Filed by USX Corporation
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: USX Corporation
Registration Statement No. 333-71454
USX CORPORATION REPORTS MARATHON GROUP
THIRD QUARTER 2001 RESULTS
Earnings Highlights
(Dollars in millions except per diluted share data)
3Q 2001 3Q 2000
Net income adjusted for special $319 $356
items $1.03 $1.14
- per diluted share
Net income $193 $121
Net income per diluted share $0.62 $0.38
Revenues and other income $8,336 $9,228
PITTSBURGH, October 22, 2001 -- USX-Marathon Group (NYSE:MRO) reported
third quarter 2001 net income adjusted for special items of $319 million, or
$1.03 per diluted share, compared with net income adjusted for special items of
$356 million, or $1.14 per diluted share, in the third quarter of 2000.
The Marathon Group recorded third quarter 2001 net income of $193 million,
or $0.62 per diluted share, which included a $126 million after-tax loss
primarily related to the complete sale of Marathon's heavy oil assets in Canada.
This sale is part of a strategic realignment to focus on Canadian gas assets.
Net income in the third quarter of 2000 was $121 million, or 38 cents per
diluted share, which included a $235 million one-time, non-cash deferred tax
charge.
USX Corporation Board Chairman Thomas J. Usher said, "Our downstream
refining and marketing segment continued to perform very well this quarter and
upstream production levels surpassed our third quarter production targets.
However, crude oil and natural gas prices declined by quarter-end."
Marathon Group revenues were $8.3 billion in third quarter 2001 compared to
$9.2 billion in third quarter 2000.
Income for Marathon's reportable segments was $840 million in third quarter
2001 versus $776 million in third quarter 2000.
Worldwide exploration and production (upstream) segment income totaled $259
million in third quarter 2001 compared to $465 million in third quarter 2000.
The decrease was primarily due to lower crude oil and natural gas prices and
increased depreciation, partially offset by reduced exploration expense
primarily resulting from the timing of well expenditures and reduced geophysical
contract expenditures.
Domestic upstream income was $210 million in third quarter 2001 compared to
$305 million in third quarter 2000.
International upstream income was $49 million in third quarter 2001
compared to $160 million in third quarter 2000. The East Foinaven field,
located in the U.K. Atlantic Margin, commenced production in late September and
is currently flowing at a gross rate of 16,000 barrels per day. Marathon
acquired a 28 percent interest in Foinaven and a 47 percent interest in East
Foinaven in the trade with Shell for Marathon's interest in Sakhalin Energy in
late 2000. Through third quarter 2001, the Foinaven fields have produced an
average 21,500 net barrels per day of liquid hydrocarbons.
Marathon's Gulf of Mexico exploration drilling program was delayed due to
the previously announced cancellation of the contract for the Cajun Express rig.
The two wells expected to be drilled with the Cajun Express rig have been
delayed until December 2001 and January 2002. However, Marathon has been able
to participate in or accelerate the drilling of other prospects. The Deep Ozona
(Garden Banks 515) and Timber Wolf (Mississippi Canyon 555) prospects are
currently drilling and are expected to reach total depth in the fourth quarter.
The Paris Carver (Green Canyon 601) prospect is expected to spud late in the
fourth quarter with drilling continuing into 2002. Marathon's international
drilling program is proceeding on schedule with a shallow-water Nova Scotia well
currently drilling, and with Angola and Nova Scotia deepwater wells expected to
spud in the fourth quarter.
Marathon's fourth quarter production is expected to be approximately 415 to
420 thousand barrels of oil equivalent per day. Full year 2001 production is
expected to be approximately 420 thousand barrels of oil equivalent per day.
For 2002, Marathon's production is expected to average between 430 and 435
thousand barrels of oil equivalent per day.
On August 23, 2001, Marathon announced plans to develop a strategic
alliance with Yukos Oil Company, the second largest Russian oil company. As
part of the alliance, a joint business development group will be formed to
evaluate international investment opportunities. On August 29, 2001, Marathon
announced agreements with Statoil, Norsk Hydro and TotalFinaElf to acquire
varied interests in five licenses in the Norwegian Sector of the North Sea. The
portfolio additions include several undeveloped discoveries close to Marathon's
existing infrastructure positions in the Heimdal and Brae areas of the North
Sea. The transactions are subject to necessary approvals from the Norwegian
authorities.
