-----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, bohuEpxd+Y5Mvz6V+xGLzzmu5rimh5eiQRNvnb55zMeeKK0OZ++UbC4xx2/mt8vb lK4SGTOh+pRA9XnMbohHFw== 0000950109-94-000084.txt : 19940128 0000950109-94-000084.hdr.sgml : 19940128 ACCESSION NUMBER: 0000950109-94-000084 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940127 SROS: NYSE 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: 424B2 SEC ACT: 33 SEC FILE NUMBER: 033-51621 FILM NUMBER: 94503247 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 424B2 1 PROSPECTUS SUPPLEMENT As filed pursuant to Rule 424(B)(2) Registration No. 032-51621 PROSPECTUS SUPPLEMENT (To Prospectus Dated January 6, 1994) 4,500,000 Shares USX-U.S. Steel Group Common Stock of USX Corporation --------------- The USX-U.S. Steel Group Common Stock, par value $1.00 per share (the "Steel Stock"), is common stock of USX Corporation ("USX" or the "Corporation") and is intended to reflect the performance of the steel and other businesses that constitute the U.S. Steel Group of USX. The Steel Stock is one of three classes of common stock of USX, the others being USX-Marathon Group Common Stock ("Marathon Stock") and USX-Delhi Group Common Stock ("Delhi Stock"). Holders of Steel Stock, Marathon Stock and Delhi Stock are holders of common stock of USX and continue to be subject to all of the risks associated with an investment in USX and all of its businesses and liabilities. Dividends on the Steel Stock will be payable when, as and if declared by the Board of Directors of USX (the "Board") out of the lesser of (i) legally available funds of USX and (ii) the Available Steel Dividend Amount (as defined in the accompanying Prospectus). The Board intends to declare and pay dividends on the Steel Stock based on the financial condition and results of operations of the U.S. Steel Group. The voting power of one share of Steel Stock relative to one share of each of the other classes of USX common stock will fluctuate based upon the relative market values thereof. Upon the liquidation of USX, the rights of the holders of the Steel Stock and each of the other classes of USX common stock will be based on their relative market capitalizations. Subject to certain conditions, the Steel Stock may be exchanged, at USX's option, for shares of the common stock of a wholly-owned subsidiary of USX to which the assets and liabilities of the U.S. Steel Group have been transferred as described herein. In the event of a disposition by USX of all or substantially all of the properties and assets of the U.S. Steel Group, USX will, subject to certain conditions, be required to (i) subject to the limitations on dividends described above, pay a dividend on the Steel Stock, or (ii) to the extent of legally available funds of USX, redeem shares of Steel Stock, in the case of any such dividend or redemption, in an amount equal to the net proceeds of such disposition, or (iii) exchange all outstanding shares of Steel Stock for Marathon Stock or, if there are no shares of Marathon Stock outstanding, Delhi Stock. The features of the Steel Stock, as well as other special considerations, are more fully discussed under "Summary--The Steel Stock" and "Price Range of Steel Stock, Dividends and Dividend Policy" in this Prospectus Supplement and under "Special Considerations" and "Description of Capital Stock" in the accompanying Prospectus. The Steel Stock is listed on the New York, Chicago and Pacific Stock Exchanges. On January 25, 1994, the reported last sale price of the Steel Stock on the New York Stock Exchange was $42 per share. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- PRICE $41 A SHARE --------------- UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) USX(2) ------------ -------------- ------------ Per Share.............................. $41.00 $.82 $40.18 Total(3)............................... $184,500,000 $3,690,000 $180,810,000
- ------- (1) USX has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deduction of expenses payable by USX estimated at $300,000. (3) USX has granted to the U.S. Underwriters an option exercisable within 30 days of the date hereof to purchase up to an aggregate of 500,000 additional shares at the price to public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions and proceeds to USX will be $205,000,000, $4,100,000, and $200,900,000, respectively. See "The Underwriter" herein. --------------- The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriter named herein and subject to approval of certain legal matters by Simpson Thacher & Bartlett, counsel for the Underwriter. It is expected that delivery of the Shares will be made on or about February 2, 1994 at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in New York funds. --------------- MORGAN STANLEY & CO. Incorporated January 26, 1994 NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR BY ANY UNDERWRITER. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. OFFERS AND SALES OF THE STEEL STOCK IN THE UNITED KINGDOM AND ADVERTISEMENTS THEREIN IN CONNECTION THEREWITH, ARE SUBJECT TO CERTAIN RESTRICTIONS. SEE "THE UNDERWRITER" HEREIN. ---------------- TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Summary.................................................................... S-3 Use of Proceeds............................................................ S-11 Capitalization............................................................. S-11 Price Range of Steel Stock, Dividends and Dividend Policy............................................. S-12 Business of the U.S. Steel Group........................................... S-13 U.S. Steel Group -- Selected Financial Information..................................................... S-27 U.S. Steel Group -- Analysis of Selected Financial Information..................................................... S-33 USX Corporation -- Selected Consolidated Financial Information........................................ S-41 USX Corporation -- Analysis of Selected Consolidated Financial Information............................................................... S-46 Certain United States Tax Consequences to Non-United States Holders.............................................. S-55 The Underwriter............................................................ S-57 Legal Matters.............................................................. S-58
PROSPECTUS
PAGE ---- Available Information..................................................... 2 Incorporation of Certain Documents by Reference............................................................. 2 USX Corporation........................................................... 3 Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Divi- dends.................................................................... 3 Use of Proceeds........................................................... 4 Special Considerations.................................................... 4 Management and Accounting Policies........................................ 7 Description of the Debt Securities........................................ 8 Description of Capital Stock.............................................. 15 Plan of Distribution...................................................... 29 Validity of Securities.................................................... 29 Experts................................................................... 29 Appendix I--Summary of USX Common Stock................................... A-1
---------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE STEEL STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 SUMMARY The following is a summary of certain information contained elsewhere in this Prospectus Supplement and in the accompanying Prospectus and is qualified in its entirety by reference to the Prospectus and the documents incorporated therein under "Incorporation of Certain Documents by Reference." Readers are encouraged to refer to such incorporated documents for a more complete description of USX. U.S. STEEL GROUP The U.S. Steel Group includes U.S. Steel, one of the largest integrated steel producers in the United States (referred to hereinafter as "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, leasing and financing activities and a majority interest in a titanium metal products company. The domestic steel industry is cyclical and highly competitive and continues to be adversely affected by excess world steel capability. U.S. Steel has responded to competition resulting from this excess capability by eliminating less efficient facilities, modernizing those that remain and entering into joint ventures, all with the objective of focusing production on higher value- added products. Since 1982, U.S. Steel has reduced its annual raw steel capability from 31 million to 12 million tons and has recognized restructuring charges aggregating $2.8 billion as its less efficient facilities have been shut down. During that period, it has also invested approximately $3.2 billion in facilities for its steel operations. U.S. Steel believes these investments have made its remaining steel operations among the most modern, efficient and competitive in the world. With the completion of continuous casters at two of its major steel producing facilities in 1992 and 1991, U.S. Steel achieved 100% continuous cast capability for its raw steel production of approximately 12 million annual net tons. This method produces higher quality steel at lower cost than the previously used ingot method. Capital expenditures for the U.S. Steel Group in 1993 were $198 million compared with $298 million in 1992 and $432 million in 1991. The reduction over this period primarily reflected the completion of U.S. Steel's continuous cast modernization program. Capital expenditures for 1994 are currently estimated at $260 million and will include continued expenditures for projects begun in 1993 relative to environmental, hot-strip mill and pickle line improvements at Gary Works and initial expenditures for a blast furnace project at Mon Valley Works which is planned for completion in 1995. Capital expenditures in 1995 and 1996 are currently expected to remain at about the same level as in 1994. In addition to the modernization of its production facilities, USX has entered into a number of joint ventures with domestic and foreign partners to take advantage of market or manufacturing opportunities in various steel related industries. The objective of the modernization and the joint ventures is to focus on production of higher value-added steels for customers in industries such as automotive, appliance, containers and oil country tubular goods where superior quality and special characteristics are of critical importance to customers. These products include bake-hardenable steels and coated sheets for the automobile industry, lamination sheet for the manufacture of motors and electrical equipment and improved tin mill products for the container industry. USX CORPORATION USX is a diversified company engaged in the steel business through its U.S. Steel Group, in the energy business through its Marathon Group and in the gas gathering and processing business through its Delhi Group. S-3 USX has three classes of common stock, USX-U.S. Steel Group Common Stock ("Steel Stock"), USX-Marathon Group Common Stock ("Marathon Stock") and USX- Delhi Group Common Stock ("Delhi Stock"). The Steel Stock, the Marathon Stock and the Delhi Stock are together referred to as "Common Stock." Each class of Common Stock is intended to provide the stockholders of such class with a separate security reflecting the performance of the related group. Holders of Steel Stock, Marathon Stock and Delhi Stock are holders of common stock of USX and continue to be subject to all of the risks associated with an investment in USX and all of its businesses and liabilities. The U.S. Steel Group includes U.S. Steel and certain steel-related and other businesses described above under "U.S. Steel Group." U.S. Steel Group sales as a percentage of total consolidated USX sales were 31%, 28% and 26% in the years 1993, 1992 and 1991, respectively. The Marathon Group includes the operations of Marathon Oil Company ("Marathon"), a wholly owned subsidiary of USX which is engaged in worldwide crude oil and natural gas exploration, production and transportation; and domestic refining, marketing and transportation of crude oil and petroleum products. Marathon Group sales (excluding sales from the operations now included in the Delhi Group) as a percentage of total consolidated USX sales were 66%, 69% and 72% in the years 1993, 1992 and 1991, respectively. The Delhi Group consists of Delhi Gas Pipeline Corporation and certain related companies which are engaged in the purchasing, gathering, processing, transporting and marketing of natural gas. Prior to October 2, 1992, the businesses which are now included in the Delhi Group were included in the Marathon Group. Delhi Group sales as a percentage of total USX consolidated sales were 3% in each of 1993 and 1992 and 2% in 1991. USX was incorporated in 1901 and is a Delaware corporation. Its executive offices are located at 600 Grant St., Pittsburgh, PA 15219-4776 (tel: (412) 433-1121). The terms "USX" and the "Corporation" when used herein refer to USX Corporation or USX Corporation and its subsidiaries as required by the context. THE OFFERING* Steel Stock offered......................................... 4,500,000 shares Steel Stock to be outstanding after the offering............ 74,839,595 shares** Use of Proceeds............................................. General business purposes of the U.S. Steel Group New York Stock Exchange Symbol.............................. X
- -------- * Assuming no exercise of the over-allotment option. ** Based on shares outstanding at January 25, 1994. THE STEEL STOCK The Steel Stock is intended to reflect the performance of the Steel and Related Businesses and other businesses which constitute the U.S. Steel Group. The Steel Stock is one of the three classes of USX common stock described above. A portion of USX's corporate assets and liabilities are attributed to the U.S. Steel Group, the Marathon Group and the Delhi Group. References in this Prospectus Supplement and the accompanying Prospectus to the "Certificate of Incorporation" refer to the Restated Certificate of Incorporation of USX. For a more complete description of the terms of the Steel Stock and the Board's dividend policy and other considerations relating thereto, see "Price Range of Steel Stock, Dividends and S-4 Dividend Policy" herein and "Description of Capital Stock," "Special Considerations" and "Management and Accounting Policies" in the accompanying Prospectus. CERTAIN SPECIAL CONSIDERATIONS STOCKHOLDERS OF ONE COMPANY; FINANCIAL IMPACTS FROM THE MARATHON GROUP OR THE DELHI GROUP COULD AFFECT THE U.S. STEEL GROUP 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 does not affect legal title to such assets or responsibility for such liabilities. Holders of Steel Stock, Marathon Stock and Delhi Stock are holders of common stock of USX and continue to be subject to all of the risks associated with an investment in USX and all of its businesses and liabilities. Financial impacts arising from the Marathon Group or the Delhi Group which affect the overall cost of USX's capital could affect the results of operations and financial condition of the U.S. Steel Group. In addition, net losses of any Group, as well as dividends or distributions on any class of USX common stock or series of Preferred Stock, and repurchases of any class of USX common stock or certain series of Preferred Stock, will reduce the legally available funds of USX available for payment of dividends on the Steel Stock. Accordingly, the USX consolidated financial information should be read in connection with the financial information of the U.S. Steel Group. USX prepares and provides consolidated financial statements, as well as financial statements of the U.S. Steel Group, to the holders of Steel Stock. See "Management and Accounting Policies" in the accompanying Prospectus and footnotes (a) and (b) to "U.S. Steel Group--Selected Financial Information," "USX Corporation-- Selected Consolidated Financial Information" and "USX Corporation--Analysis of Selected Consolidated Financial Information" herein. NO RIGHTS OR ADDITIONAL DUTIES WITH RESPECT TO THE GROUPS; POTENTIAL CONFLICTS Holders of Steel Stock, Marathon Stock and Delhi Stock have only the rights of stockholders of USX, and, except as described below under "Voting" and "Exchange and Redemption," holders of Steel Stock are not provided any rights specifically related to the U.S. Steel Group. In addition, principles of Delaware law established in cases involving differing treatment of classes of capital stock or groups of holders of the same class of capital stock provide that a board of directors owes an equal duty to all stockholders regardless of class or series and does not have separate or additional duties to any group of stockholders. The existence of separate classes of Common Stock may give rise to occasions when the interests of holders of Steel Stock, Marathon Stock and Delhi Stock may diverge or appear to diverge. Although USX is not aware of any precedent involving the fiduciary duties of directors of corporations having classes of common stock or separate classes or series of capital stock the rights of which are defined by reference to specified operations of the corporation, under the principles of Delaware law referred to above and the "business judgment rule," absent abuse of discretion, a good faith determination made by a disinterested and adequately informed Board with respect to any matter having disparate impacts upon holders of Steel Stock, Marathon Stock or Delhi Stock would be a defense to any challenge to such determination made by or on behalf of the holders of any class of Common Stock. LIMITED SEPARATE VOTING RIGHTS Holders of shares of Steel Stock, Marathon Stock and Delhi Stock vote together as a single class on all matters as to which all USX common stockholders are entitled to vote. Holders of Steel Stock, Marathon Stock or Delhi Stock will have no rights to vote on matters as a separate group except as described under "Voting" below and in certain limited circumstances as currently provided under Delaware law. Separate meetings for the holders of each class of Common Stock will not be held. If, when a stockholder vote is taken S-5 on any matter as to which a separate vote by any class would not be required under the Certificate of Incorporation or Delaware law, the holders of one or more classes of Common Stock would have more than the number of votes required to approve any such matter, the holders of that class or classes would be in a position to control the outcome of the vote on such matter. On all matters where the holders of Common Stock vote together as a single class, a share of Marathon Stock will have one vote and each share of Steel Stock and Delhi Stock will have a fluctuating vote per share based on relative time-weighted average ratios of their Market Values. Immediately after consummation of the offering, holders of the Marathon Stock are expected to have more than 55% of the total voting power of USX. MANAGEMENT AND ACCOUNTING POLICIES SUBJECT TO CHANGE Since 1991 USX has applied certain management and accounting policies adopted by the Board and described herein, which policies may be modified or rescinded in the sole discretion of the Board without approval of stockholders, although there is no present intention to do so. The Board may also adopt additional policies depending upon the circumstances. Any determination of the Board of Directors to modify or rescind such policies, or to adopt additional policies, including any such decision that would have disparate impacts upon holders of Steel Stock, Marathon Stock or Delhi Stock, would be made by the Board in good faith and in the honest belief that such decision is in the best interests of all stockholders of USX. In addition, generally accepted accounting principles require that any change in accounting policy be preferable (in accordance with such principles) to the policy previously established. LIMITATIONS ON POTENTIAL UNSOLICITED ACQUISITIONS If the U.S. Steel Group were a separate company, any person interested in acquiring the U.S. Steel Group without negotiation with management could seek to obtain control of it by means of a tender offer or proxy contest. Any person interested in acquiring only the U.S. Steel Group without negotiation with USX management would be required to seek control of the voting power representing all of the outstanding capital stock of USX entitled to vote on such acquisition, including the Marathon Stock and the Delhi Stock. See "Limited Separate Voting Rights" above. ---------------- For further discussion of the foregoing and certain other considerations, see "Special Considerations" in the accompanying Prospectus. ---------------- TERMS OF THE STEEL STOCK DIVIDENDS The Board intends to declare and pay dividends on the Steel Stock based on the financial condition and results of operations of the U.S. Steel Group, although under Delaware law it has no obligation to do so. Since May 6, 1991, the Board has declared a dividend each quarter on the Steel Stock of $.25 per share. See "Price Range of Steel Stock, Dividends and Dividend Policy" herein. Dividends on the Steel Stock are limited by the Certificate of Incorporation and, subject to any prior rights of the holders of Preferred Stock, will be payable when, as and if declared by the Board out of the lesser of (i) the Available Steel Dividend Amount and (ii) legally available funds of USX. The Available Steel Dividend Amount will be increased or decreased as appropriate by, among other things, Steel Net Income (as defined under "Description of Capital Stock--Steel Stock--Dividends" in the accompanying Prospectus). In accordance with the Certificate of Incorporation, the Available Steel Dividend Amount was adjusted to eliminate certain effects of the adoption in 1992 of certain accounting standards. For information concerning policies governing the attribution of corporate activities to the U.S. Steel Group that are followed by USX in S-6 determining Steel Net Income, see "Management and Accounting Policies" in the accompanying Prospectus and "U.S. Steel Group--Selected Financial Information" herein. Assuming the offering had been completed as of December 31, 1993 at a price of $41.00 per share, the Available Steel Dividend Amount at such date would have been at least $2,025 million assuming the over-allotment option was not exercised, or at least $2,045 million, assuming that such option was exercised in full. See "Description of Capital Stock--Steel Stock--Dividends" in the accompanying Prospectus. Payment of dividends on any Preferred Stock attributed to the U.S. Steel Group will decrease the Available Steel Dividend Amount. The Board may in its sole discretion declare and pay dividends exclusively on any class of USX Common Stock in equal or unequal amounts, notwithstanding the respective amount of funds available for dividends on each class, the amount of prior dividends declared on each class or any other factor, subject to limitations set forth in the Certificate of Incorporation. See "Price Range of Steel Stock, Dividends and Dividend Policy" herein. VOTING The holders of Steel Stock, Marathon Stock and Delhi Stock will vote together as a single class on all matters as to which all USX common stockholders are entitled to vote, except under certain circumstances. On all such matters, each share of Marathon Stock will have one vote, and each share of Steel Stock and of Delhi Stock will have a fluctuating vote based on the relative Market Values of one share of such class to one share of Marathon Stock, calculated during a specified period prior to the record date. The approval of the holders of at least 66 2/3% of the outstanding Steel Stock, Marathon Stock or Delhi Stock, as the case may be, is necessary for the use of proceeds from the sale of any of the properties or assets of the Group to which such class of Common Stock relates, (i) in any business of either of the other Groups or (ii) for the declaration or payment of any dividend or distribution on either of the other classes of Common Stock, subject to certain exceptions. See "Description of Capital Stock--Steel Stock--Voting" in the accompanying Prospectus. EXCHANGE AND REDEMPTION At any time after USX has transferred all of the assets and liabilities of the U.S. Steel Group to a wholly owned subsidiary of USX, the Board, in its sole discretion, subject to certain conditions, may declare that all of the outstanding shares of Steel Stock shall be exchanged for a number of shares of common stock of such subsidiary on a pro rata basis. In the event of a Disposition of all or substantially all of the assets of the U.S. Steel Group, USX will, subject to certain conditions, be required to (i) subject to the limitation on dividends described above, pay a dividend on the Steel Stock in an amount equal to the Net Proceeds of such Disposition, (ii) to the extent of legally available funds of USX, redeem shares of Steel Stock having an aggregate average Market Value closest to the value of such Net Proceeds for an amount equal to such Net Proceeds or (iii) exchange Steel Stock for a number of shares of Marathon Stock or, if no Marathon Stock is outstanding, of Delhi Stock, equal to 110% of the ratio of the average Market Values of one share of Steel Stock to one share of Marathon Stock or of Delhi Stock, as the case may be. Such ratio will be determined using Market Values during the ten-Business Day period after consummation of such Disposition. See "Description of Capital Stock--Steel Stock--Exchange and Redemption" in the accompanying Prospectus. S-7 LIQUIDATION After payment of creditors and after the holders of the Preferred Stock receive the full preferential amounts to which they are entitled, the holders of the outstanding shares of each class of Common Stock will receive the funds remaining for distribution to the common stockholders in proportion to the relative time-weighted average aggregate market capitalizations of each class. See "Description of Capital Stock--Steel Stock--Liquidation" in the accompanying Prospectus. RECENT DEVELOPMENT B&LE LITIGATION On January 24, 1994, the U.S. Supreme Court denied a Petition for Writ of Certiorari by the Bessemer and Lake Erie Railroad (the "B&LE") in the Lower Lake Erie Iron Ore Antitrust Litigation ("MDL-587"). As a result, the decision of the U.S. Court of Appeals for the Third Circuit affirming judgments of approximately $498 million, plus interest, relating to antitrust violations by the B&LE was permitted to stand. In addition, the Third Circuit decision remanded the claims of two plaintiffs for retrial of their damage awards. At trial these plaintiffs asserted claims of approximately $8 million, but were awarded only nominal damages by the jury. The B&LE was a wholly owned subsidiary of USX throughout the period the conduct occurred. It is now a subsidiary of Transtar in which USX has a 45% equity interest. These actions were excluded liabilities in the sale of USX's transportation units in 1988, and USX is obligated to reimburse Transtar for judgments paid by the B&LE. Following the Court of Appeals decision, USX, which had previously accrued $90 million on a pretax basis for this litigation, charged an additional amount of $619 million on a pretax basis against the results of the U.S. Steel Group in the second quarter of 1993. In late 1993, USX and LTV Steel Corp. ("LTV"), one of the plaintiffs in MDL-587, agreed to settle all of LTV's claims in that action for $375 million. USX's potential liability in the LTV portion of the case was estimated to be in excess of $500 million at year end 1993. USX made a payment of $200 million on December 29, 1993 and is obligated to pay an additional $175 million not later than February 28, 1994. Claims of three additional plaintiffs were also settled in December 1993. These settlements resulted in a pretax credit of $127 million in the fourth quarter financial results of the U.S. Steel Group. As a result of the denial of the Petition for Writ of Certiorari, judgments for the remaining MDL-587 plaintiffs (other than the two remanded for retrial), totaling approximately $210 million, including post-judgment interest, are due for payment in the first quarter of 1994. For further discussion of pending legal matters, see "Business of the U.S. Steel Group--Legal Proceedings" herein. S-8 U.S. STEEL GROUP SUMMARY SELECTED FINANCIAL INFORMATION The following summary selected financial information has been derived from the financial statements of the U.S. Steel Group for each of the five years in the period ended December 31, 1993. The information set forth below should be read in connection with the U.S. Steel Group financial statements and notes thereto and accompanying "Management's Discussion and Analysis" contained in the USX Annual Report on Form 10-K for the year ended December 31, 1992, incorporated herein by reference. The data for the year ended December 31, 1993, have been derived from unaudited financial statements which, in the opinion of management, reflect all adjustments necessary to a fair statement of results for the period covered. All such adjustments are of a normal recurring nature except as described herein. The financial information of the U.S. Steel Group supplements the consolidated financial information of USX and, taken together with the financial information of the Marathon Group and the Delhi Group, includes all accounts which comprise the corresponding consolidated financial information of USX. The information set forth below should be read in connection with "U.S. Steel Group--Selected Financial Information" and "U.S. Steel Group--Analysis of Selected Financial Information" herein.
