-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, e+4fjrpfkuIkRiofxi6Y0X7/974sYYupKu5Hd86RLValZnJbPTZRST3fkvr4EcjV 11yQ0/QxsXs/7wAS1UtwSA== 0000101778-94-000019.txt : 19941111 0000101778-94-000019.hdr.sgml : 19941111 ACCESSION NUMBER: 0000101778-94-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: MSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: USX CORP CENTRAL INDEX KEY: 0000101778 STANDARD INDUSTRIAL CLASSIFICATION: 3312 IRS NUMBER: 250996816 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05153 FILM NUMBER: 94558594 BUSINESS ADDRESS: STREET 1: 600 GRANT ST CITY: PITTSBURGH STATE: PA ZIP: 15219-4776 BUSINESS PHONE: 4124331121 FORMER COMPANY: FORMER CONFORMED NAME: UNITED STATES STEEL CORP/DE DATE OF NAME CHANGE: 19860714 10-Q 1 10-Q FOR PERIOD ENDED 9/30/94 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1994 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ------------ to ------------ USX CORPORATION - -------------------------------------------------------------------------------- ---- (Exact name of registrant as specified in its charter) Delaware 1-5153 25-0996816 --------------- ------------ ------------------- (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 600 Grant Street, Pittsburgh, PA 15219-4776 - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (412) 433-1121 ------------------------------ (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- - ---- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes..X..No..... Common stock outstanding at October 31, 1994 follows: USX-Marathon Group - 287,185,917 shares USX-U. S. Steel Group - 75,830,197 shares USX-Delhi Group - 9,437,891 shares 2 USX CORPORATION SEC FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1994 -------------------------------- INDEX Page ----- ---- PART I - FINANCIAL INFORMATION A. Consolidated Corporation Item 1. Financial Statements: Consolidated Statement of Operations 4 Consolidated Balance Sheet 6 Consolidated Statement of Cash Flows 8 Selected Notes to Consolidated Financial Statements 9 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends and Ratio of Earnings to Fixed Charges 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Financial Statistics 22 B. Marathon Group Item 1. Financial Statements: Marathon Group Statement of Operations 23 Marathon Group Balance Sheet 25 Marathon Group Statement of Cash Flows 26 Selected Notes to Financial Statements 27 Item 2. Marathon Group Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Supplemental Statistics 38 3 USX CORPORATION SEC FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1994 -------------------------------- INDEX Page ----- ---- PART I - FINANCIAL INFORMATION (Continued) C. U. S. Steel Group Item 1. Financial Statements: U. S. Steel Group Statement of Operations 39 U. S. Steel Group Balance Sheet 41 U. S. Steel Group Statement of Cash Flows 42 Selected Notes to Financial Statements 43 Item 2. U. S. Steel Group Management's Discussion and Analysis of Financial Condition and Results of Operations 48 Supplemental Statistics 53 D. Delhi Group Item 1. Financial Statements: Delhi Group Statement of Operations 54 Delhi Group Balance Sheet 55 Delhi Group Statement of Cash Flows 56 Selected Notes to Financial Statements 57 Item 2. Delhi Group Management's Discussion and Analysis of Financial Condition and Results of Operations 61 Supplemental Statistics 66 PART II - OTHER INFORMATION Item 1. Legal Proceedings 67 Item 5. Other Information 68 Item 6. Exhibits and Reports on Form 8-K 69 4 Part I - Financial Information A. Consolidated Corporation USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) ------------------------------------------------
Third Qtr. Nine Months Ended Ended September 30 September 30 (Dollars in millions, except per share amounts) 1994 1993* 1994 1993* - -------------------------------------------------------------------------------- - --- SALES $5,123 $4,533 $14,157 $13,460 OPERATING COSTS: Cost of sales (excludes items shown below) 3,654 3,331 10,399 10,544 Inventory market valuation provision (credit) 63 30 (158) 54 Selling, general and administrative expenses 49 67 168 178 Depreciation, depletion and amortization 256 284 786 809 Taxes other than income taxes 839 620 2,193 1,739 Exploration expenses 37 43 105 108 Restructuring charges - - 37 - ------ ------ ------ ------ Total operating costs 4,898 4,375 13,530 13,432 ------ ------ ------ ------ OPERATING INCOME 225 158 627 28 Other income 163 15 222 155 Interest and other financial income 4 10 15 29 Interest and other financial costs (132) (126) (330) (541) ------ ------ ------ ------ TOTAL INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 260 57 534 (329) Less provision (credit) for estimated income taxes 69 (6) 161 (125) ------ ------ ------ ------ TOTAL INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 191 63 373 (204) Cumulative effect of changes in accounting principles - - - (92) ------ ------ ------ ------ NET INCOME (LOSS) 191 63 373 (296) Dividends on preferred stock (7) (8) (23) (20) ------ ------ ------ ------ NET INCOME (LOSS) APPLICABLE TO COMMON STOCKS $184 $55 $350 $(316) ====== ====== ====== ====== *Restated as a result of the adoption of two new accounting standards. Selected notes to financial statements appear on pages 9-14.
5 USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited) INCOME PER COMMON SHARE ------------------------------------------------------------
Third Qtr. Nine Months Ended Ended September 30 September 30 (Dollars in millions, except per share amounts) 1994 1993* 1994 1993* - -------------------------------------------------------------------------------- - --- APPLICABLE TO MARATHON STOCK Total income before cumulative effect of changes in accounting principles $101 $29 $280 $78 - Per share - primary and fully diluted .35 .10 .98 .27 Cumulative effect of changes in accounting principles - - - (23) - Per share - primary and fully diluted - - - (.08) Net income 101 29 280 55 - Per share - primary and fully diluted .35 .10 .98 .19 Dividends paid per share .17 .17 .51 .51 Weighted average shares, in thousands - primary 286,568 286,594 286,578 286,610 - fully diluted 292,815 286,599 286,579 286,615 APPLICABLE TO STEEL STOCK Total income (loss) before cumulative effect of change in accounting principle $84 $26 $92 $(309) - Per share - primary 1.11 .41 1.23 (4.94) - fully diluted 1.05 .41 1.23 (4.94) Cumulative effect of change in accounting principle - - - (69) - Per share - primary and fully diluted - - - (1.11) Net income (loss) 84 26 92 (378) - Per share - primary 1.11 .41 1.23 (6.05) - fully diluted 1.05 .41 1.23 (6.05) Dividends paid per share .25 .25 .75 .75 Weighted average shares, in thousands - primary 75,674 67,142 74,947 62,379 - fully diluted 86,596 68,392 76,197 62,379 APPLICABLE TO OUTSTANDING DELHI STOCK Net income (loss) $(.7) $(.5) $(21.8) $6.4 - Per share - primary and fully diluted (.07) (.05) (2.32) .71 Dividends paid per share .05 .05 .15 .15 Weighted average shares, in thousands - primary 9,438 9,060 9,396 9,037 - fully diluted 9,438 9,060 9,396 9,038 *Restated as a result of the adoption of two new accounting standards. Selected notes to financial statements appear on pages 9-14.
6 USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (Unaudited) ----------------------------------------
ASSETS September 30 December 31 (Dollars in millions) 1994 1993 - -------------------------------------------------------------------------------- - ---- Current assets: Cash and cash equivalents $87 $268 Receivables, less allowance for doubtful accounts of $10 and $9 939 932 Inventories 1,808 1,626 Deferred income tax benefits 163 258 Other current assets 90 96 ------- ------- Total current assets 3,087 3,180 Long-term receivables and other investments, less reserves of $22 and $22 942 948 Property, plant and equipment, less accumulated depreciation, depletion and amortization of $14,106 and $13,938 11,312 11,603 Prepaid pensions 1,460 1,347 Other noncurrent assets 301 296 ------- ------- Total assets $17,102 $17,374 ======= ======= Selected notes to financial statements appear on pages 9-14.
7 USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (Continued) (Unaudited) --------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY September 30 December 31 (Dollars in millions) 1994 1993 - -------------------------------------------------------------------------------- - ---- LIABILITIES Current liabilities: Notes payable $185 $1 Accounts payable 1,720 2,237 Payroll and benefits payable 423 436 Accrued taxes 405 483 Accrued interest 83 142 Long-term debt due within one year 86 35 ------- ------- Total current liabilities 2,902 3,334 Long-term debt, less unamortized discount 5,411 5,888 Long-term deferred income taxes 965 883 Employee benefits 2,815 2,802 Deferred credits and other liabilities 525 603 Preferred stock of subsidiary 250 - ------- ------- Total liabilities 12,868 13,510 STOCKHOLDERS' EQUITY Preferred stocks: Adjustable Rate Cumulative issued - 2,099,970 shares and 2,099,970 shares 105 105 6.50% Cumulative Convertible issued - 6,900,000 shares and 6,900,000 shares ($345 liquidation preference) 7 7 Common stocks: Marathon Stock issued - 286,612,784 shares and 286,612,805 shares 287 287 Steel Stock issued - 75,741,768 shares and 70,328,685 shares 76 70 Delhi Stock issued - 9,437,891 shares and 9,282,870 shares 9 9 Treasury common stock, at cost: Marathon Stock - 45,947 shares and 31,266 shares (1) (1) Additional paid-in capital 4,225 4,240 Accumulated deficit (458) (831) Other equity adjustments (16) (22) ------- ------- Total stockholders' equity 4,234 3,864 ------- ------- Total liabilities and stockholders' equity $17,102 $17,374 ======= ======= Selected notes to financial statements appear on pages 9-14.
8 USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ------------------------------------------------
Nine Months Ended September 30 (Dollars in millions) 1994 1993* - -------------------------------------------------------------------------------- - ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES: Net income (loss) $373 $(296) Adjustments to reconcile to net cash provided from operating activities: Accounting principles changes - 92 Depreciation, depletion and amortization 786 809 Exploratory dry well costs 42 41 Inventory market valuation charge (credit) (158) 54 Pensions (113) (180) Postretirement benefits other than pensions 63 100 Deferred income taxes 165 (209) Gain on disposal of assets (183) (151) Restructuring charges 37 - Changes in: Current receivables - sold 10 60 - operating turnover (38) (30) Inventories (94) 30 Current accounts payable and accrued expenses (651) 380 All other items - net 5 (55) ------ ------ Net cash provided from operating activities 244 645 ------ ------ INVESTING ACTIVITIES: Capital expenditures (657) (803) Disposal of assets 253 269 All other items - net 7 (35) ------ ------ Net cash used in investing activities (397) (569) ------ ------ FINANCING ACTIVITIES: Commercial paper and revolving credit arrangements-net (25) (914) Other debt - borrowings 504 803 - repayments (751) (321) Issuance of preferred stock of subsidiary 242 - Issuance of common stock of subsidiary 11 - Preferred stock issued - 336 Common stock repurchased - (1) Common stock issued 215 365 Dividends paid (225) (214) ------ ------ Net cash provided from (used in) financing activities (29) 54 ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 - ------ ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (181) 130 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 268 57 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $87 $187 ====== ====== Cash used in operating activities included: Interest and other financial costs paid (net of amount capitalized) $(508) $(353) Income taxes (paid) refunded 17 (74) *Restated as a result of the adoption of two new accounting standards. Selected notes to financial statements appear on pages 9-14.
9 USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------------------------------------------------- (Unaudited) 1. The information furnished in these financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These financial statements, including selected notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. Additional information is contained in the USX Annual Report on Form 10-K for the year ended December 31, 1993. Financial data for the first nine months of 1993 has been restated to reflect the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS No. 112), and Emerging Issues Task Force Consensus No. 93-14, "Accounting for Multiple-Year Retrospectively Rated Insurance Contracts" (EITF No. 93-14) (see Note 11). 2. The method of calculating net income (loss) per share for the Marathon Stock, Steel Stock and Delhi Stock reflects the USX Board of Directors' intent that the separately reported earnings and surplus of the Marathon Group, the U. S. Steel Group and the Delhi Group, as determined consistent with the USX Certificate of Incorporation, are available for payment of dividends to the respective classes of stock, although legally available funds and liquidation preferences of these classes of stock do not necessarily correspond with these amounts. The financial statements of the Marathon Group, the U. S. Steel Group and the Delhi Group, taken together, include all accounts which comprise the corresponding consolidated financial statements of USX. Primary net income (loss) per share is calculated by adjusting net income (loss) for dividend requirements of preferred stock and, in the case of Delhi Stock, for the income (loss) applicable to the Retained Interest; and is based on the weighted average number of common shares outstanding plus common stock equivalents, provided they are not antidilutive. Common stock equivalents result from assumed exercise of stock options and surrender of stock appreciation rights associated with stock options, where applicable. Fully diluted net income (loss) per share assumes conversion of convertible securities for the applicable periods outstanding and assumes exercise of stock options and surrender of stock appreciation rights provided, in each case, the effect is not antidilutive. 3. The items below were included in both sales and operating costs, resulting in no effect on income:
(In millions) ------------------------------- Third Qtr. Nine Months Ended Ended September 30 September 30 1994 1993 1994 1993 ---- ---- ---- ---- Matching buy/sell transactions $498 $451 $1,465 $1,559 Consumer excise taxes on petroleum products and merchandise 733 511 1,878 1,407
10 USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) --------------------------------------------------------------- (Unaudited) 4. Inventories are carried at lower of cost or market. Cost of inventories is determined primarily under the last-in, first-out (LIFO) method.
(In millions) --------------------------- September 30 December 31 1994 1993 ------------ ----------- Raw materials $570 $637 Semi-finished products 349 329 Finished products 979 921 Supplies and sundry items 191 178 ------ ------ Total 2,089 2,065 Less inventory market valuation reserve 281 439 ------ ------ Net inventory carrying value $1,808 $1,626 ====== ======
The inventory market valuation reserve reflects the extent that the recorded costs of crude oil and refined products inventories exceed 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 resulted in a $158 million credit to operating income in the first nine months of 1994 ($63 million charge in the third quarter) and a $54 million charge against operating income in the first nine months of 1993 ($30 million charge in the third quarter). 5. In the first nine months of 1994, payments of $124 million were made to settle various state tax issues. As a result of these settlements, net income in the second quarter of 1994 included a net credit of $37 million, consisting of a credit of $12 million in operating costs, a credit of $35 million in interest and other financial costs and a net income tax provision effect of $10 million. 6. In the first nine months of 1994, restructuring charges totaling $40 million were recorded for the write-down of assets to estimated net realizable value related to the planned disposition of certain nonstrategic gas gathering and processing assets and other investments. Charges of $37 million were included in operating costs and $3 million included in other income in the second quarter of 1994. 7. Pretax income (loss) in the first nine months of 1993 included a $633 million charge for the Lower Lake Erie Iron Ore Antitrust Litigation against a former USX subsidiary, the Bessemer & Lake Erie Railroad (B&LE). Charges of $438 million were included in operating costs and $195 million ($14 million in the third quarter) included in interest and other financial costs. The effect on net income (loss) was $406 million unfavorable ($6.50 per share of Steel Stock). 11 USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) --------------------------------------------------------------- (Unaudited) 8. Operating income (loss) included net periodic pension credits of $92 million and $160 million in the first nine months of 1994 and 1993, respectively, ($31 million and $54 million in the third quarter of 1994 and 1993, respectively). These pension credits are primarily noncash and for the most part are included in selling, general and administrative expenses. The expected long-term rate of return on plan assets, which is reflected in the calculation of net periodic pension credits, was reduced to 9% in 1994 from 10% in 1993. 9. Other income in the first nine months of 1994 included a pretax gain of $183 million from disposal of assets ($150 million in the third quarter, including the sale of the assets of a retail propane marketing subsidiary). Other income in the first nine months of 1993 included a pretax gain of $151 million from disposal of assets ($8 million in the third quarter), primarily related to the second quarter sale of the Cumberland coal mine. 10. The provision for estimated income taxes for the periods reported is based on tax rates and amounts which recognize management's best estimate of current and deferred tax assets and liabilities. The provision for the third quarter and first nine months of 1994 included a one-time $32 million deferred tax benefit related to the excess of tax over financial basis in shares of RMI Titanium Company (RMI), concurrent with the adoption of equity accounting for RMI. The third quarter 1993 income tax provision included a credit of $64 million related to recognition of additional future U.S. income tax benefits for deferred foreign income taxes. This favorable adjustment resulted from USX's ability to elect to credit, rather than deduct, foreign income taxes for U.S. federal income tax purposes in future periods. The income tax provision for the third quarter of 1993 also included a $24 million charge associated with an increase in the federal income tax rate from 34% to 35%. This charge reflected a $29 million unfavorable remeasurement of deferred federal income tax liabilities as of January 1, 1993, and a $5 million favorable effect related to 1993 pretax losses. 11. In 1993, USX adopted SFAS No. 112 and EITF No. 93-14. The cumulative effect of these changes in accounting principles decreased first quarter 1993 net income by $86 million, net of $50 million income tax effect, for SFAS No. 112; and $6 million, net of $3 million income tax effect, for EITF No. 93-14. 12. In the first quarter of 1994, USX issued $300 million in aggregate principal amount of 7.20% Notes Due 2004 and $150 million in aggregate principal amount of LIBOR-based Floating Rate Notes Due 1996. In the first quarter of 1994, an aggregate principal amount of $57 million of Marathon's 7% Monthly Interest Guaranteed Notes Due 2002 was issued in exchange for an equivalent principal amount of its 9-1/2% Guaranteed Notes Due 1994. The $642 million balance of Marathon's 9-1/2% Guaranteed Notes Due 1994 was paid in the first quarter of 1994. In the second quarter of 1994, USX issued $55 million of 6.70% Environmental Improvement Revenue Refunding Bonds due 2020 and 2024 to refinance Environmental Improvement Bonds. In the third quarter of 1994, USX entered into a $2.325 billion revolving credit agreement which terminates in August 1999. Interest is based on defined short-term market rates. This agreement replaced $2.0 billion in revolving credit agreements. 12 USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) --------------------------------------------------------------- (Unaudited) 12. (Continued) At September 30, 1994, USX had no borrowings against the long-term revolving credit agreement, but had outstanding borrowings of $33 million against short-term lines of credit totaling $165 million, which require maintenance of compensating balances of 3%. At September 30, 1994, $292 million of commercial paper and certain long-term debt due within one year of $401 million was included in long-term debt, since the unused long-term credit agreement was available for refinancing, if needed. In the event of a change in control of USX, debt obligations totaling $3,825 million at September 30, 1994, may be declared immediately due and payable. 13. In the first quarter of 1994, USX sold 5,000,000 shares of Steel Stock to the public for net proceeds of $201 million. In addition, USX Capital LLC, a wholly owned subsidiary of USX, sold $250 million of 8-3/4% Cumulative Monthly Income Preferred Shares (MIPS). The financial costs of the MIPS are included in interest and other financial costs. 14. USX has entered into agreements to sell certain accounts receivable subject to limited recourse. Payments are collected from the sold accounts receivable; the collections are reinvested in new accounts receivable for the buyers; and a yield based on defined short-term market rates is transferred to the buyers. At September 30, 1994, the balance of sold accounts receivable that had not been collected was $750 million. Buyers have collection rights to recover payments from an amount of outstanding receivables equal to 120% of the outstanding receivables purchased on a nonrecourse basis; such overcollateralization cannot exceed $150 million. In the event of a change in control of USX, as defined in the agreements, USX may be required to forward all payments collected on sold accounts receivable to the buyers. Prior to 1993, USX Credit, a division of USX, sold certain of its loans receivable subject to limited recourse. USX Credit continues to collect payments from the loans and transfer to the buyers principal collected plus yield based on defined short-term market rates. At September 30, 1994, the balance of sold loans receivable subject to recourse was $150 million. As of September 30, 1994, USX Credit had outstanding loan commitments of $29 million. USX Credit is not actively making new loan commitments. In the event of a change in control of USX, as defined in the agreement, USX may be required to provide cash collateral in the amount of the uncollected loans receivable to assure compliance with the limited recourse provisions. 15. USX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Certain of these matters are discussed below. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the consolidated financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably. See discussion of Liquidity and Capital Resources in USX Consolidation Management's Discussion and Analysis of Financial Condition and Results of Operations. 13 USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) --------------------------------------------------------------- (Unaudited) 15. (Continued) In the first nine months of 1994, USX paid $367 million to settle substantially all of the remaining judgments against the B&LE in the Lower Lake Erie Iron Ore Antitrust Litigation. Two remaining plaintiffs in this case have had their damage claims remanded for retrial. A new trial may result in awards more or less than the original asserted claims of $8 million and would be subject to trebling. On November 3, 1992, the United States District Court for the District of Utah Central Division issued a Memorandum Opinion and Order in Pickering v. USX relating to pension and compensation claims by approximately 1,900 employees of USX's former Geneva (Utah) Works. Although the court dismissed a number of the claims by the plaintiffs, it found that USX had violated the Employee Retirement Income Security Act by interfering with the accrual of pension benefits of certain employees and amending a benefit plan to reduce the accrual of future benefits without proper notice to plan participants. Further proceedings were held to determine damages and, pending the court's determinations, USX may appeal. Plaintiffs' counsel has been reported as estimating plaintiffs' anticipated recovery to be in excess of $100 million. USX believes actual damages will be substantially less than plaintiffs' estimates. In the first quarter of 1994, USX entered into settlement agreements with 208 plaintiffs providing for releases of liability against USX and the aggregate payment of approximately $1 million by USX. An order dismissing these plaintiffs from the case with prejudice was entered on May 31, 1994. 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. 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 these accruals coincides with completion of a feasibility study or the commitment to a formal plan of action. 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; estimated mine reclamation costs are accrued based on actual clean tons of coal produced. At September 30, 1994, accrued liabilities for remediation, platform abandonment and mine reclamation totaled $319 million. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed. For a number of years, USX has made substantial capital expenditures to bring existing facilities into compliance with various laws relating to the environment. In 1993 and 1992, such capital expenditures totaled $181 million and $294 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. 14 USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) --------------------------------------------------------------- (Unaudited) 15. (Continued) By reason of Executive Orders and related regulations under which the U.S. Government is continuing economic sanctions against Libya, USX was required to discontinue performing its Libyan petroleum contracts on June 30, 1986. In June 1989, the Department of the Treasury authorized USX to resume performing under those contracts. Pursuant to that authorization, USX has engaged the Libyan National Oil Company and the Secretary of Petroleum in continuing negotiations to determine when and on what basis they are willing to allow USX to resume realizing revenue from USX's investment of $108 million in Libya. USX is uncertain when these negotiations can be completed or how the negotiations will be affected by the United Nations' sanctions against Libya. Guarantees by USX of the liabilities of affiliated and other entities totaled $185 million at September 30, 1994. In the event that any defaults of guaranteed liabilities occur, USX has access to its interest in the assets of most of the affiliates to reduce losses resulting from these guarantees. As of September 30, 1994, the largest guarantee for a single affiliate was $94 million. At September 30, 1994, USX's pro rata share of obligations of LOOP INC. and various pipeline affiliates secured by throughput and deficiency agreements totaled $196 million. Under the agreements, USX is required to advance funds if the affiliates are unable to service debt. Any such advances are prepayments of future transportation charges. At September 30, 1994, contract commitments for capital expenditures for property, plant and equipment totaled $309 million compared with $389 million at December 31, 1993. 15 USX CORPORATION COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS TOTAL ENTERPRISE BASIS - (Unaudited) ---------------------------------------------------------- (Dollars in Millions)
Nine Months Ended September 30 Year Ended December 31 ------------------ ------------------------------------------------------- 1994 1993* 1993 1992 1991 1990 1989 ---- ----- ---- ---- ---- ---- ---- 1.95 (a) (b) (c) (d) 2.69 2.33 ==== ===== ==== ==== ==== ==== ==== (a) Earnings did not cover combined fixed charges and preferred stock dividends by $387 million. (b) Earnings did not cover combined fixed charges and preferred stock dividends by $325 million. (c) Earnings did not cover combined fixed charges and preferred stock dividends by $211 million. (d) Earnings did not cover combined fixed charges and preferred stock dividends by $696 million. *Restated as a result of the adoption of two new accounting standards.