Refining, marketing and transportation (downstream) segment income was $575
million in third quarter 2001 compared to $299 million in third quarter 2000
reflecting a higher refining and wholesale marketing gross margin, partially
offset by lower Speedway SuperAmerica LLC (SSA) gasoline and distillate sales
volumes and increased refining and marketing transportation expenses.
Pilot Travel Centers LLC (PTC), a joint venture owned 50 percent each by
Marathon Ashland Petroleum LLC (MAP) and Pilot Corporation, began operations on
September 1, 2001. MAP, through its wholly owned retail unit SSA, contributed
94 travel centers in the formation of PTC. PTC is now the largest travel center
network in the United States with more than 235 locations. The new venture,
based in Knoxville, Tennessee, has approximately 11,000 employees.
The Garyville, Louisiana refinery coker achieved mechanical completion in
early October and is currently operating at more than 80 percent of capacity.
The coker is anticipated to be at full production during the fourth quarter of
this year. This new unit will allow the Garyville refinery to use heavier,
lower cost crude and reduce the production of heavy fuel oil.
The proposed separation of the Marathon Group and the U. S. Steel Group
into two independent companies is subject to approval at a special meeting of
stockholders to be held on October 25. The separation is also subject to
several other conditions including receipt of a favorable ruling from the
Internal Revenue Service as to the tax-free status of the separation. The
separation is expected to occur at year-end, subject to the absence of any
materially adverse change in business conditions for the energy and/or steel
business, delay in obtaining the IRS ruling or other unfavorable circumstances.
Shareholders should note that failure to cast a vote will have the same effect
as voting against the separation. Shareholders may vote in person, by returning
their proxy card, or by telephone or Internet.
*****
This release contains forward-looking statements with respect to the
exploration drilling program, timing and levels of Marathon's worldwide liquid
hydrocarbon and natural gas production, the planned alliance with Yukos Oil
Company, the plan to acquire interests in licenses in the Norwegian sector of
the North Sea, and the full operation of the Garyville coker. Some factors that
could potentially affect the exploration drilling program and worldwide liquid
hydrocarbon and natural gas production include acts of war or terrorist acts and
the governmental or military response thereto, pricing, supply and demand for
petroleum products, amount of capital available for exploration and development,
regulatory constraints, timing of commencing production from new wells, drilling
rig availability and other geological, operating and economic considerations.
Some factors that could affect the planned alliance with Yukos Oil Company
include the execution and closing of definitive agreements, and the receipt of
government approvals. The realization of anticipated benefits is dependent upon
the effectiveness of the mutual alliance and future economic conditions. Some
factors that could affect the plan to acquire interests in licenses in the
Norwegian sector of the North Sea include the execution and closing of
definitive agreements, and the receipt of necessary approvals from the Norwegian
authorities. Some factors that could impact the Garyville coker project include
unanticipated operational issues. In accordance with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, USX has
included in Form 10-K for the year ended December 31, 2000, as amended in Forms
10-K/A, and in subsequent Forms 10-Q and Forms 8-K, cautionary statements
identifying important factors, but not necessarily all factors, that could cause
actual results to differ materially from those set forth in the forward-looking
statements.
A Statement of Operations and Preliminary Supplemental Statistics for the
Marathon Group and a Consolidated Statement of Operations for USX Corporation
are attached.
The company will conduct a conference call on third quarter earnings on
Monday, October 22 at 1 p.m. EDST. To listen to the webcast of the conference
call, visit the USX website, www.usx.com and click on the "Marathon Group"
button, then the "Investor Services" button. Replays of the webcast will be
available through October 29.