YEAR ENDED DECEMBER 31, ---------------------------------------- 1993 1992 1991 1990 1989 ------ ------- ------- ------ ------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Sales............................... $5,612 $ 4,919 $ 4,864 $6,073 $6,509 Operating income (loss)............. (149) (241) (617) 475 640 Operating costs include: Depreciation, depletion and amortization...................... 314 288 253 278 307 Pension credits.................... (202) (231) (196) (262) (213) B&LE litigation charge............. 342 -- -- -- -- Restructuring charges.............. 42 10 402 -- -- Other income........................ 210 5 9 58 292 Other income includes: Gain on disposal of assets......... 216 23 18 28 272 Income (loss) from affiliates-- equity method..................... (11) (27) (38) 38 35 Total income (loss) before cumulative effect of changes in accounting principles... (169) (271) (507) 310 540 Cumulative effect of changes in accounting principles: Accounting for postemployment benefits........................... (69) -- -- -- -- Accounting for postretirement benefits other than pensions....... -- (1,159) -- -- -- Accounting for income taxes......... -- (176) -- -- -- ------ ------- ------- ------ ------ Net income (loss) before preferred dividends.......................... $ (238) $(1,606) $ (507) $ 310 $ 540 Net income (loss) applicable to Steel Stock........................ (259) (1,609) (509) 306 523 PER SHARE DATA--STEEL STOCK: Total income (loss) before cumulative effect of changes in accounting principles--primary..... $(2.96) $ (4.92) $(10.00) $ 6.00 $10.17 Net income (loss)--primary.......... (4.04) (28.85) (10.00) 6.00 10.17 Dividends paid...................... 1.00 1.00 .94 .88 .88 CASH FLOW DATA: Cash provided from (used in) operating activities............... $ 86 $ (89) $ 9 $ 419 $ 926 Capital expenditures................ 198 298 432 391 397 Cash from disposal of assets........ 291 39 26 49 787 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents........... $ 79 $ 22 $ 79 $ 70 $ 296 Investments in equity method affiliates......................... 522 519 468 501 596 Property, plant and equipment--net.. 2,653 2,809 2,797 2,748 2,567 Total assets........................ 6,563 6,251 5,627 5,582 5,499 Notes payable....................... -- 15 23 32 4 Total long-term debt................ 1,551 2,259 2,019 1,468 1,440 Stockholders' equity................ 617 247 1,692 2,244 2,055
S-9 USX CORPORATION SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION The following summary selected consolidated financial information has been derived from the consolidated financial statements of USX for each of the five years in the period ended December 31, 1993. The information set forth below should be read in connection with the USX consolidated financial statements and notes thereto and accompanying "Management's Discussion and Analysis" contained in the USX Annual Report on Form 10-K for the year ended December 31, 1992, incorporated herein by reference. The data for the year ended December 31, 1993, have been derived from unaudited consolidated financial statements which, in the opinion of management, reflect all adjustments necessary to a fair statement of results for the period covered. All such adjustments are of a normal recurring nature except as described herein. The information set forth below should be read in connection with "USX Corporation--Selected Consolidated Financial Information" and "USX Corporation--Analysis of Selected Consolidated Financial Information" herein.
YEAR ENDED DECEMBER 31, ------------------------------------------- 1993 1992 1991 1990 1989 ------- ------- ------- ------- ------- (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Sales............................ $18,064 $17,813 $18,825 $20,659 $18,717 Operating income (loss).......... 56 70 (259) 1,556 1,570 Operating costs include: Depreciation, depletion and amortization................... 1,077 1,091 1,128 1,304 1,336 Inventory market valuation charges (credits).............. 241 (62) 260 (140) (145) B&LE litigation charge......... 342 -- -- -- -- Restructuring charges.......... 42 125 426 -- -- Other income (loss).............. 257 (2) 39 37 406 Other income (loss) includes: Gain on disposal of assets..... 253 24 30 7 370 Total income (loss) before cumulative effect of changes in accounting principles...................... (167) (160) (578) 818 965 Cumulative effect of changes in accounting principles: Accounting for postemployment benefits........................ (86) -- -- -- -- Accounting for retrospectively rated insurance contracts....... (6) -- -- -- -- Accounting for postretirement benefits other than pensions.... -- (1,306) -- -- -- Accounting for income taxes..... -- (360) -- -- -- ------- ------- ------- ------- ------- Net income (loss) before preferred dividends............. $ (259) $(1,826) $ (578) $ 818 $ 965 Net income (loss) applicable to common stocks................... (286) (1,835) (587) 800 907 CASH FLOW DATA: Cash provided from operating activities...................... $ 944 $ 920 $ 1,023 $ 1,621 $ 2,446 Capital expenditures............. 1,151 1,505 1,392 1,391 1,429 Cash from disposal of assets..... 469 117 78 558 988 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents........ $ 268 $ 57 $ 279 $ 263 $ 786 Property, plant and equipment-- net............................. 11,603 11,759 11,593 11,584 11,995 Total assets..................... 17,320 17,252 17,039 17,268 17,500 Notes payable.................... 1 47 79 138 16 Total long-term debt............. 5,923 6,302 6,438 5,527 5,875 Stockholders' equity............. 3,864 3,709 4,987 5,869 5,737
S-10 USE OF PROCEEDS Based on the offering price of $41.00 per share, the net proceeds to USX from the offering (prior to deduction of estimated expenses) will be $180,810,000 ($200,900,000 if the over-allotment option is exercised in full). The net proceeds to USX from the offering will be used for the general business purposes of the U.S. Steel Group. CAPITALIZATION The following table sets forth the total capitalization of the U.S. Steel Group and the total consolidated capitalization of USX as of December 31, 1993, and as adjusted to give effect to the net proceeds from the offering (assuming no exercise of the over-allotment option). The net proceeds will be reflected entirely in the financial statements of the U.S. Steel Group. As a matter of policy, USX manages most financial activities on a centralized, consolidated basis. For information concerning attribution of debt and equity to the U.S. Steel Group, see "U.S. Steel Group--Selected Financial Information" and "U.S. Steel Group--Analysis of Selected Financial Information" herein.
DECEMBER 31, 1993 ------------------------------- U.S. STEEL USX GROUP CONSOLIDATED --------------- --------------- AS AS ACTUAL ADJUSTED ACTUAL ADJUSTED ------ -------- ------ -------- (DOLLARS IN MILLIONS) SHORT-TERM OBLIGATIONS (including notes payable and current maturities of long-term debt)..... $ 11 $ 11 $ 36 $ 36 LONG-TERM DEBT DUE AFTER ONE YEAR(A)........... 1,540 1,540 5,888 5,888 MINORITY INTEREST.............................. 5 5 5 5 STOCKHOLDERS' EQUITY(B)........................ 617 798 3,864 4,045 ------ ------ ------ ------ TOTAL CAPITALIZATION........................... $2,173 $2,354 $9,793 $9,974 ====== ====== ====== ======
- -------- (a) At December 31, 1993, certain long-term debt due within one year of $699 million was included in long-term debt of USX since unused long-term credit agreements of $1,500 million were available for refinancing if needed. (b) If the over-allotment option is exercised in full, stockholders' equity for the U.S. Steel Group and for USX as adjusted would be $818 million and $4,065 million, respectively. S-11 PRICE RANGE OF STEEL STOCK, DIVIDENDS AND DIVIDEND POLICY The Steel Stock is listed on the New York Stock Exchange (the "NYSE") and the Chicago and Pacific Stock Exchanges. The following table sets forth the range of high and low sales prices of the Steel Stock on the NYSE Composite Tape (the "Composite Tape") for the stated periods.
HIGH LOW ------ ------ 1992 First Quarter................................................ 29 3/4 23 5/8 Second Quarter............................................... 29 22 1/4 Third Quarter................................................ 30 3/8 24 Fourth Quarter............................................... 34 3/8 22 1/8 1993 First Quarter................................................ 41 1/2 31 1/2 Second Quarter............................................... 46 35 1/2 Third Quarter................................................ 40 3/4 27 1/2 Fourth Quarter............................................... 43 3/8 30 3/8 1994 First Quarter (through January 25)........................... 45 5/8 40
On January 25, 1994, the reported last sale price of the Steel Stock on the NYSE was $42 per share. On January 25, 1994, the Board declared a dividend of $.25 per share on Steel Stock payable on March 10, 1994 to stockholders of record on February 4, 1994. Shares of Steel Stock issued pursuant to the offering will be entitled to this dividend. Since May 6, 1991, the Board has declared a dividend each quarter on the Steel Stock of $.25 per share. The Board reserves the right to change the dividend rate at any time and from time to time. The Board intends to declare and pay dividends on the Steel Stock based on the financial condition and results of operations of the U.S. Steel Group, although it has no obligation under Delaware law to do so. Dividends on the Steel Stock will be payable when, as and if declared by the Board out of the lesser of (i) the Available Steel Dividend Amount (as defined in "Description of Capital Stock--Steel Stock--Dividends" in the accompanying Prospectus) and (ii) legally available funds of USX (as defined under Delaware law). In making its dividend decisions, the Board will rely on the financial statements of the U.S. Steel Group. In determining its dividend policy, the Board will consider, among other things, the long-term earnings and cash flow capabilities of the U.S. Steel Group, as well as the dividend policies of publicly traded steel companies. See "Special Considerations--Dividends and Earnings Per Share" and "Description of Capital Stock--Steel Stock--Dividends" in the accompanying Prospectus. S-12 BUSINESS OF THE U.S. STEEL GROUP STEEL INDUSTRY BACKGROUND AND COMPETITION The domestic steel industry is cyclical and highly competitive. Despite significant reductions in raw steel production capability by major domestic producers over the last decade, the domestic industry continues to be adversely affected by excess world capacity. In certain years over the last decade, extensive downsizings have necessitated costly restructuring charges which, when combined with highly competitive market conditions, resulted in substantial losses for most domestic integrated producers. U.S. Steel is one of the largest integrated steel producers in the United States and ranked first in both tons of raw steel production and in tons of steel shipped by domestic producers based on data for 1993. U.S. Steel competes with many other domestic steel companies, a number of which have gone through bankruptcy reorganization. Compared to integrated producers, minimills, which rely on less capital intensive hot metal sources, have certain competitive advantages. Since minimills are typically not unionized, they enjoy lower employment costs and more flexible work rules. In certain product lines like structural shapes, bars and rods, minimills have provided significant competition for integrated producers in the domestic market. One minimill company has constructed two plants utilizing thin slab casting technology to produce flat rolled products which previously were produced domestically only by integrated companies. These two plants are currently being expanded and this company has announced its intention to construct a third flat-rolled plant with a joint venture partner. At least two other flat-rolled mill projects have been announced and several other companies are currently considering additional projects for construction in the United States. The domestic steel industry has been adversely affected by unfairly traded imports. Steel imports to the United States accounted for an estimated 19% of the domestic steel market in the first eleven months of 1993, and for an estimated 23% and 24% in October and November, respectively. Steel imports to the United States accounted for an estimated 17% to 18% of the domestic steel market in 1992 and 1991. On March 31, 1992, Voluntary Restraint Agreements ("VRAs") restricting the level of steel imports to the United States expired, and in June 1992, in conjunction with other domestic steel firms, USX filed a number of cases with the Department of Commerce ("USDC") and the International Trade Commission ("ITC") against unfairly traded imported carbon flat rolled steel. Beginning in late 1992, as a result of affirmative preliminary determinations by both the ITC and the Department of Commerce in the vast majority of cases, provisional duties were imposed on the imported steel products under investigation. On June 22, 1993, the Department of Commerce issued the final determinations of subsidization in the countervailing duty cases and final margins for sales at less than fair value in the antidumping cases. On July 27, 1993, the ITC issued affirmative determinations of material injury to the domestic steel industry by reason of imports in cases representing an estimated 51% of the dollar value and 42% of the volume of all flat-rolled carbon steel imports under investigation. Affirmative determinations were found in cases relating to 37% of such volume of cold- rolled steel, 92% of such volume of the higher-value-added corrosion resistant steel and 97% of such volume of plate steel. Negative determinations were found in all cases related to hot-rolled steel, the largest import market. In those cases where negative determinations were made by the ITC, provisional duties imposed on imports covered by the cases were removed and final remedial duties were not imposed. While USX is unable to predict the effect these negative determinations may have on the business or results of operations of the U.S. Steel Group, they may result in increasing levels of imported steel and may adversely affect some product prices. As discussed above, steel imports to the United States have increased in recent months. Although the affirmative determinations are helpful in offsetting the harm to the U.S. steel industry caused by subsidized and dumped imports, USX believes that the negative determinations were improper and, together with other domestic steel firms, has appealed such determinations to the U.S. Court of International Trade and, in certain cases involving imports from Canada, to a bi-national panel in accordance with the Canadian Free Trade Agreement. Several of the affirmative determinations similarly have been challenged in appeals filed by foreign steel producers. 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. S-13 In addition to competition from other domestic and foreign steel producers, U.S. Steel faces competition from producers of materials such as aluminum, cement, composites, glass, plastics and wood in many markets. The U.S. Steel Group's businesses are subject to numerous federal, state and local laws and regulations relating to the storage, handling, emission and discharge of environmentally sensitive materials. U.S. Steel believes that its major domestic integrated steel competitors are confronted by substantially similar conditions and thus does not believe that its relative position with regard to such other competitors is materially affected by the impact of environmental laws and regulations. However, the costs and operating restrictions necessary for compliance with environmental laws and regulations may have an adverse effect on U.S. Steel's competitive position with regard to domestic minimills and some foreign steel producers and producers of materials which compete with steel, which may not be required to undertake equivalent costs in their operations. For further information, see "Environmental Matters" below. BUSINESS STRATEGY U.S. Steel's raw steel production facilities are Gary Works in Indiana, Mon Valley Works in Pennsylvania and Fairfield Works in Alabama. Over the last 10 years, U.S. Steel has responded to competition resulting from excess steel industry capability by eliminating less efficient facilities, modernizing those that remain and entering into joint ventures, all with the objective of focusing production on higher value-added products for customers in industries such as automotive, appliance, containers and oil country tubular goods where superior quality and special characteristics are of critical importance. U.S. Steel does not intend to sell all steel products but intends to focus on selected markets with developments such as bake-hardenable steels and coated sheets for the automobile industry, lamination sheet for the manufacture of motors and electrical equipment and improved tin mill products for the container industry. In addition, U.S. Steel intends to pursue lower manufacturing cost objectives through continuing cost improvement programs. These initiatives include, but are not limited to, reduced production cycle time, improved yields, continued customer orientation and improved process control. Since 1982, the number of U.S. Steel raw steel production facilities has been reduced from nine to the three described above, and annual raw steel capability has been reduced from 31 million to 12 million tons. Steel employment has been reduced from approximately 89,000 in 1982 to about 18,000 in 1993. As a result of downsizing its operations, the U.S. Steel Group recognized restructuring charges aggregating $2.8 billion since 1982 as its less efficient facilities have been shut down. During that period, U.S. Steel also invested approximately $3.2 billion in facilities for its steel operations. U.S. Steel believes that these expenditures have made its remaining steel operations among the most modern, efficient and competitive in the world. With the completion of new continuous casters at Gary Works in 1991 and at Mon Valley Works in 1992, U.S. Steel achieved the ability to continuously cast 100% of its raw steel production. This method of producing steel results in higher quality steel at a lower cost than the previously used ingot method. Heavy investment has also been made in technology that complements the casters. For example, U.S. Steel's largest blast furnace, located at Gary, was rebuilt in 1991, at a cost of $110 million, to improve environmental controls and install a state-of-the-art process control system and a third high- efficiency hot-blast stove. The plate mill at Gary was also rebuilt in 1991, and hot strip mill modifications and improvements were made over a number of years at Fairfield and Gary to improve the quality of coils provided to customers. For additional information concerning capital expenditures for the U.S. Steel Group see "Capital Expenditures" below. In addition to the modernization of its production facilities, USX has entered into a number of joint ventures with domestic and foreign partners to take advantage of market or manufacturing opportunities in the sheet, tin plate, tubular, bar and plate consuming industries. See "Joint Ventures and Other Investments" below. S-14 SALES The following table sets forth the total sales of the U.S. Steel Group for each of the last three years. Such information does not include sales by joint ventures and other affiliates of USX accounted for by the equity method. SALES
1993 1992 1991 ------ ------ ------ (MILLIONS) Steel and Related Businesses Sheets and Tin Mill Products.......................... $3,462 $2,994 $2,762 Tubular Products...................................... 334 308 403 Plate, Structural and Other Steel Mill Products(a).... 595 537 658 Coal.................................................. 268 294 268 Taconite Pellets and All Other(b)..................... 763 619 509 Other Businesses........................................ 190 167 264 ------ ------ ------ Total Sales......................................... $5,612 $4,919 $4,864 ====== ====== ======
- -------- (a) U.S. Steel ceased production of structural products when South Works in Chicago closed in April 1992. (b) Includes all other products sold by Steel and Related Businesses, including minerals and coke and all services sold, such as technical services. S-15 STEEL AND RELATED BUSINESSES U.S. Steel operates plants which produce steel mill products in a variety of forms and grades. Its principal facilities include Gary Works in Indiana, Mon Valley Works in Pennsylvania (which includes the sheet and tin finishing operations at Fairless Works) and Fairfield Works in Alabama which accounted for approximately 58%, 22% and 20%, respectively, of U.S. Steel's 1993 raw steel production of 11.3 million tons. The annual raw steel production capability at December 31, 1993, of each of the three facilities in millions of net tons is Gary Works - 7.1, Mon Valley Works - 2.6 and Fairfield Works - 2.2. USX and its wholly owned subsidiary, U.S. Steel Mining Co. Inc. ("U.S. Steel Mining"), have domestic coal properties with demonstrated bituminous coal reserves of approximately 945 million net tons at year-end 1993 compared with approximately 981 million net tons at year-end 1992. This decline primarily reflects the 1993 sale of the Cumberland coal mine, which had reserves of 36 million tons. The remaining reserves are of metallurgical and steam quality in approximately equal proportions. They are located in Alabama, Pennsylvania, Virginia, West Virginia, Illinois and Indiana. Approximately 77% of the reserves are owned, and the rest are leased. Of the leased properties, 85% are renewable indefinitely and the balance are covered principally by a lease which expires in 2005. U.S. Steel Mining's Maple Creek coal mine and a related preparation plant will be permanently closed on or about March 31, 1994 because unforeseen and unpredictable geologic conditions made continued mining economically infeasible. Reserves associated with the Maple Creek coal mine were 31 million net tons at December 31, 1993. USX controls domestic iron ore properties having demonstrated iron ore reserves in grades subject to beneficiation processes in commercial use by U.S. Steel of approximately 790 million tons at year-end 1993, substantially all of which are iron ore concentrate equivalents available from low-grade iron- bearing materials, and the rest are higher grade ore. All of these demonstrated reserves are located in Minnesota with approximately 40% being owned and 60% being leased. Most of the leased reserves are covered by a lease expiring in 2058 and a group of leases expiring from 1996 to 2007. U.S. Steel's iron ore operations at Mt. Iron, Minnesota ("Minntac") produced 14.2 million net tons of taconite pellets in 1993 compared with 14.7 million net tons and 14.9 million net tons in 1992 and 1991, respectively. USX's Resource Management administers the remaining mineral lands and timber lands of the U.S. Steel Group and is responsible for the lease or sale of these lands and their associated resources, which encompass approximately 300,000 acres of surface rights and 1,500,000 acres of mineral rights in 18 states. USX Engineers and Consultants, Inc. sells technical services worldwide to the steel, mining, chemical and related industries. Together with its subsidiary companies it provides engineering and consulting services for facility expansions and modernizations, operating improvement projects, integrated computer systems, coal and lubrication testing and environmental projects. S-16 Significant U.S. Steel shipment data by major market and product for each of the last three years are presented in the following tables. Such data do not include shipments by joint ventures and other affiliates of USX accounted for by the equity method. Total steel shipments in 1990 and 1989 were 11,039 thousand tons and 11,469 thousand tons, respectively. STEEL SHIPMENTS BY MARKET AND PRODUCT