USX CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES TOTAL ENTERPRISE BASIS - (Unaudited) ------------------------------------------------- (Dollars in Millions)
Nine Months Ended September 30 Year Ended December 31 ------------------ ------------------------------------------------------- 1994 1993* 1993 1992 1991 1990 1989 ---- ----- ----- ---- ---- ---- ---- 2.11 (a) (b) (c) (d) 2.80 2.57 ==== ===== ==== ==== ==== ==== ==== (a) Earnings did not cover fixed charges by $355 million. (b) Earnings did not cover fixed charges by $281 million. (c) Earnings did not cover fixed charges by $197 million. (d) Earnings did not cover fixed charges by $681 million. *Restated as a result of the adoption of two new accounting standards.
16 USX CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The following discussion should be read in conjunction with the third quarter 1994 USX consolidated financial statements and selected notes. Results of Operations - --------------------- USX had net income of $191 million in the third quarter of 1994, compared with restated net income of $63 million in the third quarter of 1993. For the first nine months of 1994, USX reported net income of $373 million. For the first nine months of 1993, USX reported a net loss of $296 million, as restated to reflect the unfavorable $92 million cumulative effect of changes in accounting principles. See the Consolidated Statement of Operations - Income per Common Share for comparative amounts applicable to the three classes of common stock. Sales in the third quarter of 1994 totaled $5.1 billion, compared with $4.5 billion in the third quarter of 1993. The improvement primarily reflected a 17% increase in sales for the Marathon Group. Sales in the first nine months of 1994 totaled $14.2 billion, compared with $13.5 billion in the same period in 1993. The improvement reflected increases of 3%, 9% and 8%, respectively, in sales for the Marathon Group, the U. S. Steel Group and the Delhi Group. Matching buy/sell transactions and excise taxes are included in both sales and operating costs of the Marathon Group, resulting in no effect on operating income. Excise taxes increased from $511 million and $1,407 million in the third quarter and first nine months of 1993, respectively, to $733 million and $1,878 million in the same periods in 1994. Higher excise taxes were the predominant factor in the increase in taxes other than income taxes in both periods in 1994. USX had operating income of $225 million in the third quarter of 1994, compared with restated operating income of $158 million in the same quarter of 1993. Third quarter operating income included unfavorable noncash effects of $63 million in 1994 and $30 million in 1993 resulting from increases in the inventory market valuation reserve. Excluding the effects of the changes in the inventory market valuation reserve, third quarter 1994 operating income improved $100 million from the third quarter of 1993 due primarily to increases of $66 million and $40 million in operating results for the Marathon Group and the U. S. Steel Group, respectively. USX had operating income of $627 million in the first nine months of 1994, compared with restated operating income of $28 million in the same period in 1993. Operating income in the first nine months of 1994 included a $158 million favorable noncash effect resulting from a decrease in the inventory market valuation reserve, partially offset by restructuring charges of $37 million related to the planned disposition of certain nonstrategic gas gathering and processing assets. Operating income in the first nine months of 1993 included a $438 million charge for the Lower Lake Erie Iron Ore Antitrust Litigation against the Bessemer & Lake Erie Railroad ("B&LE"), a former USX subsidiary, and a $54 million unfavorable noncash effect resulting from an increase in the inventory market valuation reserve. Excluding the effects of these items, operating income in the first nine months of 1994 decreased $14 million from the same period in 1993 mainly due to lower results for the Delhi Group, partially offset by higher results for the U. S. Steel Group. 17 USX CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Other income in the first nine months of 1994 included a pretax gain of $183 million from the disposal of assets ($150 million in the third quarter), primarily reflecting the third quarter sale of the assets of a retail propane marketing subsidiary and the sale of certain domestic oil and gas production properties. Other income in the first nine months of 1993 included a pretax gain of $151 million from the disposal of assets ($8 million in the third quarter), including the sales of the Cumberland coal mine and an investment in an insurance company. Income from equity affiliates in the third quarter and first nine months of 1994 improved by $7 million and $36 million, respectively, from the same periods in 1993. Net interest and other financial costs in the first nine months of 1994 included a $35 million favorable effect resulting from settlement of various state tax issues. Net interest and other financial costs in the third quarter and first nine months of 1993 included $14 million and $195 million, respectively, of interest expense related to the B&LE litigation. The provision for estimated income taxes for the periods reported is based on tax rates and amounts which recognize management's best estimate of current and deferred tax assets and liabilities. The income tax provision for the third quarter and first nine months of 1994 included a one-time $32 million deferred tax benefit (see Note 10 to the consolidated financial statements). The third quarter 1993 income tax provision included a credit of $64 million related to recognition of additional future U.S. income tax benefits for deferred foreign income taxes. This favorable adjustment resulted from USX's ability to elect to credit, rather than deduct, foreign income taxes for U.S. federal income tax purposes in future periods. The anticipated use of the U.S. foreign tax credit reflects Marathon's improving international production profile. The income tax provision for the third quarter of 1993 also included a $24 million charge associated with an increase in the federal income tax rate from 34% to 35%. This charge reflected a $29 million unfavorable remeasurement of deferred federal income tax liabilities as of January 1, 1993, and a $5 million favorable effect related to 1993 pretax losses. Group Results - ------------- See Management's Discussion and Analysis of Financial Condition and Results of Operations for the Marathon Group, the U. S. Steel Group and the Delhi Group. Operating Statistics - -------------------- For details, see Supplemental Statistics table for the Marathon Group, the U. S. Steel Group and the Delhi Group. Dividends to Stockholders - ------------------------- On October 25, 1994, USX's Board of Directors (the "Board") declared dividends of 17 cents per share on Marathon Stock, 25 cents per share on Steel Stock and five cents per share on Delhi Stock, all payable December 10, 1994, to stockholders of record at the close of business on November 4, 1994. 18 USX CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The Board also declared a dividend of $0.8125 per share on USX Corporation's 6.50% Cumulative Convertible Preferred Stock and $1.01875 per share on USX Corporation's Adjustable Rate Cumulative Preferred Stock, in each case payable December 30, 1994, to stockholders of record at the close of business on December 1, 1994. FINANCIAL CONDITION - ------------------- Liquidity and Capital Resources - -------------------------------- At September 30, 1994, cash and cash equivalents totaled $87 million compared with $268 million at December 31, 1993. Net cash provided from operating activities totaled $244 million in the first nine months of 1994, compared with $645 million in the first nine months of 1993. The unfavorable change primarily reflected 1994 payments of $367 million to settle substantially all of the remaining judgments from the B&LE litigation and 1994 payments of $124 million to settle various state tax issues. In addition, net cash provided from operating activities in the first nine months of 1993 benefited from a $103 million favorable effect from the use of available funds from previously established insurance reserves to pay for certain active and retired employee insurance benefits. Excluding the 1994 payments and the 1993 favorable effect, net cash provided from operating activities in the first nine months of 1994 increased $193 million from the same period in 1993. Cash from the disposal of assets totaled $253 million in the first nine months of 1994, compared with $269 million in the same period in 1993. The 1994 proceeds mainly resulted from the sales of the assets of a retail propane marketing subsidiary and certain domestic oil and gas production properties. The 1993 proceeds primarily reflected the sale/leaseback of interests in two LNG tankers and the sales of the Cumberland coal mine, various domestic oil and gas production properties and an investment in an insurance company. USX's total long-term debt and notes payable at September 30, 1994, was $5.7 billion, down $242 million from December 31, 1993. In August 1994, USX entered into a $2.325 billion revolving credit agreement which terminates in August 1999. Interest is based on defined short-term market rates. This agreement replaced the $2.0 billion in existing revolving credit agreements entered into in October 1992. At September 30, 1994, USX had no borrowings against the long-term revolving credit agreement, but had outstanding borrowings of $33 million against short-term lines of credit totaling $165 million, which require maintenance of compensating balances of 3%. At September 30, 1994, long-term debt included zero coupon convertible debentures which, at the option of the holder, USX is obligated to purchase at the carrying value of $430 million on August 9, 1995. USX may elect to pay the purchase price in cash, shares of Marathon Stock and Steel Stock, notes or a combination thereof. In February 1994, USX issued $300 million in aggregate principal amount of 7.20% Notes Due 2004 and $150 million in aggregate principal amount of LIBOR- based Floating Rate Notes Due 1996. In March 1994, an aggregate principal amount of 19 USX CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- $57 million of Marathon's 7% Monthly Interest Guaranteed Notes Due 2002 was issued in exchange for an equivalent principal amount of its 9-1/2% Guaranteed Notes Due 1994 ("Marathon 9-1/2% Notes"). The $642 million balance of Marathon 9-1/2% Notes was paid in March 1994. In June 1994, USX issued $55 million of 6.70% Environmental Improvement Revenue Refunding Bonds due 2020 and 2024 to refinance Environmental Improvement Bonds. In February 1994, USX sold 5,000,000 shares of Steel Stock to the public for net proceeds of $201 million. In March 1994, USX Capital LLC, a wholly owned subsidiary of USX, sold $250 million of 8-3/4% Cumulative Monthly Income Preferred Shares. In March 1994, USX filed with the Securities and Exchange Commission ("SEC") a shelf registration statement which became effective April 8, 1994 and allows USX to offer and issue unsecured debt securities in an aggregate principal amount of up to $750 million in one or more separate series on terms to be determined at the time of sale. In August 1994, USX filed with the SEC a shelf registration statement which became effective September 21, 1994 and allows USX to offer and issue up to $137 million of debt and equity securities. USX also has $345 million remaining on a shelf registration statement which became effective January 6, 1994 and allows USX to offer and issue debt and equity securities. USX engages in hedging activities in the normal course of its businesses. Futures contracts, commodity swaps and options are used to hedge exposure to price fluctuations relevant to the purchase or sale of crude oil, natural gas, and refined products. Forward contracts are used to hedge currency risks related to firm commitments for capital expenditures and liabilities denominated in a foreign currency. While hedging activities are generally used to reduce risks from unfavorable commodity price and currency rate movements, they also may limit the opportunity to benefit from favorable movements. USX's hedging activities have not been significant in relation to its overall business activity. Management believes that its use of hedging instruments will not have a material effect on the financial position, liquidity or results of operations of USX. USX believes that its short-term and long-term liquidity is adequate to satisfy its obligations as of September 30, 1994, and to complete currently authorized capital spending programs. Future requirements for USX's business needs, including the funding of capital expenditures, debt maturities for the balance of 1994 and years 1995 and 1996 and amounts which may ultimately be paid in connection with contingencies are expected to be financed by a combination of internally generated funds, proceeds from the sale of stock, future borrowings and other external financing sources. Capital Expenditures - -------------------- Capital expenditures for property, plant, and equipment in the third quarter and first nine months of 1994 were $258 million and $657 million, respectively, compared with $279 million and $803 million in the same periods in 1993. The declines in 1994 in both periods primarily reflected lower spending for the Marathon Group mainly due to decreased expenditures resulting from the substantial completion of the East Brae Field and SAGE system in the United Kingdom and the distillate hydrotreater complex at the Robinson, Illinois refinery. For further details, see the Financial Statistics table. 20 USX CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- In addition to the capital expenditures discussed above, USX's noncash activities in the first nine months of 1994 included the issuance of a $42 million purchase money note related to the acquisition of 36 gasoline outlets/convenience stores from a petroleum retailer. For the year 1994, capital expenditures are expected to total approximately $1.1 billion. The decrease from 1993 of approximately $80 million is expected to result mainly from lower spending for the Marathon Group, partially offset by higher spending for the U. S. Steel Group. For details, see discussion of Capital Expenditures for the Marathon Group, the U. S. Steel Group and the Delhi Group. Contract commitments for capital expenditures at September 30, 1994, were $309 million, compared with $389 million at year-end 1993. Environmental Matters, Contingencies and Commitments - ---------------------------------------------------- USX has incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. In recent years, these expenditures have increased primarily due to required product reformulation and process changes in order to meet Clean Air Act obligations, although ongoing compliance costs have also been significant. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of USX's products and services, operating results will be adversely affected. USX believes that domestic competitors of the U. S. Steel Group and substantially all the competitors of the Marathon Group and the Delhi Group are subject to similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including the age and location of their operating facilities, their production processes and the specific products and services they provide. USX has been notified that it is a potentially responsible party ("PRP") at 44 waste sites under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") as of September 30, 1994. In addition, there are 47 sites where USX has received information requests or other indications that USX may be a PRP under CERCLA but where sufficient information is not presently available to confirm the existence of liability or make any judgment as to the amount thereof. There are also 76 additional sites, excluding retail gasoline stations, where remediation is being sought under other environmental statutes, both federal and state, or where private parties are seeking remediation through discussions or litigation. At many of these sites, USX is one of a number of parties involved and the total cost of remediation, as well as USX's share thereof, is frequently dependent upon the outcome of investigations and remedial studies. The number of waste sites in and of itself does not necessarily represent a relevant measure of liability because the nature and extent of environmental concerns vary from site to site, and USX's share of responsibility varies significantly. USX accrues for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. 21 USX CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- USX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment (see Note 15 to the consolidated financial statements for a discussion of certain of these matters). The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the consolidated financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably. See discussion of Liquidity and Capital Resources herein. 22 USX Corporation FINANCIAL STATISTICS --------------------
($'s in Millions) Third Quarter Nine Months Ended Ended September 30 September 30 -------------- -------------- 1994 1993 1994 1993 ---- ---- ---- ---- SALES Marathon Group $3,497 $2,983 $9,349 $9,040 U. S. Steel Group 1,505 1,429 4,423 4,064 Delhi Group 134 131 424 391 Eliminations (13) (10) (39) (35) ------ ------ ------ ------ Total $5,123 $4,533 $14,157 $13,460 OPERATING INCOME (LOSS) Marathon Group $117 $84 $499 $284 U. S. Steel Group 106 66 170 (286) Delhi Group 2 8 (42) 30 ------ ------ ------ ------ Total $225 $158 $627 $28 CAPITAL EXPENDITURES Marathon Group $187 $215 $464 $646 U. S. Steel Group 63 54 171 136 Delhi Group 8 10 22 21 ------ ------ ------ ------ Total $258 $279 $657 $803
23 Part I - Financial Information (Continued): B. Marathon Group MARATHON GROUP OF USX CORPORATION STATEMENT OF OPERATIONS (Unaudited) -----------------------------------
Third Qtr. Nine Months Ended Ended September 30 September 30 (Dollars in millions, except per share amounts) 1994 1993 1994 1993* - -------------------------------------------------------------------------------- - --- SALES $3,497 $2,983 $9,349 $9,040 OPERATING COSTS: Cost of sales (excludes items shown below) 2,251 1,982 6,118 6,229 Inventory market valuation charge (credit) 63 30 (158) 54 Selling, general and administrative expenses 73 82 237 242 Depreciation, depletion and amortization 172 198 525 548 Taxes other than income taxes 784 564 2,023 1,575 Exploration expenses 37 43 105 108 ------ ------ ------ ------ Total operating costs 3,380 2,899 8,850 8,756 ------ ------ ------ ------ OPERATING INCOME 117 84 499 284 Other income 148 8 166 21 Interest and other financial income 2 6 9 15 Interest and other financial costs (89) (74) (209) (214) ------ ------ ------ ------ TOTAL INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 178 24 465 106 Less provision (credit) for estimated income taxes 76 (6) 181 24 ------ ------ ------ ------ TOTAL INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 102 30 284 82 Cumulative effect of changes in accounting principles - - - (23) ------ ------ ------ ------ NET INCOME 102 30 284 59 Dividends on preferred stock (1) (1) (4) (4) ------ ------ ------ ------ NET INCOME APPLICABLE TO MARATHON STOCK $101 $29 $280 $55 ====== ====== ====== ====== *Restated as a result of the adoption of two new accounting standards. Selected notes to financial statements appear on pages 27-31.
24 MARATHON GROUP OF USX CORPORATION STATEMENT OF OPERATIONS (Continued) (Unaudited) INCOME PER COMMON SHARE -----------------------------------------------
Third Qtr. Nine Months Ended Ended September 30 September 30 (Dollars in millions, except per share amounts) 1994 1993 1994 1993* - -------------------------------------------------------------------------------- - --- MARATHON STOCK DATA Income per share - primary and fully diluted: Total income before cumulative effect of changes in accounting principles $.35 $.10 $.98 $.27 Cumulative effect of changes in accounting principles - - - (.08) Net income .35 .10 .98 .19 Weighted average shares, in thousands: - Primary 286,568 286,594 286,578 286,610 - Fully diluted 292,815 286,599 286,579 286,615 Dividends paid per share .17 .17 .51 .51 *Restated as a result of the adoption of two new accounting standards. Selected notes to financial statements appear on pages 27-31.
25 MARATHON GROUP OF USX CORPORATION BALANCE SHEET (Unaudited) ---------------------------------
September 30 December 31 (Dollars in millions) 1994 1993 - -------------------------------------------------------------------------------- - ---- ASSETS Current assets: Cash and cash equivalents $63 $185 Receivables, less allowance for doubtful accounts of $3 and $3 413 337 Inventories 1,186 987 Other current assets 85 89 ------- ------- Total current assets 1,747 1,598 Long-term receivables and other investments 316 317 Property, plant and equipment, less accumulated depreciation, depletion and amortization of $7,690 and $7,463 8,297 8,428 Prepaid pensions 272 263 Other noncurrent assets 203 200 ------- ------- Total assets $10,835 $10,806 ======= ======= LIABILITIES Current liabilities: Notes payable $136 $1 Accounts payable 978 1,109 Payable to the other groups 52 13 Payroll and benefits payable 84 85 Accrued taxes 159 294 Deferred income taxes 128 37 Accrued interest 60 106 Long-term debt due within one year 60 23 ------- ------- Total current liabilities 1,657 1,668 Long-term debt, less unamortized discount 3,917 4,239 Long-term deferred income taxes .. 1,279 1,223 Employee benefits 319 306 Deferred credits and other liabilities 237 260 Preferred stock of subsidiary............... 182 - ------- ------- Total liabilities 7,591 7,696 STOCKHOLDERS' EQUITY Preferred stock 78 78 Common stockholders' equity 3,166 3,032 ------- ------- Total stockholders' equity 3,244 3,110 ------- ------- Total liabilities and stockholders' equity $10,835 $10,806 ======= ======= Selected notes to financial statements appear on pages 27-31.
26 MARATHON GROUP OF USX CORPORATION STATEMENT OF CASH FLOWS (Unaudited) -----------------------------------
Nine Months Ended September 30 (Dollars in millions) 1994 1993* - -------------------------------------------------------------------------------- - ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES: Net income $284 $59 Adjustments to reconcile to net cash provided from operating activities: Accounting principle changes - 23 Depreciation, depletion and amortization 525 548 Exploratory dry well costs 42 42 Inventory market valuation charge (credit) (158) 54 Pensions (10) (14) Postretirement benefits other than pensions 12 18 Deferred income taxes 137 (12) Gain on disposal of assets (173) (9) Changes in: Current receivables - purchased from the Delhi Group 7 6 - operating turnover (85) 140 Inventories (48) 50 Current accounts payable and accrued expenses (276) (466) All other items - net 28 18 ------ ------ Net cash provided from operating activities 285 457 ------ ------ INVESTING ACTIVITIES: Capital expenditures (464) (646) Disposal of assets 233 112 All other items - net 14 (13) ------ ------ Net cash used in investing activities (217) (547) ------ ------ FINANCING ACTIVITIES: Marathon Group activity - USX debt attributed to all groups - net (216) 347 Attributed preferred stock of subsidiary 176 - Marathon Stock repurchased - (1) Marathon Stock issued - 1 Dividends paid (151) (151) ------ ------ Net cash provided from (used in) financing activities (191) 196 ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 - ------ ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (122) 106 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 185 35 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $63 $141 ====== ====== Cash used in operating activities included: Interest and other financial costs paid (net of amount capitalized) $(334) $(215) Income taxes paid including settlements with other groups (29) (77) *Restated as a result of the adoption of two new accounting standards. Selected notes to financial statements appear on pages 27-31.
27 MARATHON GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS -------------------------------------- (Unaudited) 1. The information furnished in these financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These financial statements, including selected notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. Additional information is contained in the USX Annual Report on Form 10-K for the year ended December 31, 1993. Financial data for the first nine months of 1993 has been restated to reflect the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS No. 112), and Emerging Issues Task Force Consensus No. 93-14, "Accounting for Multiple-Year Retrospectively Rated Insurance Contracts" (EITF No. 93-14) (see Note 8). The financial statements of the Marathon Group include the financial position, results of operations and cash flows for the businesses of Marathon Oil Company and certain other subsidiaries of USX, and a portion of the corporate assets and liabilities and related transactions which are not separately identified with ongoing operating units of USX. These financial statements are prepared using the amounts included in the USX consolidated financial statements. Corporate amounts reflected in these financial statements are determined based upon methods which management believes to be reasonable. The accounting policies applicable to the preparation of the financial statements of the Marathon Group may be modified or rescinded in the sole discretion of the Board of Directors of USX (Board), although the Board has no present intention to do so. The Board may also adopt additional policies depending on the circumstances. Although the financial statements of the Marathon Group, the U. S. Steel Group and the Delhi Group separately report the assets, liabilities (including contingent liabilities) and stockholders' equity of USX attributed to each such group, such attribution of assets, liabilities (including contingent liabilities) and stockholders' equity among the Marathon Group, U. S. Steel Group and the Delhi Group for the purpose of preparing their respective financial statements does not affect legal title to such assets and [or] responsibility for such liabilities. Holders of USX-Marathon Group Common Stock (Marathon Stock), USX-U. S. Steel Group Common Stock (Steel Stock) and USX-Delhi Group Common Stock (Delhi Stock) are holders of common stock of USX, and continue to be subject to all the risks associated with an investment in USX and all of its businesses and liabilities. Financial impacts arising from one Group that affect the overall cost of USX's capital could affect the results of operations and financial condition of other groups. In addition, net losses of any Group, as well as dividends and distributions on any class of USX Common Stock or series of preferred stock and repurchases of any class of USX Common Stock or series of preferred stock at prices in excess of par or stated value, will reduce the funds of USX legally available for payment of dividends on all classes of Common Stock. Accordingly, the USX consolidated financial information should be read in connection with the Marathon Group financial information. 28 MARATHON GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 2. The method of calculating net income per share for the Marathon Stock, Steel Stock and Delhi Stock reflects the Board's intent that the separately reported earnings and surplus of the Marathon Group, the U. S. Steel Group and the Delhi Group, as determined consistent with the USX Certificate of Incorporation, are available for payment of dividends to the respective classes of stock, although legally available funds and liquidation preferences of these classes of stock do not necessarily correspond with these amounts. Primary net income per share is calculated by adjusting net income for dividend requirements of preferred stock and is based on the weighted average number of common shares outstanding plus common stock equivalents, provided they are not antidilutive. Common stock equivalents result from assumed exercise of stock options and surrender of stock appreciation rights associated with stock options, where applicable. Fully diluted net income per share assumes conversion of convertible securities for the applicable periods outstanding and assumes exercise of stock options and surrender of stock appreciation rights, provided, in each case, the effect is not antidilutive. 3. The items below were included in both sales and operating costs, resulting in no effect on income:
(In millions) ------------------------------- Third Qtr. Nine Months Ended Ended September 30 September 30 1994 1993 1994 1993 ---- ---- ---- ---- Matching buy/sell transactions $498 $451 $1,465 $1,559 Consumer excise taxes on petroleum products and merchandise 733 511 1,878 1,407
4. Inventories are carried at the lower of cost or market. Cost of inventories of crude oil and refined products is determined under the last- in, first-out (LIFO) method.
