------------------------------------------------------------
24. Derivative Instruments
The Marathon Group remains at risk for possible changes in
the market value of the derivative instrument; however, such
risk should be mitigated by price changes in the underlying
hedged item. The Marathon Group is also exposed to credit
risk in the event of nonperformance by counterparties. The
credit worthiness of counterparties is subject to continuing
review, including the use of master netting agreements to
the extent practical, and full performance is anticipated.
The following table sets forth quantitative information
by class of derivative instrument:
M-18
<PAGE>
<TABLE>
<CAPTION>
Recognized
Fair Carrying Trading Recorded
Value Amount Gain or Deferred Aggregate
Assets Assets (Loss) for Gain or Contract
(In millions) (Liabilities)/(a)(b)/ (Liabilities) the Year (Loss) Values/(c)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999:
Exchange-traded commodity futures:
Trading $ - $ - $ 4 $ - $ 8
Other than trading - - - 28 344
Exchange-traded commodity options:
Trading - - 4 - 179
Other than trading (6) /(d)/ (6) - (10) 1,262
OTC commodity swaps/(e)/:
Trading - - - - -
Other than trading 3 /(f)/ 3 - 2 156
OTC commodity options:
Trading - - - - -
Other than trading 4 /(g)/ 4 - 5 238
-------- --------- -------- ------- --------
Total commodities $ 1 $ 1 $ 8 $ 25 $ 2,187
======== ========= ======== ======= ========
Forward exchange contracts/(h)/:
- receivable $ 52 $ 52 $ - $ - $ 51
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1998:
Exchange-traded commodity futures $ - $ - $ (2) $ 104
Exchange-traded commodity options 3 /(d)/ 2 3 776
OTC commodity swaps (2) /(f)/ (2) - 243
OTC commodity options 3 /(g)/ 3 3 147
-------- -------- ------- --------
Total commodities $ 4 $ 3 $ 4 $ 1,270
======== ======== ======= ========
Forward exchange contracts:
- receivable $ 36 $ 36 $ - $ 36
</TABLE>
- --------------------------------------------------------------------------------
/(a)/ The fair value amounts for OTC positions are based on various indices or
dealer quotes. The fair value amounts for currency contracts are based on
dealer quotes of forward prices covering the remaining duration of the
forward exchange contract. The exchange-traded futures contracts and
certain option contracts do not have a corresponding fair value since
changes in the market prices are settled on a daily basis.
/(b)/ The aggregate average fair value of all trading activities for the period
ending December 31, 1999, was $3 million. Detail by class of instrument
was not available.
/(c)/ Contract or notional amounts do not quantify risk exposure, but are used
in the calculation of cash settlements under the contracts. The contract
or notional amounts do not reflect the extent to which positions may
offset one another.
/(d)/ Includes fair values as of December 31, 1999 and 1998, for assets of $11
million and $23 million and for liabilities of $(17) million and $(20)
million, respectively.
/(e)/ The OTC swap arrangements vary in duration with certain contracts
extending into 2008.
/(f)/ Includes fair values as of December 31, 1999 and 1998, for assets of $8
million and $29 million and for liabilities of $(5) million and
$(31) million, respectively.
/(g)/ Includes fair values as of December 31, 1999 and 1998, for assets of $5
million and for liabilities of $(1) million and $(2) million,
respectively.
/(h)/ The forward exchange contracts relating to USX's foreign operations have
various maturities ending in December 2000.
- --------------------------------------------------------------------------------
25. Fair Value of Financial Instruments
Fair value of the financial instruments disclosed herein is
not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider
the tax consequences of realization or settlement. The
following table summarizes financial instruments, excluding
derivative financial instruments disclosed in Note 24, by
individual balance sheet account. As described in Note 4,
the Marathon Group's specifically attributed financial
instruments and the Marathon Group's portion of USX's
financial instruments attributed to all groups are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -------------------
Fair Carrying Fair Carrying
(In millions) December 31 Value Amount Value Amount
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 111 $ 111 $ 137 $ 137
Receivables 1,866 1,866 1,277 1,277
Investments and long-term receivables 166 109 157 101
------ ------ ------ ------
Total financial assets $2,143 $2,086 $1,571 $1,515
-------------------------------------------------------------------------------------------------------------
Financial liabilities:
Notes payable $ - $ - $ 132 $ 132
Accounts payable (including intergroup payables) 2,756 2,756 1,940 1,940
Distribution payable to minority shareholder of MAP - - 103 103
Accrued interest 92 92 87 87
Long-term debt (including amounts due within one year) 3,443 3,353 3,797 3,515
Preferred stock of subsidiary 176 184 183 184
------ ------ ------ ------
Total financial liabilities $6,467 $6,385 $6,242 $5,961
-------------------------------------------------------------------------------------------------------------
</TABLE>
M-19
<PAGE>
Fair value of financial instruments classified as
current assets or liabilities approximates carrying value
due to the short-term maturity of the instruments. Fair
value of investments and long-term receivables was based on
discounted cash flows or other specific instrument analysis.
Fair value of preferred stock of subsidiary was based on
market prices. Fair value of long-term debt instruments was
based on market prices where available or current borrowing
rates available for financings with similar terms and
maturities.
The Marathon Group's unrecognized financial instruments
consist of financial guarantees. It is not practicable to
estimate the fair value of these forms of financial
instrument obligations because there are no quoted market
prices for transactions which are similar in nature. For
details relating to financial guarantees, see Note 26.
- --------------------------------------------------------------------------------
26. Contingencies and Commitments
USX is the subject of, or 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.
Environmental matters -
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 December 31, 1999 and 1998, accrued
liabilities for remediation totaled $69 million and $48
million, respectively. It is not presently possible to
estimate the ultimate amount of all remediation costs that
might be incurred or the penalties that may be imposed.
Receivables for recoverable costs from certain states, under
programs to assist companies in cleanup efforts related to
underground storage tanks at retail marketing outlets, were
$52 million at December 31, 1999, and $41 million at
December 31, 1998.
For a number of years, the Marathon Group has made
substantial capital expenditures to bring existing
facilities into compliance with various laws relating to the
environment. In 1999 and 1998, such capital expenditures
totaled $46 million and $83 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 December 31, 1999 and 1998, accrued liabilities for
platform abandonment and dismantlement totaled $152 million
and $141 million, respectively.
Guarantees -
Guarantees by USX and its consolidated subsidiaries of
the liabilities of affiliated entities of the Marathon Group
totaled $131 million at December 31, 1999 and 1998. As of
December 31, 1999, the largest guarantee for a single
affiliate was $131 million.
At December 31, 1999 and 1998, the Marathon Group's pro
rata share of obligations of LOOP LLC and various pipeline
affiliates secured by throughput and deficiency agreements
totaled $146 million and $164 million, respectively. Under
the agreements, 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.
Commitments -
At December 31, 1999 and 1998, the Marathon Group's
contract commitments to acquire property, plant and
equipment and long-term investments totaled $485 million and
$624 million, respectively.
The Marathon Group is a party to a 15-year
transportation services agreement with a natural gas
transmission company. The contract requires the Marathon
Group to pay a minimum annual demand charge of approximately
$5 million starting in the year 2000 and concluding in the
year 2014. The payments are required even if the
transportation facility is not utilized.
M-20
<PAGE>
Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------ ----------------------------
(In millions, except per share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 7,505 $ 6,490 $ 5,481 $ 4,851 $ 5,339 /(a)/ $ 5,597 /(a)/
Income (loss) from operations 350 561 399 403 (132) 215
Includes:
Inventory market valuation charges
(credits) - (136) (66) (349) 245 50
Gain on ownership
change in MAP (6) (11) - - - 1
Net income (loss) 171 230 134 119 (86) 51
- -----------------------------------------------------------------------------------------------------------------------------------
Marathon Stock data:
- -------------------
Net income (loss) per share:
Basic $ .55 $ .74 $ .43 $ .38 $ (.29) $ .18
Diluted .55 .74 .43 .38 (.29) .17
Dividends paid per share .21 .21 .21 .21 .21 .21
Price range of Marathon
Stock/(b)/:
- Low 23- 5/8 28- 1/2 25- 13/16 19- 5/8 26- 11/16 25
- High 30- 5/8 33- 7/8 32- 3/4 31- 3/8 38- 1/8 37- 1/8
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998
--------------------------------
(In millions, except per share data) 2nd Qtr. 1st Qtr.
Revenues $ 5,530 /(a)/ $ 5,511 /(a)/
Income (loss) from operations 453 402
Includes:
Inventory market valuation charges
(credits) (3) (25)
Gain on ownership
change in MAP 2 (248)
Net income (loss) 162 183
- ------------------------------------------------------------------------------------
Marathon Stock data:
- -------------------
Net income (loss) per share:
Basic $ .56 $ .63
Diluted .56 .63
Dividends paid per share .21 .21
Price range of Marathon
Stock/(b)/:
- Low 32- 3/16 31
- High 38- 7/8 40- 1/2
- ------------------------------------------------------------------------------------
</TABLE>
/(a)/ Reclassified to conform to 1999 classifications.