PLATES, SHEETS STRUCTURAL & TIN TUBULAR & MAJOR DOMESTIC AND EXPORT MARKET MILL PRODUCTS OTHER(A) TOTAL -------------------------------- ------ -------- ---------- ----- (THOUSANDS OF NET TONS) Year 1993 Steel Service Centers....................... 1,967 255 615 2,837 Transportation (Including Automotive)....... 1,558 8 239 1,805 Construction................................ 532 4 133 669 Containers.................................. 833 3 4 840 Oil and Gas Drilling........................ 9 330 29 368 Machinery................................... 391 -- 91 482 Further Conversion.......................... 1,768 13 467 2,248 All Other (Including Export and Appliances)(b)............................. 659 18 43 720 ----- --- ----- ----- Total..................................... 7,717 631 1,621 9,969 ===== === ===== ===== Year 1992 Steel Service Centers....................... 1,932 241 507 2,680 Transportation (Including Automotive)....... 1,271 8 274 1,553 Construction................................ 492 2 104 598 Containers.................................. 710 2 3 715 Oil and Gas Drilling........................ 1 233 22 256 Machinery................................... 377 1 74 452 Further Conversion.......................... 1,147 24 394 1,565 All Other (Including Export and Appliances)(b)............................. 873 67 95 1,035 ----- --- ----- ----- Total..................................... 6,803 578 1,473 8,854 ===== === ===== ===== Year 1991 Steel Service Centers....................... 1,624 186 554 2,364 Transportation (Including Automotive)....... 1,121 10 162 1,293 Construction................................ 504 8 328 840 Containers.................................. 748 2 4 754 Oil and Gas Drilling........................ -- 211 18 229 Machinery................................... 281 4 80 365 Further Conversion.......................... 929 9 416 1,354 All Other (Including Export and Appliances)(b)............................. 1,301 187 159 1,647 ----- --- ----- ----- Total..................................... 6,508 617 1,721 8,846 ===== === ===== =====
- -------- (a) U.S. Steel ceased production of structural products when South Works closed in April 1992. (b) Includes steel export shipments of approximately .4 million tons in 1993, .6 million tons in 1992 and 1.3 million tons in 1991. S-17 Significant production data for the years 1989 through 1993 and products and services by facility are presented in the following tables:
1993 1992 1991 1990 1989 --------- --------- --------- --------- --------- (THOUSANDS OF NET TONS, UNLESS OTHERWISE NOTED) RAW STEEL PRODUCTION Gary....................... 6,624 5,969 5,817 6,740 6,590 Mon Valley................. 2,507 2,276 2,088 2,607 2,400 Fairfield.................. 2,203 2,146 1,969 1,937 1,488 All other plants(a)........ -- 44 648 2,335 3,692 --------- --------- --------- --------- --------- Total raw steel produc- tion.................... 11,334 10,435 10,522 13,619 14,170 Total cast production.... 11,295 8,695 7,088 7,228 7,365 Continuous cast as % of total production........ 99.7 83.3 67.4 53.1 52.0 RAW STEEL CAPABILITY (AVERAGE) Continuous cast............ 11,850 9,904 8,057 6,950 7,447 Ingots..................... -- 2,240 6,919 9,451 10,289 --------- --------- --------- --------- --------- Total.................... 11,850 12,144 14,976 16,401 17,736 Total production as % of total capability........ 95.6 85.9 70.3 83.0 79.9 Continuous cast as % of total capability........ 100.0 81.6 53.8 42.4 42.0 HOT METAL PRODUCTION......... 9,972 9,270 8,941 11,038 11,509 IRON ORE PELLETS Shipments.................. 15,911 14,822 14,897 14,922 13,768 Production as % of capacity.................. 89.1 82.8 84.0 85.1 77.0 COKE PRODUCTION.............. 6,425 5,917 5,091 6,663 6,008 COAL PRODUCTION Metallurgical coal(b)...... 8,142 7,311 7,352 8,370 7,871 Steam coal(b)(c)........... 2,444 5,239 2,829 3,151 2,530 --------- --------- --------- --------- --------- Total.................... 10,586 12,550 10,181 11,521 10,401 Total production as % of capacity................ 95.6 93.6 76.1 85.9 84.0
- -------- (a) In July 1991, U.S. Steel closed all iron and steel producing operations at Fairless Works. In April 1992, U.S. Steel closed South Works. (b) The Maple Creek coal mine, which will be permanently closed on or about March 31, 1994, produced 1.0 million net tons of metallurgical coal and 0.7 million net tons of steam coal in 1993. (c) The Cumberland coal mine, which was sold in June 1993, produced 4.0 million net tons of steam coal in 1992 and 1.6 million net tons in 1993 prior to the sale. PRINCIPAL PRODUCTS AND SERVICES Gary..................................... Sheets & Tin Mill; Plates; Coke Fairfield................................ Sheets; Tubular Products Mon Valley/Fairless(a)................... Sheets & Tin Mill Clairton................................. Coke Minntac.................................. Taconite Pellets U.S. Steel Mining........................ Coal Resource Management...................... Administration of Mineral, Coal and Timber Properties USX Engineers and Consultants............ Technical Services
- -------- (a) In 1991, U.S. Steel closed all iron and steel producing operations and the pipe mill facilities at Fairless Works. Operations at the Fairless sheet and tin finishing facilities are sourced with hot strip mill coils from other U.S. Steel plants. S-18 JOINT VENTURES AND OTHER INVESTMENTS USX participates directly and through subsidiaries in a number of joint ventures included in the U.S. Steel Group. All of the joint ventures are accounted for under the equity method. Certain of the joint ventures are described below, all of which are 50% owned except Transtar. USX and Pohang Iron & Steel Co., Ltd. ("POSCO") of South Korea participate in a joint venture ("USS-POSCO Industries") which owns and operates the former U.S. Steel Pittsburg, California Plant. The joint venture markets high quality sheet and tin products, principally in the western United States market area. USS-POSCO Industries produces cold-rolled sheets, galvanized sheets, tin plate and tin-free steel. A capital modernization and expansion program of nearly $400 million to upgrade the facilities was completed in 1989. USS-POSCO's annual capacity is 1.4 million tons. USX and Kobe Steel Ltd. ("Kobe") of Japan participate in a joint venture ("USS/Kobe Steel Company") which owns and operates the former U.S. Steel Lorain, Ohio Works. The joint venture produces raw steel for the manufacture of bar and tubular products. Bar products are sold by USS/Kobe Steel Company while U.S. Steel retains sales and marketing responsibilities for tubular products. Shipments in 1993 were 1.5 million tons. In late December 1993, USS/Kobe Steel Company reached a tentative agreement on a new five and one-half year labor contract with the USWA covering approximately 2,300 employees. The agreement is subject to ratification by a vote of the USWA members, which should be completed by February 1, 1994 when the current labor contract expires. USX and Kobe have formed another joint venture ("PRO-TEC Coating Company") to construct, own and operate a hot dip galvanizing line in Leipsic, Ohio. Coating capacity is approximately 600,000 tons per year, with substrate coils provided by U.S. Steel. The facility commenced operations in early 1993. USX and Worthington Industries Inc. participate in a joint venture known as Worthington Specialty Processing which operates a steel processing facility in Jackson, Michigan. The plant is operated by Worthington Industries Inc. and is dedicated to serving U.S. Steel customers. The facility contains state-of-the- art technology capable of processing master steel coils into both slit coils and sheared first operation blanks including rectangles, trapezoids, parallelograms and chevrons. It is designed to meet specifications for the automotive, appliance, furniture and metal door industries. The joint venture processes material sourced by U.S. Steel, with a production capacity of almost 708,000 net tons annually. USX and Rouge Steel Company participate in Double Eagle Steel Coating Company, a joint venture which operates an electrogalvanizing facility located in Dearborn, Michigan. This facility enables U.S. Steel to further participate in the expanding automotive demand for steel with corrosion resistant properties. The facility utilizes U.S. Steel's proven CAROSEL technology coupled with many refinements developed through actual operating experience on the No. 1 Electrogalvanizing Line located at Gary Works. The facility can coat both sides of sheet steel with zinc or alloy coatings and has the capability to coat one side with zinc and the other side with alloy. Capacity is 700,000 tons of galvanized steel annually, with availability of the facility shared by the partners on an equal basis. National-Oilwell, a joint venture with National Supply Company Inc., a subsidiary of Armco Inc., operates in the oil field service industry and has eight manufacturing plants in the United States and abroad that produce a broad line of drilling and production equipment. In the United States and abroad, it also operates 129 oilfield supply stores, 33 service centers and 18 sales offices where it sells its own manufactured equipment, tubular goods and other oilfield operating supplies manufactured by others. USX owns a 45% interest in Transtar which purchased in 1988 the former domestic transportation businesses of USX including railroads, a dock company, USS Great Lakes Fleet, Inc. and Warrior & Gulf Navigation Company. Blackstone Transportation Partners L.P. and Blackstone Capital Partners L.P., both affiliated with The Blackstone Group, together own 52% of Transtar, and the senior management of Transtar own the remaining 3%. S-19 OTHER BUSINESSES In addition to the Steel and Related Businesses, the U.S. Steel Group includes various other businesses, the most significant of which are described below. The other businesses that are included in the U.S. Steel Group accounted for 3% of the U.S. Steel Group's sales in 1993 and 1992 and 5% in 1991. USX Realty Development develops real estate for sale or lease and manages retail and office space, business and industrial parks and residential and recreational properties. USX Credit operates in the leasing and financing industry, managing a portfolio of real estate and equipment loans. Those loans are generally secured by the real property or equipment financed, often with additional security. USX Credit's portfolio is diversified in terms of types and terms of loans, borrowers, loan sizes, sources of business and types and locations of collateral. USX Credit is not actively making new loan commitments. Cyclone Fence distributes and erects fencing products primarily for commercial use. RMI Titanium Company ("RMI") is a leading producer of titanium metal products. USX has a majority interest in RMI which is a publicly traded company listed on the NYSE. EMPLOYEES The total number of active employees for the U.S. Steel Group at year-end for each of the last three years was 21,892 in 1993, 21,183 in 1992 and 21,968 in 1991. Most hourly and certain salaried employees are represented by the United Steelworkers of America ("USWA"). On November 17, 1993, U.S. Steel reached a tentative agreement on a new five and one-half year contract with the USWA covering approximately 15,000 employees. The agreement is subject to ratification by a vote of the USWA members, which should be completed by February 1, 1994 when the current labor contract expires. U.S. Steel fully expects ratification by such time, but such ratification cannot be guaranteed. If this agreement is ratified, the U.S. Steel Group's labor and benefit costs will increase each year throughout the term of the agreement. The agreement includes a signing bonus of $1,000 per USWA represented employee payable during the first quarter of 1994, $500 of which represents the final bonus payable under the existing agreement. Management believes that this agreement is competitive with labor agreements reached by U.S. Steel's major domestic integrated competitors and thus does not believe that U.S. Steel's competitive position with regard to such competitors will be materially affected by its ratification. In January 1994, U.S. Steel Mining entered into a five year agreement with the United Mine Workers covering approximately 1,700 employees, approximately 400 of which are attributable to the Maple Creek coal mine. CAPITAL EXPENDITURES During the past three years, the U.S. Steel Group has made capital expenditures primarily for the replacement, modernization and expansion of facilities and production capabilities, including steel production and finishing, the mining of raw materials, and environmental controls associated with steel production and other facilities. Capital expenditures for the U.S. Steel Group were $198 million in 1993, compared with $298 million in 1992 and $432 million in 1991. Significant expenditures in 1993 included amounts for upgrades of the hot strip mill and a pickle line at Gary Works and environmental projects at Gary Works and Mon Valley Works. The decline in capital spending over this period primarily reflected the completion of U.S. Steel's continuous cast modernization program in 1992. Capital expenditures for 1994 are currently estimated at $260 million and will include continued expenditures for projects begun in 1993 relative to environmental, hot-strip mill and pickle line improvements at Gary Works and initial expenditures for a blast furnace project at Mon Valley Works which is planned for completion in 1995. Capital expenditures in 1995 and 1996 are currently expected to remain at about the same level as in 1994. RESEARCH AND DEVELOPMENT The research and development activities of U.S. Steel are conducted mainly at the U.S. Steel Technical Center in Monroeville, Pennsylvania. Expenditures for steel research and development were $22 million in 1993, $23 million in 1992 and $22 million in 1991. S-20 Steel research is devoted to developing new or improved processes for the mining and beneficiation of raw materials such as coal and iron ore and for the production of steel; developing new and improved products in steel and other product lines; developing technology for meeting environmental regulations and for achieving higher productivity in these areas; and serving customers in the selection and use of U.S. Steel's products. Steel research has contributed to current business performance through expanded use of on-site plant improvement teams. In addition, several collaborative research programs with technical projects directed at mid- to long-range research opportunities have been continued at universities and in conjunction with other domestic steel companies through the American Iron and Steel Institute. ENVIRONMENTAL MATTERS The businesses of the U.S. Steel Group are subject to numerous federal, state and local laws and regulations relating to the protection of the environment. These environmental laws and regulations include the Clean Air Act ("CAA") with respect to air emissions, the Clean Water Act ("CWA") with respect to water discharges, the Resource Conservation and Recovery Act ("RCRA") with respect to solid and hazardous waste treatment, storage and disposal and the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to releases and remediation of hazardous substances. In addition, many states where the U.S. Steel Group operates have similar laws dealing with the same matters. These laws are constantly evolving and becoming increasingly stringent. The ultimate impact of complying with existing laws and regulations is not always clearly known or determinable due in part to the fact that certain implementing regulations for laws such as RCRA and the CAA have not yet been promulgated. These environmental laws and regulations, particularly the 1990 Amendments to the CAA and new water quality standards, could result in substantially increased capital, operating and compliance costs. The U.S. Steel Group has incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. 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. AIR The 1990 Amendments to the CAA impose more stringent limits on air emissions, establish a federal permit program and allow for enhanced civil and criminal enforcement sanctions. The principal impact of the 1990 Amendments to the CAA on the U.S. Steel Group is on the coke-making operations of U.S. Steel. The coal mining operations and sales of U.S. Steel Mining may also be affected. The 1990 Amendments to the CAA specifically address the regulation and control of hazardous air pollutants, including emissions from coke ovens. Generally, emissions from existing coke ovens must comply with technology-based limits by the end of 1995 and comply with a health risk-based standard by the end of 2003. However, a coke oven will not be required to comply with the health risk-based standard until January 1, 2020, if it complied with the technology-based standard at the end of 1993 and also complies with another technology-based standard by January 1, 2010. USX believes that it met the 1993 requirement and will be able to meet the 2010 compliance date. The 1990 Amendments to the CAA also mandate the nationwide reduction of emissions of acid rain precursors (sulfur dioxide and nitrogen oxides) from fossil fuel-fired electrical utility plants. Specified emission reductions are to be achieved by 2000. Phase I begins on January 1, 1995, and applies to 110 utility plants specifically listed in the law. Phase II, which begins on January 1, 2000, will apply to other utility plants which may be regulated under the law. U.S. Steel, like all other electricity consumers, will be impacted by increased electrical energy costs that are expected as electric utilities seek rate increases to comply with the acid rain requirements. S-21 In 1993, 77% of the coal production of U.S. Steel Mining was metallurgical coal, and the balance was steam coal. While USX believes that the new requirements for coke ovens will not have an immediate effect on U.S. Steel Mining, the requirements may encourage development of steelmaking processes that do not require the use of coke. In addition, steam coal users are tending to use lower-sulfur coal to comply with the acid rain requirements. U.S. Steel Mining has been able to respond to this market development through blending and additional processing techniques and does not anticipate any material adverse impact from these changes. WATER The U.S. Steel Group maintains the necessary discharge permits as required under the National Pollutant Discharge Elimination System program of the CWA and it is in compliance with such permits. U.S. Steel is currently negotiating with the Environmental Protection Agency ("EPA") to develop a plan to remediate the section of the Grand Calumet River that runs through Gary Works. Approval of the sedimentation remediation plan is expected in early 1994. The entire remediation process through validation of the environmental recovery of the river is expected to take about 10 years. The program cost will be approximately $29 million over 5 to 6 years, all of which has previously been accrued. SOLID WASTE The U.S. Steel Group continues to seek methods to minimize the generation of hazardous wastes in its operations. Over the past 5 years, it has reduced the volume of toxic releases reported under the Superfund Amendments and Reauthorization Act of 1986 (Section 313) by 75%, primarily through recycling and process changes. RCRA establishes standards for the management of solid and hazardous wastes. Besides affecting current waste disposal practices, this Act also addresses the environmental effects of certain past waste disposal operations, the recycling of wastes and the leaking of hazardous materials other than wastes from underground tanks. Since the EPA has not yet promulgated implementing regulations for all provisions of RCRA and has not yet made clear the practical application of all the implementing regulations it has promulgated, the costs of compliance cannot be accurately estimated. In addition, new laws are being enacted and regulations are being adopted by various regulatory agencies on a continuing basis and the costs of compliance with these new rules can only be broadly appraised until their implementation becomes more accurately defined. Corrective action under RCRA related to past waste disposal activities is discussed under "Legal Proceedings--Environmental Proceedings." PROPOSED COMPREHENSIVE ENVIRONMENTAL COMPLIANCE PROGRAM AT GARY WORKS In order to facilitate long-term environmental compliance planning and spending at Gary Works and allow it to remain competitive, USX has entered into discussions with the Indiana Department of Environmental Management ("IDEM") and the EPA concerning the development of a 10-year environmental enhancement program at Gary Works. This program, as proposed, would cover all state and federal environmental laws, including air, water and hazardous waste. Under such a program, USX would agree in advance to expend up to a specified amount (possibly in the range of $20-30 million) each year during the period for environmental enhancement projects at Gary Works. These projects would include those anticipated under future regulations and voluntary projects for which there is no present or anticipated future legal requirement. This program would benefit USX by enabling it to better plan for its environmental expenditures over the next ten years. In addition, IDEM, the EPA and the public would benefit from having a major industrial facility committed to environmental expenditures not presently mandated by law. This project is in the early stages of discussion and there is no present commitment that the program will be accepted. CAPITAL EXPENDITURES The U.S. Steel Group's capital expenditures for environmental controls are expected to be approximately $70 million in 1994, including the expected completion of major air quality projects at Gary Works. S-22 Predictions beyond 1994 can only be broad-based estimates which have varied, and will continue to vary, due to the ongoing evolution of specific regulatory requirements, the possible imposition of more stringent requirements and the availability of new technologies, among other matters. Based upon currently identified projects, the U.S. Steel Group anticipates that environmental capital expenditures will be approximately $25 million in 1995; however, actual expenditures may increase as additional projects are identified or as additional requirements are imposed. In 1993, 1992 and 1991, such expenditures were $53 million, $52 million and $73 million, respectively. USX is also involved in a number of remedial actions under CERCLA, RCRA and similar state statutes related to the U.S. Steel Group. See "Legal Proceedings--Environmental Proceedings" below. LEGAL PROCEEDINGS USX is the subject of, or party to, a number of pending or threatened legal actions, contingencies and commitments related to the U.S. Steel Group involving a variety of matters including laws and regulations relating to the environment. Certain of these matters are discussed below. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the U.S. Steel Group financial statements. However, management believes that USX will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably to the U.S. Steel Group. See in USX Corporation--Analysis of Selected Consolidated Financial Information--Liquidity and Capital Resources" and footnote (f) to "U.S. Steel Group--Selected Financial Information" herein. B&LE LITIGATION; MDL-587 On January 24, 1994, the U.S. Supreme Court denied a petition for Writ of Certiorari by the B&LE in MDL-587. As a result, the decision of the U.S. Court of Appeals for the Third Circuit affirming judgments of approximately $498 million, plus interest, relating to antitrust violations by the B&LE was permitted to stand. In addition, the Third Circuit decision remanded the claims of two plaintiffs for retrial of their damage awards. At trial these plaintiffs asserted claims of approximately $8 million, but were awarded only nominal damages by the jury. The B&LE was a wholly owned subsidiary of USX throughout the period the conduct occurred. It is now a subsidiary of Transtar in which USX has a 45% equity interest. These actions were excluded liabilities in the sale of USX's transportation units in 1988, and USX is obligated to reimburse Transtar for judgments paid by the B&LE. Following the Court of Appeals decision, USX, which had previously accrued $90 million on a pretax basis for this litigation, charged an additional amount of $619 million on a pretax basis against the results of the U.S. Steel Group in the second quarter of 1993. In late 1993, USX and LTV Steel Corp. ("LTV"), one of the plaintiffs in MDL-587, agreed to settle all of LTV's claims in that action for $375 million. USX's potential liability in the LTV portion of the case was estimated to be in excess of $500 million at year end 1993. USX made a payment of $200 million on December 29, 1993 and is obligated to pay an additional $175 million not later than February 28, 1994. Claims of three additional plaintiffs were also settled in December 1993. These settlements resulted in a pretax credit of $127 million in the fourth quarter financial results of the U.S. Steel Group. As a result of the denial of the Petition for Writ of Certiorari, judgments for the other MDL-587 plaintiffs (other than the two remanded for retrial), totaling approximately $210 million, including post- judgment interest, are due for payment in the first quarter of 1994. B&LE LITIGATION; ARMCO In June 1990, following judgments entered on behalf of steel company plaintiffs in MDL-587, Armco Steel filed federal antitrust claims against the B&LE and other railroads in the Federal District Court for the District of Columbia. B&LE successfully challenged the actions for lack of jurisdiction and venue, and the case was transferred to the Federal District Court for the Northern District of Ohio. Other defendant railroads settled with Armco, leaving B&LE the only remaining defendant. On April 7, 1993, B&LE's motion to dismiss the federal antitrust claims on grounds of statute of limitations was granted. Subsequently, Armco S-23 refiled its claims under the Ohio Valentine Act in the Butler County Court of Common Pleas. B&LE's motions for summary judgment on time bar issues and for change of venue to another Ohio county are pending, and not yet fully briefed. No discovery has been taken on the merits of Armco's claims, but if Armco survives the present and possibly further pretrial motions and the case proceeds to trial on the merits, Armco's claimed damages are likely to be substantial. There is a dispute as to whether the Armco case was an excluded liability in the sale of USX's transportation units and whether USX is obligated to reimburse Transtar for a judgment in this case. FAIRFIELD AGREEMENT LITIGATION On November 15, 1989, USX and two former officials of the USWA were indicted by a federal grand jury in Birmingham, Alabama which alleged that USX granted leaves of absence and pensions to the union officials with intent to influence their approval, implementation and interpretation of the December 24, 1983 Fairfield agreement, which resulted in reopening U.S. Steel's Fairfield Works. On July 10, 1990, USX and the union officials were convicted. On September 27, 1990, the District Court imposed a $4.1 million fine on USX and ordered restitution to the U.S. Steel and Carnegie Pension Fund of approximately $300,000. USX believes the verdicts were erroneous and has appealed the decision to the U.S. Court of Appeals for the 11th Circuit. The payment of the fine and the restitution have been stayed pending the appeal. A former executive officer of USX who was also subsequently indicted has pleaded not guilty and has not yet been tried. A related civil class action against USX, the damage claims of which were dismissed by the trial court, has been appealed by the plaintiffs to the U.S. Court of Appeals for the 11th Circuit. PICKERING LITIGATION 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. ENERGY BUYERS LITIGATION On December 21, 1992, an arbitrator issued an award for approximately $117 million, plus interest under Ohio law, against USX in Energy Buyers Service Corporation v. USX Corporation, a case originally filed in the District Court of Harris County, Texas. Such amount was fully accrued as of December 31, 1992. On December 15, 1993, USX agreed to settle all claims in the case for $95 million and deferred payments of up to $9 million. ALOHA STADIUM LITIGATION A jury trial commenced in late June 1993, in a case filed in the Circuit Court of the First Circuit of Hawaii by the State of Hawaii alleging, among other things, that the weathering steel, including USS COR-TEN Steel, which was incorporated into the Aloha Stadium was unsuitable for the purpose used. Numerous parties, including U.S. Steel, architects, suppliers, engineers, and other steel producers were named as defendants. By the time of trial, U.S. Steel was the only remaining defendant. The State sought damages of approximately $97 million for past and future repair costs and also sought treble damages and punitive damages for deceptive trade practices and fraud, respectively. On October 1, 1993, the jury returned a verdict finding no liability on the part of U.S. Steel. In January 1994, the State appealed the decision to the Supreme Court of Hawaii. INLAND STEEL PATENT LITIGATION In July 1991, Inland Steel Company ("Inland") filed an action against USX and another domestic steel producer in the U.S. District Court for the Northern District of Illinois, Eastern Division, alleging defendants S-24 have infringed two of Inland's steel-related patents. Inland seeks monetary damages of up to approximately $50 million and an injunction against future infringement. USX in its answer and counterclaim alleges the patents are invalid and not infringed and seeks a declaratory judgment to such effect. In May 1993, a jury found USX to have infringed the patents. The District Court has yet to rule on the validity of the patents. In July 1993, the U.S. Patent Office rejected the claims of the two Inland patents upon a reexamination at the request of USX and the other steel producer. A further request for review was submitted by USX to the Patent Office in October 1993 presenting additional questions as to patentability which was granted in December 1993. Inland is entitled to a hearing prior to the time that the decision of the Patent Office becomes final, and any final decision by the Patent Office is subject to judicial appeal. SECURITIES LITIGATION In July 1993, a class action was filed in the U.S. District Court for the Western District of Pennsylvania (Finkel v. Lehman Brothers, et al.) naming as defendants USX, Messrs. C.A. Corry, R.M. Hernandez and L.B. Jones, officers of the Corporation, and the underwriters in a public offering of 10 million shares of Steel Stock completed on July 29, 1993. The complaint alleges that the Corporation's prospectus and registration statement was false and misleading with respect to the effect of unfairly traded imports on the domestic steel industry and the then pending ITC proceedings and seeks as damages the difference between the public offering price and the value of the shares at the time the action was brought or the price at which shares were disposed of prior to filing the suit. Two additional actions (Snyder v. USX, et al. and Erenberg v. USX, et al.) involving essentially the same issues were filed in August 1993 in the same court and added Mr. T.J. Usher, also an officer, as a defendant. In January 1994, USX filed a motion to dismiss these cases, which have been consolidated. ENVIRONMENTAL PROCEEDINGS The following is a summary of the U.S. Steel Group proceedings that were pending or contemplated as of December 31, 1993 under federal and state environmental laws. Except as described herein, it is not possible to predict accurately the possible outcome of these matters; however, management's belief set forth in the first paragraph under "Legal Proceedings" above takes such matters into account. Claims under CERCLA and related state acts have been raised with respect to the cleanup of various waste disposal and other sites. CERCLA is intended to expedite the cleanup of hazardous substances without regard to fault. Potentially responsible parties ("PRPs") for each site include present and former owners and operators of, transporters to and generators of the substances at the site. Liability is strict and can be joint and several. Because of the ambiguity of the regulations, the difficulty of identifying the responsible parties for any particular site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques and the amount of damages and cleanup costs and the time period during which such costs may be incurred, USX is unable to reasonably estimate the ultimate cost of compliance with CERCLA. At December 31, 1993, USX had been identified as a PRP at a total of 41 CERCLA sites related to the U.S. Steel Group. Based on currently available information, which is in many cases preliminary and incomplete, USX believes that its liability for cleanup and remediation costs at 34 of these sites will be under $1 million per site and most will be under $100,000. At one site, U.S. Steel's former Duluth, Minnesota Works, USX expects to spend approximately $3.3 million over the next three years. However, in September 1993, USX was directed to develop alternative methods of remediation for this site, the cost of which is presently unknown and indeterminable and, as a result, future costs may be more or less than the $3.3 million previously estimated. At the remaining 6 sites, USX has no reason to believe that its share in the remaining cleanup costs at any single site will exceed $5 million, although it is not possible to accurately predict the amount of USX's share in any final allocation of such costs. In addition, there are 28 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. S-25 There are also 9 additional sites related to the U.S. Steel Group where state governmental agencies or private parties are seeking remediation under state environmental laws through discussions or litigation. Based on currently available information, which is in many cases preliminary and incomplete, the U.S. Steel Group believes that its liability for cleanup and remediation costs in connection with two of these sites will be under $100,000 per site, another two sites have potential costs between $100,000 and $1 million per site and one site may involve remediation costs between $1 million and $5 million. The cost associated with remediation at four sites is not presently capable of being classified. Additionally, the U.S. Steel Group has commenced a RCRA Facility Investigation and a Corrective Measure Study at its Fairless Works. This study is expected to take three years to complete at a cost of $2 million to $3 million. The cost associated with this remediation is not presently reasonably estimable. Remediation activities might also be required at other U.S. Steel Group sites under RCRA. It is also possible that additional matters may come to USX's attention which may require remediation. It is not possible to accurately predict the ultimate amount of remediation costs which may be incurred and penalties which may be imposed. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously provided may be required. S-26 U.S. STEEL GROUP SELECTED FINANCIAL INFORMATION The following selected financial information has been derived from the financial statements of the U.S. Steel Group for each of the five years in the period ended December 31, 1993. The information set forth below should be read in connection with the U.S. Steel Group financial statements and notes thereto and accompanying "Management's Discussion and Analysis" contained in the USX Annual Report on Form 10-K for the year ended December 31, 1992, incorporated herein by reference. The data for the year ended December 31, 1993, have been derived from unaudited financial statements which, in the opinion of management, reflect all adjustments necessary to a fair statement of results for the period covered. All such adjustments are of a normal recurring nature except as described herein. Specific reference is made to footnotes (a) and (b) regarding basis of presentation and corporate activities. The financial information of the U.S. Steel Group supplements the consolidated financial information of USX and, taken together with the financial information of the Marathon Group and the Delhi Group, includes all accounts which comprise the corresponding consolidated financial information of USX.
YEAR ENDED DECEMBER 31, ---------------------------------------- 1993 1992 1991 1990 1989 ------ ------- ------- ------ ------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Sales............................... $5,612 $ 4,919 $ 4,864 $6,073 $6,509 Operating income (loss)............. (149) (241) (617) 475 640 Operating costs include: Depreciation, depletion and amor- tization.......................... 314 288 253 278 307 Pension credits(c)................. (202) (231) (196) (262) (213) B&LE litigation charge(d).......... 342 -- -- -- -- Restructuring charges.............. 42 10 402 -- -- Other income........................ 210 5 9 58 292 Other income includes: Gain on disposal of assets......... 216 23 18 28 272 Income (loss) from affiliates--eq- uity method....................... (11) (27) (38) 38 35 Total income (loss) before income taxes and cumulative effect of changes in accounting principles(e)...................... (210) (394) (756) 437 787 Total income (loss) before cumulative effect of changes in accounting principles... (169) (271) (507) 310 540 Cumulative effect of changes in ac- counting principles:(f) Accounting for postemployment bene- fits............................... (69) -- -- -- -- Accounting for postretirement bene- fits other than pensions........... -- (1,159) -- -- -- Accounting for income taxes......... -- (176) -- -- -- ------ ------- ------- ------ ------ Net income (loss) before preferred dividends.......................... (238) (1,606) (507) 310 540 Dividends on preferred stock........ (21) (3) (2) (4) (17) ------ ------- ------- ------ ------ Net income (loss) applicable to Steel Stock........................ $ (259) $(1,609) $ (509) $ 306 $ 523 ====== ======= ======= ====== ====== BALANCE SHEET DATA (AT PERIOD END):(G) Cash and cash equivalents........... $ 79 $ 22 $ 79 $ 70 $ 296 Working capital (d)................. (46) 58 99 521 40 Capital expenditures................ 198 298 432 391 397 Investments in equity method affili- ates............................... 522 519 468 501 596 Property, plant and equipment--net.. 2,653 2,809 2,797 2,748 2,567 Total assets........................ 6,563 6,251 5,627 5,582 5,499 Capitalization: Notes payable....................... $ -- $ 15 $ 23 $ 32 $ 4 Total long-term debt................ 1,551 2,259 2,019 1,468 1,440 Minority interest................... 5 16 37 67 -- Stockholders' equity(h)............. 617 247 1,692 2,244 2,055 ------ ------- ------- ------ ------ Total capitalization.............. $2,173 $ 2,537 $ 3,771 $3,811 $3,499 ====== ======= ======= ====== ====== PER SHARE DATA--STEEL STOCK:(I) Total income (loss) before cumulative effect of changes in accounting principles: --primary........................... $(2.96) $ (4.92) $(10.00) $ 6.00 $10.17 --fully diluted..................... (2.96) (4.92) (10.00) 5.83 9.93 Net income (loss): --primary........................... (4.04) (28.85) (10.00) 6.00 10.17 --fully diluted..................... (4.04) (28.85) (10.00) 5.83 9.93 Dividends paid...................... 1.00 1.00 .94 .88 .88 Book value.......................... 8.32 3.72 32.68 43.59 38.50
The footnotes appearing on the following five pages are an integral part of this information. S-27 - -------- (a) Basis of Presentation 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. The financial statements of the U.S. Steel Group have been 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 (see following footnote). 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, 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 does not affect legal title to such assets or responsibility for such liabilities. Holders of Steel Stock, Marathon Stock and Delhi Stock are stockholders 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 the Marathon Group or the Delhi Group which affect the overall cost of USX's capital could affect the results of operations and financial condition of the U.S. Steel Group. In addition, net losses of any Group, as well as dividends or distributions on any class of USX common stock or series of Preferred Stock, and repurchases of any class of USX common stock or certain series of Preferred Stock, will reduce the legally available funds of USX available for payment of dividends on the Steel Stock. Accordingly, the USX consolidated financial statements and related notes should be read in connection with the U.S. Steel Group financial information. See "USX Corporation--Selected Consolidated Financial Information" and "USX Corporation--Analysis of Selected Consolidated Financial Information" herein. The Board intends to declare and pay dividends on the Steel Stock based on the financial condition and results of operations of the U.S. Steel Group, although it has no obligation under Delaware law to do so. Dividends on the Steel Stock will be payable when, as and if declared by the Board out of the lesser of (i) the Available Steel Dividend Amount and (ii) legally available funds of USX. The Available Steel Dividend Amount is increased or decreased, as appropriate, to reflect Steel Net Income, dividends, repurchases or issuances with respect to the Steel Stock and Preferred Stock attributed to the U.S. Steel Group and certain other items. In accordance with the Certificate of Incorporation, the Available Steel Dividend Amount was adjusted in 1992 to eliminate the effect of the recognition of the transition obligation of the adoption of Statement of Financial Accounting Standards No. 106--Employer's Accounting for Postretirement Benefits Other Than Pension ("SFAS 106") and the unfavorable cumulative effect of the adoption of Statement of Financial Accounting Standards No. 109--Accounting for Income Taxes ("SFAS 109"). See footnote (e). At December 31, 1993, the Available Steel Dividend Amount was at least $1.849 billion. (b) Corporate Activities Financial activities--As a matter of policy, USX manages most financial activities on a centralized, consolidated basis. Such financial activities include the investment of surplus cash; the issuance, repayment and repurchase of short-term and long-term debt; the issuance, repurchase and redemption of preferred stock; and the issuance and repurchase of common stock. Transactions related primarily to invested cash, short-term and long-term debt (including convertible debt), related net interest and other financial costs, and preferred stock and related dividends are attributed to the U.S. Steel Group, the Marathon Group and the Delhi Group based upon the cash flows of each group for the periods presented and the initial capital structure of each group. Most financing transactions are attributed to and reflected in the financial statements of the three groups. However, certain transactions such as leases, production payment financings, financial activities of consolidated entities which are less than wholly owned by USX S-28 and transactions related to securities convertible solely into any one class of common stock are or will be specifically attributed to and reflected in their entirety in the financial statements of the group to which they relate. Corporate general & administrative costs--Corporate general and administrative costs are allocated to the U.S. Steel Group, the Marathon Group and the Delhi Group based upon methods management believes to be reasonable and which consider certain measures of business activities, such as employment, investments and sales. The costs allocated to the U.S. Steel Group primarily consist of employment costs including pension effects, professional services, facilities and other related costs associated with corporate activities. Common stock transactions--All financial statement impacts of purchases and issuances of Steel Stock after the change of USX common stock into Marathon Stock and the distribution of Steel Stock on May 6, 1991, are reflected in their entirety in the U.S. Steel Group financial statements. Financial statement impacts of treasury stock transactions occurring before May 7, 1991, have been attributed to the two groups in relationship to their respective common equity. The initial dividend on the Steel Stock was paid on September 10, 1991. Dividends paid by USX prior to September 10, 1991, were attributed to the U.S. Steel Group and the Marathon Group based upon the relationship of the initial dividends on Steel Stock and Marathon Stock. Income taxes--All members of the USX affiliated group are included in the consolidated U.S. federal income tax return filed by USX. Accordingly, the provision for federal income taxes and the related payments or refunds of tax are determined on a consolidated basis. The financial statement provision and the related tax payments or refunds have been reflected in the U.S. Steel Group, the Marathon Group and the Delhi Group financial statements in accordance with USX's tax allocation policy for such groups. In general, such policy provides that the consolidated tax provision and related tax payments or refunds are allocated among the U.S. Steel Group, the Marathon Group and the Delhi Group for group financial statement purposes, based principally upon the financial income, taxable income, credits, preferences and other amounts directly related to the respective groups. For financial statement provision and tax settlement purposes, tax benefits resulting from attributes (principally net operating losses), which cannot be utilized by one of the three groups on a separate return basis but which can be utilized on a consolidated basis in that year or in a carryback year, are allocated to the group that generated the attributes. However, if such tax benefits cannot be utilized on a consolidated basis in that year or in a carryback year, the prior years' allocations of such consolidated tax effects are adjusted in a subsequent year to the extent necessary to allocate the tax benefits to the group that would have realized the tax benefits on a separate return basis. The allocated group amounts of taxes payable or refundable are not necessarily comparable to those that would have resulted if the groups had filed separate tax returns; however, such allocations should not result in any of the three groups paying more income taxes over time than it would if it filed separate tax returns and, in certain situations, could result in any of the three groups paying less income taxes. The 1993 U.S. income tax provision included a $15 million favorable effect associated with an increase in the federal income tax rate from 34% to 35%, reflecting remeasurement of deferred federal income tax assets as of January 1, 1993. This benefit was essentially offset by adjustments for prior years' Internal Revenue Service examinations and the establishment of valuation allowances for certain tax credits. (c) Operating income included pension credits, which were primarily noncash, for each of the periods presented. The pension credits primarily reflect the investment performance of defined benefit plan assets. The expected long-term rate of return on plan assets, which is reflected in the calculation of net periodic pension credits, was reduced to 10% in 1993 from 11% in 1992. S-29 The funded status of U.S. Steel Group pension plans as measured under Statement of Financial Accounting Standards No. 87 at December 31, 1993 and 1992 was as follows:
IN MILLIONS 1993 1992 ----------- ------- ------- Plan assets at fair market value......................... $ 8,381 $ 8,588 Projected benefit obligation (PBO)....................... (8,563) (8,234) ------- ------- Assets in excess of (less than) PBO.................... $ (182) $ 354 Assumed discount rate.................................... 6.5% 7.0%