MARATHON GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions,
except per share amounts) 2001 2000 2001 2000
---------------------------------------------------------------------
REVENUES AND OTHER INCOME:
Revenues $8,502 $9,169 $26,243 $25,588
Dividend and investee income 34 40 106 68
Net gains (losses) on
disposal of assets (207) 2 (185) 104
Other income 7 17 83 33
------ ------ ------ ------
Total revenues and other income 8,336 9,228 26,247 25,793
------ ------ ------ ------
COSTS AND EXPENSES:
Cost of revenues
(excludes items shown below) 6,046 6,864 18,482 18,927
Selling, general and
administrative expenses 171 151 497 409
Depreciation, depletion and amortization 302 241 911 727
Taxes other than income taxes 1,217 1,192 3,541 3,474
Exploration expenses 20 51 69 142
------ ----- ------ ------
Total costs and expenses 7,756 8,499 23,500 23,679
------ ----- ------ ------
INCOME FROM OPERATIONS 580 729 2,747 2,114
Net interest and other financial costs 36 53 109 192
Minority interest in income of Marathon Ashland
Petroleum LLC 223 115 650 373
------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 321 561 1,988 1,549
Provision for income taxes 128 440 705 807
------ ----- ------ ------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 193 121 1,283 742
Cumulative effect of change in accounting
principle - - (8) -
------ ----- ------ ------
NET INCOME $193 $121 $1,275 $742
====== ===== ====== ======
MARATHON STOCK DATA:
Income before cumulative effect of change in
accounting principle $193 $121 $1,283 $742
- Per share - basic .63 .38 4.16 2.38
- diluted .62 .38 4.15 2.37
Cumulative effect of change in accounting
principle - - (8) -
- Per share - basic - - (.03) -
- diluted - - (.03) -
Net income $193 $121 $1,275 $742
- Per share - basic .63 .38 4.13 2.38
- diluted .62 .38 4.12 2.37
Dividends paid per share .23 .23 .69 .65
Weighted average shares, in thousands
- Basic 309,309311,847309,056312,068
- Diluted 309,923312,094309,452312,272
The following notes are an integral part of this financial statement.
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENT
-------------------------------------
1.The statement of operations of the Marathon Group includes the
results of operations for the businesses of Marathon Oil Company
(Marathon) and certain other subsidiaries of USX and a portion of
USX's net financial costs, general and administrative costs and
income taxes attributed to the groups in accordance with USX's
accounting and tax allocation policies. This statement should be
read in connection with the consolidated statement of operations of
USX.
2.Effective January 1, 2001, USX adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), as amended by
SFAS Nos. 137 and 138. This Standard requires recognition of all
derivatives as either assets or liabilities at fair value.
The transition adjustment related to adopting SFAS No. 133 on
January 1, 2001, was recognized as a cumulative effect of change in
accounting principle. The unfavorable cumulative effect on net
income, net of a tax benefit of $5 million, was $8 million. The
unfavorable cumulative effect on other comprehensive income (OCI),
net of a tax benefit of $4 million, was $8 million. The amounts
reported as OCI will be reflected in net income when the
anticipated physical transactions are consummated.
3.In the first quarter 2001, Marathon acquired Pennaco Energy, Inc.
(Pennaco), a natural gas producer. Marathon acquired 87% of the
outstanding stock of Pennaco through a tender offer completed on
February 7, 2001 at $19 a share. On March 26, 2001, Pennaco was
merged with a wholly owned subsidiary of Marathon. Under the terms
of the merger, each share not held by Marathon was converted into
the right to receive $19 in cash. The total purchase price of
Pennaco was $506 million. The acquisition was accounted for under
the purchase method of accounting. Results of operations for the
nine months of 2001 include the results of Pennaco from February 7,
2001.
4.In the third quarter of 2001, the Marathon Group recorded a $221
million pretax loss related to the sale of Marathon's heavy oil
assets in Canada, which is included in net gains (losses) on
disposal of assets.
5.On July 31, 2001, USX announced that its board of directors
approved the definitive plan of reorganization to separate the
energy and steel businesses of USX (Proposed Separation). The
Proposed Separation envisions a tax-free spin-off of the steel
business of USX into a freestanding, publicly traded company to be
known as United States Steel Corporation. Holders of current USX-U.
S. Steel Group Common Stock will become holders of United States
Steel Corporation Common Stock. Holders of current USX-Marathon
Group Common Stock will continue to hold their shares in USX which
will be renamed Marathon Oil Corporation. The Proposed Separation
does not contemplate a cash distribution to stockholders. The
Proposed Separation is subject to the approval of the holders of a
majority of the outstanding shares of each class of current USX
common stock, receipt of a favorable private letter ruling from the
Internal Revenue Service (IRS) on the tax-free nature of the
transaction, completion of necessary financing arrangements and
receipt of necessary regulatory and third party consents. The
transaction is expected to occur on or about December 31, 2001.
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENT (Continued)
-------------------------------------------------
6.On July 2, 2001, a corporate reorganization was implemented to
create a new holding company structure. USX became a holding
company that owns all of the outstanding equity of Marathon Oil
Company, an Ohio Corporation which, directly and indirectly, owns
and operates the businesses of the USX-Marathon Group, and United
States Steel LLC, a Delaware limited liability company which,
directly and indirectly, owns and operates the businesses of the
USX-U. S. Steel Group. The reorganization will not have any impact
on the results of operations or financial position of USX
Corporation, the Marathon Group or the U. S. Steel Group.