(In millions) ---------------------- September 30 December 31 1994 1993 ------------ ----------- Crude oil and natural gas liquids $537 $522 Refined products and merchandise 829 796 Supplies and sundry items 101 108 ------ ------ Total 1,467 1,426 Less inventory market valuation reserve 281 439 ------ ------ Net inventory carrying value $1,186 $987
====== ====== 29 MARATHON GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 4. (Continued) The inventory market valuation reserve reflects the extent that the recorded costs of crude oil and refined products inventories exceed 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 resulted in a $158 million credit to operating income in the first nine months of 1994 ($63 million charge in the third quarter) and a $54 million charge against operating income in the first nine months of 1993 ($30 million charge in the third quarter). 5. In the first nine months of 1994, payments of $123 million were made to settle various state tax issues. As a result of these settlements, net income in the second quarter of 1994 included a net credit of $36 million, consisting of a credit of $12 million in operating costs, a credit of $34 million in interest and other financial costs and a net income tax provision effect of $10 million. 6. Other income (loss) in the first nine months of 1994 included a pretax gain of $173 million from disposal of assets ($148 million in the third quarter, including the sale of the assets of a retail propane marketing subsidiary). 7. The financial statement provision for estimated income taxes and related tax payments or refunds have been reflected in the Marathon Group, the U. S. Steel Group and the Delhi Group financial statements in accordance with USX's tax allocation policy for such groups. In general, such policy provides that the consolidated tax provision and related tax payments or refunds are allocated among the Marathon Group, the U. S. Steel Group and the Delhi Group for group financial statement purposes, based principally upon the financial income, taxable amount, credits, preferences and other amounts directly related to the respective groups. The provision for estimated income taxes for the Marathon Group is based on tax rates and amounts which recognize management's best estimate of current and deferred tax assets and liabilities. Differences between the combined interim tax provisions of the Marathon, U. S. Steel and Delhi Groups and USX consolidated are allocated to each group based on the relationship of the individual group provisions to the combined interim provisions. The third quarter 1993 income tax provision included a credit of $64 million related to recognition of future U.S. income tax benefits for deferred foreign income taxes. This favorable adjustment resulted from USX's ability to elect to credit, rather than deduct, foreign income taxes for U.S. federal income tax purposes in future periods. The third quarter 1993 income tax provision also included a $40 million charge associated with an increase in the federal income tax rate from 34% to 35%, reflecting remeasurement of deferred federal income tax liabilities as of January 1, 1993. 8. In 1993, USX adopted SFAS No. 112 and EITF No. 93-14. The cumulative effect of these changes in accounting principles decreased first quarter 1993 net income by $17 million, net of $10 million income tax effect, for SFAS No. 112; and $6 million, net of $3 million income tax effect, for EITF No. 93- 14. 30 MARATHON GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 9. In the first quarter of 1994, USX Capital LLC, a wholly owned subsidiary of USX, sold $250 million of 8-3/4% Cumulative Monthly Income Preferred Shares (MIPS). In accordance with the USX policy of managing most financial activities on a centralized, consolidated basis, the proceeds from issuance of the MIPS and the related financial costs (which are included in interest and other financial costs) were attributed to all three groups in proportion to their respective participation in USX centrally managed financing activities. 10. The Marathon Group has entered into an agreement, subject to limited recourse, to sell certain accounts receivable including accounts receivable purchased from the Delhi Group. Payments are collected from the sold accounts receivable; the collections are reinvested in new accounts receivable for the buyers; and a yield based on defined short-term market rates is transferred to the buyers. At September 30, 1994, the balance of sold accounts receivable that had not been collected was $400 million. Buyers have collection rights to recover payments from an amount of outstanding receivables equal to 120% of the outstanding receivables purchased on a nonrecourse basis; such overcollateralization cannot exceed $80 million. In the event of a change in control of USX, as defined in the agreement, the Marathon Group may be required to forward payments collected on sold accounts receivable to the buyers. 11. USX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments relating to the Marathon Group involving a variety of matters, including laws and regulations relating to the environment. Certain of these matters are discussed below. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the Marathon Group financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably to the Marathon Group. See discussion of Liquidity and Capital Resources in USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. The Marathon Group is subject to federal, state, local and foreign laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for noncompliance. 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 these accruals coincides with completion of a feasibility study or the commitment to a formal plan of action. 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. At September 30, 1994, accrued liabilities for remediation and platform abandonment totaled $169 million. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed. 31 MARATHON GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 11. (Continued) 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 1993 and 1992, such capital expenditures totaled $123 million and $240 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. By reason of Executive Orders and related regulations under which the U.S. Government is continuing economic sanctions against Libya, the Marathon Group was required to discontinue performing its Libyan petroleum contracts on June 30, 1986. In June 1989, the Department of the Treasury authorized the Marathon Group to resume performing under those contracts. Pursuant to that authorization, the Marathon Group has engaged the Libyan National Oil Company and the Secretary of Petroleum in continuing negotiations to determine when and on what basis they are willing to allow the Marathon Group to resume realizing revenue from the Marathon Group's investment of $108 million in Libya. The Marathon Group is uncertain when these negotiations can be completed or how the negotiations will be affected by the United Nations' sanctions against Libya. Guarantees by USX of the liabilities of affiliated and other entities of the Marathon Group totaled $18 million at September 30, 1994. At September 30, 1994, the Marathon Group's pro rata share of obligations of LOOP INC. and various pipeline affiliates secured by throughput and deficiency agreements totaled $196 million. Under the agreements, the Marathon Group is required to advance funds if the affiliates are unable to service debt. Any such advances are prepayments of future transportation charges. At September 30, 1994, contract commitments for the Marathon Group's capital expenditures for property, plant and equipment totaled $215 million compared with $284 million at December 31, 1993. 32 MARATHON GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The Marathon Group includes Marathon Oil Company (Marathon) and certain other subsidiaries of USX which are engaged in worldwide exploration, production, transportation and marketing of crude oil and natural gas; and domestic refining, marketing and transportation of petroleum products. The following discussion should be read in conjunction with the third quarter 1994 USX consolidated financial information and the Marathon Group financial statements and selected notes. Results of Operations - --------------------- The Marathon Group reported net income of $102 million, or $.35 per share, in the third quarter of 1994, compared to net income of $30 million, or $.10 per share, in the same quarter of 1993. The Marathon Group had net income of $284 million, or $.98 per share, in the first nine months of 1994. Net income in the first nine months of 1993 was $59 million, or $.19 per share, as restated to reflect the unfavorable $23 million ($.08 per share) cumulative effect of changes in accounting principles. Sales in the third quarter of 1994 were $3,497 million, compared with $2,983 million in the third quarter of 1993. The 17% improvement primarily reflected increased excise taxes, which totaled $733 million in the third quarter of 1994 compared with $511 million in the third quarter of 1993; as well as higher worldwide liquid hydrocarbon volumes and higher refined product prices. Sales in the first nine months of 1994 were $9,349 million, compared with $9,040 million in the first nine months of 1993. The improvement primarily reflected increased excise taxes, which totaled $1,878 million in the first nine months of 1994 compared with $1,407 million in the first nine months of 1993; as well as higher worldwide liquid hydrocarbon volumes, partially offset by lower worldwide liquid hydrocarbon prices, including prices of matching buy/sell transactions. Matching buy/sell transactions and excise taxes are included in both sales and operating costs, resulting in no effect on operating income. Higher excise taxes were the predominant factor in the increase in taxes other than income taxes in both periods in 1994. Operating income was $117 million in the third quarter of 1994, compared with operating income of $84 million in the third quarter of 1993. Third quarter operating income for 1994 and 1993 included unfavorable noncash effects of $63 million and $30 million, respectively, resulting from increases in the inventory market valuation reserve. The inventory market valuation reserve reflects the extent to which the recorded costs of crude oil and refined product inventories exceed net realizable value. Subsequent changes to the inventory market valuation reserve are dependent on changes in future crude oil and refined product price levels and inventory turnover. The following discussion of third quarter results excludes the effects of changes in the inventory market valuation reserve. Operating income in the third quarter of 1994 increased $66 million from the third quarter of 1993. The 58% increase was primarily due to increased operating income from worldwide exploration and production, partially offset by reduced operating income from refining, marketing and transportation operations. Operating income from worldwide exploration and production was $73 million in the third quarter of 1994, compared with a loss of $9 million in the third quarter 33 MARATHON GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- of 1993. Domestic exploration and production operating income was $53 million in the third quarter of 1994, compared with $10 million in the third quarter of 1993. The significant increase in domestic exploration and production operating income was primarily due to reduced operating expenses, higher liquid hydrocarbon prices, higher natural gas volumes and prices, and reduced dry well expense. International exploration and production operating income was $20 million in the third quarter of 1994, compared with a loss of $19 million in the third quarter of 1993. The $39 million increase was primarily due to increased liquid hydrocarbon liftings and the absence of a 1993 charge of $17 million for relinquishment of the Marathon Group's interest in the Arzanah Oil Field, Abu Dhabi. The increase in liftings mainly reflected production from the East Brae Field in the United Kingdom ("U.K.") which began in late December 1993. Marathon's contractual Brae area gas sales commenced on October 1 and are expected to average approximately 130 million cubic feet per day during the coming year. Operating income from refining, marketing and transportation operations was $123 million in the third quarter of 1994, compared with $146 million in the third quarter of 1993. The 16% decrease was primarily due to lower margins from refined products and convenience store merchandise, as well as increased operating expenses, partially offset by a favorable effect relating to a legal settlement. In the fourth quarter of 1994, the Marathon Group completed the acquisition of 53 gasoline outlets/convenience stores in Tennessee and Michigan from petroleum retailers. In the first nine months of 1994, operating income was $499 million, compared to operating income of $284 million in the first nine months of 1993. The first nine months included a $158 million favorable noncash effect in 1994 and a $54 million unfavorable noncash effect in 1993 resulting from changes in the inventory market valuation reserve. Excluding the effects of these changes in the inventory market valuation reserve, operating income in the first nine months of 1994 increased $3 million from the first nine months of 1993. The slight increase was mainly due to reduced worldwide production operating expenses, partially offset by lower worldwide liquid hydrocarbon prices. In addition, the first nine months of 1994 included $36 million for employee reorganization charges. The reorganization charges included $22 million for worldwide exploration and production; $13 million for refining, marketing and transportation; and $1 million for administrative. These charges relate to employee severance and relocation costs associated with work force reduction programs. Employee reorganization charges in the fourth quarter are not expected to be material. Annual pretax reductions in employment costs and associated overhead costs of approximately $80 million are expected to be realized after full implementation of the work force reduction programs in place during 1994. Other income of $166 million was recorded in the first nine months of 1994, compared with other income of $21 million in the first nine months of 1993. The increase in 1994 was primarily due to the third quarter sale of the assets of a retail propane marketing subsidiary and the first quarter sale of certain domestic oil and gas production properties. Net interest and other financial costs in the first nine months of 1994 included a $34 million favorable effect resulting from settlement of various state tax issues. 34 MARATHON GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The provision for estimated income taxes for the periods reported is based on tax rates and amounts which recognize management's best estimate of current and deferred tax assets and liabilities. The third quarter 1993 income tax provision included a credit of $64 million related to recognition of additional future U.S. income tax benefits for deferred foreign income taxes. This favorable adjustment resulted from USX's ability to elect to credit, rather than deduct, foreign income taxes for U.S. federal income tax purposes in future periods. The anticipated use of the U.S. foreign tax credit reflects Marathon's improving international production profile. The income tax provision for the third quarter of 1993 also included a $40 million charge associated with an increase in the federal income tax rate from 34% to 35% reflecting remeasurement of deferred federal income tax liabilities as of January 1, 1993. The Marathon Group's posted price for West Texas Intermediate, a benchmark crude oil, averaged $16.15 per barrel in October 1994, compared to a third quarter average of $16.98 per barrel. The outlook regarding prices and costs for the Marathon Group's principal products is largely dependent upon world market developments for crude oil and refined products. Market conditions in the petroleum industry are cyclical and subject to global economics and political events. The Marathon Group closed its Lubricants and Tires, Batteries and Accessories supply facility in Robinson, Illinois on October 31, 1994. Marathon brand and company-operated retail outlets are being supplied by third-party vendors. The costs related to the closure are not expected to have a material effect on the Marathon Group's operating results. Employees at the Detroit refinery are represented by the International Brotherhood of Teamsters ("Teamsters") under a labor agreement which expires on November 15, 1994. During October, management and the Teamsters began discussions regarding a new labor agreement. The Marathon Group and Union Oil Company of California (Unocal) entered into an agreement, intended to become effective December 1, 1994, to complete a major property trade and realignment of operations in the Cook Inlet Region of Alaska. The Marathon Group is to acquire Unocal's working interest in the Cannery Loop, Beaver Creek and Kenai fields. In exchange, Unocal is to acquire the Marathon Group's working interest in the Swanson River Field and operator interest in the Trading Bay Unit, which includes two platforms and an onshore processing facility. Effective December 1, 1994, the Marathon Group will be required to sell reformulated gasoline at wholesale distribution terminals serving ozone nonattainment areas that require reformulated gasoline. Beginning January 1, 1995, the Marathon Group's retail outlets located in those areas will be required to sell reformulated gasoline. The areas in the Marathon Group's marketing territory requiring reformulated gasoline are limited to the Chicago, Illinois; Milwaukee, Wisconsin and Louisville, Kentucky metropolitan areas. The Marathon Group is well positioned to supply the reformulated gasoline in its marketing area, and it has already begun the production of reformulated gasoline. In addition, the Marathon Group will make reformulated gasoline to be sold for use in the East Coast market. 35 MARATHON GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Cash Flows - ---------- Net cash provided from operating activities was $285 million in the first nine months of 1994, compared with $457 million in the first nine months of 1993. The first nine months of 1994 included second quarter payments of $123 million related to settlement of various state tax issues. Excluding these payments, net cash flows from operating activities in the first nine months of 1994 decreased $49 million from the first nine months of 1993. Cash provided from the disposal of assets was $233 million in the first nine months of 1994, compared with $112 million in the first nine months of 1993. Proceeds in the first nine months of 1994 mainly reflected the sales of the assets of a retail propane marketing subsidiary and certain domestic oil and gas production properties. Proceeds in the first nine months of 1993 primarily reflected the sale/leaseback of interests in two LNG tankers and the sales of various domestic oil and gas production properties. Financial obligations decreased $40 million in the first nine months of 1994, reflecting net cash provided from operating activities and a reduction in attributed cash and cash equivalents, partially offset by net cash flows used in investing activities and dividends paid during the period. Financial obligations consist of the Marathon Group's portion of USX debt and preferred stock of a subsidiary attributed to all three groups. The Marathon Group engages in hedging activities in the normal course of its business. Futures contracts, commodity swaps and options are used to hedge exposure to price fluctuations relevant to the purchase or sale of crude oil, natural gas and refined products. Forward contracts are used to hedge currency risks related to firm commitments for capital expenditures and liabilities denominated in a foreign currency. While hedging activities are generally used to reduce risks from unfavorable commodity price and currency rate movements, they also may limit the opportunity to benefit from favorable movements. The Marathon Group's hedging activities have not been significant in relation to its overall business activity. Management believes that its use of hedging instruments will not have a material effect on the financial position, liquidity or results of operations of the Marathon Group. For discussion of USX's liquidity and capital resources, see USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. Capital Expenditures - -------------------- Marathon Group capital expenditures for property, plant and equipment in the third quarter and first nine months of 1994 were $187 million and $464 million, respectively, compared with $215 million and $646 million in the same periods in 1993. The declines in both periods were primarily due to decreased expenditures resulting from the substantial completion of the East Brae Field and SAGE system in the United Kingdom and the distillate hydrotreater complex at the Robinson, Illinois refinery. 36 MARATHON GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- In addition to the capital expenditures discussed above, the Marathon Group's noncash activities in the first nine months of 1994 included the issuance of a $42 million purchase money note related to the acquisition of 36 gasoline outlets/convenience stores from a petroleum retailer. For the year 1994, capital expenditures are expected to decrease from $910 million in 1993 by approximately $130 million. The decline mainly reflects decreased expenditures for development of the East Brae Field and SAGE system in the United Kingdom. Contract commitments for capital expenditures at September 30, 1994 were $215 million, compared with $284 million at year-end 1993. Environmental Matters, Contingencies and Commitments - ---------------------------------------------------- The Marathon Group has incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. In recent years, these expenditures have increased primarily due to required product reformulation and process changes in order to meet Clean Air Act obligations, although ongoing compliance costs have also been significant. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of the Marathon Group's products and services, operating results will be adversely affected. The Marathon Group believes that substantially all of its competitors are subject to similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including the age and location of their operating facilities, their production processes and whether or not they are engaged in the petrochemical business or the marine transportation of crude oil. USX has been notified that it is a potentially responsible party ("PRP") at nine waste sites related to the Marathon Group under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") as of September 30, 1994. In addition, there are 22 sites related to the Marathon Group where USX has received information requests or other indications that USX may be a PRP under CERCLA but where sufficient information is not presently available to confirm the existence of liability or make any judgment as to the amount thereof. There are also 40 additional sites, excluding retail gasoline stations, related to the Marathon Group where remediation is being sought under other environmental statutes, both federal and state, or where private parties are seeking remediation through discussions or litigation. At many of these sites, USX is one of a number of parties involved and the total cost of remediation, as well as USX's share thereof, is frequently dependent upon the outcome of investigations and remedial studies. The number of waste sites in and of itself does not necessarily represent a relevant measure of liability because the nature and extent of environmental concerns vary from site to site, and USX's share of responsibility varies significantly. The Marathon Group accrues for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. 37 MARATHON GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- USX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments relating to the Marathon Group involving a variety of matters, including laws and regulations relating to the environment (see Note 11 to the Marathon Group financial statements for a discussion of certain of these matters). The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the Marathon Group financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably to the Marathon Group. See discussion of Liquidity and Capital Resources in USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. 38 MARATHON GROUP OF USX CORPORATION SUPPLEMENTAL STATISTICS --------------------------------- ($'s in Millions)
Third Quarter Nine Months Ended Ended September 30 September 30 ------------- ------------- 1994 1993 1994 1993 ---- ---- ---- ---- SALES $3,497 $2,983 $9,349 $9,040 OPERATING INCOME (LOSS) Exploration & Production Domestic $53 $10 $119 $114 International 20 (19) 30 (15) Refining, Marketing & Transportation 123 146 249 296 Gas Gathering & Processing (1) (1) (1) - Administrative (15) (22) (56) (57) ------ ------ ------ ------ $180 $114 $341 $338 Inventory Market Val. Res. Adjustment (63) (30) 158 (54) ------ ------ ------ ------ Total Marathon Group $117 $84 $499 $284 CAPITAL EXPENDITURES $187 $215 $464 $646 EXPLORATION EXPENSES $37 $43 $105 $108 OPERATING STATISTICS Net Liquid Hydrocarbon Production (A): Domestic 107.7 109.3 109.1 111.2 International 79.5 47.8 60.5 45.7 ------ ------ ------ ------ Worldwide 187.2 157.1 169.6 156.9 Net Natural Gas Production (B): Domestic 551.7 506.2 564.9 531.1 International 333.6 345.1 370.3 368.9 ------ ------ ------ ------ Worldwide 885.3 851.3 935.2 900.0 Average Sales Prices: Liquid Hydrocarbons (per Bbl) Domestic $14.72 $13.88 $13.37 $15.24 International 16.21 15.89 15.42 16.88 Natural Gas (per Mcf) Domestic $1.94 $1.89 $2.03 $1.91 International 1.51 1.49 1.47 1.55 Crude Oil Refined (A) 535.0 580.8 502.8 563.0 Refined Products Sold (A) 743.8 733.4 729.9 719.2 (A) Thousands of barrels per day (B) Millions of cubic feet per day
39 Part I - Financial Information (Continued): C. U. S. Steel Group U. S. STEEL GROUP OF USX CORPORATION STATEMENT OF OPERATIONS (Unaudited) -----------------------------------
Third Qtr. Nine Months Ended Ended September 30 September 30 (Dollars in millions, except per share amounts) 1994 1993* 1994 1993* - -------------------------------------------------------------------------------- - --- SALES $1,505 $1,429 $4,423 $4,064 OPERATING COSTS: Cost of sales (excludes items shown below) 1,297 1,253 3,943 4,044 Selling, general and administrative expenses (credits) (30) (22) (91) (85) Depreciation, depletion and amortization 79 77 237 233 Taxes other than income taxes 53 55 164 158 ------ ------ ------ ------ Total operating costs 1,399 1,363 4,253 4,350 ------ ------ ------ ------ OPERATING INCOME (LOSS) 106 66 170 (286) Other income 14 6 46 133 Interest and other financial income 3 5 9 16 Interest and other financial costs (40) (51) (115) (322) ------ ------ ------ ------ TOTAL INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 83 26 110 (459) Less credit for estimated income taxes (7) (7) (1) (166) ------ ------ ------ ------ TOTAL INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 90 33 111 (293) Cumulative effect of changes in accounting principle - - - (69) ------ ------ ------ ------ NET INCOME (LOSS) 90 33 111 (362) Dividends on preferred stock (6) (7) (19) (16) ------ ------ ------ ------ NET INCOME (LOSS) APPLICABLE TO STEEL STOCK $84 $26 $92 $(378) ====== ====== ====== ====== *Restated as a result of the adoption of a new accounting standard. Selected notes to financial statements appear on pages 43-47.
40 U. S. STEEL GROUP OF USX CORPORATION STATEMENT OF OPERATIONS (Continued) (Unaudited) INCOME PER COMMON SHARE -----------------------------------------------
Third Qtr. Nine Months Ended Ended September 30 September 30 (Dollars in millions, except per share amounts) 1994 1993* 1994 1993* - -------------------------------------------------------------------------------- - -- STEEL STOCK DATA Income per share: Total income (loss) before cumulative effect of change in accounting principle - primary $1.11 $.41 $1.23 $(4.94) - fully diluted 1.05 .41 1.23 (4.94) Cumulative effect of change in accounting principle - primary and fully diluted - - - (1.11) Net income (loss) - primary 1.11 .41 1.23 (6.05) - fully diluted 1.05 .41 1.23 (6.05) Weighted average shares, in thousands: - Primary 75,674 67,142 74,947 62,379 - Fully diluted 86,596 68,392 76,197 62,379 Dividends paid per share .25 .25 .75 .75 *Restated as a result of the adoption of a new accounting standard. Selected notes to financial statements appear on pages 43-47.