(d) Pretax income (loss) in 1993 included a $506 million charge related to the adverse decision in the Lower Lake Erie Iron Ore Antitrust Litigation against the B&LE. Charges of $342 million were included in operating costs and $164 million included in interest and other financial costs. The effect on net income (loss) was $325 million unfavorable ($5.04 per share of Steel Stock). At December 31, 1993, accounts payable included a $376 million accrual for this litigation. See "Business of the U.S. Steel Group--Legal Proceedings" herein. (e) Beginning in 1993, the U.S. Steel Group was required by statute to make payments to a new multiemployer benefit plan for certain retired coal miners and their dependents and survivors, based on assigned beneficiaries. The present value of the U.S. Steel Group's obligation was previously estimated at $175 million; additional beneficiaries were assigned to the U.S. Steel Group during 1993, and this amount is therefore expected to increase. The U.S. Steel Group's payments under this plan are accounted for as participation in a multiemployer plan. Payments to multi employer plans were $9 million in 1993. Such payments are expected to increase to approximately $15 to $25 million in 1994 and subsequent years primarily reflecting additional assigned beneficiaries. (f) In 1993, USX adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112") which requires employers to recognize the obligation to provide postemployment benefits on an accrued basis if certain conditions are met. The unfavorable cumulative effect of the change in accounting principle was $69 million, net of $40 million income tax effect. The effect of the change in accounting on 1993 operating costs was $21 million unfavorable. In 1992, USX adopted SFAS 106 and SFAS 109. The cumulative effect of these changes in accounting principles decreased first quarter 1992 net income of the U.S. Steel Group by $1,159 million, net of $678 million income tax effect, for SFAS 106 and $176 million for SFAS 109. (g) USX is the subject of, or a party to a number of pending or threatened legal actions, contingencies and commitments relating to the U.S. Steel Group involving a variety of matters, including laws and regulations relating to the environment. Certain of these matters are discussed below and in "Business of the U.S. Steel Group--Legal Proceedings" herein. 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 "USX Corporation-- Analysis of Selected Consolidated Financial Information--Liquidity and Capital Resources" herein. Legal proceedings-- See "Business of the U.S. Steel Group--Legal Proceedings" herein for a discussion of the B&LE litigation, and the Energy Buyers litigation. In June 1990, following judgments entered on behalf of steel company plaintiffs in MDL-587, Armco Steel filed federal antitrust claims against the B&LE and other railroads in the Federal District Court for the District of Columbia. B&LE successfully challenged the actions for lack of jurisdiction and venue, and the case was transferred to the Federal District Court for the Northern District of Ohio. Other defendant railroads settled with Armco, leaving B&LE the only remaining defendant. On April 7, 1993, B&LE's motion to dismiss the federal antitrust claims on grounds of statute of limitations was granted. Subsequently, Armco refiled its claims under the Ohio Valentine Act in the Butler County Court of S-30 Common Pleas. B&LE's motions for summary judgment on time bar issues and for change of venue to another Ohio county are pending, and not yet fully briefed. No discovery has been taken on the merits of Armco's claims, but if Armco survives the present and possibly further pre-trial motions and the case proceeds to trial on the merits, Armco's claimed damages are likely to be substantial. There is a dispute whether the Armco case was an excluded liability in the sale of USX's transportation units and whether USX is obligated to reimburse Transtar for a judgment in this case. Environmental matters-- The U.S. Steel Group is subject to federal, state and local laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for noncompliance. 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. Accrued liabilities for remediation and mine reclamation totaled $151 million and $142 million at December 31, 1993 and 1992, respectively. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed. For a number of years, 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 for environmental controls 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-- Guarantees by USX of the liabilities of affiliated entities of the U.S. Steel Group totaled $209 million at December 31, 1993, and $242 million at December 31, 1992. 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 December 31, 1993, the largest guarantee for a single affiliate was $96 million. Commitments-- At December 31, 1993, and December 31, 1992, contract commitments for capital expenditures for property, plant and equipment totaled $105 million and $63 million, respectively. USX has entered into a 15-year take-or-pay arrangement which requires the U.S. Steel Group to accept pulverized coal each month or pay a minimum monthly charge. In 1993, charges for deliveries of pulverized coal totaled $14 million (deliveries commenced in the first quarter of 1993). In the future, the U.S. Steel Group will be obligated to make minimum payments of approximately $16 million per year. If USX elects to terminate the contract early, a maximum termination payment of $126 million, which declines over the duration of the agreement, may be required. The U.S. Steel Group is a party to a transportation agreement with Transtar for Great Lakes shipments of raw materials required by the U.S. Steel Group. The agreement cannot be canceled until 1999 and requires the U.S. Steel Group to pay, at a minimum, Transtar's annual fixed costs related to the agreement, including lease/charter costs, depreciation of owned vessels, dry dock fees and other administrative costs. Total transportation costs under the agreement were $68 million in 1993 and $66 million in 1992, including fixed costs of $21 million in each year. The fixed costs are expected to continue at approximately the same level over the duration of the agreement. (h) In 1993, USX sold 10,000,000 shares of Steel Stock to the public for net proceeds of $350 million. In 1992, USX sold 8,050,000 shares of Steel Stock to the public for net proceeds of $198 million. S-31 In 1993, USX also sold 6,900,000 shares of 6.50% Cumulative Convertible Preferred Stock (stated value of $1.00 per share; liquidation preference of $50.00 per share) ("6.50% Convertible Preferred") to the public for net proceeds of $336 million. The 6.50% Convertible Preferred is convertible at any time, at the option of the holder, into shares of Steel Stock at a conversion price of $46.125 per share of Steel Stock, subject to adjustment in certain circumstances. On and after April 1, 1996, this stock is redeemable, at USX's sole option, at a price of $52.275 per share, and thereafter at prices declining annually on each April 1 to an amount equal to $50.00 per share on and after April 1, 2003. (i) 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 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 U.S. Steel Group, the Marathon Group and the Delhi Group, taken together, include all accounts which comprise the corresponding consolidated financial statements of USX. For purposes of computing per share data for periods prior to May 7, 1991, the numbers of shares of Steel Stock are assumed to be one-fifth of the corresponding numbers of shares of USX common stock. S-32 U.S. STEEL GROUP ANALYSIS OF SELECTED FINANCIAL INFORMATION The following analysis should be read in connection with the information presented in the financial statements and related notes and "Management's Discussion and Analysis" of the financial statements of each of the U.S. Steel Group and USX in the USX Annual Report on Form 10-K for the year ended December 31, 1992, incorporated herein by reference. For a discussion of recent developments for the U.S. Steel Group, see "Prospectus Summary--Recent Developments" herein. 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 does not affect legal title to such assets or responsibility for such liabilities. Holders of Steel Stock, Marathon Stock and Delhi Stock are holders of common stock of USX and continue to be subject to all of the risks associated with an investment in USX and all of its businesses and liabilities. Financial impacts arising from the Marathon Group or the Delhi Group which affect the overall cost of USX's capital could affect the results of operations and financial condition of the U.S. Steel Group. In addition, net losses of any Group, as well as dividends or distributions on any class of USX common stock or series of Preferred Stock and repurchases of any class of USX common stock or certain series of Preferred Stock, will reduce the legally available funds of USX available for payment of dividends on the Steel Stock. Accordingly, the USX consolidated financial information should be read in connection with the financial information of the U.S. Steel Group. USX prepares and provides consolidated financial statements, as well as financial statements of the U.S. Steel Group, to the holders of Steel Stock. The Board intends to declare and pay dividends on the Steel Stock based on the financial condition and results of operations of the U.S. Steel Group, although it has no obligation under Delaware law to do so. Dividends on the Steel Stock will be payable when, as and if declared by the Board out of the lesser of (i) the Available Steel Dividend Amount and (ii) legally available funds of USX. 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, although the Board has no present intention to do so. The Board may also adopt additional policies depending upon the circumstances. In addition, generally accepted accounting principles require that any change in accounting policy be preferable (in accordance with such principles) to the policy previously established. RESULTS OF OPERATIONS Years 1993, 1992 and 1991 The U.S. Steel Group's sales increased by $693 million in 1993 from 1992 following an increase of $55 million in 1992 from 1991. The increase in 1993 primarily reflected an increase in steel shipment volumes of approximately 1.1 million tons, higher average steel prices and increased commercial shipments of taconite pellets and coke. The increase in 1992 relative to 1991 was primarily due to significantly higher commercial shipments of coke, improvements in steel shipment volumes from ongoing operations and an improved shipment mix, partially offset by the absence of sales of structural products due to the closure of South Works early in 1992. Average realized steel prices improved $8 per ton in 1993 after virtually no change in 1992. Steel shipments were just under 10 million tons in 1993, an increase of 1.1 million tons over 1992. Shipments in 1992 were basically flat with the 1991 level. U.S. Steel Group shipments comprised approximately 11% of the domestic steel market in each of the three years. Exports accounted for 4% of U.S. Steel Group shipments in 1993, compared with 7% in 1992 and 15% in 1991. Raw steel production was 11.3 million tons in 1993, compared with 10.4 million tons in 1992 and 10.5 million tons in 1991. Raw steel produced was nearly 100% continuous cast in 1993, versus 83% in 1992 and S-33 67% in 1991. U.S. Steel completed its continuous cast modernization program in 1992 with the start up of the Mon Valley Works continuous caster in August 1992. Raw steel production averaged 96% of capability in 1993 compared with 86% of capability in 1992 and 70% of capability in 1991. The U.S. Steel Group reported an operating loss of $149 million in 1993 compared with operating losses of $241 million in 1992 and $617 million in 1991. The operating loss for 1993 included a $342 million charge as a result of the adverse decision in the B&LE litigation (which also resulted in $164 million of interest costs). The 1993, 1992, and 1991 operating losses included restructuring charges of $42 million, $10 million, and $402 million, respectively, which are discussed below. OPERATING INCOME (LOSS)
1993 1992* 1991* ----- ----- ----- (DOLLARS IN MILLIONS) Steel and Related Businesses......................... $ 123 $(140) $(235) Other Businesses..................................... (29) (96) (30) Other Administrative................................. 141 5 50 B&LE litigation charge............................... (342) -- -- Restructuring........................................ (42) (10) (402) ----- ----- ----- Total......................................... $(149) $(241) $(617)
- -------- * Certain reclassifications have been made to conform to 1993 classifications. Steel and Related Businesses recorded operating income of $123 million in 1993 compared with a loss of $140 million in 1992 and a loss of $235 million in 1991. The improvement in 1993 over 1992 was predominantly due to higher steel shipment volumes and prices, improved operating efficiencies and lower accruals for environmental and legal contingencies. In addition, 1993 results benefitted from a $39 million favorable effect from the utilization of funds from previously established insurance reserves to pay for certain employee insurance benefits. These positive factors were partially offset by higher hourly steel labor costs, unfavorable effects associated with pension and other employee benefits, lower results from coal operations and a $21 million increase in operating costs related to the adoption of SFAS 112. The improvement in 1992 compared with 1991 was primarily due to savings from cost reduction programs, higher utilization of raw steel and raw material capability and the absence of costs incurred in 1991 due to the lack of an early labor settlement with the USWA. These were partially offset by an increase in postretirement benefit costs in connection with the adoption of SFAS 106, higher depreciation charges and start-up costs for the Mon Valley Works continuous caster. Other Businesses recorded an operating loss of $29 million in 1993, compared with operating losses of $96 million in 1992 and $30 million in 1991. The improvement in 1993 of $67 million and the decrease in 1992 of $66 million primarily reflected a $28 million charge in 1992 resulting from market valuation provisions for foreclosed real estate assets and higher provisions in 1992 for loan losses by USX Credit. Loan loss provisions were $11 million in 1993, $42 million in 1992 and $14 million in 1991. USX Credit is not actively making new loan commitments. Excluding loan loss provisions, the balance of the operating losses for Other Businesses during the three-year period was largely due to the effect of depressed titanium markets on RMI's results. Other Administrative includes the portion of pension credits, postretirement benefit costs and certain other expenses principally attributable to former business units of the U.S. Steel Group as well as USX corporate general and administrative costs allocated to the U.S. Steel Group. Operating income from Other Administrative was $141 million in 1993 compared to $5 million in 1992 and $50 million in 1991. The 1993 increase resulted mainly from the absence of a charge incurred in 1992 to cover the amount of the award in the Energy Buyers litigation and a credit in 1993 due to settlement of all claims in the case. See "Business of the U.S. Steel Group--Legal Proceedings" herein. The decrease from 1991 to 1992 primarily reflected the S-34 1992 charge related to the Energy Buyers litigation, partially offset by a decrease in postretirement benefit costs charged to Other Administrative in connection with the adoption of SFAS 106. The U.S. Steel Group's 1993 operating loss included restructuring charges of $42 million related to the planned shutdown of the Maple Creek coal mine and preparation plant. The 1992 loss included a charge of $10 million for completion of the portion of the 1991 restructuring plan related to steel facilities. The 1991 loss included $402 million of restructuring charges primarily related to the closing of the iron and steel producing, slab and hot strip mill and pipe mill facilities at Fairless Works; all facilities at South Works; RMI's sodium and sponge production facilities; a previously idled plate mill in Baytown, Texas; and miscellaneous other facilities. The U.S. Steel Group's 1993 operating income was reduced by a total of $21 million due to the adoption of SFAS 112. Operating income in 1992 compared to 1991 was reduced by a total of $42 million due to the adoption of SFAS 106. The pension credits referred to above, combined with pension costs for ongoing operating units of the U.S. Steel Group, resulted in net pension credits (which are primarily noncash) of $202 million, $231 million and $196 million in 1993, 1992 and 1991, respectively. The decrease in 1993 from 1992 was primarily due to a lower assumed long-term rate of return on plan assets. The increase in 1992 from 1991 primarily reflected recognition of the 1991 growth in plan assets. In 1994, net pension credits are expected to decline by approximately $60 to $70 million, primarily due to a further reduction in the assumed long-term rate of return on plan assets. See footnote (c) to "U.S. Steel Group--Selected Financial Information" herein. Other income was $210 million in 1993, compared with $5 million in 1992 and $9 million in 1991. The increase in 1993 primarily resulted from higher gains from the disposal of assets, including the sale of the Cumberland coal mine, the realization of a $70 million deferred gain resulting from the collection of a subordinated note related to the 1988 sale of Transtar (which also resulted in $37 million of interest income) and the sale of an investment in an insurance company. The decline in 1992 relative to 1991 primarily resulted from the nonrecurrence of 1991's favorable minority interest effect related to RMI. This was partially offset by reduced losses from equity affiliates. Interest and other financial income was $59 million in 1993. The 1993 amount included $37 million of interest income resulting from collection of the Transtar note. Excluding this item, interest and other financial income was $22 million in 1993, compared with $18 million in 1992 and $20 million in 1991. Interest and other financial costs were $330 million in 1993. The 1993 amount included $164 million of interest expense related to the adverse decision in the B&LE litigation. Excluding the effect of this item, interest and other financial costs were $166 million in 1993, compared to $176 million in 1992 and $168 million in 1991. The changes over the three-year period primarily reflected differences in average debt levels. The total credit for estimated income taxes in 1993 was $41 million, compared with credits of $123 million in 1992 and $249 million in 1991. The U.S. income tax provision for 1993 included a $15 million favorable effect associated with an increase in the federal income tax rate from 34% to 35%, reflecting remeasurement of deferred federal income tax assets as of January 1, 1993. This benefit was essentially offset by adjustments for prior years' Internal Revenue Service examinations and the establishment of valuation allowances for certain tax credits. The U.S. Steel Group generated a loss before cumulative effect of changes in accounting principles of $169 million in 1993, compared with a loss of $271 million in 1992 and a loss of $507 million in 1991. S-35 The unfavorable cumulative effect of changes in accounting principles totaled $69 million in 1993 and $1,335 million in 1992. The cumulative effect of adopting SFAS 112, determined as of January 1, 1993, decreased 1993 income of the U.S. Steel Group by $69 million, net of the income tax effect. The immediate recognition of the transition obligation resulting from the adoption of SFAS 106, measured as of January 1, 1992, decreased the U.S. Steel Group's 1992 income by $1,159 million, net of the income tax effect. The cumulative effect of adopting SFAS 109, measured as of January 1, 1992, decreased 1992 net income by $176 million. The adoption of SFAS No. 109 had no material effect on the U.S. Steel Group's 1992 income tax expense. The U.S. Steel Group recorded a net loss of $238 million in 1993, compared with a net loss of $1,606 million in 1992 and a net loss of $507 million in 1991. The domestic steel industry has been adversely affected by unfairly traded imports. Steel imports to the United States accounted for an estimated 19% of the domestic steel market during the first eleven months of 1993, and for an estimated 23% and 24% in October and November, respectively. Steel imports to the United States accounted for an estimated 17 to 18% of the domestic steel market in 1992 and 1991. On March 31, 1992, Voluntary Restraint Agreements restricting the level of steel imports to the United States expired, and in June 1992, in conjunction with other domestic steel firms, USX filed a number of antidumping and countervailing duty cases with the USDC and the ITC against unfairly traded imported carbon flat rolled steel. Beginning in late 1992, as a result of affirmative preliminary determinations by both the ITC and the USDC in the vast majority of cases, provisional duties were imposed on the imported steel products under investigation. On June 22, 1993, the USDC issued the final determinations of subsidization in the countervailing duty cases and final margins for sales at less than fair value in the antidumping cases. On July 27, 1993, the ITC issued affirmative determinations of material injury to the domestic steel industry by reason of imports in cases representing an estimated 51% of dollar value and 42% of the volume of all flat-rolled carbon steel imports under investigation. Affirmative determinations were found in cases relating to 37% of such volume of cold- rolled steel, 92% of such volume of the higher value-added corrosion resistant steel and 97% of such volume of plate steel. Negative determinations were found in all cases related to hot-rolled steel, the largest import market. In those cases where negative determinations were made by the ITC, provisional duties imposed on imports covered by the cases were removed and final remedial duties were not imposed. While USX is unable to predict the effect these negative determinations may have on the business or results of operations of the U.S. Steel Group, they may result in increasing levels of imported steel and may adversely affect some product prices. As discussed above, steel imports to the United States have increased in recent months. Although the affirmative determinations are helpful in offsetting the harm to the U.S. steel industry caused by subsidized and dumped imports, USX believes that certain of the negative determinations were improper and, together with other steel firms, has appealed such determinations to the U.S. Court of International Trade and, in certain cases involving imports from Canada, to a bi-national panel in accordance with the Canadian Free Trade Agreement. Several of the affirmative determinations similarly have been challenged in appeals filed by foreign steel producers. 