This reorganization in corporate form was independent of the
Proposed Separation of the energy and steel businesses of USX
Corporation.
MARATHON GROUP OF USX CORPORATION
PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
------------------------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 2001 2000 2001 2000
---------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Exploration & Production ("E&P")
Domestic $210 $305 $1,012 $783
International 49 160 292 347
----- ----- ----- -----
Income For E&P Reportable Segment 259 465 1,304 1,130
Refining, Marketing & Transportation(a) 575 299 1,693 968
Other Energy Related Businesses(b) 6 12 38 25
----- ----- ----- -----
Income For Reportable Segments $840 $776 $3,035 $2,123
Items Not Allocated To Segment
Administrative Expenses $(39) $(48) $(104) $(105)
Gain on disposition of Angus/Stellaria - - - 87
Gain on lease resolution with
U.S. Government - - 59 -
Gain/(loss) on ownership change - MAP 1 1 (5) 9
Loss related to sale of certain
Canadian assets (221) - (221) -
Costs related to proposed separation(c) (1) - (17) -
------ ----- ------ ------
Marathon Group Income From Operations $580 $729 $2,747 $2,114
CAPITAL EXPENDITURES
Exploration & Production $219 $153 $593 $553
Refining, Marketing & Transportation 153 149 365 315
Other(d) 20 - 62 10
----- ---- ----- -----
Total $392 $302 $1,020 $878
EXPLORATION EXPENSE
Domestic $9 $33 $34 $84
International 11 18 35 58
----- ----- ----- -----
Total $20 $51 $69 $142
OPERATING STATISTICS
Net Liquid Hydrocarbon Production(e):
United States 124.1 129.4 124.9 131.7
Europe 52.3 26.3 47.0 28.2
Other International 23.8 42.8 30.0 37.3
------ ----- ------ ------
Total Consolidated 200.2 198.5 201.9 197.2
Domestic Equity Investee
(MKM Partners L.P.) 9.0 - 9.5 -
International Equity Investees (CLAM &
Sakhalin Energy)(f) 0.1 24.4 0.1 9.1
------ ------ ------ ------
Worldwide 209.3 222.9 211.5 206.3
Net Natural Gas Production(g):
United States 751.8 715.5 771.4 726.1
Europe(h) 301.4 306.2 322.0 333.1
Other International 119.1 144.8 125.4 144.8
------ ------ ------- -------
Total Consolidated 1,172.3 1,166.5 1,218.8 1,204.0
International Equity Investee (CLAM) 26.4 21.4 31.6 28.0
------- ------- ------- -------
Worldwide 1,198.7 1,187.9 1,250.4 1,232.0
Average Equity Sales Prices(i)(j):
Liquid Hydrocarbons (per Bbl)
Domestic $21.33 $26.58 $21.80 $24.85
International 24.19 28.84 24.95 26.87
Natural Gas (per Mcf)
Domestic $2.49 $3.61 $3.98 $2.90
International 2.30 2.59 3.07 2.47
MARATHON GROUP OF USX CORPORATION
PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
------------------------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
2001 2000 2001 2000
--------------------------------
OPERATING STATISTICS (continued)
MAP:
Crude Oil Refined(e) 961.1 928.4 930.0 915.0
Consolidated Refined Products Sold(e)(n) 1343.8 1350.0 1300.3 1304.6
Matching buy/sell volumes included in refined
products sold(e) 43.0 43.5 43.8 55.3
Refining and Wholesale
Marketing Margin(k)(l) $0.1314$0.0670$0.1347$0.0753
Number of SSA retail outlets(o) 2,145 2,288 - -
SSA Gasoline and Distillate Sales(m)(o) 916 965 2,657 2,802
SSA Gasoline and Distillate
Gross Margin(k)(o) $0.1331$0.1289$0.1230$0.1287
SSA Merchandise Sales(o) $607 $588 $1,669 $1,643
SSA Merchandise Gross Margin(o) $137 $136 $387 $387
--------------
(a) Includes MAP at 100%. RM&T income for reportable segments
includes Ashland's 38% interest in MAP of $223 million, $114
million, $651 million and $372 million in the third quarter and
nine month year-to-date 2001 and 2000, respectively.
(b) Includes domestic natural gas and crude oil marketing and
transportation, and power generation.
(c) Includes professional fees and expenses, and certain other
costs related to the proposed separation.