41 U. S. STEEL GROUP OF USX CORPORATION BALANCE SHEET (Unaudited) ------------------------------------
September 30 December 31 (Dollars in millions) 1994 1993 - -------------------------------------------------------------------------------- - ---- ASSETS Current assets: Cash and cash equivalents $24 $79 Receivables, less allowance for doubtful accounts of $6 and $5 532 583 Receivable from other groups 50 13 Inventories 613 629 Deferred income tax benefits 289 269 Other current assets - 2 ------- ------- Total current assets 1,508 1,575 Long-term receivables and other investments, less reserves of $22 and $22 668 685 Property, plant and equipment, less accumulated depreciation, depletion and amortization of $5,924 and $5,984 2,536 2,653 Long-term deferred income tax benefits 465 538 Prepaid pensions 1,188 1,084 Other noncurrent assets 76 81 ------- ------- Total assets $6,441 $6,616 ======= ======= LIABILITIES Current liabilities: Notes payable $46 $- Accounts payable 665 1,048 Payroll and benefits payable 335 349 Accrued taxes 232 180 Accrued interest 22 33 Long-term debt due within one year 25 11 ------- ------- Total current liabilities 1,325 1,621 Long-term debt, less unamortized discount 1,405 1,540 Employee benefits 2,489 2,491 Deferred credits and other liabilities 284 347 Preferred stock of subsidiary 64 - ------- ------- Total liabilities 5,567 5,999 STOCKHOLDERS' EQUITY Preferred stock 32 32 Common stockholders' equity 842 585 ------- ------- Total stockholders' equity 874 617 ------- ------- Total liabilities and stockholders' equity $6,441 $6,616 ======= ======= Selected notes to financial statements appear on pages 43-47.
42 U. S. STEEL GROUP OF USX CORPORATION STATEMENT OF CASH FLOWS (Unaudited) ------------------------------------
Nine Months Ended September 30 (Dollars in millions) 1994 1993* - -------------------------------------------------------------------------------- - ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES: Net income (loss) $111 $(362) Adjustments to reconcile to net cash provided from (used in) operating activities: Accounting principle change - 69 Depreciation, depletion and amortization 237 233 Pensions (105) (167) Postretirement benefits other than pensions 51 82 Deferred income taxes 49 (199) Gain on disposal of assets (9) (139) Changes in: Current receivables - sold 10 60 - operating turnover (15) (100) Inventories (47) (20) Current accounts payable and accrued expenses (336) 783 All other items - net (16) (69) ------ ------ Net cash provided from (used in) operating activities (70) 171 ------ ------ INVESTING ACTIVITIES: Capital expenditures (171) (136) Disposal of assets 16 154 All other items - net (4) (23) ------ ------ Net cash used in investing activities (159) (5) ------ ------ FINANCING ACTIVITIES: U. S. Steel Group activity - debt attributed to all groups - net (14) (779) Specifically attributed debt: Borrowings 4 12 Repayments (29) (14) Attributed preferred stock of subsidiary 62 - Issuance of common stock of subsidiary 11 - Preferred stock issued - 336 Steel Stock issued 213 363 Dividends paid (73) (62) ------ ------ Net cash provided from (used in) financing activities 174 (144) ------ ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (55) 22 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 79 22 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $24 $44 ====== ====== Cash used in operating activities included: Interest and other financial costs paid (net of amount capitalized) $(167) $(132) Income taxes refunded including settlements with other groups 46 21 *Restated as a result of the adoption of a new accounting standard. Selected notes to financial statements appear on pages 43-47.
43 U. S. STEEL GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS -------------------------------------- (Unaudited) 1. The information furnished in these financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These financial statements, including selected notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. Additional information is contained in the USX Annual Report on Form 10-K for the year ended December 31, 1993. Financial data for the first nine months of 1993 has been restated to reflect the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS No. 112) (see Note 8). The financial statements of the U. S. Steel Group include the financial position, results of operations and cash flows for all businesses of USX other than the businesses, assets and liabilities included in the Marathon Group or the Delhi Group, and a portion of the corporate assets and liabilities and related transactions which are not separately identified with ongoing operating units of USX. These financial statements are prepared using the amounts included in the USX consolidated financial statements. Corporate amounts reflected in these financial statements are determined based upon methods which management believes to be reasonable. The accounting policies applicable to the preparation of the financial statements of the U.S. Steel Group may be modified or rescinded in the sole discretion of the Board of Directors of USX (Board), although the Board has no present intention to do so. The Board may also adopt additional policies depending on the circumstances. Although the financial statements of the U. S. Steel Group, the Marathon Group and the Delhi Group separately report the assets, liabilities (including contingent liabilities) and stockholders' equity of USX attributed to each such group, such attribution of assets, liabilities (including contingent liabilities) and stockholders' equity among the U. S. Steel Group, the Marathon Group and the Delhi Group for the purpose of preparing their respective financial statements does not affect legal title to such assets and responsibility for such liabilities. Holders of USX- U. S. Steel Group Common Stock (Steel Stock), USX-Marathon Group Common Stock (Marathon Stock) and USX-Delhi Group Common Stock (Delhi Stock) are holders of common stock of USX, and continue to be subject to all the risks associated with an investment in USX and all of its businesses and liabilities. Financial impacts arising from one Group that affect the overall cost of USX's capital could affect the results of operations and financial condition of other groups. In addition, net losses of any Group, as well as dividends and distributions on any class of USX Common Stock or series of preferred stock and repurchases of any class of USX Common Stock or series of preferred stock at prices in excess of par or stated value, will reduce the funds of USX legally available for payment of dividends on all classes of Common Stock. Accordingly, the USX consolidated financial information should be read in connection with the U. S. Steel Group financial information. 44 U. S. STEEL GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 2. The method of calculating net income (loss) per share for the Steel Stock, Marathon Stock and Delhi Stock reflects the Board's intent that the separately reported earnings and surplus of the U. S. Steel Group, the Marathon Group and the Delhi Group, as determined consistent with the USX Certificate of Incorporation, are available for payment of dividends to the respective classes of stock, although legally available funds and liquidation preferences of these classes of stock do not necessarily correspond with these amounts. Primary net income (loss) per share is calculated by adjusting net income (loss) for dividend requirements of preferred stock and is based on the weighted average number of common shares outstanding plus common stock equivalents, provided they are not antidilutive. Common stock equivalents result from assumed exercise of stock options and surrender of stock appreciation rights associated with stock options, where applicable. Fully diluted net income (loss) per share assumes conversion of convertible securities for the applicable periods outstanding and assumes exercise of stock options and surrender of stock appreciation rights provided, in each case, the effect is not antidilutive. 3. Inventories are carried at the lower of cost or market. Cost of inventories is determined primarily under the last-in, first-out (LIFO) method.
(In millions) ----------------------- September 30 December 31 1994 1993 ------------ ----------- Raw materials $26 $108 Semi-finished products 349 329 Finished products 150 125 Supplies and sundry items 88 67 ---- ---- Total $613 $629 ==== ====
Cost of sales was reduced by $12 million in the first nine months of 1993 ($2 million decrease in the third quarter of 1993) as a result of liquidations of LIFO inventories (immaterial in the 1994 periods). 4. Pretax income (loss) in the first nine months of 1993 included a $633 million charge for the Lower Lake Erie Iron Ore Antitrust Litigation against a former USX subsidiary, the Bessemer & Lake Erie Railroad (B&LE). Charges of $438 million were included in operating costs and $195 million ($14 million in the third quarter) included in interest and other financial costs. The effect on net income (loss) was $406 million unfavorable ($6.50 per share). 5. Operating income (loss) included net periodic pension credits of $93 million and $155 million in the first nine months of 1994 and 1993, respectively, ($32 million and $52 million in the third quarter of 1994 and 1993, respectively). These pension credits are primarily noncash and for the most part are included in selling, general and administrative expenses. The 45 U. S. STEEL GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 5. (Continued) expected long-term rate of return on plan assets, which is reflected in the calculation of net periodic pension credits, was reduced to 9% in 1994 from 10% in 1993. 6. Other income in the first nine months of 1993 included a pretax gain of $139 million from disposal of assets, primarily related to the second quarter sale of the Cumberland coal mine. 7. The financial statement provision for estimated income taxes and related tax payments or refunds have been reflected in the U. S. Steel Group, the Marathon Group and the Delhi Group financial statements in accordance with USX's tax allocation policy for such groups. In general, such policy provides that the consolidated tax provision and related tax payments or refunds are allocated among the U. S. Steel Group, the Marathon Group and the Delhi Group for group financial statement purposes, based principally upon the financial income, taxable amount, credits, preferences and other amounts directly related to the respective groups. The credit for estimated income taxes for the U. S. Steel Group is based on tax rates and amounts which recognize management's best estimate of current and deferred tax assets and liabilities. Differences between the combined interim tax provisions of the U. S. Steel, Marathon and Delhi Groups and USX consolidated are allocated to each group based on the relationship of the individual group provisions to the combined interim provisions. The provision for the third quarter and first nine months of 1994 included a one-time $32 million deferred tax benefit related to the excess of tax over financial basis in shares of RMI Titanium Company (RMI), concurrent with the adoption of equity accounting for RMI. The third quarter 1993 income tax provision included a $20 million favorable effect associated with an increase in the federal income tax rate from 34% to 35%. This credit reflected a $15 million remeasurement of deferred federal income tax assets as of January 1, 1993, and a $5 million tax credit related to 1993 pretax losses. 8. In 1993, USX adopted SFAS No. 112. The cumulative effect of this change in accounting principle decreased first quarter 1993 net income of the U. S. Steel Group by $69 million, net of $40 million income tax effect. 9. In the first quarter of 1994, USX sold 5,000,000 shares of USX-U. S. Steel Group Common Stock to the public for net proceeds of $201 million, which have been reflected in their entirety in the financial statements of the U. S. Steel Group. In the first quarter of 1994, USX Capital LLC, a wholly owned subsidiary of USX, sold $250 million of 8-3/4% Cumulative Monthly Income Preferred Shares (MIPS). In accordance with the USX policy of managing most financial activities on a centralized, consolidated basis, the proceeds from issuance of the MIPS and the related financial costs (which are included in interest and other financial costs) were attributed to all three groups in proportion to their respective participation in USX centrally managed financing activities. 46 U. S. STEEL GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 11. The U. S. Steel Group has entered into an agreement to sell certain accounts receivable subject to limited recourse. Payments are collected from the sold accounts receivable; the collections are reinvested in new accounts receivable for the buyers; and a yield based on defined short-term market rates is transferred to the buyers. At September 30, 1994, the balance of sold accounts receivable that had not been collected was $350 million. Buyers have collection rights to recover payments from an amount of outstanding receivables equal to 120% of the outstanding receivables purchased on a nonrecourse basis; such overcollateralization cannot exceed $70 million. In the event of a change in control of USX, as defined in the agreement, the U. S. Steel Group may be required to forward payments collected on sold accounts receivable to the buyers. Prior to 1993, USX Credit, a division of USX, sold certain of its loans receivable subject to limited recourse. USX Credit continues to collect payments from the loans and transfer to the buyers principal collected plus yield based on defined short-term market rates. At September 30, 1994, the balance of sold loans receivable subject to recourse was $150 million. As of September 30, 1994, USX Credit had outstanding loan commitments of $29 million. USX Credit is not actively making new loan commitments. In the event of a change in control of USX, as defined in the agreement, the U. S. Steel Group may be required to provide cash collateral in the amount of the uncollected loans receivable to assure compliance with the limited recourse provisions. 12. USX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters including laws and regulations relating to the environment. Certain of these matters are discussed below. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the U. S. Steel Group financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably to the U. S. Steel Group. See discussion of Liquidity and Capital Resources in USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. In the first nine months of 1994, USX paid $367 million to settle substantially all of the remaining judgments against the B&LE in the Lower Lake Erie Iron Ore Antitrust Litigation. Two remaining plaintiffs in this case have had their damage claims remanded for retrial. A new trial may result in awards more or less than the original asserted claims of $8 million and would be subject to trebling. On November 3, 1992, the United States District Court for the District of Utah Central Division issued a Memorandum Opinion and Order in Pickering v. USX relating to pension and compensation claims by approximately 1,900 employees of USX's former Geneva (Utah) Works. Although the court dismissed a number of the claims by the plaintiffs, it found that USX had violated the Employee Retirement Income Security Act by interfering with the accrual of pension benefits of certain employees and amending a benefit plan to reduce the accrual of future benefits without proper notice to plan participants. Further proceedings were held to determine damages and, pending the court's determinations, USX may appeal. Plaintiffs' counsel has been reported as estimating plaintiffs' anticipated recovery to be in excess of $100 million. 47 U. S. STEEL GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 12.(Continued) USX believes actual damages will be substantially less than plaintiffs' estimates. In the first quarter of 1994, USX entered into settlement agreements with 208 plaintiffs providing for releases of liability against USX and the aggregate payment of approximately $1 million by USX. An order dismissing these plaintiffs from the case with prejudice was entered on May 31, 1994. The U. S. Steel 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. 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 these accruals coincide with completion of a feasibility study or the commitment to a formal plan of action. Estimated mine reclamation costs are accrued based on actual clean tons of coal produced. At September 30, 1994, accrued liabilities for remediation and mine reclamation totaled $150 million. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed. For a number of years, the U. S. Steel Group has made substantial capital expenditures to bring existing facilities into compliance with various laws relating to the environment. In 1993 and 1992, such capital expenditures totaled $53 million and $52 million, respectively. The U. S. Steel Group anticipates making additional such expenditures in the future; however, the exact amounts and timing of such expenditures are uncertain because of the continuing evolution of specific regulatory requirements. Guarantees by USX of the liabilities of affiliated entities of the U. S. Steel Group totaled $185 million at September 30, 1994. In the event that any defaults of guaranteed liabilities occur, USX has access to its interest in the assets of the affiliates to reduce U. S. Steel Group losses resulting from these guarantees. As of September 30, 1994, the largest guarantee for a single affiliate was $94 million. At September 30, 1994, contract commitments for the U. S. Steel Group's capital expenditures for property, plant and equipment totaled $94 million compared with $105 million at December 31, 1993. 48 U. S. STEEL GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The U. S. Steel Group includes U. S. Steel, which is primarily engaged in the production and sale of a wide range of steel mill products, coke and taconite pellets. The U. S. Steel Group also includes the management of mineral resources, domestic coal mining, engineering and consulting services and technology licensing (together with U. S. Steel, the "Steel and Related Businesses"). Other businesses that are part of the U. S. Steel Group include real estate development and management, fencing products, and leasing and financing activities. The following discussion should be read in conjunction with the third quarter 1994 USX consolidated financial information and the U. S. Steel Group financial statements and selected notes. Results of Operations - --------------------- The U. S. Steel Group had net income of $90 million, or $1.11 per share, in the third quarter of 1994, compared with restated net income of $33 million, or $.41 per share, in the same quarter of 1993. The U. S. Steel Group had net income of $111 million, or $1.23 per share, in the first nine months of 1994. The net loss in the first nine months of 1993 was $362 million, or $6.05 per share, as restated to reflect the unfavorable $69 million ($1.11 per share) cumulative effect of a change in accounting principle. Third quarter 1994 sales totaled $1.5 billion, compared with $1.4 billion in the same quarter last year. The $76 million increase mainly reflected higher steel prices and shipment volumes, revenue related to the sale of coal seam methane gas royalty interests and increased commercial shipments of coke, partially offset by lower project revenues from engineering and consulting services and lower revenues following the adoption of equity accounting for RMI Titanium Company during the third quarter of 1994. Sales in the first nine months of 1994 totaled $4.4 billion, compared with $4.1 billion in the first nine months of 1993. The $359 million improvement mainly resulted from higher steel shipment volumes and prices and increased commercial shipments of coke, partially offset by lower commercial shipments of coal. The U. S. Steel Group reported operating income of $106 million in the third quarter of 1994, compared with restated operating income of $66 million in the same quarter of 1993. The $40 million improvement was primarily due to improved results from Steel and Related Businesses. Steel and Related Businesses reported operating income of $83 million in the third quarter of 1994, compared with operating income of $45 million in the same quarter last year. The increase was predominantly due to higher average prices for steel products, as well as income of $13 million related to the sale of coal seam methane gas royalty interests, improved results from coal operations and higher steel shipment volumes. These favorable items were partially offset by higher pension and labor costs and unfavorable effects resulting from planned blast furnace outages at Gary (IN) Works and Fairfield (AL) Works. Other Businesses had an operating loss of $5 million in the third quarter of 1994, compared with an operating loss of $8 million in the same quarter of 1993. 49 U. S. STEEL GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Operating income from Administrative, which includes pension credits, other postretirement benefit costs and certain other expenses principally attributable to former business units of the U. S. Steel Group, as well as the portion of USX corporate general and administrative costs allocated to the U. S. Steel Group, totaled $28 million in the third quarter of 1994, compared with $29 million in the third quarter of 1993. The U. S. Steel Group reported operating income of $170 million in the first nine months of 1994, compared with a restated operating loss of $286 million in the same period of 1993. The operating loss in the first nine months of 1993 included a $438 million charge for the Lower Lake Erie Iron Ore Antitrust Litigation against the Bessemer & Lake Erie Railroad ("B&LE"), a former USX subsidiary, and benefited from a $39 million favorable effect from the utilization of funds from previously established insurance reserves to pay for certain employee insurance benefits. Excluding these items, operating income in the first nine months of 1994 improved by $57 million from the first nine months of 1993. The increase primarily reflected higher steel prices and shipment volumes, partially offset by higher pension, labor and scrap metal costs and the adverse effects of outages at Mon Valley (PA) Works and Gary Works. Other income in the first nine months of 1993 included a pretax gain of $139 million from the disposal of assets, including the sales of the Cumberland coal mine and an investment in an insurance company. Income from affiliated operations in the third quarter and first nine months of 1994 improved by $11 million and $41 million, respectively, from the same periods in 1993. Net interest and other financial costs in the third quarter and first nine months of 1993 included $14 million and $195 million, respectively, of interest expense related to the B&LE litigation. The provision (credit) for estimated income taxes for the U. S. Steel Group is based on tax rates and amounts which recognize management's best estimate of current and deferred tax assets and liabilities. The income tax provision for the third quarter and first nine months of 1994 included a one-time $32 million deferred tax benefit (see Note 7 to the U. S. Steel Group financial statements). The third quarter 1993 income tax provision included a $20 million favorable effect associated with an increase in the federal income tax rate from 34% to 35%. This credit reflected a $15 million remeasurement of deferred federal income tax assets as of January 1, 1993, and a $5 million tax credit related to 1993 pretax losses. Third quarter 1994 steel shipments of 2.6 million tons and raw steel production of 2.9 million tons increased 3% and 2%, respectively, from the same quarter of 1993. Steel shipments and raw steel production in the first nine months of 1994 totaled 7.7 million tons and 8.5 million tons, respectively. These represented increases of 5% and 2%, respectively, from the same period in 1993. Raw steel capability utilization averaged approximately 95% in the third quarter and first nine months of 1993 and 1994. Favorable steel market conditions are presently expected to continue into 1995. U. S. Steel's order book remains healthy and further price increases on most 50 U. S. STEEL GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- steel products have been announced effective January 1, 1995. Shipments in the fourth quarter of 1994 are expected to be higher than third quarter shipments as some customers may increase purchases prior to these price increases. During the first quarter of 1995, operating rates are expected to be reduced by planned blast furnace outages at Gary Works and Fairfield Works. The domestic steel industry has been adversely affected by unfairly traded imports. Steel imports to the United States accounted for an estimated 19%, 17% and 18% of the domestic steel market in 1993, 1992 and 1991, respectively. Following the decision by the International Trade Commission ("ITC") in July 1993, levels of imported steel increased with imports accounting for an estimated 22% of the domestic steel market in the fourth quarter of 1993 and 24% in the first eight months of 1994. However, market prices for steel products have generally remained firm because of strong demand, and USX has successfully obtained some price increases. While USX is unable to predict the effect the ITC decision may have on the business or results of operations of the U. S. Steel Group, the higher levels of imported steel may ultimately have an adverse effect on product prices and shipment levels. On June 30, 1994, in conjunction with six other domestic producers, USX filed antidumping and countervailing duty cases with the U.S. Department of Commerce and the ITC asserting that seven foreign nations have engaged in unfair trade practices with respect to the export of oil country tubular goods ("OCTG"). On August 15, 1994, the ITC unanimously issued a preliminary ruling that there is a reasonable indication that U. S. Steel and six other domestic OCTG producers have been injured by illegal subsidies and dumping. Under the applicable statute, the U. S. Department of Commerce must now issue its preliminary determination with respect to the unfair trade practices alleged by the petitioners. The statute provides for the determination to be made in December 1994 subject to a possible extension to January 1995. USX will file additional antidumping and countervailing duty petitions if unfairly traded imports adversely impact, or threaten to adversely impact, the results of the U. S. Steel Group. In October 1994, the U. S. Steel Group entered into a letter of intent with Nucor Corporation and Praxair, Inc. for establishment of a joint venture to develop a new technology to produce steel directly from iron carbide. The parties would initially conduct a feasibility study of the iron carbide to steel process. If the feasibility study proves successful, the joint venture company would construct a demonstration plant to develop and evaluate the commercial feasibility of the steelmaking process. Cash Flows - ---------- Net cash used in operating activities was $70 million in the first nine months of 1994, compared with net cash provided from operating activities of $171 million in the same period of 1993. The decrease primarily reflected payments of $367 million in 1994 to settle substantially all of the remaining judgments from the B&LE litigation. In addition, net cash provided from operating activities in the first nine months of 1993 benefited from a $103 million favorable effect from the use of available funds from previously established insurance reserves to pay for certain active and retired employee insurance benefits. Excluding the 1994 payments and the 51 U. S. STEEL GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- 1993 favorable effect, net cash flows from operating activities in the first nine months of 1994 improved $229 million from the same period in 1993. Cash from the disposal of assets totaled $16 million in the first nine months of 1994, compared with $154 million in the first nine months of 1993. The 1993 proceeds mainly reflected the sales of the Cumberland coal mine and investments in an insurance company and a foreign manganese mining affiliate. Financial obligations increased by $23 million in the first nine months of 1994, primarily reflecting the U. S. Steel Group's net cash flows from operating and investing activities, partially offset by proceeds from the issuance of Steel Stock. These financial obligations consist of the U. S. Steel Group's portion of USX debt and preferred stock of a subsidiary attributed to all three groups, as well as debt and financing agreements specifically attributed to the U. S. Steel Group. In February 1994, USX sold 5,000,000 shares of Steel Stock to the public for net proceeds of $201 million which were reflected in their entirety in the U. S. Steel Group financial statements. The U. S. Steel Group engages in hedging activities in the normal course of its business. Commodity swaps are used to hedge exposure to price fluctuations relevant to the purchase of natural gas. While hedging activities are generally used to reduce risks from unfavorable price movements, they also may limit the opportunity to benefit from favorable movements. The U. S. Steel Group's hedging activities have not been significant in relation to its overall business activity. Management believes that its use of hedging instruments will not have a material effect on the financial position, liquidity or results of operations of the U. S. Steel Group. For discussion of USX's liquidity and capital resources, see USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. Capital Expenditures - -------------------- U. S. Steel Group capital expenditures for property, plant and equipment in the third quarter and first nine months of 1994 were $63 million and $171 million, respectively, compared with $54 million and $136 million, respectively, in the same periods in 1993. For the year 1994, capital expenditures are expected to total approximately $250 million, compared with $198 million in 1993. Contract commitments for capital expenditures at September 30, 1994, were $94 million, compared with $105 million at year-end 1993. Environmental Matters, Contingencies and Commitments - ---------------------------------------------------- The U. S. Steel Group has incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of PAGE> 52 U. S. STEEL GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- environmental laws and regulations. In recent years, these expenditures have been mainly for process changes in order to meet Clean Air Act obligations, although ongoing compliance costs have also been significant. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of the U. S. Steel Group's products and services, operating results will be adversely affected. The U. S. Steel Group believes that all of its domestic competitors are subject to similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including the age and location of their operating facilities and their production methods. USX has been notified that it is a potentially responsible party ("PRP") at 35 waste sites related to the U. S. Steel Group under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") as of September 30, 1994. In addition, there are 25 sites related to the U. S. Steel Group where USX has received information requests or other indications that USX may be a PRP under CERCLA but where sufficient information is not presently available to confirm the existence of liability or make any judgment as to the amount thereof. There are also 36 additional sites related to the U. S. Steel Group where remediation is being sought under other environmental statutes, both federal and state, or where private parties are seeking remediation through discussions or litigation. At many of these sites, USX is one of a number of parties involved and the total cost of remediation, as well as USX's share thereof, is frequently dependent upon the outcome of investigations and remedial studies. The number of waste sites in and of itself does not necessarily represent a relevant measure of liability because the nature and extent of environmental concerns vary from site to site, and USX's share of responsibility varies significantly. The U. S. Steel Group accrues for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. USX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments relating to the U. S. Steel Group involving a variety of matters, including laws and regulations relating to the environment (see Note 12 to the U. S. Steel Group financial statements for a discussion of certain of these matters). The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the U. S. Steel Group financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably to the U. S. Steel Group. See discussion of Liquidity and Capital Resources in USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. 53 U. S. STEEL GROUP OF USX CORPORATION SUPPLEMENTAL STATISTICS ------------------------------------ ($'s in Millions)
Third Quarter Nine Months Ended Ended September 30 September 30 -------------- -------------- 1994 1993 1994 1993 ---- ---- ---- ---- SALES (A) Steel and Related Businesses (A) $1,473 $1,386 $4,289 $3,933 Other Businesses (B) 32 43 134 131 ------ ------ ------ ------ Total U. S. Steel Group $1,505 $1,429 $4,423 $4,064 OPERATING INCOME (LOSS) Steel and Related Businesses (A) $83 $45 $111 $75 Other Businesses (B) (5) (8) (15) (18) Administrative (C) 28 29 74 (343) ------ ------ ------ ------ Total U. S. Steel Group $106 $66 $170 $(286) CAPITAL EXPENDITURES $63 $54 $171 $136 OPERATING STATISTICS Public & Affiliated Steel Shipments (D) 2,553 2,478 7,650 7,284 Raw Steel-Production (D) 2,883 2,831 8,544 8,408 Raw Steel-Capability Utilization 95.4% 94.8% 95.3% 94.9% (A) Includes the production and sale of steel products, coke and taconite pellets; domestic coal mining; the management of mineral resources; and engineering and consulting services and technology licensing. (B) Includes real estate; fencing products and leasing and financing activities. Included titanium metal products for periods prior to August 1, 1994. (C) Includes pension credits, other postretirement benefit costs and certain other expenses principally attributable to former business units of the U. S. Steel Group, as well as the portion of USX corporate general and administrative costs allocated to the U. S. Steel Group. Administrative in the nine months ended September 30, 1993, included charges of $438 million, recorded in the second quarter of 1993, related to the B&LE litigation. (D) Thousands of net tons.