/(b)/ Composite tape.
Principal Unconsolidated Affiliates (Unaudited)
<TABLE>
<CAPTION>
December 31, 1999
Company Country Ownership Activity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLAM Petroleum B.V. Netherlands 50% Oil & Gas Production
Kenai LNG Corporation United States 30% Natural Gas Liquification
LOCAP, Inc. United States 50% /(a)/ Pipeline & Storage Facilities
LOOP LLC United States 47% /(a)/ Offshore Oil Port
Manta Ray Offshore Gathering Company, LLC United States 24% Natural Gas Transmission
Minnesota Pipe Line Company United States 33% /(a)/ Pipeline Facility
Nautilus Pipeline Company, LLC United States 24% Natural Gas Transmission
Odyssey Pipeline LLC United States 29% Pipeline Facility
Poseidon Oil Pipeline Company, LLC United States 28% Crude Oil Transportation
Sakhalin Energy Investment Company Ltd. Russia 38% Oil & Gas Development
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Represents the ownership of MAP.
Supplementary Information on Oil and Gas Producing Activities (Unaudited)
See the USX consolidated financial statements for Supplementary Information on
Oil and Gas Producing Activities relating to the Marathon Group, pages U-30
through U-34.
M-21
<PAGE>
Exhibit 99.3
U. S. Steel Group
Index to 1999 Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Report............................................ S-1
Audited Financial Statements:
Report of Independent Accountants............................ S-1
Statement of Operations...................................... S-2
Balance Sheet................................................ S-3
Statement of Cash Flows...................................... S-4
Notes to Financial Statements................................ S-5
Selected Quarterly Financial Data.............................. S-21
Principal Unconsolidated Affiliates............................ S-22
Supplementary Information...................................... S-22
</TABLE>
<PAGE>
U.S. Steel Group
Explanatory Note Regarding Financial Information
Although the financial statements of the U. S. Steel Group and
the Marathon Group separately report the assets, liabilities
(including contingent liabilities) and stockholders' equity of
USX attributed to each such Group, such attribution does not
affect legal title to such assets and responsibility for such
liabilities. Holders of USX - U. S. Steel Group Common Stock and
USX - Marathon Group Common Stock are holders of common stock of
USX and continue to be subject to all the risks associated with
an investment in USX and all of its businesses and liabilities.
Financial impacts arising from one Group that affect the overall
cost of USX's capital could affect the results of operations and
financial condition of the other Group. In addition, net losses
of either Group, as well as dividends or distributions on any
class of USX Common Stock or series of Preferred Stock and
repurchases of any class of USX Common Stock or series of
Preferred Stock, will reduce the funds of USX legally available
for payment of dividends on both classes of USX Common Stock.
Accordingly, the USX consolidated financial information should be
read in connection with the U. S. Steel Group financial
information.
<PAGE>
Management's Report
The accompanying financial statements of the U. S. Steel Group are the
responsibility of and have been prepared by USX Corporation (USX) in
conformity with accounting principles generally accepted in the United
States. They necessarily include some amounts that are based on best
judgments and estimates. The U. S. Steel Group financial information
displayed in other sections of this report is consistent with these
financial statements.
USX seeks to assure the objectivity and integrity of its
financial records by careful selection of its managers, by
organizational arrangements that provide an appropriate division of
responsibility and by communications programs aimed at assuring that
its policies and methods are understood throughout the organization.
USX has a comprehensive formalized system of internal accounting
controls designed to provide reasonable assurance that assets are
safeguarded and that financial records are reliable. Appropriate
management monitors the system for compliance, and the internal
auditors independently measure its effectiveness and recommend
possible improvements thereto. In addition, as part of their audit of
the financial statements, USX's independent accountants, who are
elected by the stockholders, review and test the internal accounting
controls selectively to establish a basis of reliance thereon in
determining the nature, extent and timing of audit tests to be
applied.
The Board of Directors pursues its oversight role in the area of
financial reporting and internal accounting control through its Audit
Committee. This Committee, composed solely of nonmanagement directors,
regularly meets (jointly and separately) with the independent
accountants, management and internal auditors to monitor the proper
discharge by each of its responsibilities relative to internal
accounting controls and the consolidated and group financial
statements.
<TABLE>
<S> <C> <C>
Thomas J. Usher Robert M. Hernandez Kenneth L. Matheny
Chairman, Board of Directors Vice Chairman Vice President
& Chief Executive Officer & Chief Financial Officer & Comptroller
</TABLE>
Report of Independent Accountants
To the Stockholders of USX Corporation:
In our opinion, the accompanying financial statements appearing on
pages S-2 through S-20 present fairly, in all material respects, the
financial position of the U. S. Steel Group at December 31, 1999 and
1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
These financial statements are the responsibility of USX's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The U. S. Steel Group is a business unit of USX Corporation (as
described in Note 1, page S-5); accordingly, the financial statements
of the U. S. Steel Group should be read in connection with the
consolidated financial statements of USX Corporation.
PricewaterhouseCoopers LLP
600 Grant Street, Pittsburgh, Pennsylvania 15219-2794
February 8, 2000
S-1
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales $5,380 $6,184 $6,814
Income (loss) from affiliates (89) 46 69
Net gains on disposal of assets 21 54 57
Other income (loss) 2 (1) 1
------ ------ ------
Total revenues 5,314 6,283 6,941
------ ------ ------
Costs and expenses:
Cost of sales (excludes items shown below) 4,928 5,410 5,762
Selling, general and administrative expenses (credits) (Note 11) (283) (201) (137)
Depreciation, depletion and amortization 304 283 303
Taxes other than income taxes 215 212 240
------ ------ ------
Total costs and expenses 5,164 5,704 6,168
------ ------ ------
Income from operations 150 579 773
Net interest and other financial costs (Note 6) 74 42 87
------ ------ ------
Income before income taxes and extraordinary losses 76 537 686
Provision for estimated income taxes (Note 14) 25 173 234
------ ------ ------
Income before extraordinary losses 51 364 452
Extraordinary losses (Note 5) 7 - -
------ ------ ------
Net income 44 364 452
Noncash credit from exchange of preferred stock (Note 18) - - 10
Dividends on preferred stock (9) (9) (13)
------ ------ ------
Net income applicable to Steel Stock $ 35 $ 355 $ 449
------------------------------------------------------------------------------------------------------------
</TABLE>
Income Per Common Share Applicable to Steel Stock
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic:
Income before extraordinary losses $ .48 $ 4.05 $ 5.24
Extraordinary losses .08 - -
------ ------ ------
Net income $ .40 $ 4.05 $ 5.24
Diluted:
Income before extraordinary losses $ .48 $ 3.92 $ 4.88
Extraordinary losses .08 - -
------ ------ ------
Net income $ .40 $ 3.92 $ 4.88
------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 21, for a description and computation of income per common
share.
The accompanying notes are an integral part of these financial
statements.
S-2
<PAGE>
Balance Sheet
<TABLE>
<CAPTION>
(Dollars in millions) December 31 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 22 $ 9
Receivables, less allowance for doubtful accounts
of $10 and $9 838 392
Income taxes receivable (Note 12) 97 -
Inventories (Note 13) 743 698
Deferred income tax benefits (Note 14) 281 176
------ ------
Total current assets 1,981 1,275
Investments and long-term receivables,
less reserves of $3 and $10 (Notes 12 and 15) 572 743
Property, plant and equipment - net (Note 17) 2,516 2,500
Prepaid pensions (Note 11) 2,404 2,172
Other noncurrent assets 52 59
------ ------
Total assets $7,525 $6,749
-------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Notes payable $ - $ 13
Accounts payable 739 501
Payroll and benefits payable 322 330
Accrued taxes 177 150
Accrued interest 15 10
Long-term debt due within one year (Note 10) 13 12
------ ------
Total current liabilities 1,266 1,016
Long-term debt (Note 10) 902 464
Deferred income taxes (Note 14) 348 129
Employee benefits (Note 11) 2,245 2,315
Deferred credits and other liabilities 459 484
Preferred stock of subsidiary (Note 9) 66 66
USX obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely junior subordinated
convertible debentures of USX (Note 18) 183 182
Stockholders' Equity (Note 19)
Preferred stock 3 3
Common stockholders' equity 2,053 2,090
------ ------
Total stockholders' equity 2,056 2,093
------ ------
Total liabilities and stockholders' equity $7,525 $6,749
-------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
S-3
<PAGE>
Statement of Cash Flows
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income $ 44 $ 364 $ 452
Adjustments to reconcile to net cash provided from (used in) operating activities:
Extraordinary losses 7 - -
Depreciation, depletion and amortization 304 283 303
Pensions and other postretirement benefits (256) (215) (349)
Deferred income taxes 107 158 193
Net gains on disposal of assets (21) (54) (57)
Changes in: Current receivables - sold (320) (30) -
- operating turnover (242) 232 (24)
Inventories (14) 7 (57)
Current accounts payable and accrued expenses 239 (285) 61
All other - net 72 (80) (46)
----- ----- -----
Net cash provided from (used in) operating activities (80) 380 476
----- ----- -----
Investing activities:
Capital expenditures (287) (310) (261)
Disposal of assets 10 21 420
Restricted cash - withdrawals 15 35 -
- deposits (17) (35) -
Affiliates - investments (15) (73) (26)
- loans and advances - (1) -
- repayments of loans and advances - - 2
All other - net - 14 (1)
----- ----- -----
Net cash provided from (used in) investing activities (294) (349) 134
----- ----- -----
Financing activities (Note 9):
Increase (decrease) in U. S. Steel Group's portion of
USX consolidated debt 147 13 (561)
Specifically attributed debt:
Borrowings 350 - -
Repayments (11) (4) (6)
Steel Stock issued - 55 48
Preferred stock repurchased (2) (8) -
Dividends paid (97) (96) (96)
----- ----- -----
Net cash provided from (used in) financing activities 387 (40) (615)
----- ----- -----
Net increase (decrease) in cash and cash equivalents 13 (9) (5)
Cash and cash equivalents at beginning of year 9 18 23
----- ----- -----
Cash and cash equivalents at end of year $ 22 $ 9 $ 18
------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 8, for supplemental cash flow information.