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. The U.S. Steel Group depreciates steel assets by modifying straight-line depreciation based on the level of production. Depreciation charges for 1993 were 100% of straight-line depreciation based on production levels for the year. Depreciation charges for 1992 and 1991 approximated 91% and 89% of the amounts that would have been reported if production levels had not been considered. In 1992, the U.S. Steel Group revised the modification factors used in the depreciation of steel assets to reflect that raw steel production capability is entirely continuous cast. S-36 OUTLOOK FOR 1994 Based on strong recent order levels and assuming a continuing recovery of the domestic economy, the U.S. Steel Group anticipates that steel demand will remain strong in 1994. The U.S. Steel Group believes that domestic industry shipments will reach 89 to 90 million tons in 1994 as compared to approximately 88 million tons in 1993. Price increases on sheet products have been announced effective January 2 and July 3, 1994. Price increases on certain other products have also been announced. Realization of these price increases will be dependent upon steel demand and the level of imports. As previously discussed, steel imports to the United States have increased in recent months. On November 17, 1993, U.S. Steel reached a tentative agreement on a new five and one-half year contract with the USWA covering approximately 15,000 employees. The agreement is subject to ratification by vote of the USWA members, which should be completed by February 1, 1994 when the current labor contract expires. U.S. Steel fully expects ratification by such time, but such ratification cannot be guaranteed. Ratification of the agreement will result in higher labor and benefit costs for the U.S. Steel Group each year throughout the term of the agreement. The agreement includes a signing bonus of $1,000 per USWA represented employee that will be paid in the first quarter of 1994, $500 of which represents the final bonus payable under the existing agreement. Management believes that this agreement is competitive with labor agreements reached by U.S. Steel's major domestic integrated competitors and thus does not believe that U.S. Steel's competitive position with regard to such other competitors will be materially affected by its ratification. Severe cold and extreme winter weather conditions disrupted operations and caused forced utility curtailments at Gary Works, Mon Valley Works and Fairless Works in January 1994. It is likely that these events will have some negative effects on steel operations in the first quarter of 1994. Net pension credits for the U.S. Steel Group in 1994 are expected to decline by approximately $60 to $70 million due primarily to a lower assumed long-term rate of return on plan assets, as described above. CASH FLOWS The U.S. Steel Group's net cash provided from operating activities in 1993 was $86 million compared with net cash used in operating activities of $89 million in 1992. The 1993 period was negatively affected by payments of $314 million related to partial settlement of the B&LE litigation and settlement of the Energy Buyers litigation. Excluding these payments, net cash provided from operating activities improved by $489 million in 1993. The increase primarily reflected improved operations and a $103 million favorable effect from the use of available funds from previously established (now depleted) insurance reserves to pay for certain active and retired employee insurance benefits. The U.S. Steel Group's net cash used in operating activities in 1992 was $89 million compared to net cash generated of $9 million in 1991. The results primarily reflected unfavorable changes in working capital accounts resulting mainly from a lower settlement from the Marathon Group related to prior years' income taxes in accordance with USX's group tax allocation policy, partially offset by favorable effects due to changes in the amount of sold accounts receivable. Capital expenditures totaled $198 million in 1993, compared with $298 million in 1992 and $432 million in 1991. The year-to-year reductions over this period primarily reflected the completion of U.S. Steel's continuous cast modernization program, as the Gary Works caster was completed during 1991 and the Mon Valley Works caster was completed in 1992. In addition to spending for the continuous caster at Mon Valley Works, significant projects in 1992 included modernization of the hot strip mill and the electrogalvanizing line at Gary Works. Contract commitments for capital expenditures at year-end 1993 were $105 million, compared with $63 million at year-end 1992. Capital expenditures in 1994 are expected to be approximately $260 million and will include continued expenditures for projects begun in 1993 relative to environmental, hot-strip mill and pickle line improvements at Gary Works and initial expenditures for a blast furnace project at Mon Valley Works which is planned for completion in 1995. Capital expenditures in 1995 and 1996 are currently expected to remain at about the same level as in 1994. S-37 Cash from the disposal of assets totaled $291 million in 1993, compared with $39 million in 1992 and $26 million in 1991. The 1993 amount primarily reflected the realization of proceeds from a subordinated note related to the 1988 sale of Transtar and the sales of the Cumberland coal mine and investments in an insurance company and a foreign manganese mining affiliate. Financial obligations decreased by $730 million in 1993, compared with an increase of $203 million in 1992 and an increase of $502 million in 1991. The decrease in 1993 primarily reflected the use of proceeds from the issuance of common and preferred stock attributed to the U.S. Steel Group, asset sales and net cash flows from operating activities of the U.S. Steel Group. These financial obligations consist of the U.S. Steel Group's portion of USX debt attributed to all three groups as well as debt and financing agreements specifically attributed to the U.S. Steel Group. Preferred stock issued totaled $336 million in 1993. The 1993 amount was due to the sale of 6,900,000 shares of 6.50% Convertible Preferred ($50.00 liquidation preference per share) to the public for net proceeds of $336 million which were reflected in their entirety in the U.S. Steel Group financial statements. The 6.50% Convertible Preferred is convertible at any time into shares of Steel Stock at a conversion price of $46.125 per share of Steel Stock. Steel Stock issued totaled $366 million in 1993. The 1993 amount was mainly due to the sale of 10,000,000 shares of Steel Stock to the public for net proceeds of $350 million, which were reflected in their entirety in the U.S. Steel Group financial statements. The increase in 1992 primarily reflected the sale of 8,050,000 shares of Steel Stock to the public for net proceeds of $198 million, which were reflected in their entirety in the U.S. Steel Group financial statements. Dividend payments increased in 1993 primarily as a result of higher dividends due to the sale of additional shares of Steel Stock and of the 6.50% Convertible Preferred mentioned above. Dividends attributed to the Steel Stock prior to September 10, 1991 were based upon the relationship of the initial dividends of the Steel Stock and the USX-Marathon Group Common Stock. The annualized rate of dividends per share for the Steel Stock based on the most recently declared quarterly dividend is $1.00. In September, 1993, Standard and Poor's Corporation ("S&P") lowered its ratings on USX's and Marathon's senior debt to below investment grade (from BBB- to BB+) and on USX's subordinated debt, preferred stock and commercial paper. S&P cited extremely aggressive financial leverage, burdensome retiree medical liabilities and litigation contingencies. In October, 1993, Moody's Investors Service, Inc. ("Moody's") confirmed its Baa3 investment grade ratings on USX's and Marathon's senior debt. Moody's also confirmed its ratings on USX's subordinated debt and commercial paper, but lowered its ratings on USX's preferred stock from ba1 to ba2. Moody's noted that the rating confirmation on USX debt securities reflected confidence in the expected performance of USX during the intermediate term, while the downward revision of the preferred stock ratings incorporated a narrow fixed charge coverage going forward. The downgrades by S&P and the downgrade of ratings on preferred stock by Moody's could increase USX's cost of capital. As described in footnote (b) "Corporate Activities" to U.S. Steel Group--Selected Financial Information" herein, USX manages most financial activities on a centralized consolidated basis. A portion of USX's total debt that is not specifically attributed to a specific Group is attributed to the U.S. Steel Group. Net interest expense thereon is charged to the U.S. Steel Group based on the weighted average rate of the net interest expense applicable to USX's total debt that is not specifically attributed to a Group. Consequently, any increase in USX's cost of capital as a result of the downgrades would increase the interest and other financial costs of the U.S. Steel Group. As a result of the settlement of LTV's portion of the B&LE litigation, USX is obligated to pay an additional $175 million to LTV in the first quarter of 1994. In addition, approximately $210 million in judgments for other MDL-587 plaintiffs are due for payment in the first quarter of 1994. See "Business of the U.S. Steel Group--Legal Proceedings" herein. S-38 USX anticipates that it will begin funding the U.S. Steel Group's pension plan for approximately $100 million per year commencing with the 1994 plan year. The funding for both the 1994 and 1995 plan years will impact cash flows in 1995. ENVIRONMENTAL MATTERS, CONTINGENCIES AND COMMITMENTS The U.S. Steel Group has incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. In recent years, these expenditures have been mainly for process changes in order to meet CAA 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. The U.S. Steel Group's environmental expenditures for 1993 and 1992 are discussed below and have been estimated based on USDC survey guidelines. These guidelines are subject to differing interpretations which could affect the comparability of such data. Some environmental related expenditures, while benefitting the environment, also enhance operating efficiencies. Total environmental expenditures for the U.S. Steel Group in 1993 were $240 million compared with $220 million in 1992. These amounts consisted of capital expenditures of $53 million in 1993 and $52 million in 1992 and estimated compliance expenditures (including operating and maintenance) of $187 million in 1993 and $168 million in 1992. Compliance expenditures were broadly estimated based on USDC survey guidelines and represented 3% of the U.S. Steel Group's total operating costs in both 1993 and 1992. USX has been notified that it is a PRP at 41 waste sites related to the U.S. Steel Group under CERCLA as of December 31, 1993. In addition, there are 28 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 10 additional sites related to the U.S. Steel Group where state governmental agencies or private parties are seeking remediation under state environmental laws through discussions or litigation. Total environmental expenditures included remediation related expenditures estimated at $19 million in 1993 and $11 million in 1992. The U.S. Steel Group accrues for environmental remediation costs when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. At most of these sites, USX is one of a number of PRPs and the total cost of remediation, as well as USX's share thereof, is frequently dependent upon the outcome of investigation and remedial studies. As environmental remediation matters proceed toward ultimate resolution and additional remediation matters come to management's attention, charges in excess of those previously accrued may be required. New or expanded requirements for environmental regulations, which could increase the U.S. Steel Group's environmental costs, may arise in the future. USX intends to comply with all legal requirements regarding the environment, but since many of them are not fixed or presently determinable (even under existing legislation) and may be affected by future legislation, it is not possible to accurately predict the ultimate cost of compliance, including remediation costs which may be incurred and penalties which may be imposed. However, based on presently available information, and existing laws and regulations as currently implemented, the U.S. Steel Group does not anticipate that environmental compliance expenditures will materially increase in 1994. The U.S. Steel Group's capital expenditures for environmental controls are expected to be approximately $70 million in 1994, including the expected completion of major air quality projects at Gary Works. Predictions beyond 1994 can only be broad-based estimates which have varied, and will continue to vary, due to the ongoing evolution of specific regulatory requirements, the possible imposition S-39 of more stringent requirements and the availability of new technologies, among other matters. Based upon currently identified projects, the U.S. Steel Group anticipates that environmental capital expenditures will be approximately $25 million in 1995; however, actual expenditures may increase as additional projects are identified or additional requirements are imposed. USX is the subject of, or party to, a number of pending or threatened legal actions, contingencies and commitments relating to the U.S. Steel Group involving a variety of matters, including laws and regulations relating to the environment. See "Business of the U.S. Steel Group--Legal Proceedings" herein 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 "USX Corporation--Analysis of Selected Consolidated Financial Information-- Liquidity and Capital Resources" herein. ACCOUNTING STANDARD Statement of Financial Accounting Standards No. 114--Accounting by Creditors for Impairment of a Loan ("SFAS 114") requires impairment of loans based on either the sum of discounted cash flows or the fair value of underlying collateral. USX expects to adopt SFAS 114 in the first quarter of 1995. Based on preliminary estimates, USX expects that the unfavorable effect of adopting SFAS 114 for the U.S. Steel Group will be less than $2 million. S-40 USX CORPORATION SELECTED CONSOLIDATED FINANCIAL INFORMATION The following selected consolidated financial information has been derived from the consolidated financial statements of USX for each of the five years in the period ended December 31, 1993. The information set forth below should be read in connection with the USX consolidated financial statements and notes thereto and accompanying "Management's Discussion and Analysis" contained in the USX Annual Report on Form 10-K for the year ended December 31, 1992, incorporated herein by reference. The data for the year ended December 31, 1993, have been derived from unaudited financial statements which, in the opinion of management, reflect all adjustments necessary to a fair statement of results for the periods covered. All such adjustments are of a normal recurring nature except as described herein.
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA:(A) Sales....................... $18,064 $17,813 $18,825 $20,659 $18,717 Operating income (loss)(b).. 56 70 (259) 1,556 1,570 Operating costs include: Depreciation, depletion and amortization.......... 1,077 1,091 1,128 1,304 1,336 Inventory market valuation charges (credits)......... 241 (62) 260 (140) (145) Restructuring charges...... 42 125 426 -- -- B&LE litigation charge(c).. 342 -- -- -- -- Other income (loss)......... 257 (2) 39 37 406 Other income (loss) includes: Gain on disposal of assets.................... 253 24 30 7 370 Total income (loss) before income taxes and cumulative effect of changes in accounting principles(b)(c)........... (239) (189) (691) 1,216 1,358 Total income (loss) before cumulative effect of changes in accounting principles................. (167) (160) (578) 818 965 Net income (loss) before preferred dividends........ $ (259) $(1,826) $ (578) $ 818 $ 965 Dividends on preferred stock...................... (27) (9) (9) (18) (58) -------- -------- -------- -------- -------- Net income (loss) applicable to common stocks(d)(e)..... $ (286) $(1,835) $ (587) $ 800 $ 907 ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT PERIOD END):(A)(F) Cash and cash equivalents... $ 268 $ 57 $ 279 $ 263 $ 786 Working capital(c)(g)....... (154) (370) (215) 351 273 Capital expenditures........ 1,151 1,505 1,392 1,391 1,429 Property, plant and equipment--net............. 11,603 11,759 11,593 11,584 11,995 Total assets................ 17,320 17,252 17,039 17,268 17,500 Capitalization: Notes payable............... $ 1 $ 47 $ 79 $ 138 $ 16 Total long-term debt(h)..... 5,923 6,302 6,438 5,527 5,875 Total proceeds from production agreements...... -- -- 17 142 327 Minority interest........... 5 16 37 67 -- Stockholders' equity(i)(k).. 3,864 3,709 4,987 5,869 5,737 -------- -------- -------- -------- -------- Total capitalization...... $ 9,793 $10,074 $11,558 $11,743 $11,955 ======== ======== ======== ======== ========
S-41
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1993 1992 1991 1990 1989 -------- --------- --------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) COMMON SHARE DATA--STEEL STOCK:(J) Total income (loss) before cumulative effect of changes in accounting principles................. $ (190) $ (274) $ (509) $ 306 $ 523 Per share--primary.......... (2.96) (4.92) (10.00) 6.00 10.17 --fully diluted......... (2.96) (4.92) (10.00) 5.83 9.93 Net income (loss):.......... (259) (1,609) (509) 306 523 Per share--primary.......... (4.04) (28.85) (10.00) 6.00 10.17 --fully diluted......... (4.04) (28.85) (10.00) 5.83 9.93 Dividends paid per share.... 1.00 1.00 .94 .88 .88 Book value per share at period end................. 8.32 3.72 32.68 43.59 38.50 COMMON SHARE DATA--MARATHON STOCK:(J) Total income (loss) before cumulative effect of changes in accounting principles................. $ (12) $ 103 $ (78) $ 494 $ 384 Per share--primary.......... (.04) .37 (.31) 1.94 1.49 --fully diluted......... (.04) .37 (.31) 1.92 1.49 Net income (loss):.......... (35) (228) (78) 494 384 Per share--primary.......... (.12) (.80) (.31) 1.94 1.49 --fully diluted......... (.12) (.80) (.31) 1.92 1.49 Dividends paid per share.... .68 1.22 1.31 1.22 1.22 Book value per share at period end................. 10.58 11.37 12.45 13.92 13.25 COMMON SHARE DATA--DELHI STOCK(J)(K) Net income.................. $ 8 -- --Per share: primary & fully diluted.............. .86 -- Dividends paid per share.... .20 $ .05 Book value per share at period end................. 14.50 13.83
The footnotes below and on the following three pages are an integral part of this information. - -------- (a) USX follows the successful efforts method of accounting for oil and gas exploration and development. (b) Pretax income in 1992 included a settlement of a production tax refund claim for the years 1982 through 1985. The refund resulted in a credit to operating income of $119 million as well as interest income of $177 million. (c) Pretax income (loss) in 1993 included a $506 million charge related to the adverse decision in the Lower Lake Erie Iron Ore Antitrust Litigation against the B&LE. Charges of $342 million were included in operating costs and $164 million included in interest and other financial costs. The effect on net income (loss) was $325 million unfavorable ($5.04 per share of Steel Stock). See "Business of the U.S. Steel Group--Legal Proceedings" herein. (d) The provision for estimated U.S. and foreign 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 1993 U.S. 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 results from USX's ability to elect to credit, rather than deduct, foreign income taxes for U.S. federal income tax purposes in future periods and reflects expected improvement in Marathon's international production. The U.S. income tax provision for 1993 also included a $29 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. (e) In 1993, USX adopted SFAS 112 which requires employers to recognize the obligation to provide post- employment benefits on an accrual basis if certain conditions are met. The unfavorable cumulative effect of the change in accounting principle determined, as of January 1, 1993, was $86 million, net of $50 million income tax effect. The effect of the change in accounting on 1993 operating costs was $23 million unfavorable. S-42 In 1993, USX also adopted Emerging Issues Task Force Consensus No. 93-14, "Accounting for Multiple-Year Retrospectively Rated Insurance Contracts" ("EITF 93-14"). EITF 93-14 requires accrual of retrospective premium adjustments when the insured has an obligation to pay cash to the insurer that would have not been required absent experience under the contract. The unfavorable cumulative effect of the change in accounting principle determined as of January 1, 1993, totaled $6 million, net of $3 million income tax effect. In 1992, USX adopted SFAS 106 and SFAS 109. The cumulative effect of these changes in accounting principles decreased first quarter 1992 net income by $1,306 million, net of $764 million income taxes, for SFAS 106; and $360 million for SFAS 109. (f) USX is the subject of, or party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Certain of these matters are discussed below and in "Business of the U.S. Steel Group--Legal Proceedings" herein. 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 "USX Corporation--Analysis of Selected Consolidated Financial Information-- Liquidity and Capital Resources" herein. Legal proceedings-- See "Business of the U.S. Steel Group--Legal Proceedings" herein for a discussion of the B&LE litigation and the Energy Buyers litigation. In June 1990, following judgments entered on behalf of steel company plaintiffs in MDL-587, Armco Steel filed federal antitrust claims against the B&LE and other railroads in the Federal District Court for the District of Columbia. B&LE successfully challenged the actions for lack of jurisdiction and venue, and the case was transferred to the Federal District Court for the Northern District of Ohio. Other defendant railroads settled with Armco, leaving B&LE the only remaining defendant. On April 7, 1993, B&LE's motion to dismiss the federal antitrust claims on grounds of statute of limitations was granted. Subsequently, Armco refiled its claims under the Ohio Valentine Act in the Butler County Court of Common Pleas. B&LE's motions for summary judgment on time bar issues and for change of venue to another Ohio county are pending, and not yet fully briefed. No discovery has been taken on the merits of Armco's claims, but if Armco survives the present and possibly further pre-trial motions and the case proceeds to trial on the merits, Armco's claimed damages are likely to be substantial. There is a dispute whether the Armco case was an excluded liability in the sale of USX's transportation units and whether USX is obligated to reimburse Transtar for a judgment in this case. Environmental matters-- USX is subject to federal, state, local and foreign laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of 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. At December 31, 1993 and December 31, 1992, accrued liabilities for remediation, platform abandonment and mine reclamation totaled $312 million and $280 million, respectively. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed. For a number of years, USX has made substantial capital expenditures to bring existing facilities into compliance with various laws relating to the environment. In 1993 and 1992, such capital expenditures for environmental controls 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. S-43 Libyan operations-- By reason of Executive Orders and related regulations under which the U.S. Government is continuing economic sanctions against Libya, Marathon was required to discontinue performing its Libyan petroleum contracts on June 30, 1986. In June 1989, the Department of the Treasury authorized Marathon to resume performing under those contracts. Pursuant to that authorization, Marathon 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 Marathon to resume realizing revenue from Marathon's investment of $108 million in Libya. Marathon is uncertain when these negotiations can be completed or how the negotiations will be affected by the United Nations' sanctions against Libya. Guarantees-- Guarantees by USX of the liabilities of affiliated and other entities totaled $227 million at December 31, 1993. 