54 Part I - Financial Information (Continued): D. Delhi Group DELHI GROUP OF USX CORPORATION STATEMENT OF OPERATIONS (Unaudited) -----------------------------------
Third Qtr. Nine Months Ended Ended September 30 September 30 (Dollars in millions, except per share amounts) 1994 1993 1994 1993 - -------------------------------------------------------------------------------- - --- SALES $133.7 $131.3 $424.3 $391.3 OPERATING COSTS: Cost of sales (excludes items shown below) 118.4 106.6 375.8 307.0 Selling, general and administrative expenses 5.9 6.8 22.3 21.1 Depreciation, depletion and amortization 5.7 8.8 24.3 27.7 Taxes other than income taxes 1.9 1.3 6.2 5.8 Restructuring charges - - 37.4 - ------ ------ ------ ------ Total operating costs 131.9 123.5 466.0 361.6 ------ ------ ------ ------ OPERATING INCOME (LOSS) 1.8 7.8 (41.7) 29.7 Other income (loss) - 1.0 (1.3) 4.9 Interest and other financial costs (3.0) (2.8) (8.6) (7.7) ------ ------ ------ ------ TOTAL INCOME (LOSS) BEFORE INCOME TAXES (1.2) 6.0 (51.6) 26.9 Less provision (credit) for estimated income taxes (.2) 6.7 (19.4) 16.8 ------ ------ ------ ------ NET INCOME (LOSS) (1.0) (.7) (32.2) 10.1 Dividends on preferred stock - - (.1) (.1) Net loss (income) applicable to Retained Interest .3 .2 10.5 (3.6) ------ ------ ------ ------ NET INCOME (LOSS) APPLICABLE TO OUTSTANDING DELHI STOCK $(.7) $(.5) $(21.8) $6.4 ====== ====== ====== ====== DELHI STOCK DATA Weighted average shares, in thousands - Primary 9,438 9,060 9,396 9,037 - Fully diluted 9,438 9,060 9,396 9,038 Net income (loss) per share - primary and and fully diluted $(.07) $(.05) $(2.32) $.71 Dividends paid per share $.05 $.05 $.15 $.15 Selected notes to financial statements appear on pages 57-60.
55 DELHI GROUP OF USX CORPORATION BALANCE SHEET (Unaudited) ------------------------------
September 30 December 31 (Dollars in millions) 1994 1993 - -------------------------------------------------------------------------------- - ---- ASSETS Current assets: Cash and cash equivalents $.1 $3.8 Receivables, less allowance for doubtful accounts of $.7 and $.5 6.2 24.2 Inventories 8.7 9.6 Receivable from Marathon Group 1.6 - Other current assets 4.9 4.6 ------ ------ Total current assets 21.5 42.2 Long-term receivables and other investments 12.7 14.7 Property, plant and equipment, less accumulated depreciation, depletion and amortization of $491.6 and $491.5 478.7 521.8 Other noncurrent assets 2.2 1.7 ------ ------ Total assets $515.1 $580.4 ====== ====== LIABILITIES Current liabilities: Notes payable $3.1 $- Accounts payable 83.8 88.9 Payable to the U. S. Steel Group - .3 Payroll and benefits payable 4.3 1.8 Accrued taxes 12.1 8.1 Accrued interest 1.3 2.7 Long-term debt due within one year 1.4 .6 ------ ------ Total current liabilities 106.0 102.4 Long-term debt, less unamortized discount 88.6 109.0 Long-term deferred income taxes 133.0 154.0 Deferred credits and other liabilities 12.6 9.5 Preferred stock of subsidiary 3.8 - ------ ------ Total liabilities 344.0 374.9 STOCKHOLDERS' EQUITY Preferred stock 2.5 2.5 Common stockholders' equity 168.6 203.0 ------ ------ Total stockholders' equity 171.1 205.5 ------ ------ Total liabilities and stockholders' equity $515.1 $580.4 ====== ====== Selected notes to financial statements appear on pages 57-60.
56 DELHI GROUP OF USX CORPORATION STATEMENT OF CASH FLOWS (Unaudited) -----------------------------------
Nine Months Ended September 30 (Dollars in millions) 1994 1993 - -------------------------------------------------------------------------------- - ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES: Net income (loss) $(32.2) $10.1 Adjustments to reconcile to net cash provided from operating activities: Depreciation, depletion and amortization 24.3 27.7 Pensions 1.9 1.1 Deferred income taxes (21.0) .9 Gain on disposal of assets (.6) (2.9) Restructuring charges 37.4 - Changes in: Current receivables - sold (6.9) (6.5) - operating turnover 23.2 1.0 Inventories .9 .4 Current accounts payable and accrued expenses (.4) (8.1) All other items - net 2.8 (5.2) ------ ------ Net cash provided from operating activities 29.4 18.5 ------ ------ INVESTING ACTIVITIES: Capital expenditures (21.7) (21.0) Disposal of assets 4.1 4.2 All other items - net - .4 ------ ------ Net cash used in investing activities (17.6) (16.4) ------ ------ FINANCING ACTIVITIES: Delhi Group activity - USX debt attributed to all groups - net (17.0) 2.2 Attributed preferred stock of subsidiary 3.7 - Dividends paid (1.5) (1.4) Payment attributed to Retained Interest (.7) (.8) ------ ------ Net cash used in financing activities (15.5) - ------ ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3.7) 2.1 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3.8 .1 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $.1 $2.2 ====== ====== Cash used in operating activities included: Interest and other financial costs paid $(9.4) $(7.7) Income taxes paid including settlements with other groups (.2) (18.5) Selected notes to financial statements appear on pages 57-60.
57 DELHI GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS -------------------------------------- (Unaudited) 1. The information furnished in these financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These financial statements, including selected notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. Additional information is contained in the USX Annual Report on Form 10-K for the year ended December 31, 1993. 2. The financial statements of the Delhi Group include the financial position, results of operations and cash flows for the business of Delhi Gas Pipeline Corporation (DGP) and certain other subsidiaries of USX, and a portion of the corporate assets and liabilities and related transactions which are not separately identified with ongoing operating units of USX. These financial statements are prepared using amounts included in the USX consolidated financial statements. Corporate amounts reflected in these financial statements are determined based upon methods which management believes to be reasonable. The accounting policies applicable to the preparation of the financial statements of the Delhi Group may be modified or rescinded in the sole discretion of the Board of Directors of USX (Board), although the Board has no present intention to do so. The Board may also adopt additional policies depending on the circumstances. The Board has designated 14,003,205 shares of USX-Delhi Group Common Stock (Delhi Stock) to represent 100% of the common stockholders' equity value of USX attributable to the Delhi Group as of September 30, 1994. The Delhi Fraction is the percentage interest in the Delhi Group represented by the shares of Delhi Stock that are outstanding at any particular time and, based on 9,437,891 outstanding shares at September 30, 1994, is approximately 67%. The Marathon Group financial statements reflect a Retained Interest in the Delhi Group of approximately 33%. Although the financial statements of the Delhi Group, the Marathon Group and the U. S. Steel Group separately report the assets, liabilities (including contingent liabilities) and stockholders' equity of USX attributed to each such group, such attribution of assets, liabilities (including contingent liabilities) and stockholders' equity among the Delhi Group, the Marathon Group and the U. S. Steel Group for the purpose of preparing their respective financial statements does not affect legal title to such assets and responsibility for such liabilities. Holders of Delhi Stock, USX-Marathon Group Common Stock (Marathon Stock) and USX-U. S. Steel Group Common Stock (Steel Stock) are holders of common stock of USX, and continue to be subject to all the risks associated with an investment in USX and all of its businesses and liabilities. Financial impacts arising from one Group that affect the overall cost of USX's capital could affect the results of operations and financial condition of other groups. In addition, net losses of any Group, as well as dividends and distributions on any class of USX Common Stock or series of preferred stock and repurchases of any class of USX Common Stock or series of preferred stock at prices in excess of par or stated value, will reduce the funds of USX legally available for payment of dividends on all classes of common stock. Accordingly, the USX consolidated financial information should be read in connection with the Delhi Group financial information. 58 DELHI GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 3. The method of calculating net income (loss) per share for the Delhi Stock, Marathon Stock, and Steel Stock reflects the Board's intent that the separately reported earnings and surplus of the Delhi Group, the Marathon Group and the U. S. Steel Group, as determined consistent with the USX Certificate of Incorporation, are available for payment of dividends to the respective classes of stock, although legally available funds and liquidation preferences of these classes of stock do not necessarily correspond with these amounts. Net income (loss) per share is calculated by adjusting net income (loss) for dividend requirements of preferred stock and income applicable to the Retained Interest and is based on the weighted average number of common shares outstanding plus common stock equivalents, provided they are not antidilutive. Common stock equivalents result from assumed exercise of stock options and surrender of stock appreciation rights associated with stock options, where applicable. Fully diluted net income (loss) per share assumes exercise of stock options and surrender of stock appreciation rights, provided, in each case, the effect is not antidilutive. 4. Inventories are carried at lower of average cost or market.
(In millions) ---------------------- September 30 December 31 1994 1993 ------------ ----------- Natural gas in storage $6.6 $6.8 NGLs in storage .3 .4 Materials and sundry items 1.8 2.4 ---- ---- Total $8.7 $9.6 ==== ====
5. In the first nine months of 1994, restructuring charges totaling $39.9 million were recorded for the write-down of assets to estimated net realizable value related to the planned disposition of certain nonstrategic gas gathering and processing assets and other investments. Charges of $37.4 million were included in operating costs and $2.5 million included in other income in the second quarter of 1994. 6. Other income in the first nine months of 1993 included a pretax gain of $2.9 million from disposal of assets ($.8 million in the third quarter). The disposal of assets included a pretax gain of $1.6 million from the first quarter 1993 sale of a 25% interest in a natural gas transmission partnership in the first quarter. The tax provision for estimated U.S. income taxes in the first nine months of 1993 included an unfavorable tax effect associated with the sale of the partnership interest, which resulted in a $1.2 million net loss on the transaction. 59 DELHI GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 7. The financial statement provision for estimated income taxes and related tax payments or refunds have been reflected in the Delhi Group, the Marathon Group and the U. S. Steel Group financial statements in accordance with USX's tax allocation policy for such groups. In general, such policy provides that the consolidated tax provision and related tax payments or refunds are allocated among the Delhi Group, the Marathon Group and the U. S. Steel Group for group financial statement purposes, based principally upon the financial income, taxable income, credits, preferences and other amounts directly related to the respective groups. The provision (credit) for estimated income taxes for the Delhi Group is based on tax rates and amounts which recognize management's best estimate of current and deferred tax assets and liabilities. Differences between the combined interim tax provisions of the Delhi, the Marathon and the U. S. Steel Groups and USX consolidated are allocated to each group based on the relationship of the individual group provisions to the combined interim provisions. The third quarter 1993 income tax provision included a $4.4 million charge associated with an increase in the federal income tax rate from 34% to 35%. This charge reflected a $4.1 million remeasurement of deferred federal income tax liabilities as of January 1, 1993, and $.3 million effect related to taxes on 1993 pretax income. 8. In the first quarter of 1994, USX Capital LLC, a wholly owned subsidiary of USX, sold $250 million of 8-3/4% Cumulative Monthly Income Preferred Shares (MIPS). In accordance with the USX policy of managing most financial activities on a centralized, consolidated basis, the proceeds from issuance of the MIPS and the related financial costs (which are included in interest and other financial costs) were attributed to all three groups in proportion to their respective participation in USX centrally managed financing activities. 9. Certain of the Delhi Group accounts receivable are sold in combination with the Marathon Group accounts receivable under a limited recourse agreement. Payments are collected from the sold accounts receivable; the collections are reinvested in new accounts receivable for the buyers; and a yield, based on short-term market rates, is transferred to the buyers. At September 30, 1994, the balance of the Delhi Group's sold accounts receivable that had not been collected was $66.8 million. In the event of a change in control of USX, as defined in the agreement, the Delhi Group may be required to forward payments collected on sold Delhi Group accounts receivable to the buyers. 10. USX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments relating to the Delhi Group involving a variety of matters, including laws and regulations relating to the environment. Certain of these matters are discussed below. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the Delhi Group financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably to the Delhi Group. See discussion of Liquidity and Capital Resources in USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. 60 DELHI GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENTS (Continued) -------------------------------------------------- (Unaudited) 10. (Continued) The Delhi Group is subject to federal, state and local laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for noncompliance. Expenditures for remediation and penalties have not been material. For a number of years, the Delhi Group has made capital expenditures to bring existing facilities into compliance with various laws relating to the environment. In 1993 and 1992, such capital expenditures totaled approximately $4.5 million and $3.0 million, respectively. The Delhi Group anticipates making additional such expenditures in the future; however, the exact amounts and timing of such expenditures are uncertain because of the continuing evolution of specific regulatory requirements. 61 DELHI GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The Delhi Group includes Delhi Gas Pipeline Corporation and certain other subsidiaries of USX which are engaged in the purchasing, gathering, processing, transporting and marketing of natural gas. The following discussion should be read in conjunction with the third quarter 1994 USX consolidated financial information and the Delhi Group financial statements and selected notes. Results of Operations - --------------------- The Delhi Group had a net loss of $1.0 million, or $.07 per share, in the third quarter of 1994, compared with a net loss of $0.7 million, or $.05 per share, in the third quarter of 1993. The Delhi Group had a net loss of $32.2 million, or $2.32 per share, in the first nine months of 1994, compared with net income of $10.1 million, or $.71 per share, in the first nine months of 1993. Sales totaled $133.7 million in the third quarter of 1994, compared with $131.3 million in the third quarter of 1993. The improvement primarily reflected increased volumes from the Delhi Group's trading business and from spot market sales, partially offset by lower average prices for natural gas. Sales totaled $424.3 million in the first nine months of 1994, compared with $391.3 million in the first nine months of 1993. The improvement primarily reflected increased volumes from the Delhi Group's trading business and from spot market sales, partially offset by lower average prices for natural gas and a decline in average prices for natural gas liquids ("NGLs"). The Delhi Group had operating income of $1.8 million in the third quarter of 1994, compared with $7.8 million in the third quarter of 1993. Operating income in the third quarter of 1994 included a $0.8 million favorable effect of the reversal of prior-period accruals related to the settlement of certain contractual matters. Operating income in the third quarter of 1993 included a $0.8 million refund of prior years' sales taxes. Excluding the effects of these items, third quarter 1994 operating income declined by $6.0 million from the third quarter of 1993. This decrease was due primarily to lower gas sales margin, reflecting a decline in premiums (principally from one customer, Southwestern Electric Power Company ("SWEPCO") and lower spreads on spot market sales. This was partially offset by lower depreciation expense as a result of restructuring activity, higher natural gas throughput volumes and lower average gas processing plant feedstock (natural gas) costs. The Delhi Group had an operating loss of $41.7 million in the first nine months of 1994, compared with operating income of $29.7 million in the first nine months of 1993. The operating loss in the first nine months of 1994 included restructuring charges of $37.4 million, expenses of $1.7 million related to a work force reduction program, other employment-related costs of $2.0 million, charges related to certain contractual matters of $0.3 million and a $1.6 million favorable pretax effect of the settlement of litigation related to a prior-year take-or-pay claim. Operating income in the first nine months of 1993 included favorable effects of $1.8 million for the reversal of a prior- period accrual related to a natural gas contract settlement, $0.8 million for a refund of prior-years' sales taxes and $0.8 million related to gas imbalance settlements. Excluding the effects of these items, the operating loss in the first nine months of 1994 was $1.9 million, down $28.2 million from operating income of $26.3 million in the first nine months of 62 DELHI GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- 1993. This decrease was due primarily to lower gas sales margin and lower average NGLs prices, partially offset by higher natural gas throughput volumes and lower depreciation expense. In June, following a management review of the group's overall cost structure and asset base, the USX Board of Directors authorized a plan for the disposition of certain non-strategic assets in Arkansas, Kansas, Louisiana, Oklahoma and Texas, including pipeline systems comprised of approximately 1,500 miles of gas pipeline and four gas processing plants. The Delhi Group recorded noncash pretax restructuring charges totaling $39.9 million in the second quarter of 1994 for the write-down of these assets to estimated net realizable value. Charges of $37.4 million were included in operating costs and a charge of $2.5 million was included in other income (loss). Depreciation expense reductions related to the restructuring totaled $3.1 million in the third quarter of 1994; reductions are expected to total approximately $3.1 million in the fourth quarter of 1994 and approximately $7.4 million in the year 1995. As of November 1, 1994, the Delhi Group had disposed of approximately one-third of the assets authorized under the restructuring plan. In addition to the restructuring charges, the Delhi Group recorded pretax employee reorganization expenses of $1.7 million in the second quarter of 1994, primarily reflecting employee severance and relocation costs associated with a work force reduction program designed to realign the organization with current business conditions. The program affected regional and headquarters employees in various job functions, and is expected to result in an annual reduction in employment costs of approximately $5 million, following full implementation. The Delhi Group attempts to sell all of the natural gas available on its systems each month. Natural gas volumes not sold to its premium markets are typically sold in the spot market, generally at lower average unit margins than those realized from premium sales. Gas sales margin in the first nine months of 1994 declined from the first nine months of 1993 due primarily to lower premiums from SWEPCO and other customers and a decline in margins from spot market sales. Gas sales margins from SWEPCO declined by $12.0 million from the first nine months of 1993 (of which $4.9 million occurred in the third quarter), reflecting the terms of a new natural gas purchase agreement providing for market sensitive prices beginning in February 1994. The decline in margins from spot market sales mainly reflected declines in natural gas prices. Transportation throughput in the third quarter and first nine months of 1994 declined by 16% and 17%, respectively, from the comparable 1993 periods, primarily due to increased competition and natural production declines on third- party wells. Natural gas volumes from trading sales totaled 117.4 million cubic feet per day in the third quarter of 1994. The Delhi Group anticipates continued expansion of its trading business in the future. The trading business involves the purchase of natural gas from sources other than wells directly connected to the Delhi Group's systems, and the subsequent sale of like volumes. Unit margins earned in the trading business are usually significantly less than those earned on system sales. The Delhi Group monitors the economics of removing NGLs from the gas stream for processing on an ongoing basis to determine the appropriate level of each gas 63 DELHI GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------- plant's operation. Unit margins from gas processing are a function of the sales prices for NGLs, which tend to fluctuate with changes in the price of crude oil, and the cost of natural gas feedstocks from which NGLs are extracted. Due to unfavorable economics in late 1993 and early 1994, the Delhi Group chose not to fully process some gas, resulting in a 22% decline in first quarter 1994 NGLs sales volumes as compared with the first quarter of 1993. Second and third quarter 1994 average NGLs sales volumes and gas processing gross margins improved significantly from the depressed first quarter 1994 levels. Despite this improvement, average NGLs sales volumes and gas processing gross margin in the first nine months of 1994 were lower than in the comparable 1993 period by 8% and 49%, respectively. Third quarter 1994 other income declined by $1.0 million from the third quarter of 1993. Other income in the third quarter of 1993 included a $0.8 million pretax gain on the sale of nonstrategic Colorado gas gathering systems. Other loss of $1.3 million in the first nine months of 1994 included a $2.5 million restructuring charge. Other income of $4.9 million in the first nine months of 1993 included a $1.6 million pretax gain on the sale of the Delhi Group's 25% interest in a natural gas transmission partnership and a $0.9 million favorable pretax effect of a prior asset acquisition, in addition to the previously mentioned $0.8 million gain on the sale of Colorado gas gathering systems. The provision for estimated U.S. income taxes is based on tax rates and amounts which recognize management's best estimate of current and deferred tax assets and liabilities. The third quarter 1993 income tax provision included a $4.4 million unfavorable effect of remeasuring income tax liabilities associated with an increase in the federal income tax rate from 34% to 35%. This charge reflected a $4.1 million remeasurement of deferred federal income tax liabilities as of January 1, 1993, and a $0.3 million effect related to taxes on 1993 pretax income. The income tax provision for the first nine months of 1993 included a $2.8 million unfavorable effect associated with the sale of the Delhi Group's interest in a natural gas transmission partnership, in addition to the previously mentioned $4.4 million remeasurement effect. The Delhi Group's operating results are affected by fluctuations in natural gas prices and demand levels in the markets that it serves. The level of gas sales margin is greatly influenced by the demand for premium services and the volatility of natural gas prices. Because the strongest demand for gas and the highest gas sales unit margins generally occur during the winter heating season, the Delhi Group has historically recognized the greatest portion of income from its gas sales business during the first and fourth quarters of the year. Quarterly levels of gas sales margin are difficult to accurately project. However, fourth quarter 1994 gas sales margin from two contracts will be lower than the prior-year fourth quarter by a total of approximately $5.5 million as a result of the terms of the new natural gas purchase agreement with SWEPCO and the expiration in August 1994 of one of the Delhi Group's contracts with Central Power and Light Company ("CP&L"), a utility electric generator serving south Texas. On the basis of sales revenues, SWEPCO and CP&L, who are owned by a common parent, were each among the Delhi Group's four largest customers for the year 1993. Cash Flows - ---------- Net cash provided from operating activities was $29.4 million in the first nine months of 1994, up $10.9 million from the first nine months of 1993. The 64 DELHI GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- effect of lower income was more than offset by a decline in income tax payments (including settlements with other groups), favorable working capital changes (including the collection of receivables in the first quarter relating to a natural gas contract dispute with SWEPCO which was settled in 1994) and the receipt of a $3.8 million advance payment under the terms of a gas purchase contract. Cash provided from the disposal of assets was $4.1 million in the first nine months of 1994, compared with $4.2 million in the first nine months of 1993. The 1994 amount included proceeds of $3.0 million from the sale of the North Louisiana System. The 1993 amount included proceeds of $1.9 million from the sale of the Delhi Group's interest in a natural gas transmission partnership and $1.6 million from the sale of nonstrategic gas gathering systems in Colorado. Financial obligations decreased by $13.3 million in the first nine months of 1994, primarily reflecting the Delhi Group's net cash provided from operating activities, partially offset by net cash used in investing activities. Financial obligations consist of the Delhi Group's portion of USX debt and preferred stock of a subsidiary attributed to all three groups. The Delhi Group engages in hedging activities in the normal course of its business. Futures contracts are used to hedge exposure to price fluctuations relevant to the purchase or sale of natural gas. While hedging activities are generally used to reduce risks from unfavorable movements, they may also limit the opportunity to benefit from favorable movements. The Delhi Group's hedging activities have not been significant in relation to the Group's overall business activity. Management believes that its use of hedging instruments will not have a material effect on the financial position, liquidity or results of operations of the Delhi Group. For discussion of USX's liquidity and capital resources, see USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. Capital Expenditures - -------------------- Delhi Group capital expenditures for property, plant and equipment totaled $7.8 million in the third quarter of 1994, down $1.9 million from the third quarter of 1993. Capital expenditures in the first nine months of 1994 totaled $21.7 million, an increase of $0.7 million from the first nine months of 1993. Capital expenditures in 1994 will reflect continued expenditures to connect dedicated gas reserves by the expansion or acquisition of gas gathering, processing and transmission assets, including those made available as a result of current industry conditions and regulatory initiatives. In September, the Delhi Group announced that negotiations for the purchase of the west Texas gathering and treating facilities of a Texas intrastate pipeline company had been terminated. The parties had previously announced that they had signed an agreement in principle for the purchase of these assets by the Delhi Group subject to execution of a definitive purchase agreement and receipt of necessary regulatory approvals. The level of the Delhi Group's capital spending in the fourth quarter of 1994 will be dependent on 65 DELHI GROUP OF USX CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- the timing and availability of opportunities to enhance its presence in key operating areas. Capital expenditures for the year 1994 are expected to be in the range of $35 million to $40 million, compared with capital expenditures for the year 1993 of $42.6 million. Environmental Matters, Contingencies and Commitments - ---------------------------------------------------- The Delhi Group has incurred and will continue to incur capital and operating and maintenance expenditures as a result of environmental laws and regulations. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of the Delhi Group's products and services, operating results will be adversely affected. The Delhi Group believes that substantially all of its competitors are subject to similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including the age and location of their operating facilities and their production processes. USX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments relating to the Delhi Group involving a variety of matters, including laws and regulations relating to the environment. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the Delhi Group financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably to the Delhi Group. See discussion of Liquidity and Capital Resources in USX Consolidated Management's Discussion and Analysis of Financial Condition and Results of Operations. 66 DELHI GROUP OF USX CORPORATION SUPPLEMENTAL STATISTICS ------------------------------ ($'s in Millions)