The accompanying notes are an integral part of these financial
statements.
S-4
<PAGE>
Notes to Financial Statements
1. Basis of Presentation
After the redemption of the USX - Delhi Group stock on January
26, 1998, USX Corporation (USX) has two classes of common stock:
USX - U. S. Steel Group Common Stock (Steel Stock) and USX -
Marathon Group Common Stock (Marathon Stock), which are intended
to reflect the performance of the U. S. Steel Group and the
Marathon Group, respectively.
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, and a portion of the
corporate assets and liabilities and related transactions which
are not separately identified with ongoing operating units of
USX. The U. S. Steel Group financial statements are prepared
using the amounts included in the USX consolidated financial
statements. For a description of the U. S. Steel Group's
operating segment, see Note 7.
Although the financial statements of the U. S. Steel Group
and the Marathon 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 between the U. S. Steel Group and the Marathon 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 Steel Stock and Marathon 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 U. S. Steel Group financial
information.
- -------------------------------------------------------------------------------
2. Summary of Principal Accounting Policies
Principles applied in consolidation - These financial statements
include the accounts of the U. S. Steel Group. The U. S. Steel
Group and the Marathon Group financial statements, taken
together, comprise all of the accounts included in the USX
consolidated financial statements.
Investments in entities over which the U. S. Steel Group has
significant influence are accounted for using the equity method
of accounting and are carried at the U. S. Steel Group's share of
net assets plus loans and advances.
Investments in companies whose stock is publicly traded are
carried at market value. The difference between the cost of these
investments and market value is recorded in other comprehensive
income (net of tax). Investments in companies whose stock has no
readily determinable fair value are carried at cost.
Use of estimates - Generally accepted accounting principles
require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at year-end and the reported
amounts of revenues and expenses during the year. Significant
items subject to such estimates and assumptions include the
carrying value of long-lived assets; valuation allowances for
receivables, inventories and deferred income tax assets;
environmental liabilities; liabilities for potential tax
deficiencies and potential litigation claims and settlements; and
assets and obligations related to employee benefits.
Additionally, certain estimated liabilities are recorded when
management commits to a plan to close an operating facility or to
exit a business activity. Actual results could differ from the
estimates and assumptions used.
Revenue recognition - Revenues principally include sales,
dividend and affiliate income, gains or losses on the disposal of
assets and gains or losses from changes in ownership interests.
Sales are recognized when products are shipped or services
are provided to customers. Income from affiliates includes the U.
S. Steel Group's proportionate share of income from equity method
investments.
When long-lived assets depreciated on an individual basis
are sold or otherwise disposed of, any gains or losses are
reflected in income. Gains on disposal of long-lived assets are
recognized when earned, which is generally at the time of
closing. If a loss on disposal is expected, such losses are
recognized when long-lived assets are reclassified as assets held
for sale. Proceeds from disposal of long-lived assets depreciated
on a group basis are credited to accumulated depreciation,
depletion and amortization with no immediate effect on income.
Gains or losses from a change in ownership of an
unconsolidated affiliate are recognized in revenues in the period
of change.
S-5
<PAGE>
Cash and cash equivalents - Cash and cash equivalents include
cash on hand and on deposit and highly liquid debt instruments
with maturities generally of three months or less.
Inventories - Inventories are carried at lower of cost or
market. Cost of inventories is determined primarily under the
last-in, first-out (LIFO) method.
Derivative instruments - The U. S. Steel Group uses commodity-
based derivative instruments to manage its exposure to price
risk. Management is authorized to use futures, forwards, swaps
and options related to the purchase of natural gas, refined
products and nonferrous metals used in steel operations. For
transactions that qualify for hedge accounting, the resulting
gains or losses are deferred and subsequently recognized in
income from operations, as a component of sales or cost of
sales, in the same period as the underlying physical
transaction. To qualify for hedge accounting, derivative
positions cannot remain open if the underlying physical market
risk has been removed. Recorded deferred gains or losses are
reflected within other current and noncurrent assets or accounts
payable and deferred credits and other liabilities, as
appropriate.
Long-lived assets - Depreciation is generally computed using a
modified straight-line method based upon estimated lives of
assets and production levels. The modification factors range
from a minimum of 85% at a production level below 81% of
capability, to a maximum of 105% for a 100% production level. No
modification is made at the 95% production level, considered the
normal long-range level.
Depletion of mineral properties is based on rates which are
expected to amortize cost over the estimated tonnage of minerals
to be removed.
U. S. Steel Group evaluates impairment of its long-lived
assets on an individual asset basis or by logical groupings of
assets. Assets deemed to be impaired are written down to their
fair value, including any related goodwill, using discounted
future cash flows and, if available, comparable market values.
Environmental remediation - The U. S. Steel Group provides for
remediation costs and penalties when the responsibility to
remediate is probable and the amount of associated costs is
reasonably determinable. Generally, the timing of remediation
accruals coincides with completion of a feasibility study or the
commitment to a formal plan of action. Remediation liabilities
are accrued based on estimates of known environmental exposure
and are discounted in certain instances.
Postemployment benefits - The U. S. Steel Group recognizes an
obligation to provide postemployment benefits, primarily for
disability-related claims covering indemnity and medical
payments. The obligation for these claims and the related
periodic costs are measured using actuarial techniques and
assumptions, including an appropriate discount rate, analogous
to the required methodology for measuring pension and other
postretirement benefit obligations. Actuarial gains and losses
are deferred and amortized over future periods.
Insurance - The U. S. Steel Group is insured for catastrophic
casualty and certain property and business interruption
exposures, as well as those risks required to be insured by law
or contract. Costs resulting from noninsured losses are charged
against income upon occurrence.
Reclassifications - Certain reclassifications of prior years'
data have been made to conform to 1999 classifications.
S-6
<PAGE>
- ------------------------------------------------------------------------------
3. New Accounting Standards
Effective January 1, 1997, USX adopted American Institute of
Certified Public Accountants Statement of Position No. 96-1,
"Environmental Remediation Liabilities" (SOP 96-1), which
provides additional interpretation of existing accounting
standards related to recognition, measurement and disclosure of
environmental remediation liabilities. As a result of adopting
SOP 96-1, 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 net unfavorable effect of adoption on the U. S. Steel
Group's income from operations at January 1, 1997, was $20
million.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133). This new Standard requires recognition of all
derivatives as either assets or liabilities at fair value. SFAS
No. 133 may result in additional volatility in both current
period earnings and other comprehensive income as a result of
recording recognized and unrecognized gains and losses resulting
from changes in the fair value of derivative instruments. The
transition adjustment resulting from adoption of SFAS No. 133
will be reported as a cumulative effect of a change in accounting
principle.
Under the new Standard, USX may elect not to designate
certain derivative instruments as hedges even if the strategy
qualifies for hedge accounting treatment. This approach would
eliminate the administrative effort needed to measure
effectiveness and monitor such instruments; however, this
approach also may result in additional volatility in current
period earnings.
USX cannot reasonably estimate the effect of adoption on
either the financial position or results of operations. It is not
possible to estimate what effect this Statement will have on
future results of operations, although greater period-to-period
volatility is likely. USX plans to adopt the Standard effective
January 1, 2001.