(d) Includes other energy related businesses and corporate
capital expenditures.
(e) Thousands of barrels per day
(f) In 2001, equity investee is CLAM and in 2000, equity
investees are CLAM and Sakhalin Energy.
(g) Millions of cubic feet per day
(h) Includes gas acquired for injection and subsequent resale
of 6.8, 9.3, 8.3 and 11.7 mmcfd in the third quarter and nine
month year-to-date 2001 and 2000, respectively.
(i) Prices exclude gains and losses from hedging activities.
(j) Prices exclude equity affiliates and purchase/resale gas.
(k) Per gallon
(l) Sales revenue less cost of refinery inputs, purchased
products and manufacturing expenses, including depreciation.
(m) Millions of gallons
(n) Total average daily volume of all refined product sales to
MAP's wholesale, branded and retail (SSA) customers.
(o) Excludes travel centers contributed to Pilot Travel Center
LLC. Periods prior to September 1, 2001, have been restated.
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
------------------------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 2001 2000 2001 2000
---------------------------------------------------------------------
REVENUES AND OTHER INCOME:
Revenues $10,139$10,607 $31,099$30,207
Dividend and investee income 45 46 157 81
Net gains (losses) on disposal of assets (203) 8 (165) 138
Other income 7 18 85 32
------ ------ ------ ------
Total revenues and other income 9,988 10,679 31,176 30,458
------ ------ ------ ------
COSTS AND EXPENSES:
Cost of revenues
(excludes items shown below) 7,557 8,184 23,108 23,107
Selling, general and
administrative expenses 178 95 516 233
Depreciation, depletion and amortization 396 310 1,157 949
Taxes other than income taxes 1,282 1,250 3,732 3,650
Exploration expenses 20 51 69 142
------ ------ ------ ------
Total costs and expenses 9,433 9,890 28,582 28,081
------ ------ ------ ------
INCOME FROM OPERATIONS 555 789 2,594 2,377
Net interest and other financial costs 74 80 183 267
Minority interest in income of Marathon Ashland
Petroleum LLC 223 115 650 373
------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 258 594 1,761 1,737
Provision for income taxes 88 454 522 877
------ ------ ------ ------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 170 140 1,239 860
Cumulative effect of change in accounting
principle - - (8) -
------ ------ ------ ------
NET INCOME 170 140 1,231 860
Dividends on preferred stock 2 2 6 6
------ ------ ------ ------
NET INCOME APPLICABLE TO COMMON STOCKS $168 $138 $1,225 $854
====== ====== ====== ======
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
------------------------------------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions,
except per share amounts) 2001 2000 2001 2000
---------------------------------------------------------------------
APPLICABLE TO MARATHON STOCK:
Income before cumulative effect of change
in accounting principle $193 $121 $1,283 $742
- Per share - basic .63 .38 4.16 2.38
- diluted .62 .38 4.15 2.37
Cumulative effect of change in accounting
principle - - (8) -
- Per share - basic - - (.03) -
- diluted - - (.03) -
Net income $193 $121 $1,275 $742
- Per share - basic .63 .38 4.13 2.38
- diluted .62 .38 4.12 2.37
Dividends paid per share .23 .23 .69 .65
Weighted average shares, in thousands
- Basic 309,309 311,847 309,056 312,068
- Diluted 309,923 312,094 309,452 312,272
APPLICABLE TO STEEL STOCK:
Net income (loss) $(25) $17 $(50) $112
- Per share - basic (.28) .19 (.56) 1.27
- diluted (.28) .19 (.57) 1.27
Dividends paid per share .10 .25 .45 .75
Weighted average shares, in thousands
- Basic 89,193 88,738 89,003 88,554
- Diluted 89,193 88,738 89,003 88,556
The following notes are an integral part of this financial statement.
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO FINANCIAL STATEMENT
----------------------------------------
1.Effective January 1, 2001, USX adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), which was
amended by SFAS Nos. 137 and 138. This Standard requires
recognition of all derivatives as either assets or liabilities at
fair value.
The transition adjustment related to adopting SFAS No. 133 on
January 1, 2001, was recognized as a cumulative effect of change in
accounting principle. The unfavorable cumulative effect on net
income, net of a tax benefit of $5 million, was $8 million. The
unfavorable cumulative effect on other comprehensive income (OCI),
net of a tax benefit of $4 million, was $8 million. The amounts
reported as OCI will be reflected in net income when the
anticipated physical transactions are consummated.