Third Quarter Nine Months Ended Ended September 30 September 30 -------------- ------------- 1994 1993 1994 1993 ---- ---- ---- ---- SALES $133.7 $131.3 $424.3 $391.3 GROSS MARGIN Gas Sales and Trading Margin $13.6 $24.3 $52.6 $76.8 Transportation Margin 3.3 3.7 9.0 11.3 ------ ------ ------ ------ Systems and Trading Margin 16.9 28.0 61.6 88.1 Gas Processing Margin 5.1 4.0 8.4 16.4 ------ ------ ------ ------ Total Gross Margin $22.0 $32.0 $70.0 $104.5 OPERATING INCOME $1.8 $7.8 $(41.7) $29.7 Restructuring Charges Included in Operating Loss - - 37.4 - CAPITAL EXPENDITURES $7.8 $9.7 $21.7 $21.0 OPERATING STATISTICS Natural Gas Throughput (A): Natural Gas Sales 600.4 547.3 625.8 542.7 Transportation 288.6 342.9 275.6 333.5 ------ ------ ------ ------ Systems Throughput 889.0 890.2 901.4 876.2 Trading Sales 117.4 - 76.6 - Partnerships - equity share (B) 18.6 15.0 20.8 17.7 ------- ------ ------ ------ Total Sales Volumes 1,025.0 905.2 998.8 893.9 Natural Gas Liquids Sales (C) 800.4 813.4 745.1 806.3 (A) Millions of cubic feet per day (B) Related to an investment included in the second quarter 1994 plan of disposition (C) Thousands of gallons per day
67 Part II - Other Information: - ---------------------------- Item 1. LEGAL PROCEEDINGS The following developments occurred during the the three months ended September 30, 1994, with respect to certain matters discussed in USX's Form 10-K for the year ended December 31, 1993: U. S. Steel Group (a) Inland Steel Patent Litigation On July 5, 1994, the Patent Office issued a decision rejecting all claims of the Inland patents. Inland is expected to file a response to this decision in November 1994 and has the right to appeal the Patent Office decision to the Patent Office Board of Appeals. (b) Securities Litigation On August 8, 1994, the U.S. District Court denied the Company's motion to dismiss, and discovery is proceeding. (c) Environmental Proceedings - Gary Works In September 1994, the U.S. Environmental Protection Agency (the "EPA") informed USX of its intent to demand civil penalties for alleged violations of the Clean Water Act at USX's Gary Works in Gary, Indiana. USX and the EPA have been engaged in ongoing discussions concerning water-related matters involving Gary Works, including the dredging of the Grand Calumet River. The penalty discussions are a part of those ongoing discussions. The initial penalty amount presented by the EPA was approximately $12 million. USX is continuing its discussion with the EPA concerning the penalty amount. 68 Part II - Other Information (Continued): - --------------------------- Item 5. OTHER INFORMATION SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF MARATHON OIL COMPANY Supplementary Data --------------------------------------------------------------------- (Unaudited) The following summarized consolidated financial information of Marathon Oil Company, a wholly owned subsidiary of USX, is included in this Form 10-Q in satisfaction of the reporting obligation of Marathon which has debt securities registered under the Securities Exchange Act. All such securities are guaranteed by USX. (In millions) -------------------------------
Third Qtr. Nine Months Ended Ended September 30 September 30 1994 1993 1994 1993* ---- ---- ---- ---- Income Data: Net sales $3,480 $2,953 $9,297 $8,955 Operating income 125 93 521 301 Total income before cumulative effect of changes in accounting principles 97 38 277 36 Net income 97 38 277 13 *Restated as a result of the adoption of two new accounting standards.
(In millions) -----------------------
September 30 December 31 1994 1993 ---------- ----------- Balance Sheet Data: Assets: Current assets $2,525 $1,985 Noncurrent assets 8,903 9,015 ------- ------- Total assets $11,428 $11,000 ======= ======= Liabilities and Stockholder's Equity: Current liabilities $1,431 $1,580 Noncurrent liabilities 8,612 8,312 Stockholder's equity 1,385 1,108 ------- ------- Total liabilities and stockholder's equity $11,428 $11,000
======= ======= 69 Part II - Other Information (Continued): - ---------------------------------------- Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 4. Instruments Defining the Rights of Security Holders, Including Indentures: (a)$2,325,000,000 Credit Agreement dated as of August 18, 1994. 12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 12.2 Computation of Ratio of Earnings to Fixed Charges. (b) REPORTS ON FORM 8-K None Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned chief accounting officer thereunto duly authorized. USX CORPORATION By /s/ Lewis B. Jones ------------------ Lewis B. Jones Vice President & Comptroller November 10, 1994 EX-4 2 REVOLVING CREDIT AGREEMENT CONFORMED COPY $2,325,000,000 CREDIT AGREEMENT dated as of August 18, 1994 among USX Corporation The Co-Agents and Other Banks Listed Herein Chemical Bank, as Managing Agent and Morgan Guaranty Trust Company of New York, as Agent TABLE OF CONTENTS (1) Page ---- ARTICLE I DEFINITIONS SECTION 1.01 Definitions 1 1.02 Accounting Terms and Determinations 10 1.03 Classes and Types of Borrowings...... l0 ARTICLE II THE CREDITS SECTION 2.01 Commitments to Lend 11 2.02 Notice of Committed Borrowings 11 2.03 Money Market Borrowings 12 2.04 Notice to Banks; Funding of Loans 16 2.05 Notes 17 2.06 Maturity of Loans 18 2.07 Interest Rates 18 2.08 Fees................................. 21 2.09 Optional Termination or Reduction of Commitments 22 2.10 Scheduled Termination of Commitments........................ 22 2.11 Optional Prepayments 22 2.12 General Provisions as to Payments 22 2.13 Funding Losses 23 2.14 Computation of Interest and Fees 24 2.15 Termination of a Bank's Commitments; Designation of Additional Banks 24 2.16 Agent's Fees 25 2.17 Change of Control 25 - -------------- (1) The Table of Contents is not a part of this Agreement. ARTICLE III CONDITIONS TO BORROWINGS SECTION 3.01 All Borrowings 27 3.02 First Borrowing 28 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 Corporate Existence and Power 29 4.02 Corporate and Governmental Authorization; Contravention 29 4.03 Binding Effect 29 4.04 Financial Information 29 4.05 Litigation 30 4.06 Environmental Matters 30 4.07 Taxes 30 4.08 Compliance with Laws 31 4.09 Marathon 31 ARTICLE V COVENANTS SECTION 5.01 Information 31 5.02 Consolidations and Mergers 32 5.03 Use of Proceeds 33 5.04 Termination of Prior Credit Agreements 34 5.05 Negative Pledge 34 5.06 Sale and Leaseback 36 ARTICLE VI DEFAULTS SECTION 6.01 Events of Default 38 6.02 Notice of Default 40 ii ARTICLE VII THE AGENT SECTION 7.01 Appointment and Authorization 40 7.02 Agent and Affiliates 40 7.03 Action by Agent 40 7.04 Consultation with Experts 40 7.05 Liability of Agent 41 7.06 Indemnification 41 7.07 Credit Decision 41 7.08 Successor Agent 42 7.09 Co-Agents 42 7.10 Managing Agent 42 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01 Basis for Determining Interest Rate Inadequate or Unfair 42 8.02 Illegality 43 8.03 Increased Cost 44 8.04 Base Rate Loans Substituted for Affected Fixed Rate Loans 47 8.05 Election Not to Borrow 48 8.06 Notice Mandatory 48 ARTICLE IX MISCELLANEOUS SECTION 9.01 Notices 48 9.02 No Waivers 49 9.03 Expenses; Documentary Taxes 49 9.04 Sharing of Set-Offs 49 9.05 Amendments and Waivers 50 9.06 Successors and Assigns 50 9.07 Collateral 52 9.08 New York Law 52 9.09 Counterparts; Effectiveness 52 9.10 Waiver of Jury Trial 53 iii Schedule I - Commitments Exhibit A - Form of Note Exhibit B - Form of Money Market Quote Request Exhibit C - Form of Invitation for Money Market Quotes Exhibit D - Form of Money Market Quote Exhibit E - Opinion of Counsel for the Borrower Exhibit F - Opinion of Davis Polk & Wardwell, Special Counsel for the Agent Exhibit G - Form of Assignment and Assumption Agreement iv CREDIT AGREEMENT AGREEMENT dated as of August 18, 1994 among USX CORPORATION, the CO-AGENTS and other BANKS listed on the signature pages hereof, CHEMICAL BANK, as Managing Agent, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "Additional Bank" has the meaning set forth in Section 2.15. "Adjusted CD Rate" has the meaning set forth in Section 2.07(b). "Administrative Questionnaire" means, with respect to each Bank, the administrative questionnaire in the form requested by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Agent" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks hereunder, and its successors in such capacity. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Applicable Margin" has the meaning set forth in Section 2.07(h). 2 "Assessment Rate" has the meaning set forth in Section 2.07(b). "Assignee" has the meaning set forth in Section 9.06(d). "Banks" means the parties listed in Schedule I, any other party which shall be designated by the Borrower and agree to be bound by the terms and provisions of this Agreement as provided in Section 2.15, any Assignee which becomes a party pursuant to Section 9.06(d), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means a Committed Loan made or to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Committed Borrowing or pursuant to Article VIII. "Borrower" means USX Corporation, a Delaware corporation, and its successors. "Borrower's 1993 Form 10-K" means the Borrower's annual report on Form 10-K for 1993, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrowing" has the meaning set forth in Section 1.03. "CD Base Rate" has the meaning set forth in Section 2.07(b). "CD Loan" means a Committed Loan made or to be made by a Bank as a CD Loan in accordance with the applicable Notice of Committed Borrowing. "CD Reference Banks" means The Bank of Nova Scotia, PNC Bank, National Association and Morgan Guaranty Trust Company of New York. "Change of Control" has the meaning set forth in Section 2.17(a). "Class" refers to the determination whether a Loan is a Committed Loan or a Money Market Loan. 3 "Co-Agent" means each Bank designated as a Co-Agent on the signature pages hereof. "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Commencement Date" has the meaning set forth in Section 5.04. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank in Schedule I as its Commitment (or, in the case of an Assignee, the portion of the transferor Bank's Commitment assigned to such Assignee pursuant to Section 9.06(d) or, in the case of an Additional Bank, the amount specified in the agreement pursuant to which such Additional Bank becomes a party hereto in accordance with Section 2.15(b)), as such amount may be reduced from time to time pursuant to Section 2.09. "Committed Loan" means a loan made or to be made by a Bank to the Borrower pursuant to Section 2.01. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are required or authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b). 4 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent. "Euro-Dollar Loan" means a Committed Loan made or to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Committed Borrowing. "Euro-Dollar Reference Banks" means the principal London offices (or any successor offices) of The Bank of Nova Scotia, PNC Bank, National Association and Morgan Guaranty Trust Company of New York. "Event of Default" has the meaning set forth in Section 6.01. "Existing Credit Agreements" means the $500,000,000 and the $1,500,000,000 Credit Agreements each dated as of October 13, 1992 among the Borrower, the banks listed therein and Morgan Guaranty Trust Company of New York as agent for such banks. "Facility Period" means the period from and including the Commencement Date to but not including the Termination Date. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New 5 York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent on such day on such transactions as determined by the Agent. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Prime Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month; (2) with respect to each CD Borrowing, the period commencing on the date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; (3) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; 6 (4) with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month; and (5) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 15 days) as the Borrower may elect in accordance with Section 2.03; provided that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and provided further that any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Level I Status" exists at any date if, at such date, the Borrower has senior unsecured long-term debt outstanding, without third-party credit enhancement, which is rated BBB or better by S&P and Baa2 or better by Moody's; provided that if either S&P or Moody's shall cease to issue ratings of debt securities generally, then the foregoing test may be satisfied on the basis of the rating assigned by the other such rating agency. "Level II Status" exists at any date if, at such date, Level I Status does not exist and the Borrower has senior unsecured long-term debt outstanding, without third-party credit enhancement, which is rated BBB- or better by S&P and Baa3 or better by Moody's; provided that if either S&P or Moody's shall cease to issue ratings of debt securities generally, then the foregoing test may be satisfied on the basis of the rating assigned by the other such rating agency. 7 "Level III Status" exists at any date if, at such date, the Borrower has senior unsecured long-term debt outstanding, without third-party credit enhancement, which is rated BBB- or better by S&P and Ba1 by Moody's or BB+ from S&P and Baa3 or better by Moody's. "Level IV Status" exists at any date if, at such date, the Borrower has senior unsecured long-term debt outstanding, without third-party credit enhancement, which is rated BB+ by S&P and Ba1 by Moody's; provided that if either S&P or Moody's shall cease to issue ratings of debt securities generally, then the foregoing test may be satisfied on the basis of the rating assigned by the other such rating agency. "Level V Status" exists at any date if at such date, none of Level I, Level II, Level III or Level IV Status exists. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "Loan" means a Committed Loan or a Money Market Loan and "Loans" means Committed Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.07(c). "Managing Agent" means Chemical Bank, in its capacity as managing agent hereunder. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $50,000,000. "Money Market Absolute Rate" has the meaning set forth in Section 2.03(d). "Money Market Absolute Rate Loan" means a loan made or to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its 8 Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan made or to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Prime Rate pursuant to Section 8.01(a)). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.03(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "Moody's" means Moody's Investors Service, Inc. and its successors. "Mortgage" has the meaning set forth in Section 5.05. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.06(b). 9 "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Refunding Borrowing" means a Committed Borrowing to the extent that, after application of the proceeds thereof, there is no net increase in the outstanding principal amount of Committed Loans made by any Bank. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 67% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 67% of the aggregate unpaid principal amount of the Loans. "S&P" means Standard & Poor's Ratings Group and its successors. "Status" means, at any date, whichever of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists at such date. 10 "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Termination Date" means August 18, 1999, or if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day, unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. "Type" refers to the determination whether a Committed Loan is a Base Rate Loan, a CD Loan or a Euro-Dollar Loan or whether a Money Market Loan is a Money Market Absolute Rate Loan or a Money Market LIBOR Loan. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Voting Power" has the meaning set forth in Section 2.17(a). "Voting Stock" has the meaning set forth in Section 2.17(a). SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower delivered to the Agent. SECTION 1.03. Classes and Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of the 11 same Type and Class of one or more Banks to be made to the Borrower pursuant to Article II on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement by reference to either or both the Class and Type of Loans comprising such Borrowing (e.g., a Euro-Dollar Borrowing is a Borrowing comprised of Euro-Dollar Loans while a Committed Borrowing is a Borrowing comprised of Committed Loans). ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower during the Facility Period pursuant to this Section from time to time in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Facility Period under this Section. Each Borrowing under this Section shall be in an aggregate principal amount of $50,000,000 or any larger integral multiple of $10,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.01(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. SECTION 2.02. Notice of Committed Borrowings. The Borrower shall give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) the Type of the Loans comprising such Borrowing, and 12 (d) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $50,000,000 or a larger integral multiple of $10,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request 13 shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to each of the Banks which shall have notified the Agent of its desire to receive the same an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each such Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank to which an Invitation for Money Market Quotes is sent may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to such Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. 14 (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than, equal to or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger integral multiple thereof, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to a limitation as to the maximum aggregate principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified in increments of 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified in increments of 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded by the Agent if the Agent determines that it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language (except as contemplated by subsection (d)(ii)(B)(z)); (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes (except as contemplated by subsection (d)(ii)(B)(z)); or 15 (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than (x) 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 10:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall, if it wishes to accept the offers so notified to it pursuant to subsection (e) in whole or in part, notify the Agent to such effect, which notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $50,000,000 or a larger integral multiple of $10,000,000, 16 (iii) acceptance of offers in respect of any Interest Period may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is disregarded by the Agent pursuant to subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in integral multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address specified in or pursuant to Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will promptly make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (c) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in 17 subsection (b), or remitted by the Borrower to the Agent as provided in Section 2.12, as the case may be. (d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing (or, in the case of a Base Rate Borrowing, prior to 12:00 Noon on the date of such Borrowing) that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank, and if such Bank shall not have done so within five Domestic Business Days of demand therefor by the Agent, then the Borrower, each severally agrees to pay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is paid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall make available to the Agent such corresponding amount, such amount so made available shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. Nothing in this subsection (d) shall relieve any Bank of its obligation to make Loans in accordance with the terms and conditions of this Agreement or relieve any Bank from responsibility for default by it in such obligation. SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office; provided that each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular Class or Type be evidenced by a separate Note. Each such separate Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant Class or Type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (b) Upon receipt of each Bank's Note pursuant to Section 3.02(a), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, Class, Type and maturity of each Loan made by it and the date and amount 18 of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the inaccuracy of, or the failure of any Bank to make, any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.06. Maturity of Loans. Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable for each Interest Period on the last day thereof. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted CD Rate; provided that if any CD Loan shall, as a result of the further proviso to the definition of Interest Period, have an Interest Period of less than 30 days, such CD Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: 19 [ CDBR ]* ACDR = [ --------------------] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate ---------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. 327.3(e) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the 20 United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable London Interbank Offered Rate. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (d) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. (e) Any overdue principal of and interest on any Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 1% plus the rate applicable to Base Rate Loans for such day. 21 (f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. (h) The "Applicable Margin" with respect to any Committed Loan at any date is the applicable percentage amount set forth in the table below based on the Type of such Loan and the Status on such date: Level I Level II Level III Level IV Level V Status Status Status Status Status ------- -------- --------- -------- -------- Euro-Dollar 0.3125% 0.40% 0.55% 0.625% 0.675% Loans CD Loans 0.4375% 0.525% 0.675% 0.75% 0.80%
SECTION 2.08. Fees. (a) Commitment Fees. During the period from and including the Commencement Date to but not including the Termination Date, the Borrower shall pay to the Agent for the account of the Banks ratably in proportion to their Commitments a commitment fee at the Commitment Fee Rate on the daily amount by which the aggregate amount of the Commitments exceeds the aggregate outstanding principal amount of the Loans. For purposes of this subsection (a), "Commitment Fee Rate" means a rate per annum equal to 0.05%. (b) Facility Fees. During the period from and including the Commencement Date to but not including the Termination Date (or such earlier or later date on which the Commitments shall have terminated in their entirety and the Loans shall have been repaid in full), the Borrower shall pay to the Agent for the account of each Bank a facility fee at the Facility Fee Rate on the daily amount of such Bank's 22 Commitment (whether used or unused) and, after termination of the Commitments and until repayment in full of the Loans, on the aggregate outstanding principal amount of the Loans. For purposes of this subsection (b): "Facility Fee Rate" means a rate per annum equal to (i) for any day on which Level I Status exists 0.1375%, (ii) for any day on which Level II Status exists, 0.15%, (iii) for any day on which Level III Status exists, 0.20%, (iv) for any day on which Level IV Status exists, 0.25% and (v) for any day on which Level V Status exists, 0.325%. (c) Payments. Accrued commitment fees and facility fees shall be payable quarterly in arrears on each March 31, June 30, September 30, and December 31 on or prior to the date of termination of the Commitments in their entirety and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.09. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $50,000,000 or any larger integral multiple thereof, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. SECTION 2.10. Scheduled Termination of Commitments. The Commitments shall terminate on the Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.11. Optional Prepayments. (a) The Borrower may, upon at least one Domestic Business Day's notice to the Agent, prepay any Base Rate Borrowing (or any Money Market LIBOR Borrowing bearing interest at the Prime Rate pursuant to Section 8.01(a)) in whole at any time, or from time to time in part in amounts aggregating $50,000,000 or any larger integral multiple of $10,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans included in such Borrowing. 23 (b) Except as provided in Section 2.15(a), 2.17 or 8.02 the Borrower may not prepay all or any portion of the principal amount of any Fixed Rate Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address specified in or pursuant to Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such 24 Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan (pursuant to Section 2.15(a) or 2.17, Article VI or VIII or otherwise) on any day other than the last day of the Interest Period applicable thereto, or if the Borrower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a) or 2.15(a), or by any Bank in accordance with Section 2.17(a), the Borrower shall reimburse each Bank on demand for any resulting loss or expense incurred by it (or by any existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.14. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and all commitment and facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.15. Termination of a Bank's Commitments; Designation of Additional Banks. (a) The Borrower may, upon at least three Domestic Business Days' notice to the Agent and any Bank, terminate the Commitment of such Bank entirely, provided that, if any Loans of such Bank are then outstanding, the Borrower shall prepay each Loan of such Bank in full on the effective date of such termination, together with accrued interest thereon and all accrued fees on such Bank's Commitment to such effective date and all other amounts payable for the account of such Bank hereunder. (b) If the Borrower shall terminate the Commitment of any Bank pursuant to the provisions of subsection (a) of this Section, the Borrower may designate another bank or other banks (which may be one of the Banks) (in either case, an "Additional Bank") to be parties to this 25 Agreement, whose Commitments (or additional Commitments) shall not in the aggregate exceed the amount of the Commitment so terminated. Any Additional Bank shall become a party to this Agreement and be considered a Bank hereunder for all purposes if (i) it shall agree in writing to be bound by all of the terms and provisions of this Agreement, such agreement to specify the amount of the Commitment of such Additional Bank and to be otherwise in form and substance satisfactory to the Agent, (ii) it shall make Committed Loans of each Type to the Borrower in principal amounts which bear the same ratio to the amounts of the Committed Loans of such Type of other Banks then outstanding as the Commitment of such Additional Bank bears to the then Commitments of such other Banks and (iii) a copy of such agreement and of evidence satisfactory to the Agent of the making of such Committed Loans shall be furnished to the Agent and the Banks. SECTION 2.16. Agent's Fees. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed between them. SECTION 2.17. Change of Control. (a) If a Change of Control shall occur the Borrower will, within ten days after the occurrence thereof, give the Agent notice thereof, and the Agent shall promptly notify each Bank thereof. Such notice shall describe in reasonable detail the facts and circumstances giving rise thereto and the date of such Change of Control and each Bank may, by notice to the Borrower and the Agent given not later than fifty days after the date of such Change of Control, terminate its Commitment, which shall be terminated, and declare the Note held by it (together with accrued interest thereon) and any other amounts payable hereunder for its account to be, and such Note and such amounts shall become, due and payable, in each case on the sixtieth day after the date of such Change of Control (or if such day is not a Domestic Business Day, the next succeeding Domestic Business Day), without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. For purposes of this Section, the following terms have the following meanings: A "Change of Control" shall occur if (i) any "person" or "group" of persons shall have acquired "beneficial ownership" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder), of shares of Voting Stock representing 35% or more of the Voting Power of the Borrower, (ii) during any period of 26 twenty-five consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such twenty-five month period were directors of the Borrower (together with any replacement or additional directors whose election was recommended by incumbent management of the Borrower or who were elected by a majority of directors then in office) cease to constitute a majority of the board of directors of the Borrower, or (iii) any Person or group of related Persons shall acquire all or substantially all of the assets of the Borrower; provided, that a Change of Control shall not be deemed to have occurred pursuant to clause (iii) above if the Borrower shall have merged or consolidated with or transferred all or substantially all of its assets to another corporation in compliance with the provisions of Section 5.02 and the surviving or successor or transferee corporation is no more leveraged than was the Borrower immediately prior to such event. For purposes of this definition, the term "leveraged" when used with respect to any corporation shall mean the percentage represented by the total assets of that corporation divided by its stockholders' equity, in each case determined and as would be shown in a consolidated balance sheet of such corporation prepared in accordance with generally accepted accounting principles in the United States of America. "Voting Power" as applied to the stock of any corporation means the total voting power represented by all outstanding Voting Stock of such corporation. "Voting Stock" as applied to the stock of any corporation means stock of any class or classes (however designated) having ordinary voting power for the election of the directors of such corporation, other than stock having such power only by reason of the happening of a contingency. (b) The Borrower agrees to indemnify each Bank and hold each Bank harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel for any Bank in connection with any investigative, administrative or judicial proceeding, whether or not such Bank shall be designated a party thereto) which may be incurred by any Bank (or by the Agent in connection with its actions as Agent hereunder), in any way relating to or arising out of this Agreement as amended from time to time and an actual, proposed or threatened Change of Control (as defined above); provided that (i) no Bank shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct as determined 27 by final judgment of a court of competent jurisdiction; (ii) the Borrower shall not, in connection with any such proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate law firm for any period for the Banks and the Agent (which shall be selected by the Agent after consultation with the Borrower); (iii) the Agent and each Bank shall consult with the Borrower from time to time at the request of the Borrower regarding the conduct of the defense in any such proceeding and (iv) the Borrower shall not be obligated to pay an amount of any settlement entered into without its consent (which shall not be unreasonably withheld). ARTICLE III CONDITIONS TO BORROWINGS The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: SECTION 3.01. All Borrowings. In the case of each Borrowing: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that the Borrowing will not contravene any provision of applicable law or of the certificate of incorporation or by-laws of the Borrower or of any agreement or instrument binding upon it; (d) the fact that, immediately after such Borrowing, no Default shall have occurred and be continuing; and (e) the fact that the representations and warranties of the Borrower contained in this Agreement (except, in the case of a Refunding Borrowing, the 28 representation and warranty set forth in Section 4.04(c) as to any material adverse change which has theretofore been disclosed in writing by the Borrower to the Banks) shall be true in all material respects on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c), (d) and (e) of this Section. SECTION 3.02. First Borrowing. In the case of the first Borrowing: (a) receipt by the Agent for the account of each Bank of a duly executed Note, dated on or before the date of such Borrowing, complying with the provisions of Section 2.05; (b) receipt by the Agent of an opinion of General Counsel of the Borrower (or such other counsel for the Borrower as may be acceptable to the Agent), substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (c) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) receipt by the Agent of a certificate signed by the Chairman of the Board of Directors, the Chief Financial Officer or a Vice President and by the Secretary or an Assistant Secretary of the Borrower, to the effect set forth in clauses (c), (d) and (e) of Section 3.01; and (e) receipt by the Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent. The documents and opinions referred to in this Section shall be delivered to the Agent no later than the time of the first Borrowing. The certificate and opinions referred to 29 in clauses (b), (c) and (d) above shall be dated the date of the first Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Mortgage on any asset of the Borrower or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and the Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower. SECTION 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower as of December 31, 1993 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by Price Waterhouse and included in the Borrower's 1993 Form 10-K, copies of which have been delivered to the Agent for each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower as of such date and its consolidated results of operations and cash flows for such fiscal year. 30 (b) The unaudited consolidated balance sheet of the Borrower as of June 30, 1994 and the related unaudited consolidated statements of income and cash flows for the six months then ended, set forth in the Borrower's quarterly report for the fiscal quarter ended June 30, 1994 as filed with the Securities and Exchange Commission on Form 10-Q, copies of which have been delivered to the Agent for each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in paragraph (a) of this Section, the consolidated financial position of the Borrower as of such date and its consolidated results of operations and cash flows for such six month period (subject to normal year-end adjustments). (c) Since June 30, 1994 there has been no change in the consolidated financial position or operations of the Borrower, considered as a whole, which would materially and adversely affect the ability of the Borrower to perform its obligations hereunder and under the Notes. SECTION 4.05. Litigation. Except as set forth in the Borrower's 1993 Form 10-K and quarterly report on Form 10-Q for the fiscal quarter ended June 30, 1994, there is no action, suit, arbitration or other proceeding, inquiry or investigation, at law or in equity, or before or by any court, public board or body, arbitrator or arbitral body, pending against the Borrower or of which the Borrower has otherwise received official notice or which to the knowledge of the Borrower is threatened against the Borrower, wherein there is a reasonable possibility of an unfavorable decision, ruling or finding which would materially adversely affect the Borrower's ability to perform its obligations under this Agreement and the Notes and since the dates of the respective descriptions of proceedings contained in the reports identified above, there has been no change in the status of such proceedings which would materially adversely affect the Borrower's ability to perform its obligations under this Agreement and the Notes. SECTION 4.06. Environmental Matters. The Borrower does not presently anticipate that remediation costs and penalties associated with environmental laws, to the extent not previously provided for, will have a material adverse effect on the consolidated financial position of the Borrower. SECTION 4.07. Taxes. United States Federal income tax returns of the Borrower have been examined and closed through the fiscal year ended December 31, 1987. The Borrower has filed all United States Federal income tax 31 returns and all other material tax returns that are required to be filed by it and has paid all material taxes due pursuant to such returns or pursuant to any assessment received by it, except for any such taxes being diligently contested in good faith and by appropriate proceedings. Adequate reserves have been provided on the books of the Borrower in respect of all taxes or other governmental charges in accordance with generally accepted accounting principles, and no tax liabilities in excess of the amount so provided are anticipated that could materially and adversely affect the consolidated financial position or operations of the Borrower, considered as a whole. SECTION 4.08. Compliance with Laws. The Borrower and Marathon Oil Company are in compliance with all applicable laws, rules and regulations, other than such laws, rules or regulations (i) the validity or applicability of which the Borrower or Marathon Oil Company is contesting in good faith or (ii) failure to comply with which cannot reasonably be expected to have consequences which would materially and adversely affect the consolidated financial position or operations of the Borrower, considered as a whole. SECTION 4.09. Marathon. Marathon Oil Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. ARTICLE V COVENANTS The Borrower agrees that, so long as any Bank has a Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to the Agent for each of the Banks: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in 32 comparative form the figures for the previous fiscal year, all reported on by Price Waterhouse or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year; (c) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower stating whether there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) forthwith upon the occurrence of any Default, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all annual, quarterly or other reports which the Borrower shall have filed with the Securities and Exchange Commission; and (g) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries and affiliates as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Consolidations and Mergers. So long as this Agreement shall remain in effect, the Borrower shall not consolidate or merge with or into any other Person 33 or convey, transfer or lease all or substantially all of its assets as an entirety to any Person, unless: (i) either (x) the Borrower shall be the corporation surviving such merger or (y) the corporation formed by such consolidation or into which Borrower is merged or the Person which acquires by conveyance, transfer or lease all or substantially all of the assets of the Borrower as an entirety shall be a corporation organized and existing under the laws of the United States of America or any state or the District of Columbia and shall execute and deliver to each Bank an agreement, in form and substance satisfactory to each Bank, containing an assumption by such successor corporation of the due and punctual performance and observance of each covenant and condition of this Agreement to be performed or observed by the Borrower; (ii) the Borrower or such successor corporation, as the case may be, shall have a consolidated net worth (that is, total consolidated assets less total consolidated liabilities) of no less than the net worth (as so determined) of the Borrower immediately prior to such consolidation, merger or conveyance, transfer or lease of all or substantially all of the Borrower's assets as an entirety to such Person; and (iii) immediately after giving effect to such transaction, no Default shall have occurred and be continuing. Upon any consolidation or merger in which the Borrower is not the surviving corporation or any conveyance, transfer or lease of all or substantially all of the assets of the Borrower as an entirety in accordance with this Section, the successor corporation formed by such consolidation or into which the Borrower is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Borrower under this Agreement with the same effect as if such successor corporation had been named as the Borrower herein. No such conveyance, transfer or lease of all or substantially all of the assets of the Borrower as an entirety shall have the effect of releasing the Borrower or any successor corporation which shall theretofore have become such in the manner prescribed in this Section from any liability hereunder. SECTION 5.03. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the 34 Borrower for its general corporate purposes. None of such proceeds will be used in violation of any applicable law or regulation including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System. SECTION 5.04. Termination of Prior Credit Agreements. On or prior to the earlier of (i) the date of the first Borrowing hereunder and (ii) August 30, 1994 (the "Commencement Date"), the Borrower will terminate, or cause to be terminated, in their entirety the commitments of the banks under the Existing Credit Agreements. The Borrower shall promptly notify the Agent of the termination of the above referenced agreements, and such termination shall be a condition precedent to the effectiveness of the Commitments hereunder. SECTION 5.05. Negative Pledge. If the Borrower or any Subsidiary of the Borrower shall mortgage, pledge, encumber, or subject to a lien (hereinafter to "Mortgage" or a "Mortgage") as security for any indebtedness for money borrowed (x) any blast furnace facility or raw steel producing facility, or rolling mills which are a part of a plant which includes such a facility; or (y) any property capable of producing oil or gas; and, which in either case, is located in the United States and determined by the Board of Directors of the Borrower, in good faith, to be a principal property, the Borrower will secure or will cause such Subsidiary to secure the Borrower's obligations hereunder equally and ratably with all indebtedness or obligations secured by the Mortgage then being given and with any other indebtedness of the Borrower or such Subsidiary then entitled thereto; provided, however, this covenant shall not apply in the case of: (i) any Mortgage existing on the date of this Agreement (whether or not such Mortgage includes an after-acquired property provision); (ii) any Mortgage, including a purchase money Mortgage, incurred in connection with the acquisition of any property (for purposes hereof the creation of any Mortgage within 180 days after the acquisition or completion of construction of such property shall be deemed to be incurred in connection with the acquisition of such property), the assumption of any Mortgage previously existing on such acquired property or any Mortgage existing on the property of any corporation when such corporation becomes a Subsidiary of the Borrower; 35 (iii) any Mortgage on such property in favor of the United States of America, any state, or any agency, department, political subdivision or other instrumentality of either, to secure partial, progress or advance payments to the Borrower or any Subsidiary of the Borrower pursuant to the provisions of any contract or any statute; (iv) any Mortgage on such property in favor of the United States of America, any state, or any agency, department, political subdivision or other instrumentality of either, to secure borrowings by the Borrower or any Subsidiary of the Borrower for the purchase or construction of the property mortgaged; (v) any Mortgage in connection with a sale or other transfer of (i) oil or gas in place for a period of time or in an amount such that the purchaser will realize therefrom a specified amount of money or specified amount of minerals or (ii) any interest in property of the character commonly referred to as an "oil payment" or "production payment"; (vi) any Mortgage on any property arising in connection with or to secure all or any part of the cost of the repair, construction, improvement, alteration, exploration, development or drilling of such property or any portion thereof; (vii) any Mortgage on any pipeline, gathering system, pumping or compressor station, pipeline storage facility, other pipeline facility, drilling equipment, drilling platform, drilling barge, any movable railway, marine or automotive equipment, gas plant, office building, storage tank, or warehouse facility, any of which is located on any property included herein under clause (y) above; (viii) any Mortgage on any equipment or other personal property used in connection with any property included herein under clause (y) above; (ix) any Mortgage on any property included herein under clause (y) above arising in connection with the sale of accounts receivable resulting from the sale of oil or gas at the wellhead; or (x) any renewal of or substitution for any Mortgage permitted under the preceding clauses. 36 Notwithstanding the foregoing restriction contained in this Section 5.05, the Borrower may and may permit its Subsidiaries to incur liens or grant Mortgages on property covered by the restriction above so long as the net book value of the property so encumbered together with all property subject to the restriction on sale and leasebacks contained in Section 5.06 does not at the time such lien or Mortgage is granted exceed 5% of Consolidated Net Tangible Assets. "Consolidated Net Tangible Assets" means the aggregate value of all assets of the Borrower and its Subsidiaries on a consolidated basis after deducting therefrom (a) all current liabilities (excluding all long-term debt due within one year), (b) all investments in unconsolidated subsidiaries and all investments accounted for on the equity basis and (c) all goodwill, patent and trademarks, unamortized debt discount and other similar intangibles (all determined in conformity with generally accepted accounting principles and calculated on a basis consistent with the Borrower's most recent audited consolidated financial statements). SECTION 5.06. Sale and Leaseback. The Borrower will not, nor will it permit any Subsidiary of the Borrower to, sell or transfer (x) any blast furnace facility or raw steel producing facility, or rolling mills which are a part of a plant which includes such a facility; or (y) any property capable of producing oil or gas; which in either case is located in the United States and determined by the Board of Directors of the Borrower, in good faith, to be a principal property, with the intention of taking back a lease of such property; provided, however, this covenant shall not apply if: (i) the sale is to a Subsidiary of the Borrower (or to the Borrower in the case of a Subsidiary); (ii) the lease is for a temporary period by the end of which it is intended that the use of such property by the lessee will be discontinued; (iii) the Borrower or a Subsidiary of the Borrower could, in accordance with Section 5.05, Mortgage such property without equally and ratably securing the Borrower's obligations hereunder; (iv) the transfer is incident to or necessary to effect any operating, farm out, farm in, unitization, acreage exchange, acreage contributions, bottom hole or dry hole arrangements or pooling agreement or any other agreement of the same general nature relating to the acquisition, exploration, maintenance, development and 37 operation of oil or gas properties in the ordinary course of business or as required by regulatory agencies having jurisdiction over the property; or (v) (A) the Borrower promptly informs the Agent of such sale, (B) the net proceeds of such sale are at least equal to the fair value (as determined by resolution adopted by the Board of Directors of the Borrower) of such property and (C) the Borrower shall, and in any such case the Borrower covenants that it will, within 180 days after such sale, apply an amount equal to the net proceeds of such sale to the retirement of debt of the Borrower, or of a Subsidiary of the Borrower in the case of property of such Subsidiary, maturing by its terms more than one year after the date on which it was originally incurred (herein called "funded debt"); provided that the amount to be applied to the retirement of funded debt of the Borrower or of a Subsidiary of the Borrower shall be reduced by the amount equal to the amount below if, within 75 days after such sale, the Borrower shall deliver to the Agent an officer's certificate (1) stating that on a specified date after such sale the Borrower or a Subsidiary of the Borrower, as the case may be, voluntarily retired a specified principal amount of funded debt, (2) stating that such retirement was not effected by payment at maturity or pursuant to any applicable mandatory sinking fund or prepayment provision (other than provisions requiring retirement of any funded debt of the Borrower or a Subsidiary of the Borrower, as the case may be, under the circumstances referred to in this Section 5.06) and (3) stating the then optional redemption or prepayment price applicable to funded debt so retired or, if there is no such price applicable, the amount applied by the Borrower or a Subsidiary of the Borrower, as the case may be, to the retirement of such funded debt. The Borrower shall deliver to the Agent a certified copy of the resolution of the Board of Directors of the Borrower referred to in paragraph (v)(B) above and an officer's certificate setting forth all material facts under this Section 5.06. The term retirement of such funded debt shall include the in-substance defeasance of such funded debt in accordance with then applicable accounting rules. 38 ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Note, or shall fail to pay within five Domestic Business Days after the due date thereof any interest on any Note; (b) the Borrower shall fail to observe or perform any covenant contained in Section 5.02; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those contained in Section 5.05 or 5.06 or those covered by clauses (a) or (b) above) for 10 days after written notice thereof has been given to the Borrower by the Agent at the request of any Bank; (d) the Borrower shall fail to observe or perform any covenant contained in Section 5.05 or 5.06 for 30 days after written notice thereof has been given to the Borrower by the Agent at the request of any Bank; provided that the continuation of such failure for 30 days or longer after such notice shall not constitute an Event of Default if (i) such failure is curable but cannot be cured within 30 days, (ii) the Borrower, upon the aforesaid notice from the Agent, institutes curative action as promptly as practicable, and (iii) the Borrower diligently pursues such action to completion within a reasonable period, which period shall not, in any event, continue for more than 90 days after the aforesaid notice from the Agent; (e) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made or deemed made; (f) the Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment 39 of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (g) an involuntary case or other proceeding shall be commenced against the Borrower seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower under the federal bankruptcy laws as now or hereafter in effect; or (h) notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or any member of the ERISA Group shall incur and not satisfy a withdrawal liability under Title IV of ERISA in respect of a Multiemployer Plan in excess of (i) $50,000,000 for any year or (ii) $250,000,000 in the aggregate; then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) and any other amounts payable hereunder to be, and the Notes and such amounts shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of 40 the Events of Default specified in paragraph (f) or (g) above, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) and any other amounts payable hereunder shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Agent shall give notice to the Borrower under Section 6.01(c) or (d) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New York shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent hereunder. SECTION 7.03. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. 41 SECTION 7.05. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its or their own gross negligence or willful misconduct; provided that the provisions of this sentence are for the sole benefit of the Agent, its affiliates and their respective directors, officers, agents and employees and shall not release any Bank from liability it would otherwise have to the Borrower. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent, the Managing Agent, any Co- Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. 42 SECTION 7.08. Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower shall have the right to appoint a successor Agent from among the Banks, subject to the approval of the Required Banks, which shall not be unreasonably withheld. If no successor Agent shall have been so appointed by the Borrower and approved by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Co-Agents. The Co-Agents shall have no responsibility, obligation or liability under this Agreement in their respective capacities as Co-Agents. SECTION 7.10. Managing Agent. Chemical Bank shall have no responsibility, obligation or liability under this Agreement in its capacity as Managing Agent. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing: (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may 43 be, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Prime Rate for such day. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive made or issued after the date of this Agreement (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine as a result of any of the foregoing that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the 44 then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan, unless the Borrower elects pursuant to Section 8.05 not to borrow such Base Rate Loan. SECTION 8.03. Increased Cost. (a) If on or after (i) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (ii) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive made or issued after the applicable date set forth above (whether or not having the force of law) of any such authority, central bank or comparable agency: (A) shall subject any Bank (or its Applicable Lending Office) to any tax, duty or other charge with respect to its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans, or shall change the basis of taxation of payments to any Bank (or its Applicable Lending Office) of the principal of or interest on its Fixed Rate Loans or any other amounts due under this Agreement in respect of its Fixed Rate Loans or its obligation to make Fixed Rate Loans (except for taxes based on or measured in whole or in part by the gross income, net income, gross revenue or gross receipts of such Bank or its Applicable Lending Office imposed by the jurisdiction in which such Bank's principal executive office or Applicable Lending Office is located); or (B) shall impose, modify or deem applicable any reserve, special deposit, insurance assessment or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System or the Federal Deposit Insurance Corporation, but excluding (x) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage or Assessment Rate, (y) with respect to any Euro-Dollar Loan any such requirement with respect to which such Bank is entitled 45 to compensation during the relevant Interest Period pursuant to Section 8.03(d) and (z) any such requirement with respect to which such Bank is entitled to compensation pursuant to Section 8.03(b)) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans; and the result of any of the foregoing is to increase the cost to (or, in the case of Regulation D, to impose a cost on) such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that the adoption after the date hereof of any applicable law, rule or regulation regarding capital adequacy, or any change after the date hereof in any such law, rule or regulation or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive after the date hereof regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank would have achieved but for such adoption, change or compliance (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction; provided that the Borrower shall not be obligated to compensate any Bank (or its Parent) in respect of any such reduction in respect of periods more than six months prior to the date on which such Bank shall have notified the Borrower of its intention to demand such 46 compensation and setting forth the amount or the specific basis of computation thereof. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to Section 8.03(a) or (b) and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under Section 8.03(a) or (b) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. (d) The Borrower shall pay for the account of each Bank on the last day of each Interest Period with respect to any Euro-Dollar Loan (and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof), if at any time during such Interest Period such Bank shall be required to maintain (and shall maintain in amounts deemed by such Bank to be material) reserves against any category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined as provided in this Agreement or against any category of extensions of credit or other assets of such Bank which includes loans by a non-United States office of such Bank to United States residents (including without limitation reserves against "Eurocurrency liabilities" under Regulation D), an additional amount (determined by such Bank and notified to the Borrower and the Agent) equal to the product of the following for each day during such Interest Period: (i) the principal amount of the Euro-Dollar Loan of such Bank to which such Interest Period relates outstanding on such day; and (ii) the remainder of (x) a fraction the numerator of which is the applicable London Interbank Offered Rate (expressed as a decimal) and the denominator of which is one minus the stated rate (expressed as a decimal) at which such reserve requirements are imposed on such Bank on such day minus (y) such numerator; and (iii) 1/360. 47 If a Bank which is entitled to require payment by the Borrower of the amount provided for in this Section 8.03(d) determines that a lesser amount is required to compensate it for the costs of the reserve requirements referred to therein, such Bank may, but shall not be obligated to, reduce the amount payable by the Borrower thereunder to a lesser amount specified in the notice delivered pursuant to this Section 8.03(d). (e) Each Bank organized under the laws of a jurisdiction outside the United States of America agrees that it shall deliver to the Borrower (with a copy to the Agent) (i) within 30 days after the date of execution of this Agreement, two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, as appropriate, promulgated pursuant to the Code, indicating that such Bank is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes as permitted by the Code, (ii) from time to time, such extensions or renewals of such forms (or successor forms) as may reasonably be requested by the Borrower but only to the extent such Bank determines that it may properly effect such extensions or renewals under applicable tax treaties, laws, regulations and directives and (iii) in the event of a transfer of any Loan to an affiliate of such Bank, a new Internal Revenue Service Form 1001 or 4224 (or any successor form), as the case may be, for such affiliate. The Borrower and the Agent shall each be entitled to rely on such forms in its possession until receipt of any revised or successor form pursuant to the preceding sentence. SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as CD Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid, all payments of principal which would otherwise be applied to repay such 48 Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. SECTION 8.05. Election Not to Borrow. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03, the Borrower may elect to terminate this Agreement as to such Bank, and in connection therewith not to borrow any Base Rate Loan provided for in Section 8.02 or to prepay any Base Rate Loan made pursuant to Section 8.02 or 8.04, provided that the Borrower (i) notifies such Bank through the Agent of such election at least three Euro-Dollar Business Days before any date fixed for such a borrowing or such a prepayment, as the case may be, and (ii) repays all of such Bank's outstanding Loans at the end of the respective Interest Periods applicable thereto or as otherwise required by Section 8.02, together with accrued interest thereon and all accrued fees on such Bank's Commitment to such date and all other amounts payable for the account of such Bank hereunder. Upon receipt by the Agent of such notice, the Commitment of such Bank shall terminate. SECTION 8.06. Notice Mandatory. The Agent or the affected Bank, as the case may be, shall promptly give notice to the Borrower when circumstances which gave rise to a suspension of the obligations of the Banks or a Bank to make loans of a particular Type pursuant to Section 8.01 or 8.02, or to a demand for compensation under Section 8.03, no longer exist. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, telecopy or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or telex or telecopy number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex or telecopy number set forth in its Administrative Questionnaire or (z) in the case of any party, at such other address or telex or telecopy number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate 49 answerback is received, (ii) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and appropriate confirmation of transmission is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article II or VIII and notices to the Borrower under Section 6.01(c) shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Documentary Taxes. The Borrower shall pay (i) all out-of-pocket expenses of the Agent, including fees and disbursements of Davis Polk & Wardwell, special counsel for the Agent, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent or any Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom. The Borrower shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement or the Notes. SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due at such time with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of 50 set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) subject to Section 2.15, increase any Commitment of any Bank or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or (iv) change the percentage of the Commitments or the percentage of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement; and further provided that no such amendment or waiver shall materially change, to the detriment of any Bank, any provision of Article VIII hereof without the consent of such Bank. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. 51 Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign all or any portion of its rights under this Agreement and the Notes to an affiliate of such Bank or to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder without the written consent of the Borrower and the Agent (in which case the provisions of subsection (d) shall be applicable). The Borrower and the Agent shall be entitled to treat each Bank as the holder of the Notes issued to its order and owner of the Loans evidenced thereby unless and until notice of assignment pursuant to this subsection (c) is received by them. (d) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all or a portion of its rights and obligations under this Agreement and its Note, and such Assignee shall assume such rights and obligations, pursuant to an instrument substantially in the form of Exhibit G executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Agent (which consent of the Agent shall not be unreasonably withheld); provided that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such an instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by 52 any party shall be required. Upon the consummation of any assignment pursuant to this subsection (d), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,000. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.03(e). (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Applicable Lending Office under certain circumstances. SECTION 9.07. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. New York Law. This Agreement and each Note shall be construed in accordance with and governed by the law of the State of New York. SECTION 9.09. Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Subject to Section 5.04, this Agreement shall become effective when the Agent shall have received counterparts hereof signed by all of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). 53 SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 54 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. USX CORPORATION By /s/ John L. Richmond -------------------- Title: Assistant Treasurer- Cash & Banking 600 Grant Street Pittsburgh, Pennsylvania 15219-4776 Attention: Facsimile number: 412-433-4567 55 Co-Agents THE BANK OF NEW YORK By /s/ Robert J. Joyce Title: Vice President THE BANK OF NOVA SCOTIA By /s/ A. S. Norsworthy Title: Assistant Agent THE CHASE MANHATTAN BANK, N.A. By /s/ Bettylou J. Robert Title: Vice President CITIBANK, N.A. By /s/ Mark J. Lyons Title: Vice President MELLON BANK, N.A. By /s/ Richard K. James Title: Vice President PNC BANK, NATIONAL ASSOCIATION By /s/ Robert H. Friend Title: Assistant Vice President 56 THE SUMITOMO BANK, LIMITED NEW YORK BRANCH By /s/ Yoshinori Kawamura Title: Joint General Manager BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By /s/ John Madden Title: Vice President THE FUJI BANK LTD., NEW YORK BRANCH By /s/ Yoshihiko Shiotsugu Title: Vice President & Manager THE INDUSTRIAL BANK OF JAPAN, LTD. By /s/ Robert W. Ramage, Jr. Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By /s/ Noboru Kubota Title: Deputy General Manager NATIONSBANK OF TEXAS, N.A. By /s/ Kristin B. Palmer Title: Vice President 57 SOCIETE GENERALE By /s/ Salvatore Galatioto Title: Vice President Other Banks COMERICA BANK By /s/ John M. Costa Title: Vice President COMMERZBANK AKTIENGESELLSCHAFT By /s/ Juergen Boysen Title: Vice President By /s/ Juergen Schmieding Title: Assistant Vice President THE MITSUBISHI BANK, LTD. NEW YORK BRANCH By /s/ Robert J. Dilloff Title: Vice President NATIONAL CITY BANK OF CLEVELAND By /s/ Paul L. Richardson Title: Vice President NBD BANK, N.A. By /s/ Thomas W. Doddridge Title: Vice President 58 ROYAL BANK OF CANADA By /s/ Shelley Browne Title: Senior Manager THE SANWA BANK LIMITED NEW YORK BRANCH By /s/ Jean-Michel Fatovic Title: Vice President BANK OF MONTREAL By /s/ Bernard J. Sigardo Title: Director C I B C INC. By /s/ David H. McGowan Title: Vice President THE DAIWA BANK, LTD. NEW YORK BRANCH By /s/ Kenro Kojima Title: Vice President THE NORTHERN TRUST COMPANY By /s/ J. Chip McCall Title: Second Vice President 59 UNION BANK OF SWITZERLAND NEW YORK BRANCH By /s/ Robert W. Casey, Jr. Title: Vice President By /s/ Laurent Chaix Title: Assistant Vice President ABN AMRO BANK N.V. By /s/ Craig P. Guinane Title: Assistant Vice President By /s/ James M. Janowsky Title: Group Vice President THE BANK OF CALIFORNIA, N.A. By /s/ Harry S. Matthews Title: Vice President BANK OF HAWAII By /s/ Elizabeth O. MacLean Title Vice President THE BANK OF TOKYO TRUST COMPANY By /s/ John R. Jeffers Title: Vice President 60 CONTINENTAL BANK By /s/ Richard A. Broeren, Jr. Title: Managing Director CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Mark A. Campellone Title: Vice President & Manager CREDIT LYONNAIS NEW YORK BRANCH By /s/ Mark A. Campellone Title: Vice President & Manager THE DAI-ICHI KANGYO BANK, LTD. By /s/ Robert P. Gallagher Title: Assistant Vice President DRESDNER BANK AG NEW YORK & GRAND CAYMAN BRANCHES By /s/ A. Richard Morris Title: Vice President By /s/ Deborah Slusarczyk Title: Vice President FIRST BANK NATIONAL ASSOCIATION By /s/ Mark R. Olmon Title: Vice President 61 THE FIRST NATIONAL BANK OF BOSTON By /s/ Peter L. Griswold Title: Director FIRST NATIONAL BANK OF MARYLAND By /s/ Andrew W. Fish Title: Vice President GULF INTERNATIONAL BANK BSC By /s/ Issa N. Baconi Title: Senior Vice President & Branch Manager By /s/ Haytham F. Khalil Title: Assistant Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A., NEW YORK BRANCH By /s/ Gerard M. McKenna Title: Vice President KREDIETBANK, N.V. By /s/ Armen Karozichian Title: Vice President By /s/ Robert Snauffer Title: Vice President 62 THE MITSUBISHI TRUST AND BANKING CORP. By /s/ Masaaki Yamagishi Title: Chief Manager THE NIPPON CREDIT BANK, LTD. By /s/ Clifford M. Abramsky Title: Vice President & Manager THE TOKAI BANK, LTD. NEW YORK BRANCH By /s/ Masaharu Muto Title: Deputy General Manager THE YASUDA TRUST AND BANKING COMPANY, LTD. By /s/ Neil T. Chau Title: First Vice President 63 CHEMICAL BANK, as Bank and as Managing Agent By /s/ Theodore L. Parker Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Bank and as Agent By /s/ John Mikolay Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Corporate Banking North America Telex number: 177615 MGT UT Facsimile number: (212) 648-5336 SCHEDULE I BANKS COMMITMENTS Morgan Guaranty Trust Company $100,000,000 of New York Chemical Bank $100,000,000 The Bank of New York $100,000,000 The Bank of Nova Scotia $100,000,000 The Chase Manhattan Bank, N.A. $100,000,000 Citibank, N.A. $100,000,000 Mellon Bank, N.A. $100,000,000 PNC Bank, National Association $100,000,000 The Sumitomo Bank Limited, $100,000,000 New York Branch Bank of America National Trust & $ 75,000,000 Saving Association The Fuji Bank Ltd., New York Branch $ 75,000,000 The Industrial Bank of Japan, Ltd. $ 75,000,000 The Long-Term Credit Bank $ 75,000,000 of Japan, Limited, New York Branch NationsBank of Texas, N.A. $ 75,000,000 Societe Generale $ 75,000,000 Comerica Bank $ 50,000,000 Commerzbank Aktiengesellschaft $ 50,000,000 The Mitsubishi Bank, Ltd. New York Branch $ 50,000,000 National City Bank of Cleveland $ 50,000,000 NBD Bank, N.A. $ 50,000,000 Royal Bank of Canada $ 50,000,000 2 The Sanwa Bank Limited New York Branch $ 50,000,000 Bank of Montreal $ 35,000,000 C I B C Inc. $ 35,000,000 The Daiwa Bank, Ltd. New York Branch $ 35,000,000 The Northern Trust Company $ 35,000,000 Union Bank of Switzerland $ 35,000,000 New York Branch ABN AMRO Bank N.V. $ 25,000,000 The Bank of California, N.A. $ 25,000,000 Bank of Hawaii $ 25,000,000 The Bank of Tokyo Trust Company $ 25,000,000 Continental Bank $ 25,000,000 Credit Lyonnais New York Branch $ 25,000,000 and Cayman Island Branch The Dai-Ichi Kangyo Bank, LTD. $ 25,000,000 Dresdner Bank AG New York and $ 25,000,000 Grand Cayman Branches First Bank National Association $ 25,000,000 The First National Bank of Boston $ 25,000,000 First National Bank of Maryland $ 25,000,000 Gulf International Bank BSC $ 25,000,000 Istituto Bancario San Paolo $ 25,000,000 Di Torino, S.P.A. New York Branch Kredietbank, N.V. $ 25,000,000 Mitsubishi Trust And Banking Corp. $ 25,000,000 The Nippon Credit Bank, Ltd. $ 25,000,000 The Tokai Bank, Ltd. New York Branch $ 25,000,000 The Yasuda Trust And Banking Company, Ltd. $ 25,000,000 3 EXHIBIT A NOTE New York, New York , 19 For value received, USX CORPORATION, a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective Classes, Types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the inaccuracy of, or the failure of the Bank to make, any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of August 18, 1994 among the Borrower, the Co-Agents and other Banks parties thereto, Chemical Bank, as Managing Agent, and Morgan Guaranty Trust Company of New York, as Agent (as amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. USX CORPORATION By ------------------------------- Title: Assistant Treasurer- Cash & Banking 4 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - -------------------------------------------------------------------------------- Class and Amount of Notation Amount of Type of Principal Maturity Date Loan Loan Repaid Date Made By - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT B Form of Money Market Quote Request [Date] To: Morgan Guaranty Trust Company of New York (the "Agent") From: USX Corporation Re: Credit Agreement (as amended from time to time, the "Credit Agreement") dated as of August 18, 1994 among the Borrower, the Co-Agents and other Banks parties thereto, Chemical Bank, as Managing Agent, and the Agent. We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: --------------------- Principal Amount (1) Interest Period (2) $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] - ------------------ (1) Amount must be $50,000,000 or a larger integral multiple of $10,000,000. (2) Not less than one month (LIBOR Auction) or not less than 15 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Terms used herein have the meanings assigned to them in the Credit Agreement. USX CORPORATION By________________________ Title: EXHIBIT C Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to USX Corporation (the "Borrower") Pursuant to Section 2.03 of the Credit Agreement dated as of August 18, 1994 among the Borrower, the Co-Agents and other Banks parties thereto, Chemical Bank, as Managing Agent, and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: ------------------------ Principal Amount Interest Period $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By---------------------- Authorized Officer EXHIBIT D Form of Money Market Quote MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent 60 Wall Street New York, New York 10260-0060 Attention: Re: Money Market Quote to USX Corporation (the "Borrower") In response to your invitation on behalf of the Borrower dated -----------, 19---, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: --------------------------------- 2. Person to contact at Quoting Bank: ------------------------------- 3. Date of Borrowing: --------------------------- * 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: - ---------------------- * As specified in the related Invitation. 2 Money Market Principal Interest Money Market Absolute Amount** Period*** [Margin****] [Rate*****] --------- --------- ------------ ------------ $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $------------------.]** We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement dated as of August 18, 1994 among the Borrower, the Co-Agents and other Banks parties thereto, Chemical Bank, as Managing Agent, and yourselves, as Agent, irrevocably obligate(s) us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:--------------- By:-------------------- Authorized Officer - --------------------- **Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger integral multiple thereof. ***Not less than one month or not less than 15 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. ****Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (in increments of 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". *****Specify rate of interest per annum (in increments of 1/10,000th of 1%). EXHIBIT E OPINION OF COUNSEL FOR THE BORROWER [Dated as provided in Section 3.02 of the Credit Agreement] To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: I am General Counsel of USX Corporation, a Delaware corporation (the "Borrower"). I refer to the Credit Agreement (the "Credit Agreement") dated as of August 18, 1994 among the Borrower, the Co-Agents and other Banks listed on the signature pages thereof, Chemical Bank, as Managing Agent, and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. I have examined, or caused to be examined, originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of 2 Delaware and is qualified to do business in each jurisdiction where the ownership of its property or the conduct of its business requires such qualification. The Borrower has all the corporate power required to conduct its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Mortgage on any asset of the Borrower or any of its Subsidiaries. 3. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower. 4. Except as set forth in the Borrower's 1993 Form 10-K and quarterly report on Form 10-Q for the fiscal quarter ended June 30, 1994, there is no action, suit, arbitration or other proceeding, inquiry or investigation, at law or in equity, or before or by any court, public board or body, arbitrator or arbitral body, pending against the Borrower or of which the Borrower has otherwise received official notice or which to my knowledge is threatened against the Borrower, wherein there is a reasonable possibility of an unfavorable decision, ruling or finding which would materially adversely affect the Borrower's ability to perform its obligations under the Credit Agreement and the Notes and since the dates of the respective descriptions of proceedings contained in the reports identified above, there has been no change in the status of such proceedings which would materially adversely affect the Borrower's ability to perform its obligations under the Credit Agreement and the Notes. The foregoing opinion is limited to the laws of the Commonwealth of Pennsylvania, the Federal laws of the United States of America and the General Corporation law of the State of Delaware. I am a member of the Bar of the State of Ohio, and as to matters of Pennsylvania law, I have relied on the advice of members of the Legal Department admitted to practice in Pennsylvania. As the Credit Agreement and the Notes are by their terms governed by the laws of the State of New York, the foregoing opinion should be understood to conclude that (i) a Pennsylvania court or a Federal court sitting in Pennsylvania 3 would give effect to the choice of New York law to govern the Credit Agreement and the Notes and (ii) under the internal laws of the State of Pennsylvania the Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower. Very truly yours, EXHIBIT F OPINION OF DAVIS POLK & WARDWELL SPECIAL COUNSEL FOR THE AGENT [Dated as provided in Section 3.02 of the Credit Agreement] To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of August 18, 1994 among USX Corporation, a Delaware corporation (the "Borrower"), the Co-Agents and other banks listed on the signature pages thereof (the "Banks"), Chemical Bank, as Managing Agent, and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.02(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the 2 Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT G ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of ----------, 19-- among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), USX CORPORATION (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of August 18, 1994 among the Borrower, the Co- Agents, the Assignor and the other Banks party thereto, as Banks, Chemical Bank, as Managing Agent, and the Agent (as amended from time to time, the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Committed Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $----------; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $---------- are outstanding at the date hereof; and* WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $---------- (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to - ----------- *This clause (and certain other provisions herein) should be modified to reflect the assignment of Money Market Loans if such Loans are being assigned. 2 accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement (except rights with respect to outstanding Money Market Loans) to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement (except obligations with respect to any outstanding Money Market Loans) to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds an amount mutually agreed by the Assignor and the Assignee. It is understood that commitment and/or facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. 3 SECTION 4. Consent of the Borrower and the Agent. This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(d) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 9.06(d) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein. SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Notices. All notices in connection herewith shall be given in accordance with Section 9.01 of the Credit Agreement. The address of the Assignee for notices hereunder and thereunder shall be initially as set forth on the signature pages hereof. SECTION 8. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By------------------------ Title: 4 [ASSIGNEE] By------------------------ Title: [Address] Telex number: Facsimile number: USX CORPORATION By------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By------------------------ Title: EX-12.1 3 RATIO OF EARNINGS TO FIXED CHARGES & PREF. DIVS. Exhibit 12.1 USX CORPORATION COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS TOTAL ENTERPRISE BASIS - (Unaudited) ---------------------------------------------------------- (Dollars in Millions)
Nine Months Ended Year Ended December 31 September 30 -------------------------------- 1994 1993* 1993 1992 1991 1990 1989 ---- ----- ---- ---- ---- ---- ---- Portion of rentals representing interest $61 $63 $84 $87 $91 $88 $79 Capitalized interest 53 78 105 78 63 50 42 Pretax earnings which would be required to cover preferred stock dividend requirements of parent 37 32 44 14 15 28 93 Other interest and fixed charges 341 304 372 408 474 554 761 ---- ---- ---- ---- ---- ---- ---- Combined fixed charges and preferred stock dividends (A) $492 $477 $605 $587 $643 $720 $975 ==== ==== ==== ==== ==== ==== ==== Earnings-pretax income (loss) with applicable adjustments (B) $962 $90 $280 $376 $(53) $1,935 $2,271 ==== ==== ==== ==== ==== ====== ====== Ratio of (B) to (A) 1.95 (a) (b) (c) (d) 2.69 2.33 ==== ==== ==== ==== ==== ==== ==== *Restated (a) Earnings did not cover combined fixed charges and preferred stock dividends by $387 million. (b) Earnings did not cover combined fixed charges and preferred stock dividends by $325 million. (c) Earnings did not cover combined fixed charges and preferred stock dividends by $211 million. (d) Earnings did not cover combined fixed charges and preferred stock dividends by $696 million.
EX-12.2 4 RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.2 USX CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES TOTAL ENTERPRISE BASIS - (Unaudited) ------------------------------------------------- (Dollars in Millions)
Nine Months Ended Year Ended December 31 September 30 -------------------------------- 1994 1993* 1993 1992 1991 1990 1989 ---- ----- ---- ---- ---- ---- ---- Portion of rentals representing interest $61 $63 $84 $87 $91 $88 $79 Capitalized interest 53 78 105 78 63 50 42 Other interest and fixed charges 341 304 372 408 474 554 761 ---- ---- ---- ---- ---- ---- ---- Total fixed charges (A) $455 $445 $561 $573 $628 $692 $882 ==== ==== ==== ==== ==== ==== ==== Earnings-pretax income (loss) with applicable adjustments (B) $962 $90 $280 $376 $(53) $1,935 $2,271 ==== ==== ==== ==== ==== ====== ====== Ratio of (B) to (A) 2.11 (a) (b) (c) (d) 2.80 2.57 ==== ==== ==== ==== ==== ==== ==== *Restated (a) Earnings did not cover fixed charges by $355 million. (b) Earnings did not cover fixed charges by $281 million. (c) Earnings did not cover fixed charges by $197 million. (d) Earnings did not cover fixed charges by $681 million.
EX-27 5
5 1,000,000 9-MOS DEC-31-1994 SEP-30-1994 87 0 949 10 1,808 3,087 25,418 14,106 17,102 2,902 5,411 372 0 112 3,750 17,102 14,157 14,157 10,399 10,399 0 0 330 534 161 373 0 0 0 373 0 0 Consists of Marathon Stock issued, $287; Steel Stock issued, $76; Delhi Stock issued, $9. Primary and fully diluted eanings (loss) per share applicable to Marathon Stock, $0.98; Steel Stock, $1.23; Delhi Stock $(2.32).
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