- --------------------------------------------------------------------------------
4. Corporate Activities
Financial activities - As a matter of policy, USX manages most
financial activities on a centralized, consolidated basis. Such
financial activities include the investment of surplus cash; the
issuance, repayment and repurchase of short-term and long-term
debt; the issuance, repurchase and redemption of preferred stock;
and the issuance and repurchase of common stock. Transactions
related primarily to invested cash, short-term and long-term debt
(including convertible debt), related net interest and other
financial costs, and preferred stock and related dividends are
attributed to the U. S. Steel Group, the Marathon Group and,
prior to November 1, 1997, the Delhi Group based upon the cash
flows of each group for the periods presented and the initial
capital structure of each group. Most financing transactions are
attributed to and reflected in the financial statements of the
groups. See Note 9, for the U. S. Steel Group's portion of USX's
financial activities attributed to the groups. However,
transactions such as leases, certain collateralized financings,
certain indexed debt instruments, financial activities of
consolidated entities which are less than wholly owned by USX and
transactions related to securities convertible solely into any
one class of common stock are or will be specifically attributed
to and reflected in their entirety in the financial statements of
the group to which they relate.
Corporate general and administrative costs - Corporate general
and administrative costs are allocated to the U. S. Steel Group,
the Marathon Group and, prior to November 1, 1997, the Delhi
Group based upon utilization or other methods management believes
to be reasonable and which consider certain measures of business
activities, such as employment, investments and sales. The costs
allocated to the U. S. Steel Group were $17 million in 1999, $24
million in 1998 and $33 million in 1997, and primarily consist of
employment costs including pension effects, professional
services, facilities and other related costs associated with
corporate activities.
Income taxes - All members of the USX affiliated group are
included in the consolidated United States federal income tax
return filed by USX. Accordingly, the provision for federal
income taxes and the related payments or refunds of tax are
determined on a consolidated basis. The consolidated provision
and the related tax payments or refunds have been reflected in
the U. S. Steel Group, the Marathon Group and, prior to November
1, 1997, the Delhi Group financial statements in accordance
S-7
<PAGE>
with USX's tax allocation policy. In general, such policy
provides that the consolidated tax provision and related tax
payments or refunds are allocated among the U. S. Steel Group,
Marathon Group and, prior to November 1, 1997, 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.
For tax provision and settlement purposes, tax benefits
resulting from attributes (principally net operating losses and
various tax credits), which cannot be utilized by one of the
groups on a separate return basis but which can be utilized on a
consolidated basis in that year or in a carryback year, are
allocated to the group that generated the attributes. To the
extent that one of the groups is allocated a consolidated tax
attribute which, as a result of expiration or otherwise, is not
ultimately utilized on the consolidated tax return, the prior
years' allocation of such attribute is adjusted such that the
effect of the expiration is borne by the group that generated the
attribute. Also, if a tax attribute cannot be utilized on a
consolidated basis in the year generated or in a carryback year,
the prior years' allocation of such consolidated tax effects is
adjusted in a subsequent year to the extent necessary to allocate
the tax benefits to the group that would have realized the tax
benefits on a separate return basis. As a result, the allocated
group amounts of taxes payable or refundable are not necessarily
comparable to those that would have resulted if the groups had
filed separate tax returns.
- -------------------------------------------------------------------------------
5. Extraordinary Losses
In 1999, USX irrevocably deposited with a trustee the entire 5.5
million common shares it owned in RTI International Metals, Inc.
(RTI). The deposit of the shares resulted in the satisfaction of
USX's obligation under its 6 3/4/% Exchangeable Notes (indexed
debt) due February 1, 2000. Under the terms of the indenture, the
trustee exchanged one RTI share for each note at maturity. All
shares were required for satisfaction of the indexed debt;
therefore, none reverted back to USX.
As a result of the above transaction, USX recorded in 1999
an extraordinary loss of $5 million, net of a $3 million income
tax benefit, representing prepaid interest expense and the write-
off of unamortized debt issue costs, and a pretax charge of $22
million, representing the difference between the carrying value
of the investment in RTI and the carrying value of the indexed
debt, which is included in net gains on disposal of assets.
In December 1996, USX had issued $117 million of notes
indexed to the common share price of RTI. At maturity, USX would
have been required to exchange the notes for shares of RTI common
stock, or redeem the notes for the equivalent amount of cash.
Since USX's investment in RTI was attributed to the U. S. Steel
Group, the indexed debt was also attributed to the U. S. Steel
Group. USX had a 26% investment in RTI and accounted for its
investment using the equity method of accounting.
Republic Technologies International, LLC, an equity method
affiliate of USX, recorded in 1999 an extraordinary loss related
to the early extinguishment of debt. As a result, the U. S. Steel
Group recorded an extraordinary loss of $2 million, net of a $1
million income tax benefit, representing its share of the
extraordinary loss.
- --------------------------------------------------------------------------------
6. Net Interest and Other Financial Costs
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and other financial income/(a)/-
Interest income $ 1 $ 5 $ 4
----- ----- -----
Interest and other financial costs/(a)/:
Interest incurred 45 40 57
Less interest capitalized 6 6 7
----- ----- -----
Net interest 39 34 50
Interest on tax issues 15 16 13
Financial costs on trust preferred securities 13 13 10
Financial costs on preferred stock of subsidiary 5 5 5
Amortization of discounts 1 2 2
Expenses on sales of accounts receivable 15 21 21
Adjustment to settlement value of indexed debt (13) (44) (10)
----- ----- -----
Total 75 47 91
----- ----- -----
Net interest and other financial costs/(a)/ $ 74 $ 42 $ 87
----------------------------------------------------------------------------------------
</TABLE>
/(a)/ See Note 4, for discussion of USX net interest and other
financial costs attributable to the U. S. Steel Group.
S-8
<PAGE>
- --------------------------------------------------------------------------------
7. Segment Information
The U. S. Steel Group consists of one operating segment, U.
S. Steel. U. S. Steel is engaged in the production and sale
of steel mill products, coke and taconite pellets. U. S.
Steel also engages in the following related business
activities: the management of mineral resources, domestic
coal mining, engineering and consulting services, and real
estate development and management.
Segment income represents income from operations
allocable to U. S. Steel and does not include net interest
and other financial costs and provisions for estimated
income taxes. Additionally, the following items are not
allocated to operating segments:
. Pension credits associated with pension plan assets
and liabilities allocated to pre-1987 retirees and
former businesses
. Certain costs related to former U. S. Steel Group
business activities
. USX corporate general and administrative costs.
These costs primarily consist of employment costs
including pension effects, professional services,
facilities and other related costs associated with
corporate activities.
. Certain other items not allocated to operating
segments for business performance reporting purposes
(see reconcilement schedule below)
The following table represents the operations of U. S.
Steel:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Customer $5,363 $6,180 $6,812
Intergroup/(a)/ 17 2 2
Equity in earnings (losses) of unconsolidated affiliates (43) 46 69
Other 46 55 58
------ ------ ------
Total revenues $5,383 $6,283 $6,941
====== ====== ======
Segment income (loss) $ (128) $ 330 $ 618
Significant noncash items included in segment income:
Depreciation, depletion and amortization 304 283 303
Pension expenses/(b)/ 219 187 169
Capital expenditures/(c)/ 286 305 256
Affiliates - investments/(c)/ 15 71 26
--------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Intergroup sales and transfers were conducted under terms
comparable to those with unrelated parties.
/(b)/ Differences between segment total and group total represent
unallocated pension credits and amounts included in
administrative expenses.
/(c)/ Differences between segment total and group total represent
amounts related to corporate administrative activities.
The following schedule reconciles segment revenues and income
to amounts reported in the U. S. Steel Group's financial statements:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Revenues of reportable segment $5,383 $6,283 $6,941
Items not allocated to segment:
Impairment and other costs related to an
investment in an equity affiliate (47) - -
Loss on investment in RTI stock used
to satisfy indexed debt obligations (22) - -
------ ------ ------
Total Group revenues $5,314 $6,283 $6,941
====== ====== ======
Income:
Income (loss) for reportable segment $ (128) $ 330 $ 618
Items not allocated to segment:
Impairment and other costs related to an
investment in an equity affiliate (47) - -
Loss on investment in RTI stock used
to satisfy indexed debt obligations (22) - -
Administrative expenses (17) (24) (33)
Pension credits 447 373 313
Costs related to former businesses activities (83) (100) (125)
------ ------ ------
Total Group income from operations $ 150 $ 579 $ 773
--------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
Geographic Area:
The information below summarizes the operations in different geographic
areas.