2.In the first quarter 2001, Marathon Oil Company (Marathon) acquired
Pennaco Energy, Inc. (Pennaco), a natural gas producer. Marathon
acquired 87% of the outstanding stock of Pennaco through a tender
offer completed on February 7, 2001 at $19 a share. On March 26,
2001, Pennaco was merged with a wholly owned subsidiary of
Marathon. Under the terms of the merger, each share not held by
Marathon was converted into the right to receive $19 in cash. The
total purchase price of Pennaco was $506 million. The acquisition
was accounted for under the purchase method of accounting. Results
of operations for the nine months of 2001 include the results of
Pennaco from February 7, 2001.
On March 1, 2001, USX completed the purchase of the tin mill
products business of LTV Corporation (LTV), which is now operated
as East Chicago Tin. In this noncash transaction, USX assumed
approximately $66 million of certain employee related obligations
from LTV. The acquisition was accounted for using the purchase
method of accounting. Results of operations for the nine months of
2001 include the operations of East Chicago Tin from the date of
acquisition.
On March 23, 2001, Transtar, Inc. (Transtar) completed its
previously announced reorganization with its two voting
shareholders, USX and Transtar Holdings, L.P. (Holdings), an
affiliate of Blackstone Capital Partners L.P. As a result of this
transaction, USX became sole owner of Transtar and certain of its
subsidiaries. Holdings became owner of the other subsidiaries of
Transtar. USX accounted for the change in its ownership interest
in Transtar using the purchase method of accounting. USX
recognized in the nine months of 2001, a pretax gain of $68 million
(included in dividend and investee income) and a favorable deferred
tax adjustment of $33 million related to this transaction. USX
previously accounted for its investment in Transtar under the
equity method of accounting.
3.USX has a 16% investment in Republic Technologies International LLC
(Republic) which was accounted for under the equity method of
accounting. During the first quarter of 2001, USX discontinued
applying the equity method since investments in and advances to
Republic had been reduced to zero. Also, USX has recognized
certain debt obligations of $14 million previously assumed by
Republic. On April 2, 2001, Republic filed a voluntary petition
with the U.S. Bankruptcy Court to reorganize its operations under
Chapter 11 of the U.S. Bankruptcy Code. In the first quarter of
2001, as a result of Republic's action, USX recorded a pretax
charge of $74 million for potentially uncollectible receivables
from Republic.
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO FINANCIAL STATEMENT (Continued)
-------------------------------------------------
4.In the third quarter of 2001, the Marathon Group recorded a $221
million pretax loss related to the sale of Marathon's heavy oil
assets in Canada, which is included in net gains (losses) on
disposal of assets.
5.On August 14, 2001, USX announced its intention to permanently
close the cold rolling and tin mill operations at U. S. Steel's
Fairless Works. In the third quarter of 2001, USX recorded a
pretax charge of $29 million relative to the shutdown.
6.On July 31, 2001, USX announced that its board of directors
approved the definitive plan of reorganization to separate the
energy and steel businesses of USX (Proposed Separation). The
Proposed Separation envisions a tax-free spin-off of the steel
business of USX into a freestanding, publicly traded company to be
known as United States Steel Corporation. Holders of current USX-U.
S. Steel Group Common Stock will become holders of United States
Steel Corporation Common Stock. Holders of current USX-Marathon
Group Common Stock will continue to hold their shares in USX which
will be renamed Marathon Oil Corporation. The Proposed Separation
does not contemplate a cash distribution to stockholders. The
Proposed Separation is subject to the approval of the holders of a
majority of the outstanding shares of each class of current USX
common stock, receipt of a favorable private letter ruling from the
Internal Revenue Service (IRS) on the tax-free nature of the
transaction, completion of necessary financing arrangements and
receipt of necessary regulatory and third party consents. The
transaction is expected to occur on or about December 31, 2001.
7.On July 2, 2001, a corporate reorganization was implemented to
create a new holding company structure. USX became a holding
company that owns all of the outstanding equity of Marathon Oil
Company, an Ohio Corporation which, directly and indirectly, owns
and operates the businesses of the USX-Marathon Group, and United
States Steel LLC, a Delaware limited liability company which,
directly and indirectly, owns and operates the businesses of the
USX-U. S. Steel Group. The reorganization will not have any impact
on the results of operations or financial position of USX
Corporation, the Marathon Group or the U. S. Steel Group.
This reorganization in corporate form was independent of the
Proposed Separation of the energy and steel businesses of USX
Corporation.