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 at December 31, 1993, the largest guarantee for a single affiliate was $96 million. At December 31, 1993, Marathon's pro rata share of obligations of LOOP INC. and various pipeline affiliates secured by throughput and deficiency agreements totaled $206 million. Under the agreements, Marathon is required to advance funds if the affiliates are unable to service debt. Any such advances are prepayments of future transportation charges. Commitments-- At December 31, 1993, and December 31, 1992, contract commitments for capital expenditures for property, plant and equipment totaled $389 million and $423 million, respectively. (g) 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 December 31, 1993, the balance of sold accounts receivable that had not been collected was $740 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 December 31, 1993, the balance of sold loans receivable subject to recourse was $205 million. At December 31, 1993, 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. (h) At December 31, 1993, USX had outstanding borrowings of $500 million against credit agreements, leaving $1,675 million of available unused committed credit lines. In addition, USX had $185 million of available unused short-term lines of credit, which generally require maintenance of compensating balances. At December 31, 1993, certain long-term debt due within one year of $699 million was included in long-term debt, since unused long-term credit agreements of $1,500 million were available for refinancing if needed. (i) In 1993, USX sold 10,000,000 shares of Steel Stock to the public for net proceeds of $350 million. In 1992, USX sold 8,050,000 shares of Steel Stock to the public for net proceeds of $198 million and 25,000,000 shares of Marathon Stock to the public for net proceeds of $541 million. S-44 In 1993, USX also sold 6,900,000 shares of 6.50% Convertible Preferred (stated value of $1.00 per share; liquidation preference of $50.00 per share) to the public for net proceeds of $336 million. The 6.50% Convertible Preferred is convertible at any time, at the option of the holder, into shares of Steel Stock at a conversion price of $46.125 per share of Steel Stock, subject to adjustment in certain circumstances. On and after April 1, 1996, this stock is redeemable, at USX's sole option, at a price of $52.275 per share, and thereafter at prices declining annually on each April 1 to an amount equal to $50.00 per share on and after April 1, 2003. (j) Common share data is presented for Steel Stock and Marathon Stock to reflect the distribution of Steel Stock and change of USX common stock into Marathon Stock effective at the close of business on May 6, 1991. For purposes of computing per share data for periods prior to May 7, 1991, the numbers of shares of Marathon Stock are assumed to be the same as the corresponding numbers of shares of USX common stock, while the numbers of shares of Steel Stock are assumed to be one-fifth of the corresponding numbers of shares of USX common stock. The initial dividends on the Steel Stock and the Marathon Stock were paid on September 10, 1991. Dividends paid prior to that date were attributed to the U.S. Steel Group and the Marathon Group based upon the relationship of the initial dividends on the Steel Stock and the Marathon Stock. The method of calculating net income (loss) per share for the Marathon Stock, Steel Stock and Delhi Stock reflects the Board's intent that the separately reported earnings and surplus of the Marathon Group, the U.S. Steel Group and the Delhi Group, as determined consistent with the 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. (k) On October 2, 1992, USX sold 9,000,000 shares of Delhi Stock in its initial public offering for net proceeds of $136 million. Net income and dividends per share applicable to outstanding Delhi Stock are presented for the periods subsequent to October 2, 1992. S-45 USX CORPORATION ANALYSIS OF SELECTED CONSOLIDATED FINANCIAL INFORMATION The following analysis is a condensation of, and should be read in connection with, the information presented in the financial statements and related notes and Management's Discussion and Analysis of each of the U.S. Steel Group, the Marathon Group, the Delhi Group and USX in the USX Annual Report on Form 10-K for the year ended December 31, 1992, incorporated herein by reference. Historical amounts relating to the businesses comprising the Delhi Group are included in the data presented for the Marathon Group for periods prior to October 2, 1992. RESULTS OF OPERATIONS SALES
YEAR ENDED DECEMBER 31, ------------------------- 1993 1992 1991 ------- ------- ------- (MILLIONS) Marathon Group.................................... $11,962 $12,782 $13,975 U.S. Steel Group.................................. 5,612 4,919 4,864 Delhi Group....................................... 535 458 423 Eliminations...................................... (45) (346) (437) ------- ------- ------- Total USX....................................... $18,064 $17,813 $18,825 ======= ======= =======
Sales were $18.1 billion in 1993, compared with $17.8 billion in 1992 and $18.8 billion in 1991. The increase in 1993 primarily reflected increased sales for the U.S. Steel Group due mainly to higher steel shipment volumes and prices, and increased commercial shipments of taconite pellets and coke. These were partially offset by lower sales for the Marathon Group (excluding the effect of the businesses of the Delhi Group which were included in the Marathon Group for periods prior to October 2, 1992) due mainly to lower worldwide liquid hydrocarbon volumes and prices and lower average refined product prices, partially offset by increased excise taxes and higher refined product sales volumes (excluding matching buy/sell transactions). The decrease from 1991 to 1992 primarily reflected reduced sales for the Marathon Group due mainly to lower average refined product prices, reduced volumes and prices for crude oil matching buy/sell transactions (which have no effect on income) and lower worldwide liquid hydrocarbon volumes. OPERATING INCOME (LOSS)
YEAR ENDED DECEMBER 31, ------------------- 1993 1992 1991 ----- ----- ----- (MILLIONS) Marathon Group.......................................... $ 169 $ 304 $ 358 U.S. Steel Group........................................ (149) (241) (617) Delhi Group............................................. 36 33 31 Eliminations............................................ -- (26) (31) ----- ----- ----- Total USX............................................. $ 56 $ 70 $(259) ===== ===== =====
Operating income decreased by $14 million in 1993, following a $329 million improvement in 1992. Results in 1993 included a $342 million charge as a result of the adverse decision in the B&LE litigation (which also resulted in $164 million of interest costs), a $241 million unfavorable noncash effect resulting from an increase in the inventory market valuation reserve and restructuring charges of $42 million related S-46 to the planned shutdown of the Maple Creek coal mine and preparation plant. Results in 1992 included a favorable impact of $119 million for the settlement of a tax refund claim related to prior years' production taxes and a $62 million favorable noncash effect resulting from a decrease in the inventory market valuation reserve, partially offset by restructuring charges of $125 million primarily related to the disposition of certain domestic exploration and production properties. Excluding the effects of these items, operating income increased $667 million in 1993 predominantly due to improved results in the U.S. Steel Group, as well as the Marathon Group. The adoption of SFAS 112 resulted in a $23 million increase in operating costs in 1993, principally in the U.S. Steel Group. Operating income in 1991 included restructuring charges of $426 million mainly related to the closure of certain steel facilities and a $260 million unfavorable noncash effect resulting from an increase in the inventory market valuation reserve, partially offset by a favorable $20 million adjustment of prior years' production tax accruals. Excluding the effects of these items and the 1992 special items previously discussed, operating income declined $393 million from 1991 to 1992 due mainly to lower results in the Marathon Group. Contributing to the decline was a $58 million increase in operating costs resulting from the 1992 adoption of SFAS 106, $42 million in the U.S. Steel Group and $16 million in the Marathon Group. Net pension credits included in operating income totaled $211 million in 1993, compared with $260 million in 1992 and $224 million in 1991. The decrease in 1993 was primarily due to a lower assumed long-term rate of return on plan assets. The increase in 1992 from 1991 primarily reflected recognition of the growth in plan assets. In 1994, net pension credits are expected to decline by approximately $80 to $90 million primarily due to a further reduction in the assumed long-term rate of return on plan assets. Other income was $257 million in 1993, compared with a loss of $2 million in 1992 and income of $39 million in 1991. The increase in 1993 primarily resulted from higher gains from the disposal of assets, including the sale of the Cumberland coal mine, the realization of a $70 million deferred gain resulting from the collection of a subordinated note related to the 1988 sale of Transtar (which also resulted in $37 million of interest income) and the sale of an investment in an insurance company. The increase in 1993 also reflected the absence of a $19 million impairment of an investment recorded in 1992. The decline in 1992 relative to 1991 primarily resulted from the nonrecurrence of 1991's favorable minority interest effect related to RMI and the $19 million impairment of an investment in 1992. Interest and other financial income was $78 million in 1993, compared with $228 million in 1992 and $38 million in 1991. The 1993 amount included $37 million of interest income resulting from collection of the Transtar note. The 1992 amount included $177 million of interest income resulting from the settlement of a tax refund claim related to prior years' production taxes. Excluding these items, interest and other financial income was $41 million in 1993, compared with $51 million in 1992 and $38 million in 1991. Interest and other financial costs were $630 million in 1993, compared with $485 million in 1992 and $509 million in 1991. The 1993 amount included $164 million of interest expense related to the adverse decision in the B&LE litigation. Excluding this amount, the decrease in 1993 primarily reflected an increase in capitalized interest. The 1991 amount included a $26 million favorable adjustment related to interest accrued for prior years' production taxes. Excluding this item, the decrease from 1991 to 1992 was mainly due to the favorable effect of declining variable interest rates. The net credit for estimated income taxes in 1993 was $72 million, compared with credits of $29 million in 1992 and $113 million in 1991. The 1993 U.S. 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 results from USX's ability to elect to credit, rather than deduct, certain foreign income taxes for S-47 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 including income which will be generated by the East Brae platform in the United Kingdom sector of the North Sea. The U.S. income tax provision for 1993 also included a $29 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 total loss before cumulative effect of changes in accounting principles was $167 million in 1993, compared with a loss of $160 million in 1992 and a loss of $578 million in 1991. The unfavorable cumulative effect of changes in accounting principles totaled $92 million in 1993 and $1,666 million in 1992. The cumulative effect of adopting SFAS 112, determined as of January 1, 1993, decreased 1993 income by $86 million, net of the income tax effect. The cumulative effect of adopting EITF 93-14, determined as of January 1, 1993, decreased 1993 income by $6 million, net of the income tax effect. The immediate recognition of the transition obligation resulting from the adoption of SFAS 106, measured as of January 1, 1992, decreased 1992 income by $1,306 million, net of the income tax effect. The cumulative effect of adopting SFAS 109, measured as of January 1, 1992, decreased 1992 net income by $360 million. USX recorded a net loss of $259 million in 1993, compared with a net loss of $1,826 million in 1992 and a net loss of $578 million in 1991. OPERATING RESULTS BY GROUP U.S. Steel Group See "U.S. Steel Group--Analysis of Selected Financial Information" herein for a discussion of the operating results of this group. Marathon Group The Marathon Group had operating income of $169 million in 1993, compared with $304 million in 1992 and $358 million in 1991. Results for 1993 and 1991 were adversely affected, while 1992 was favorably impacted, by special items. Results included a $241 million unfavorable effect in 1993, a $62 million favorable effect in 1992 and a $260 million unfavorable effect in 1991 from noncash adjustments to the inventory market valuation reserve. The 1992 results also included a favorable impact of $119 million for the settlement of a tax refund claim related to prior years' production taxes, partially offset by a $115 million restructuring charge related to the disposition of certain domestic exploration and production properties. The 1991 results also included a $24 million restructuring charge, partially offset by a favorable $20 million adjustment of prior years' production tax accruals. Excluding the effects of these special items, operating income was $410 million in 1993, $238 million in 1992 and $622 million in 1991. The increase in 1993 primarily reflected increased average refined product margins and increased domestic natural gas prices, partially offset by lower worldwide liquid hydrocarbon prices and volumes. The decrease in 1992 predominantly reflected lower average refined product margins, as well as reduced worldwide liquid hydrocarbon prices and volumes and a decrease in international natural gas prices. S-48 OPERATING INCOME (LOSS)
1993 1992* 1991* ------- ------- ------- (DOLLARS IN MILLIONS) Exploration and Production ("Upstream") Domestic........................................... $ 117 $ 123 $ 104 International...................................... (37) 49 156 ------- ------ ------- Total Exploration & Production................... 80 172 260 Refining, Marketing and Transportation ("Downstream")...................................... 407 128 422 Gas Gathering and Processing......................... -- 21 30 Other Administrative................................. (77) (83) (90) Special Items........................................ (241) 66 (264) ------- ------ ------- Total............................................ $ 169 $ 304 $ 358 ======= ====== =======
- -------- * Certain reclassifications have been made to conform to 1993 classifications. Gas Gathering and Processing results decreased in 1993 due to the exclusion of the businesses now in the Delhi Group. AVERAGE VOLUMES AND SELLING PRICES
1993 1992 1991 ---------- ---------- ---------- (THOUSANDS OF BARRELS PER DAY) Net Liquids Production*--U.S. ................. 111 118 127 - --International................................ 45 56 68 ---------- ---------- ---------- - --Total Consolidated 156 174 195 (MILLIONS OF CUBIC FEET PER DAY) Net Natural Gas Production--U.S. .............. 529 593 689 - --International................................ 373 338 336 ---------- ---------- ---------- - --Total Consolidated 902 931 1,025 (DOLLARS PER BARREL) Liquid Hydrocarbons*--U.S. .................... $14.54 $16.47 $17.43 - --International................................ 16.22 18.95 19.38 (DOLLARS PER MCF) Natural Gas--U.S. ............................. $1.94 $1.60 $1.57 - --International................................ 1.52 1.77 2.18
- -------- * Includes Crude Oil, Condensate and Natural Gas Liquids. Upstream operating income decreased $92 million in 1993, following an $88 million decrease in 1992. Operating income in 1992 included a $20 million gain recognized as a result of a settlement of a natural gas contract. Excluding this settlement, the decline in 1993 was mainly due to significant decreases in worldwide liquid hydrocarbon prices and volumes and lower international natural gas prices, partially offset by increased domestic natural gas prices. The decline in 1992, excluding this contract settlement, was also primarily caused by decreases in worldwide liquid hydrocarbon prices and volumes and lower international natural gas prices, partially offset by ongoing cost reduction efforts. Domestic upstream operating income in 1993 declined $6 million from 1992, following a $19 million increase in 1992 from 1991. Excluding the previously mentioned contract settlement, the 14% increase in 1993 was primarily due to increased natural gas prices and reduced dry well expenses, partially offset by reduced liquid hydrocarbon prices and volumes. In addition, operating income in 1993 reflected ongoing cost reduction efforts and reduced depletion expenses. The results in 1992, excluding the previously mentioned contract settlement, remained level with 1991, as ongoing cost reduction efforts and reduced exploration expenses were offset by lower liquid hydrocarbon prices. S-49 International upstream operating income declined $86 million in 1993, following a $107 million decline in 1992. Natural gas prices have declined 30% since 1991, primarily reflecting changes in contract sales prices in Norway. The decrease in 1993 is primarily due to lower liquid hydrocarbon prices, reduced liftings primarily from the United Kingdom sector of the North Sea as a result of natural production declines, lower natural gas prices, and a $17 million charge for the relinquishment of the Marathon Group's interest in the Arzanah Oil Field, Abu Dhabi. This decrease was partially offset by reduced pipeline and terminal expenses and reduced dry well expenses. The decrease in 1992 was primarily due to lower natural gas prices, lower liquid hydrocarbon liftings and increased dry well expenses. In December 1993, the East Brae field in the U.K. North Sea was brought onstream. East Brae liquids production is expected to peak at 40,000 net barrels per day in the fourth quarter of 1994. Worldwide liquid volumes are expected to increase approximately 15% in 1994, reflecting a full year of East Brae production, which should continue to contribute to increased volumes in 1995. Worldwide natural gas volumes are expected to increase approximately 5% in 1994, reflecting the start of Brae area gas sales in October 1994. The 1995 volumes are expected to continue to increase reflecting a full year of Brae area production. In 1992, Marathon and its partners finalized and delivered a feasibility study to the Russian Government assessing the technical and economic viability of developing fields offshore Sakhalin Island. After positive review by the State Expertise Commission in 1993, negotiations to sign a production sharing contract are currently being held among the Russian Government and representatives of the consortium. Downstream operating income increased $279 million in 1993, after decreasing $294 million in 1992. The increase in 1993 is primarily due to increased average refined product margins from refining and wholesale marketing which nearly doubled since 1992 as a result of decreased crude oil costs and lower maintenance costs for refinery turnaround activities, partially offset by decreased average refined product prices. Also contributing to the increase in operating income were record margins in both refined products and convenience store merchandise experienced by Emro Marketing Company, a Marathon subsidiary. Downstream operating income in 1993 also included a $17 million charge for future environmental remediation. The decrease in 1992 was chiefly the result of lower average refined product margins which were adversely impacted as declines in refined product sales prices exceeded decreases in raw material costs. Results in 1992 were also negatively affected by increased maintenance costs as a result of refinery turnaround activities. Other Administrative expenses were $77 million in 1993, compared to $83 million in 1992 and $90 million in 1991. These costs include the portion of the Marathon Group's administrative costs not allocated to the individual business components and the portion of USX corporate general and administrative costs allocated to the Marathon Group. 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 events such as the 1993 OPEC accord, winter oil and natural gas consumption and resumption of Iraqi production. Delhi Group Operating income was $36 million in 1993, compared with $33 million in 1992 and $31 million in 1991. Operating income in 1993 included favorable effects of $2 million for the reversal of a prior-period accrual related to a natural gas contract settlement, $1 million related to gas imbalance settlements and a net $1 million for a refund of prior years' taxes other than income taxes. Operating income in 1992 included favorable effects totaling $2 million relating to the settlement of various lawsuits and third-party disputes. Excluding the effects of these items, 1993 operating income improved by $1 million, primarily as a result of higher gas sales margins and lower operating and other expenses, partially offset by a 34% decline in gas processing margins from the sale of natural gas liquids ("NGLs"). Operating income in 1991 included S-50 $8 million due to the favorable settlements of certain contractual issues. Excluding the effects of the settlements in 1992 and 1991, the improvement in 1992 operating income was primarily due to increased NGLs volumes from gas processing, higher natural gas systems throughput volumes and lower operating and other expenses. These favorable items were partially offset by lower unit margins for NGLs. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operating activities totaled $944 million in 1993, compared with $920 million in 1992. The 1993 period was negatively affected by payments of $314 million related to partial settlement of the B&LE litigation and settlement of the Energy Buyers litigation. The 1992 period included $296 million associated with the refund of prior years' production taxes. Excluding these items, net cash provided from operating activities improved $634 million from 1992. The increase primarily reflected improved operations for the U.S. Steel Group, improved refined product margins for the Marathon Group and a $103 million favorable effect from the use of available funds from previously established (now depleted) insurance reserves to pay for certain active and retired employee insurance benefits. Excluding the 1992 refund discussed above, net cash provided from operating activities in 1992 declined $399 million from 1991 primarily due to lower income, partially offset by favorable changes in working capital accounts. Capital expenditures were $1,151 million in 1993, compared with $1,505 million in 1992 and $1,392 million in 1991. The $354 million decrease in 1993 was due primarily to lower expenditures for the Marathon Group and the U.S. Steel Group. The decline for the Marathon Group mainly reflected decreased expenditures for environmental projects and for development of the East Brae Field and SAGE system in the United Kingdom and other international projects, partially offset by increased exploration and development projects in the Gulf of Mexico and increased drilling activity for onshore domestic natural gas projects. The decrease for the U.S. Steel Group primarily reflected completion of U.S. Steel's continuous cast modernization program in 1992. Contract commitments for capital expenditures at year-end 1993 were $389 million, compared with $423 million at year-end 1992. For the year 1994, capital expenditures are expected to total approximately $1.1 billion. The slight anticipated decrease in 1994 is expected to result mainly from lower expenditures for the Marathon Group, partially offset by higher expenditures for the U.S. Steel Group. The Marathon Group's capital expenditures are expected to decrease by approximately $100 million in 1994 mainly reflecting lower expenditures for development of the East Brae Field and SAGE system. The U.S. Steel Group's capital expenditures are expected to increase by approximately $60 million in 1994 and will include continued expenditures for projects begun in 1993 relative to environmental, hot-strip mill and pickle line improvements at Gary Works and initial expenditures for a blast furnace project at Mon Valley Works which is planned for completion in 1995. Cash from the disposal of assets was $469 million in 1993, compared with $117 million in 1992 and $78 million in 1991. The 1993 amount primarily reflected the realization of proceeds from a subordinated note related to the 1988 sale of Transtar, the sale of the Cumberland coal mine, the sale/leaseback of interests in two LNG tankers, and the sales of various domestic oil and gas production properties and of an investment in an insurance company. No individually significant sales transactions occurred in 1992 or 1991. Financial obligations decreased by $458 million in 1993, compared with a decrease of $240 million in 1992 and an increase of $662 million in 1991. These amounts represent net cash flows on commercial paper and the revolving credit agreements and lines of credit, other debt and production financing and other agreements. During 1993, USX issued an aggregate principal amount of $800 million of fixed rate debt through its medium-term note program and three separate series of unsecured, noncallable debt securities in the public market. Maturities ranged from 5 to 30 years and interest rates ranged from 6 3/8% to 8 1/2% per annum. In addition, an aggregate principal amount of $77 million of Marathon 9 1/2% Guaranteed Notes Due 1994 was tendered in exchange for its Monthly Interest Guaranteed Notes Due 2002, 9 3/4% to March 1, 1994 and 7% thereafter. During 1992, USX issued an aggregate principal amount of $748 million of fixed S-51 rate debt through its medium-term note program and three separate series of unsecured, noncallable debt securities in the public market. Maturities ranged from 5 to 30 years and interest rates ranged from 6.65% to 9.375% per annum. During 1991, debt borrowings included the issuance of three separate series of unsecured, noncallable debt securities in the public market in the aggregate principal amount of $550 million and a $300 million loan to Marathon Oil U.K., Ltd. from the European Investment Bank. Preferred stock issued totaled $336 million in 1993. The 1993 amount reflected the sale of 6,900,000 shares of 6.50% Convertible Preferred ($50.00 liquidation preference per share) to the public for net proceeds of $336 million. The 6.50% Convertible Preferred is convertible at any time into shares of Steel Stock at a conversion price of $46.125 per share of Steel Stock. Common stock issued, net of repurchases, totaled $371 million in 1993, compared with $942 million in 1992 and $70 million in 1991. The 1993 amount mainly reflected the sale of 10,000,000 shares of Steel Stock to the public for net proceeds of $350 million. The increase in 1992 primarily reflected sales to the public of all three classes of common stock. In 1992, USX sold 25,000,000 shares of Marathon Stock for net proceeds of $541 million, 8,050,000 shares of Steel Stock for net proceeds of $198 million and 9,000,000 shares of USX-Delhi Group Common Stock for net proceeds of $136 million. Dividend payments decreased in 1993 primarily due to a decrease in the dividend rate on Marathon Stock in the fourth quarter of 1992, partially offset by increased dividends due primarily to the sale in 1993 of additional shares of Steel Stock and of the 6.50% Convertible Preferred mentioned above. The increase in 1992 from 1991 primarily resulted from higher dividends due to the sale of additional shares of all three classes of common stock in 1992, partially offset by the fourth quarter decrease in the dividend rate on Marathon Stock. In September 1993, S&P lowered its ratings on USX's and Marathon's senior debt to below investment grade (from BBB- to BB+) and on USX's subordinated debt, preferred stock and commercial paper. S&P cited extremely aggressive financial leverage, burdensome retiree medical liabilities and litigation contingencies. In October 1993, Moody's confirmed its Baa3 investment grade ratings on USX's and Marathon's senior debt. Moody's also confirmed its ratings on USX's subordinated debt and commercial paper, but lowered its ratings on USX's preferred stock from ba1 to ba2. Moody's noted that the rating confirmation on USX debt securities reflected confidence in the expected performance of USX during the intermediate term, while the downward revision of the preferred stock ratings incorporated a narrow fixed charge coverage going forward. The downgrades by S&P and the downgrade of ratings on preferred stock by Moody's could increase USX's cost of capital. As described in footnote (b) "Corporate Activities" to U.S. Steel Group--Selected Financial Information" herein, USX manages most financial activities on a centralized consolidated basis. A portion of USX's total debt that is not specifically attributed to a specific Group is attributed to the U.S. Steel Group. Net interest expense thereon is charged to the U.S. Steel Group based on the weighted average rate of the net interest expense applicable to USX's total debt that is not specifically attributed to a Group. Consequently, any increase in USX's cost of capital as a result of the downgrades would increase the interest and other financial costs of the U.S. Steel Group. In December 1993, USX filed a universal shelf registration statement with the Securities and Exchange Commission which became effective on January 6, 1994 and allows USX to offer and issue up to $850 million of debt and equity securities. The equity securities include preferred stock as well as each class of USX's common stock, including the shares in this offering. As a result of the settlement of LTV's portion of the B&LE litigation, USX is obligated to pay an additional $175 million to LTV in the first quarter of 1994. In addition, approximately $210 million in judgments for other MDL-587 plaintiffs are due for payment in the first quarter of 1994. See "Business of the U.S. Steel Group--Legal Proceedings" herein. USX anticipates that it will begin funding the U.S. Steel Group's pension plan by approximately $100 million per year commencing with the 1994 plan year. The funding for both the 1994 and 1995 plan years will impact cash flows in 1995. S-52 USX believes that its short-term and long-term liquidity is adequate to satisfy its obligations (including those related to the B&LE litigation) as of December 31, 1993, and to complete currently authorized capital spending programs. USX actively used its access to capital markets during 1993 to meet its business needs beyond internally generated funds. Future requirements for its business needs, including the funding of capital expenditures, debt maturities for the years 1994 to 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. Long-term debt of $734 million matures within one year, including $699 million classified as long-term debt at December 31, 1993. The $699 million represents the Marathon 9 1/2% Guaranteed Notes Due March 1, 1994. See footnote (h) to "USX Corporation--Selected Consolidated Financial Information" herein. ENVIRONMENTAL MATTERS, LITIGATION AND CONTINGENCIES 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 CAA 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 and their production processes and whether or not they are engaged in the petrochemical business. USX's environmental expenditures for 1993 and 1992 are discussed below and have been estimated for the Marathon Group and the Delhi Group based on American Petroleum Institute ("API") survey guidelines and for the U.S. Steel Group based on USDC survey guidelines. These guidelines are subject to differing interpretations which could affect the comparability of such data. Some environmental related expenditures, while benefitting the environment, also enhance operating efficiencies. The Marathon Group's total environmental expenditures in 1993 were $253 million compared with $370 million in 1992. These amounts consisted of capital expenditures of $123 million in 1993 and $240 million in 1992 and estimated compliance expenditures (including operating and maintenance) of $130 million in both 1993 and 1992. Compliance expenditures were broadly estimated based on API survey guidelines and represented 1% of the Marathon Group's total operating costs in both 1993 and 1992. The decline in environmental capital expenditures from 1992 to 1993 primarily reflected the Marathon Group's multi- year capital spending program for diesel fuel desulfurization which was substantially completed in 1993. The U.S. Steel Group's total environmental expenditures in 1993 were $240 million compared with $220 million in 1992. These amounts consisted of capital expenditures of $53 million in 1993 and $52 million in 1992 and estimated compliance expenditures (including operating and maintenance) of $187 million in 1993 and $168 million in 1992. Compliance expenditures were broadly estimated based on USDC survey guidelines and represented 3% of the U.S. Steel Group's total operating costs in both 1993 and 1992. The Delhi Group's total environmental expenditures in 1993 were $10 million compared with $8 million in 1992. These amounts consisted of capital expenditures of $5 million in 1993 and $3 million in 1992 and estimated compliance expenditures (including operating and maintenance) of $5 million in both 1993 and 1992. Compliance expenditures were broadly estimated based on API survey guidelines and represented 1% of the Delhi Group's total operating costs in both 1993 and 1992. USX's environmental capital expenditures totaled $181 million in 1993, $294 million in 1992 and $175 million in 1991. Such expenditures accounted for 16%, 20% and 13% of total consolidated capital expenditures in 1993, 1992 and 1991, respectively. USX expects such expenditures to approximate $150 million in 1994 or approximately 13% of total estimated consolidated capital expenditures. The increase S-53 from 1991 to 1992 and the decline in 1993 was primarily the result of Marathon's multi-year capital program for diesel desulfurization which was substantially completed in 1993. Predictions beyond 1994 can only be broad- based estimates which have varied, and will continue to vary, due to the ongoing evolution of specific regulatory requirements, the possible imposition of more stringent requirements and the availability of new technologies, among other matters. Based upon currently identified projects, USX anticipates that environmental capital expenditures in 1995 will total approximately $90 million; however, actual expenditures may increase as additional projects are identified or additional requirements are imposed. USX has been notified that it is a PRP at 55 waste sites under CERCLA as of December 31, 1993. In addition, there are 50 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 62 additional sites, excluding retail gasoline stations, where state governmental agencies or private parties are seeking remediation under state environmental laws through discussions or litigation. Total environmental expenditures for the Marathon Group included remediation related expenditures estimated at $38 million in 1993 and $35 million in 1992. Remediation spending was primarily related to retail gasoline stations which incur ongoing clean-up costs for soil and groundwater contamination associated with underground storage tanks and piping. Total environmental expenditures for the U.S. Steel Group included remediation related expenditures estimated at $19 million in 1993 and $11 million in 1992. Remediation related expenditures for the Delhi Group were not material. USX accrues for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. At most of these sites, USX is one of a number of PRPs and the total cost of remediation, as well as USX's share thereof, is frequently dependent upon the outcome of investigations and remedial studies. As environmental remediation matters proceed toward ultimate resolution and additional remediation matters come to management's attention, charges in excess of those previously accrued may be required. New or expanded requirements for environmental regulations, which could increase USX's environmental costs, may arise in the future. USX intends to comply with all legal requirements regarding the environment, but since many of them are not fixed or presently determinable (even under existing legislation) and may be affected by future legislation, it is not possible to accurately predict the ultimate cost of compliance, including remediation costs which may be incurred and penalties which may be imposed. However, based on presently available information, and existing laws and regulations as currently implemented, management does not anticipate that environmental compliance expenditures will materially increase in 1994. As discussed above, environmental capital expenditures are currently expected to decrease in 1994 and again in 1995. USX is the subject of, or party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Certain of these matters are discussed under "Business of the U.S. Steel Group--Legal Proceedings" herein and in footnote (f) to "USX Corporation--Selected Consolidated Financial Information" herein. 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 "USX Corporation-- Analysis of Selected Consolidated Financial Information--Liquidity and Capital Resources" herein. ACCOUNTING STANDARD SFAS 114 requires impairment of loans based on either the sum of discounted cash flows or the fair value of underlying collateral. USX expects to adopt SFAS 114 in the first quarter of 1995. Based on preliminary estimates, USX expects that the unfavorable effect of adopting SFAS 114 will be less than $2 million. S-54 CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following is a discussion of certain anticipated United States income and estate tax consequences of the ownership and disposition of the Steel Stock applicable to Non-United States Holders of such Steel Stock. For the purpose of this discussion, a "Non-United States Holder" is any corporation, individual, partnership, estate or trust that is, as to the United States, a foreign corporation, a non-resident alien individual, a foreign partnership or a foreign estate or trust as such terms are defined in the U.S. Internal Revenue Code of 1986, as amended (the "Code"). This discussion does not deal with all aspects of United States income and estate taxation and does not deal with foreign, state and local tax consequences that may be relevant to Non-United States Holders in light of their personal circumstances. Furthermore, the following discussion is based on current provisions of the Code and administrative and judicial interpretations as of the date hereof, all of which are subject to change. Prospective foreign investors are urged to consult their tax advisors regarding the United States federal, state, local and non-United States income and other tax consequences of owning and disposing of Steel Stock. An individual may, subject to certain exceptions, be deemed to be a resident alien (as opposed to a non-resident alien) by virtue of being present in the United States on at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year (counting for such purposes all of the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year). Resident aliens are subject to U.S. federal tax as if they were U.S. citizens. DIVIDENDS Generally, any dividend paid to a Non-United States Holder of Steel Stock will be subject to United States withholding tax at a rate of 30% of the gross amount of the dividend, or at a lesser applicable treaty rate. Dividends received by a Non-United States Holder that are effectively connected with a United States trade or business conducted by such Non-United States Holder are exempt from such withholding tax. However, such effectively connected dividends, net of certain deductions and credits, are taxed at the same graduated rates applicable to United States persons. In addition to the graduated tax described above, dividends received by a corporate Non-United States Holder that are effectively connected with a United States trade or business of the corporate Non-United States Holder may also be subject to a branch profits tax at a rate of 30% or at a lesser applicable treaty rate. Under current United States Treasury regulations, dividends paid to an address outside the United States are presumed to be paid to a resident of such country for purposes of the withholding discussed above and, under the current interpretation of United States Treasury regulations, for purposes of determining the applicability of a tax treaty rate. However, under proposed United States Treasury regulations not currently in effect, a Non-United States Holder of Steel Stock who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification and other requirements. A Non-United States Holder may claim exemption from withholding under the effectively connected income exception by filing Form 4224 (Statement Claiming Exemption from Withholding of Tax on Income Effectively Connected With the Conduct of Business in the United States) with USX or its paying agent. A Non-United States Holder of Steel Stock eligible for a reduced rate of United States withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the United States Internal Revenue Service ("IRS"). S-55 SALE OF STEEL STOCK A Non-United States Holder generally will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of his Steel Stock unless (i) such gain is effectively connected with a United States trade or business of the Non-United States Holder, (ii) the Non-United States Holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which such sale occurs and certain other conditions are met or (iii) USX is or has been a "United States real property holding corporation" for federal income tax purposes. USX has not determined whether it is a "United States real property holding corporation" for federal income tax purposes. If USX is or becomes a "United States real property holding corporation," so long as the Steel Stock continues to be regularly traded on an established securities market, only a Non-United States Holder who holds or held (during the five year period preceding such disposition) more than 5% of the Steel Stock will be subject to federal income tax on the sale or other disposition of such stock. BACKUP WITHHOLDING AND INFORMATION REPORTING Under Treasury regulations, USX must report annually to the IRS and to each Non-United States Holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected with a United States trade or business of the Non- United States Holder or withholding was reduced or eliminated by an applicable treaty. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the Non-United States Holder resides under the provisions of an applicable income tax treaty. Payments of dividends to a Non-United States Holder at an address outside the United States will generally not be subject to information reporting and backup withholding. The payment of the proceeds of the disposition of Steel Stock to or through the United States office of a broker is subject to information reporting and backup withholding at a rate of 31% unless the owner certifies its non-United States status under penalties or perjury or otherwise establishes an exemption. The payment of the proceeds of the disposition by a Non-United States Holder of Steel Stock to or through a foreign office of a broker will not be subject to backup withholding unless the broker is (a) a United States person, (b) a United States controlled foreign corporation or (c) a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business. Moreover, in the case of foreign offices of such brokers, information reporting will apply to such payments of proceeds unless such broker has documentary evidence in its files of the owner's foreign status and does not have actual knowledge to the contrary. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against such holder's United States federal income tax liability provided the required information is furnished to the IRS. ESTATE TAX Steel Stock owned, or treated as owned, by a nonresident alien individual at the time of his death will be included in such holder's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. S-56 THE UNDERWRITER Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date hereof, Morgan Stanley & Co. Incorporated (the "Underwriter") has agreed to purchase, and the Corporation has agreed to sell to the Underwriter, 4,500,000 shares of Steel Stock. The Underwriting Agreement provides that the obligation of the Underwriter to pay for and accept delivery of the Steel Stock is subject to the approval of certain legal matters by its counsel and to certain other conditions. The Underwriter is obligated to take and pay for all the Steel Stock if any is taken. The Underwriter proposes to offer part of the Steel Stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $.41 per share. The Corporation has granted to the Underwriter an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an additional 500,000 shares of Steel Stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The Underwriter may exercise such option solely for the purpose of covering over-allotments, if any, incurred in the sale of the Steel Stock. The Underwriter has represented and agreed that (i) it has not offered or sold, and will not offer or sell, in the United Kingdom, by means of any document, any shares of the Steel Stock other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent (except under circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985); (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Steel Stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on, and will only issue and pass on to any person in the United Kingdom, any document received by it in connection with the issue of the Steel Stock if that person is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a person to whom the document may otherwise lawfully be issued or passed on. Except with respect to the United States, no action has been taken by the Corporation or the Underwriter that would permit a public offering of the Steel Stock in any country or jurisdiction where action for that purpose is required. Accordingly, the Steel Stock may not be offered, sold or delivered, directly or indirectly, and neither this document nor any offering circular, prospectus, form of application, advertisement or other offering material may be distributed or published in any other such country or jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations and the Underwriter has represented that all offers, sales and deliveries by them will be made on these terms. Purchasers of the shares offered pursuant to the Offering may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the public offering price. The Corporation has agreed, with certain exceptions, that it will not sell or otherwise dispose of any shares of Steel Stock (other than pursuant to employee stock options, employee benefit plans and any dividend reinvestment plan) for a period of 90 days from the date of this Prospectus without the written consent of the Underwriter. The Corporation has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended. From time to time, the Underwriter has provided, and continues to provide, investment banking services to the Corporation. S-57 LEGAL MATTERS The validity of the issuance of the Steel Stock will be passed upon for the Corporation by Dan D. Sandman, Esq., General Counsel of USX, or by J.A. Hammerschmidt, Esq., Assistant General Counsel--Corporate of USX. Mr. Sandman and Mr. Hammerschmidt, in their respective capacities as General Counsel and Assistant General Counsel, are paid a salary by USX and participate in various employee benefit plans offered to officers of USX generally. Certain legal matters will be passed upon for the Underwriter by Simpson Thacher & Bartlett (a partnership which includes professional corporations), 425 Lexington Avenue, New York, New York 10017. S-58 -----END PRIVACY-ENHANCED MESSAGE-----