<TABLE>
<CAPTION>
Revenues
-------------------------------
Within Between
Geographic Geographic
(In millions) Year Areas Areas Total Assets/(a)/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States 1999 $5,296 $ - $ $5,296 $2,889
1998 6,266 - 6,266 3,043
1997 6,926 - 6,926 3,023
Foreign Countries 1999 18 - 18 63
1998 17 - 17 69
1997 15 - 15 1
Total 1999 $5,314 $ - $5,314 $2,952
1998 6,283 - 6,283 3,112
1997 6,941 - 6,941 3,024
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Includes property, plant and equipment and investments in affiliates.
Sales by Product:
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Sheet and semi-finished steel products $3,345 $3,501 $3,820
Tubular, plate and tin mill products 1,118 1,513 1,754
Raw materials (coal, coke and iron ore) 505 679 724
Other/(a)/ 414 490 517
- --------------------------------------------------------------------------------
/(a)/ Includes revenue from the sale of steel production by-products,
engineering and consulting services, real estate development and resource
management.
- --------------------------------------------------------------------------------
8. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash used in operating activities included:
Interest and other financial costs paid
(net of amount capitalized) $ (77) $ (76) $ (99)
Income taxes (paid) refunded, including
settlements with other groups 3 (29) (48)
-----------------------------------------------------------------------------------------------------------
USX debt attributed to all groups - net:
Commercial paper:
Issued $ 6,282 $ - $ -
Repayments (6,117) - -
Credit agreements:
Borrowings 5,529 17,486 10,454
Repayments (5,980) (16,817) (10,449)
Other credit arrangements - net (95) 55 36
Other debt:
Borrowings 319 671 10
Repayments (87) (1,053) (741)
------- -------- --------
Total $ (149) $ 342 $ (690)
-----------------------------------------------------------------------------------------------------------
U. S. Steel Group activity $ 147 $ 13 $ (561)
Marathon Group activity (296) 329 97
Delhi Group activity - - (226)
------- -------- --------
Total $ (149) $ 342 $ (690)
-----------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
Steel Stock issued for dividend reinvestment and
employee stock plans $ 2 $ 2 $ 5
Trust preferred securities exchanged for preferred stock - - 182
Disposal of assets:
Deposit of RTI common shares in satisfaction of indexed debt 56 - -
Interest in USS/Kobe contributed to Republic 40 - -
Other disposals of assets - notes or common stock received 1 2 -
Business combinations:
Liabilities assumed 26 - -
Affiliate liabilities consolidated in step acquisition 26 - -
-----------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
- --------------------------------------------------------------------------------
9. Financial Activities Attributed to Groups
The following is the portion of USX financial activities attributed
to the U. S. Steel Group. These amounts exclude amounts
specifically attributed to the U. S. Steel Group.
<TABLE>
<CAPTION>
U. S. Steel Group Consolidated USX/(a)/
-------------------- ----------------------
(In millions) December 31 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1 $ - $ 9 $ 4
Other noncurrent assets 1 1 8 8
----- ----- ----- ------
Total assets $ 2 $ 1 $ 17 $ 12
-------------------------------------------------------------------------------------------------------------
Notes payable $ - $ 13 $ - $ 145
Accrued interest 13 8 95 88
Long-term debt due within one year (Note 10) 7 7 54 66
Long-term debt (Note 10) 466 306 3,771 3,762
Preferred stock of subsidiary 66 66 250 250
----- ----- ------ ------
Total liabilities $ 552 $ 400 $4,170 $4,311
-------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
U. S. Steel Group/(b)/ Consolidated USX
------------------------- ---------------------------
(In millions) 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest and other financial costs (Note 6) $ 39 $ 29 $ 46 $ 334 $ 324 $ 309
----------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ For details of USX long-term debt and preferred stock of
subsidiary, see Notes 16 and 23, respectively, to the USX
consolidated financial statements.
/(b)/ The U. S. Steel Group's net interest and other financial
costs reflect weighted average effects of all financial
activities attributed to all groups.
- --------------------------------------------------------------------------------
10. Long-Term Debt
The U. S. Steel Group's portion of USX's consolidated long-term
debt is as follows:
<TABLE>
<CAPTION>
U. S. Steel Group Consolidated USX/(a)/
----------------- --------------------
(In millions) December 31 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specifically attributed debt/(b)/:
Receivables facility $ 350 $ - $ 350 $ -
Sale-leaseback financing and capital leases 92 95 107 95
Indexed debt less unamortized discount - 68 - 68
Other - - 1 -
----- ----- ------ ------
Total 442 163 458 163
Less amount due within one year 6 5 7 5
----- ----- ------ ------
Total specifically attributed long-term debt $ 436 $ 158 $ 451 $ 158
-------------------------------------------------------------------------------------------------------------
Debt attributed to groups/(c)/ $ 477 $ 316 $3,852 $3,853
Less unamortized discount 4 3 27 25
Less amount due within one year 7 7 54 66
----- ----- ------ ------
Total long-term debt attributed to groups $ 466 $ 306 $3,771 $3,762
-------------------------------------------------------------------------------------------------------------
Total long-term debt due within one year $ 13 $ 12 $ 61 $ 71
Total long-term debt due after one year 902 464 4,222 3,920
-------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ See Note 16, to the USX consolidated financial statements
for details of interest rates, maturities and other terms of
long-term debt.
/(b)/ As described in Note 4, certain financial activities are
specifically attributed only to the U. S. Steel Group and
the Marathon Group.
/(c)/ Most long-term debt activities of USX Corporation and its
wholly owned subsidiaries are attributed to all groups (in
total, but not with respect to specific debt issues) based
on their respective cash flows (Notes 4, 8 and 9).
S-11
<PAGE>
- --------------------------------------------------------------------------------
11. Pensions and Other Postretirement Benefits
The U. S. Steel Group has noncontributory defined benefit pension
plans covering substantially all employees. Benefits under these
plans are based upon years of service and final average pensionable
earnings, or a minimum benefit based upon years of service,
whichever is greater. In addition, pension benefits are also
provided to most salaried employees based upon a percent of total
career pensionable earnings. Certain of these plans provide
benefits to USX corporate employees, and the related costs or
credits for such employees are allocated to all groups (Note 4).
The U. S. Steel Group also participates in multiemployer plans,
most of which are defined benefit plans associated with coal
operations.
The U. S. Steel Group also has defined benefit retiree health
and life insurance plans (other benefits) covering most employees
upon their retirement. Health benefits are provided through
comprehensive hospital, surgical and major medical benefit
provisions or through health maintenance organizations, both
subject to various cost sharing features. Life insurance benefits
are provided to nonunion retiree beneficiaries primarily based on
employees' annual base salary at retirement. These plans provide
benefits to USX corporate employees, and the related costs for such
employees are allocated to all groups (Note 4). For union retirees,
benefits are provided for the most part based on fixed amounts
negotiated in labor contracts with the appropriate unions. Except
for certain life insurance benefits paid from reserves held by
insurance carriers and benefits required to be funded by union
contracts, most other benefits have not been prefunded.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- ----------------------
(In millions) 1999 1998 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligations
Benefit obligations at January 1 $ 7,549 $ 7,314 $ 2,113 $ 2,070
Service cost 87 71 15 15
Interest cost 473 487 133 141
Plan amendments 381 /(a)/ 8 14 -
Actuarial (gains) losses (822) 516 (225) 23
Plan merger and acquisition 42 - 7 -
Settlements, curtailments and termination benefits (207) 10 - 7
Benefits paid (787) (857) (161) (143)
-------- -------- ------- --------
Benefit obligations at December 31 $ 6,716 $ 7,549 $ 1,896 $ 2,113
------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $ 10,243 $ 9,775 $ 265 $ 258
Actual return on plan assets 729 1,308 20 31
Acquisition 26 - 1 -
Employer contributions - - 34 -
Trustee distributions/(b)/ (14) - - -
Settlements paid (207) - - -
Benefits paid from plan assets (782) (840) (39) (24)
-------- -------- ------- --------
Fair value of plan assets at December 31 $ 9,995 $ 10,243 $ 281 $ 265
------------------------------------------------------------------------------------------------------------------
Funded status of plans at December 31 $ 3,279 /(c)/ $ 2,694 /(c)/ $(1,615) $ (1,848)
Unrecognized net gain from transition (69) (140) - -
Unrecognized prior service cost 817 518 19 7
Unrecognized actuarial gains (1,639) (905) (526) (292)
Additional minimum liability/(d)/ (16) (57) - -
-------- -------- ------- --------
Prepaid (accrued) benefit cost $ 2,372 $ 2,110 $ (2,122) $ (2,133)
------------------------------------------------------------------------------------------------------------------
/(a)/ Results primarily from a new five-year labor contract with
the United Steelworkers of America ratified in August 1999.
/(b)/ Represents transfers of excess pension assets to fund
retiree health care benefits accounts under Section 420 of
the Internal Revenue Code.
/(c)/ Includes several plans that have accumulated benefit
obligations in excess of plan assets:
Aggregate accumulated benefit obligations $ (29) $ (62)
Aggregate projected benefit obligations (39) (68)
Aggregate plan assets - -
/(d)/ Additional minimum liability recorded was offset
by the following:
Intangible asset $ 6 $ 16
-------- --------
Accumulated other comprehensive income
(losses):
Beginning of year $ (27) $ (25)
Change during year (net of tax) 20 (2)
-------- --------
Balance at end of year $ (7) $ (27)
------------------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------------- -----------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost (credit)
Service cost $ 87 $ 71 $ 65 $ 15 $ 15 $ 15
Interest cost 473 487 517 133 141 153
Expected return on plan assets (781) (769) (743) (21) (21) (11)
Amortization - net transition gain (67) (69) (69) - - -
- prior service costs 83 72 72 4 4 4
- actuarial (gains) losses 6 6 3 (12) (16) (13)
Multiemployer and other plans - 1 2 7/(a)/ 13/(a)/ 15/(a)/
Settlement and termination (gains) losses (35)/(b)/ 10/(b)/ 4 - - -
----- ----- ----- ------ ------ -----
Net periodic benefit cost (credit) $(234) $(191) $(149) $ 126 $ 136 $ 163
--------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Represents payments to a multiemployer health care benefit
plan created by the Coal Industry Retiree Health Benefit Act
of 1992 based on assigned beneficiaries receiving benefits.
The present value of this unrecognized obligation is broadly
estimated to be $90 million, including the effects of future
medical inflation, and this amount could increase if
additional beneficiaries are assigned.
/(b)/ Relates primarily to the 1998 voluntary early retirement
program.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------- --------------------
(In millions) 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average actuarial assumptions
at December 31:
Discount rate 8.0% 6.5% 8.0% 6.5%
Expected annual return on plan assets 8.5% 9.0% 8.5% 9.0%
Increase in compensation rate 4.0% 4.0% 4.0% 4.0%
--------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 7.5% annual rate of increase in
the per capita cost of covered health care benefits was assumed
for 2000. The rate was assumed to decrease gradually to 5% for
2005 and remain at that level thereafter.
A one-percentage-point change in assumed health care cost
trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
(In millions) Point Increase Point Decrease
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 14 $ (12)
Effect on other postretirement benefit obligations 149 (127)
--------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
12. Intergroup Transactions
Sales and purchases - U. S. Steel Group sales to the Marathon
Group totaled $17 million in 1999 and $2 million in 1998. U. S.
Steel Group purchases from the Marathon Group totaled $41
million, $21 million and $29 million in 1999, 1998 and 1997,
respectively. At December 31, 1999 and 1998, U. S. Steel Group
accounts payable included $5 million and $3 million,
respectively, related to transactions with the Marathon Group.
These transactions were conducted under terms comparable to those
with unrelated parties.
Income taxes receivable from/payable to the Marathon Group - At
December 31, 1999 and 1998, amounts receivable or payable for
income taxes were included in the balance sheet as follows:
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Income tax receivable $ 97 $ -
Accounts payable 1 2
Noncurrent:
Investments and long-term receivables 97 97
---------------------------------------------------------------------------------------
</TABLE>
These amounts have been determined in accordance with the
tax allocation policy described in Note 4. Amounts classified as
current are settled in cash in the year succeeding that in which
such amounts are accrued. Noncurrent amounts represent estimates
of intergroup tax effects of certain issues for years that are
still under various stages of audit and administrative review.
Such tax effects are not settled between the groups until the
audit of those respective tax years is closed. The amounts
ultimately settled for open tax years will be different than
recorded noncurrent amounts based on the final resolution of all
of the audit issues for those years.
S-13
<PAGE>
- --------------------------------------------------------------------------------
13. Inventories
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 101 $ 185
Semi-finished products 392 282
Finished products 193 182
Supplies and sundry items 57 49
----- -----
Total $ 743 $ 698
----------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999 and 1998, respectively, the LIFO method
accounted for 93% and 94% of total inventory value. Current
acquisition costs were estimated to exceed the above inventory
values at December 31 by approximately $370 million and $310
million in 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
14. Income Taxes
Income tax provisions and related assets and liabilities
attributed to the U. S. Steel Group are determined in accordance
with the USX group tax allocation policy (Note 4).
Provisions (credits) for estimated income taxes were:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ---------------------------- -----------------------------
(In millions) Current Deferred Total Current Deferred Total Current Deferred Total
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $(84) $ 99 $15 $19 $ 149 $ 168 $ 37 $ 168 $ 205
State and local 1 8 9 3 9 12 4 25 29
Foreign 1 - 1 (7) - (7) - - -
---- ----- --- --- ----- ----- ----- ----- -----
Total $(82) $ 107 $25 $15 $ 158 $ 173 $ 41 $ 193 $ 234
--------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of federal statutory tax rate (35%) to
total provisions follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to income before income taxes $ 27 $ 188 $ 240
Excess percentage depletion (7) (11) (10)
Effects of foreign operations, including foreign tax
credits (2) (11) (3)
State and local income taxes after federal income tax effects 6 8 19
Credits other than foreign tax credits (3) (3) (15)
Effects of partially owned companies - - (3)
Adjustment of prior years' federal income taxes - - 6
Adjustment of valuation allowances - - (1)
Other 4 2 1
----- ------ ------
Total provisions $ 25 $ 173 $ 234
------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax assets and liabilities resulted from the
following:
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Minimum tax credit carryforwards $ 131 $ 185
State tax loss carryforwards (expiring in 2000 through 2019) 65 64
Employee benefits 998 969
Receivables, payables and debt 68 52
Contingency and other accruals 52 48
Other 11 12
Valuation allowances - state (41) (44)
------ -------
Total deferred tax assets/(a)/ 1,284 1,286
------ -------
Deferred tax liabilities:
Property, plant and equipment 274 272
Prepaid pensions 921 792
Inventory 16 16
Investments in subsidiaries and affiliates 96 116
Federal effect of state deferred tax assets - 3
Other 44 40
------ -------
Total deferred tax liabilities 1,351 1,239
------ -------
Net deferred tax assets (liabilities) $ (67) $ 47
-----------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ USX expects to generate sufficient future taxable income to
realize the benefit of the U. S. Steel Group's deferred tax
assets.
The consolidated tax returns of USX for the years 1990
through 1997 are under various stages of audit and administrative
review by the IRS. USX believes it has made adequate provision
for income taxes and interest which may become payable for years
not yet settled.
S-14
<PAGE>
- --------------------------------------------------------------------------------
15. Investments and Long-Term Receivables
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity method investments $ 397 $ 564
Other investments 39 48
Receivables due after one year 11 10
Income taxes receivable 97 97
Deposits of restricted cash 2 -
Other 26 24
------ ------
Total $ 572 $ 743
-----------------------------------------------------------------------------------------------------------
</TABLE>
Summarized financial information of affiliates accounted for
by the equity method of accounting follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income data - year:
Revenues $3,027 $3,163 $3,143
Operating income (loss) (57) 193 228
Net income (loss) (193) 97 139
----------------------------------------------------------------------------------------------------------
Balance sheet data - December 31:
Current assets $ 995 $1,028
Noncurrent assets 2,402 2,149
Current liabilities 1,181 631
Noncurrent liabilities 1,251 883
----------------------------------------------------------------------------------------------------------
</TABLE>
In 1999, USX and Kobe Steel, Ltd. (Kobe Steel) completed a
transaction that combined the steelmaking and bar producing
assets of USS/Kobe Steel Company (USS/Kobe) with companies
controlled by Blackstone Capital Partners II. The combined entity
was named Republic Technologies International, LLC (Republic). In
addition, USX made a $15 million equity investment in Republic.
USX owned 50% of USS/Kobe and now owns 16% of Republic. USX
accounts for its investment in Republic under the equity method
of accounting. Income (loss) from affiliates in 1999 includes $47
million in charges related to the impairment of the carrying
value of USX's investment in USS/Kobe and costs related to the
formation of Republic. The seamless pipe business of USS/Kobe was
excluded from this transaction. That business, now known as
Lorain Tubular Company, LLC, became a wholly owned subsidiary of
USX at the close of business on December 31, 1999.
Dividends and partnership distributions received from equity
affiliates were $2 million in 1999, $19 million in 1998 and $13
million in 1997.
U. S. Steel Group purchases of transportation services and
semi-finished steel from equity affiliates totaled $361 million,
$331 million and $424 million in 1999, 1998 and 1997,
respectively. At December 31, 1999 and 1998, U. S. Steel Group
payables to these affiliates totaled $22 million and $15 million,
respectively. U. S. Steel Group sales of steel and raw materials
to equity affiliates totaled $831 million, $725 million and $802
million in 1999, 1998 and 1997, respectively. At December 31,
1999 and 1998, U. S. Steel Group receivables from these
affiliates were $177 million. Generally, these transactions were
conducted under long-term, market-based contractual arrangements.
- --------------------------------------------------------------------------------
16. Leases
Future minimum commitments for capital leases (including sale-
leasebacks accounted for as financings) and for operating leases
having remaining noncancelable lease terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
Capital Operating
(In millions) Leases Leases
----------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 11 $104
2001 11 122
2002 11 51
2003 11 36
2004 11 32
Later years 105 80
Sublease rentals - (69)
---- ----
Total minimum lease payments 160 $356
---- ====
Less imputed interest costs (68)
----
Present value of net minimum lease payments
included in long-term debt $ 92
----------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
Operating lease rental expense:
(In millions) 1999 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rental $ 124 $ 131 $ 130
Contingent rental 18 19 15
Sublease rentals (6) (7) (7)
----- ----- -----
Net rental expense $ 136 $ 143 $ 138
--------------------------------------------------------------------
</TABLE>
The U. S. Steel Group leases a wide variety of facilities and
equipment under operating leases, including land and building space,
office equipment, production facilities and transportation equipment.
Most long-term leases include renewal options and, in certain leases,
purchase options. In the event of a change in control of USX, as
defined in the agreements, or certain other circumstances, lease
obligations totaling $1 million may be declared immediately due and
payable.
- -------------------------------------------------------------------------------
17. Property, Plant and Equipment
<TABLE>
<CAPTION>
(In millions) December 31 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and depletable property $ 152 $ 151
Buildings 484 469
Machinery and equipment 8,007 7,711
Leased assets 105 108
------ -----------
Total 8,748 8,439
Less accumulated depreciation, depletion and amortization 6,232 5,939
------ -----------
Net $2,516 $2,500
--------------------------------------------------------------------------------------------------
</TABLE>
Amounts in accumulated depreciation, depletion and amortization
for assets acquired under capital leases (including sale-leasebacks
accounted for as financings) were $81 million and $77 million at
December 31, 1999 and 1998, respectively.
- -------------------------------------------------------------------------------
18. Trust Preferred Securities
In 1997, USX exchanged approximately 3.9 million 6.75% Convertible
Quarterly Income Preferred Securities (Trust Preferred Securities) of
USX Capital Trust I, a Delaware statutory business trust (Trust), for
an equivalent number of shares of its 6.50% Cumulative Convertible
Preferred Stock (6.50% Preferred Stock) (Exchange). The Exchange
resulted in the recording of Trust Preferred Securities at a fair
value of $182 million and a noncash credit to Retained Earnings of $10
million.
USX owns all of the common securities of the Trust, which was
formed for the purpose of the Exchange. (The Trust Common Securities
and the Trust Preferred Securities are together referred to as the
Trust Securities.) The Trust Securities represent undivided beneficial
ownership interests in the assets of the Trust, which consist solely
of USX 6.75% Convertible Junior Subordinated Debentures maturing March
31, 2037 (Debentures), having an aggregate principal amount equal to
the aggregate initial liquidation amount ($50.00 per security and $203
million in total) of the Trust Securities issued by the Trust.
Interest and principal payments on the Debentures will be used to make
quarterly distributions and to pay redemption and liquidation amounts
on the Trust Preferred Securities. The quarterly distributions, which
accumulate at the rate of 6.75% per annum on the Trust Preferred
Securities and the accretion from fair value to the initial
liquidation amount, are charged to income and included in net interest
and other financial costs.
Under the terms of the Debentures, USX has the right to defer
payment of interest for up to 20 consecutive quarters and, as a
consequence, monthly distributions on the Trust Preferred Securities
will be deferred during such period. If USX exercises this right,
then, subject to limited exceptions, it may not pay any dividend or
make any distribution with respect to any shares of its capital stock.
S-16
<PAGE>
The Trust Preferred Securities are convertible at any time prior
to the close of business on March 31, 2037 (unless such right is
terminated earlier under certain circumstances) at the option of the
holder, into shares of Steel Stock at a conversion price of $46.25 per
share of Steel Stock (equivalent to a conversion ratio of 1.081 shares
of Steel Stock for each Trust Preferred Security), subject to
adjustment in certain circumstances.
The Trust Preferred Securities may be redeemed at any time at the
option of USX, at a premium of 102.60% of the initial liquidation
amount through March 31, 2000, and thereafter, declining annually to
the initial liquidation amount on April 1, 2003, and thereafter. They
are mandatorily redeemable at March 31, 2037, or earlier under certain
circumstances.
Payments related to quarterly distributions and to the payment of
redemption and liquidation amounts on the Trust Preferred Securities
by the Trust are guaranteed by USX on a subordinated basis. In
addition, USX unconditionally guarantees the Trust's Debentures. The
obligations of USX under the Debentures, and the related indenture,
trust agreement and guarantee constitute a full and unconditional
guarantee by USX of the Trust's obligations under the Trust Preferred
Securities.
- --------------------------------------------------------------------------------
19. Stockholders' Equity
<TABLE>
<CAPTION>
(In millions, except per share data) 1999 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred stock:
Balance at beginning of year $ 3 $ 3 $ 7
Exchanged for trust preferred securities - - (4)
------ ------ ------
Balance at end of year $ 3 $ 3 $ 3
--------------------------------------------------------------------------------------------------
Common stockholders' equity:
Balance at beginning of year $2,090 $1,779 $1,559
Net income 44 364 452
6.50% preferred stock:
Repurchased (2) (8) -
Exchanged for trust preferred securities (Note 18) - - (188)
Steel Stock issued 2 59 53
Dividends on preferred stock (9) (9) (13)
Dividends on Steel Stock (per share $1.00) (88) (88) (86)
Deferred compensation 1 - -
Accumulated other comprehensive income (loss)/(a)/:
Foreign currency translation adjustments (5) (5) -
Minimum pension liability adjustments (Note 11) 20 (2) (8)
Other - - 10
------ ------ ------
Balance at end of year $2,053 $2,090 $1,779
--------------------------------------------------------------------------------------------------
Total stockholders' equity $2,056 $2,093 $1,782
--------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ See page U-7 of the USX consolidated financial statements
relative to the annual activity of these adjustments. Total
comprehensive income for the U. S. Steel Group for the years
1999, 1998 and 1997 was $59 million, $357 million and $444
million, respectively.
- --------------------------------------------------------------------------------
20. Dividends
In accordance with the USX Restated Certificate of Incorporation,
dividends on the Steel Stock and Marathon Stock are limited to the
legally available funds of USX. 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. Subject to this limitation,
the Board of Directors intends to declare and pay dividends on the
Steel Stock based on the financial condition and results of operations
of the U. S. Steel Group, although it has no obligation under Delaware
law to do so. In making its dividend decisions with respect to Steel
Stock, the Board of Directors considers, among other things, the long-
term earnings and cash flow capabilities of the U. S. Steel Group as
well as the dividend policies of similar publicly traded steel
companies.
Dividends on the Steel Stock are further limited to the Available
Steel Dividend Amount. At December 31, 1999, the Available Steel
Dividend Amount was at least $3,300 million. The Available Steel
Dividend Amount will be increased or decreased, as appropriate, to
reflect U. S. Steel Group net income, dividends, repurchases or
issuances with respect to the Steel Stock and preferred stock
attributed to the U. S. Steel Group and certain other items.
S-17
<PAGE>
- --------------------------------------------------------------------------------
21. Income Per Common Share
The method of calculating net income per share for the Steel
Stock, the Marathon Stock and, prior to November 1, 1997, the
Delhi Stock reflects the USX Board of Directors' intent that the
separately reported earnings and surplus of the U. S. Steel
Group, the Marathon Group and the Delhi Group, as determined
consistent with the USX Restated Certificate of Incorporation,
are available for payment of dividends to the respective classes
of stock, although legally available funds and liquidation
preferences of these classes of stock do not necessarily
correspond with these amounts.
Basic net income per share is calculated by adjusting net
income for dividend requirements of preferred stock and, in 1997,
the noncash credit on exchange of preferred stock and is based on
the weighted average number of common shares outstanding.
Diluted net income per share assumes conversion of
convertible securities for the applicable periods outstanding and
assumes exercise of stock options, provided in each case, the
effect is not antidilutive.
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- -----------------
Basic Diluted Basic Diluted Basic Diluted
-------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Computation of Income Per Share
-------------------------------
Net income (millions):
Income before extraordinary losses $ 51 $ 51 $ 364 $ 364 $ 452 $ 452
Dividends on preferred stock (9) (9) (9) - (13) -
Noncash credit from exchange of preferred stock - - - - 10 -
Extraordinary losses (7) (7) - - - -
------- ------- ------- ------- ------- -------
Net income applicable to Steel Stock 35 35 355 364 449 452
Effect of dilutive securities:
Trust preferred securities - - - 8 - 6
Convertible debentures - - - - - 2
------- ------- ------- ------- ------- -------
Net income assuming conversions $ 35 $ 35 $ 355 $ 372 $ 449 $ 460
======= ======= ======= ======= ======= =======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 88,392 88,392 87,508 87,508 85,672 85,672
Effect of dilutive securities:
Trust preferred securities - - - 4,256 - 2,660
Preferred stock - - - 3,143 - 4,811
Convertible debentures - - - - - 1,025
Stock options - 4 - 36 - 35
------- ------- ------- ------- ------- -------
Average common shares and dilutive effect 88,392 88,396 87,508 94,943 85,672 94,203
======= ======= ======= ======= ======= =======
Per share:
Income before extraordinary losses $ .48 $ .48 $ 4.05 $ 3.92 $ 5.24 $ 4.88
Extraordinary losses .08 .08 - - - -
------- ------- ------- ------- ------- -------
Net income $ .40 $ .40 $ 4.05 $ 3.92 $ 5.24 $ 4.88
======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
22. Stock-Based Compensation Plans and Stockholder Rights Plan
USX Stock-Based Compensation Plans and Stockholder Rights
Plan are discussed in Note 19, and Note 21, respectively, to the
USX consolidated financial statements.
The U. S. Steel Group's actual stock-based compensation
expense was $1 million in 1999, none in 1998 and $8 million in
1997. Incremental compensation expense, as determined under a
fair value model, was not material ($.02 or less per share for
all years presented). Therefore, pro forma net income and
earnings per share data have been omitted.
S-18
<PAGE>
- --------------------------------------------------------------------------------
23. Derivative Instruments
The U. S. Steel Group remains at risk for possible changes in the
market value of the derivative instrument; however, such risk should
be mitigated by price changes in the underlying hedged item. The U. S.
Steel Group is also exposed to credit risk in the event of
nonperformance by counterparties. The credit worthiness of
counterparties is subject to continuing review, including the use of
master netting agreements to the extent practical, and full
performance is anticipated.
The following table sets forth quantitative information by class
of derivative instrument:
<TABLE>
<CAPTION>
Fair Carrying Recorded
Value Amount Deferred Aggregate
Assets Assets Gain or Contract
(In millions) (Liabilities)/(a)/ (Liabilities) (Loss) Values /(b)/
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1999:
OTC commodity swaps - other than trading/(c)/ $ 3 $ 3 $ 3 $ 37
----------------------------------------------------------------------------------------------------------------
December 31, 1998:
OTC commodity swaps - other than trading $(7) $(7) $(7) $ 54
----------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ The fair value amounts are based on exchange-traded index
prices and dealer quotes.
/(b)/ Contract or notional amounts do not quantify risk exposure,
but are used in the calculation of cash settlements under the
contracts.
/(c)/ The OTC swap arrangements vary in duration with certain
contracts extending into 2000.
- --------------------------------------------------------------------------------
24. Fair Value of Financial Instruments
Fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or
settled, nor does the fair value amount consider the tax consequences
of realization or settlement. The following table summarizes financial
instruments, excluding derivative financial instruments disclosed in
Note 23, by individual balance sheet account. As described in Note 4,
the U. S. Steel Group's specifically attributed financial instruments
and the U. S. Steel Group's portion of USX's financial instruments
attributed to all groups are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
Fair Carrying Fair Carrying
(In millions) December 31 Value Amount Value Amount
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 22 $ 22 $ 9 $ 9
Receivables (including intergroup receivables) 935 935 392 392
Investments and long-term receivables 122 122 120 120
------ ------ ------ --------
Total financial assets $1,079 $1,079 $ 521 $ 521
------------------------------------------------------------------------------------------------------------------
Financial liabilities:
Notes payable $ - $ - $ 13 $ 13
Accounts payable 739 739 501 501
Accrued interest 15 15 10 10
Long-term debt (including amounts due within one year) 835 823 406 381
Preferred stock of subsidiary and trust
preferred securities 232 249 231 248
------ ------ ------ --------
Total financial liabilities $1,821 $1,826 $1,161 $1,153
------------------------------------------------------------------------------------------------------------------
</TABLE>
Fair value of financial instruments classified as current assets
or liabilities approximates carrying value due to the short-term
maturity of the instruments. Fair value of investments and long-term
receivables was based on discounted cash flows or other specific
instrument analysis. Fair value of preferred stock of subsidiary and
trust preferred securities was based on market prices. Fair value of
long-term debt instruments was based on market prices where available
or current borrowing rates available for financings with similar terms
and maturities.
The U. S. Steel Group's unrecognized financial instruments
consist of receivables sold in 1998 and financial guarantees. It is
not practicable to estimate the fair value of these forms of financial
instrument obligations because there are no quoted market prices for
transactions which are similar in nature. For details relating to
financial guarantees, see Note 25.
S-19
<PAGE>
- --------------------------------------------------------------------------------
25. Contingencies and Commitments
USX is the subject of, or 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.
Environmental matters -
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.
Accrued liabilities for remediation totaled $101 million and $97
million at December 31, 1999 and 1998, 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 1999 and 1998, such
capital expenditures totaled $32 million and $49 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 -
Guarantees by USX of the liabilities of affiliated entities of
the U. S. Steel Group totaled $88 million at December 31, 1999, and
$81 million at December 31, 1998. In the event that any defaults of
guaranteed liabilities occur, USX has access to its interest in the
assets of the affiliates to reduce potential U. S. Steel Group losses
resulting from these guarantees. As of December 31, 1999, the largest
guarantee for a single affiliate was $61 million.
Commitments -
At December 31, 1999 and 1998, the U. S. Steel Group's contract
commitments to acquire property, plant and equipment totaled $83
million and $188 million, respectively.
USX entered into a 15-year take-or-pay arrangement in 1993, which
requires the U. S. Steel Group to accept pulverized coal each month or
pay a minimum monthly charge of approximately $1 million. Charges for
deliveries of pulverized coal totaled $23 million in both 1999 and
1998. If USX elects to terminate the contract early, a maximum
termination payment of $102 million, which declines over the duration
of the agreement, may be required.
S-20
<PAGE>
Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------
(In millions, except per share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,462 $ 1,337 /(a)/ $1,304 $1,211
Income (loss)
from operations 75 (26) /(a)/ 103 (2)
Income (loss) before
extraordinary losses 34 (29) /(a)/ 55 (9)
Net income (loss) 34 (31) 55 (14)
- --------------------------------------------------------------------------------------------------------------------
Steel Stock data:
- ----------------
Income (loss) before
extraordinary losses
applicable to Steel Stock $ 32 $ (31) /(a)/ $ 52 $ (11)
- Per share: basic .35 (.35) /(a)/ .60 (.13)
diluted .35 (.35) /(a)/ .59 (.13)
Dividends paid per share .25 .25 .25 .25
Price range of Steel Stock/(b)/:
- Low 21-/3/4/ 24-/9/16/ 23-/1/2/ 22-/1/4/
- High 33 30-/1/16/ 34-/1/4/ 29-/1/8/
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998
-------------------------------------------------------------
(In millions, except per share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,357 $1,497 $1,733 $1,696
Income (loss)
from operations 95 105 217 162
Income (loss) before
extraordinary losses 76 65 136 87
Net income (loss) 76 65 136 87
- --------------------------------------------------------------------------------------------------------------------
Steel Stock data:
- ----------------
Income (loss) before
extraordinary losses
applicable to Steel Stock $ 74 $ 63 $ 133 $ 85
- Per share: basic .83 .72 1.53 .98
diluted .81 .71 1.46 .95
Dividends paid per share .25 .25 .25 .25
Price range of Steel Stock/(b)/:
- Low 21-/5/8/ 20-/7/16/ 31 28-/7/16/
- High 27-/3/4/ 33-/1/2/ 43-/1/16/ 42-/1/8/
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Restated to reflect current classifications.
/(b)/ Composite tape.
S-21
<PAGE>
Principal Unconsolidated Affiliates (Unaudited)
<TABLE>
<CAPTION>
December 31, 1999
Company Country Ownership Activity
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Clairton 1314B Partnership, L.P. United States 10% Coke & Coke By-Products
Double Eagle Steel Coating Company United States 50% Steel Processing
PRO-TEC Coating Company United States 50% Steel Processing
Republic Technologies International, LLC United States 16% Steel Products
Transtar, Inc. United States 46% Transportation
USS-POSCO Industries United States 50% Steel Processing
VSZ U. S. Steel, s. r.o. Slovak Republic 50% Tin Mill Products
Worthington Specialty Processing United States 50% Steel Processing
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Supplementary Information on Mineral Reserves (Unaudited)
See the USX consolidated financial statements for Supplementary Information on
Mineral Reserves relating to the U. S. Steel Group, page U-30.
S-22
