UNITED STATES STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in millions, except per share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,175
|
|
|
$
|
3,242
|
|
|
$
|
6,299
|
|
|
$
|
6,063
|
|
|
Net sales to related parties (Note 21)
|
|
370
|
|
|
367
|
|
|
745
|
|
|
695
|
|
|
Total (Note 5)
|
|
3,545
|
|
|
3,609
|
|
|
7,044
|
|
|
6,758
|
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
Cost of sales (excludes items shown below)
|
|
3,227
|
|
|
3,121
|
|
|
6,399
|
|
|
5,929
|
|
|
Selling, general and administrative expenses
|
|
82
|
|
|
92
|
|
|
160
|
|
|
170
|
|
|
Depreciation, depletion and amortization
|
|
150
|
|
|
130
|
|
|
293
|
|
|
258
|
|
|
Earnings from investees
|
|
(28
|
)
|
|
(19
|
)
|
|
(37
|
)
|
|
(22
|
)
|
|
Gain on equity investee transactions (Note 25)
|
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
(18
|
)
|
|
Net loss on disposal of assets
|
|
—
|
|
|
1
|
|
|
4
|
|
|
2
|
|
|
Other (income) expense, net
|
|
(1
|
)
|
|
1
|
|
|
(1
|
)
|
|
1
|
|
|
Total
|
|
3,430
|
|
|
3,308
|
|
|
6,818
|
|
|
6,320
|
|
|
Earnings before interest and income taxes
|
|
115
|
|
|
301
|
|
|
226
|
|
|
438
|
|
|
Interest expense
|
|
31
|
|
|
43
|
|
|
65
|
|
|
93
|
|
|
Interest income
|
|
(5
|
)
|
|
(5
|
)
|
|
(10
|
)
|
|
(10
|
)
|
|
Loss on debt extinguishment (Note 11)
|
|
—
|
|
|
28
|
|
|
—
|
|
|
74
|
|
|
Other financial costs (benefits)
|
|
5
|
|
|
(8
|
)
|
|
2
|
|
|
2
|
|
|
Net periodic benefit cost (other than service cost)
|
|
23
|
|
|
17
|
|
|
46
|
|
|
34
|
|
|
Net interest and other financial costs (Note 11)
|
|
54
|
|
|
75
|
|
|
103
|
|
|
193
|
|
|
Earnings before income taxes
|
|
61
|
|
|
226
|
|
|
123
|
|
|
245
|
|
|
Income tax (benefit) provision (Note 13)
|
|
(7
|
)
|
|
12
|
|
|
1
|
|
|
13
|
|
|
Net earnings
|
|
68
|
|
|
214
|
|
|
122
|
|
|
232
|
|
|
Less: Net earnings attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net earnings attributable to United States Steel Corporation
|
|
$
|
68
|
|
|
$
|
214
|
|
|
$
|
122
|
|
|
$
|
232
|
|
|
Earnings per common share
(Note 14):
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to United States Steel Corporation stockholders:
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
$
|
0.39
|
|
|
$
|
1.21
|
|
|
$
|
0.71
|
|
|
$
|
1.32
|
|
|
-Diluted
|
|
$
|
0.39
|
|
|
$
|
1.20
|
|
|
$
|
0.70
|
|
|
$
|
1.30
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNITED STATES STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(Dollars in millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net earnings
|
|
$
|
68
|
|
|
$
|
214
|
|
|
$
|
122
|
|
|
$
|
232
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Changes in foreign currency translation adjustments
|
|
12
|
|
|
(87
|
)
|
|
(5
|
)
|
|
(47
|
)
|
|
Changes in pension and other employee benefit accounts
|
|
32
|
|
|
47
|
|
|
64
|
|
|
93
|
|
|
Changes in derivative financial instruments
|
|
(11
|
)
|
|
(3
|
)
|
|
4
|
|
|
(19
|
)
|
|
Total other comprehensive income (loss), net of tax
|
|
33
|
|
|
(43
|
)
|
|
63
|
|
|
27
|
|
|
Comprehensive income including noncontrolling interest
|
|
101
|
|
|
171
|
|
|
185
|
|
|
259
|
|
|
Comprehensive income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Comprehensive income attributable to United States Steel
Corporation
|
|
$
|
101
|
|
|
$
|
171
|
|
|
$
|
185
|
|
|
$
|
259
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNITED STATES STEEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents (Note 6)
|
|
$
|
651
|
|
|
$
|
1,000
|
|
|
Receivables, less allowance of $28 and $29
|
|
1,420
|
|
|
1,435
|
|
|
Receivables from related parties (Note 21)
|
|
218
|
|
|
224
|
|
|
Inventories (Note 7)
|
|
2,166
|
|
|
2,092
|
|
|
Other current assets
|
|
92
|
|
|
79
|
|
|
Total current assets
|
|
4,547
|
|
|
4,830
|
|
|
Operating lease assets (Note 8)
|
|
237
|
|
|
—
|
|
|
Property, plant and equipment
|
|
16,584
|
|
|
16,008
|
|
|
Less accumulated depreciation and depletion
|
|
11,351
|
|
|
11,143
|
|
|
Total property, plant and equipment, net
|
|
5,233
|
|
|
4,865
|
|
|
Investments and long-term receivables, less allowance of $5 in both periods
|
|
550
|
|
|
513
|
|
|
Intangibles – net (Note 9)
|
|
154
|
|
|
158
|
|
|
Deferred income tax benefits (Note 13)
|
|
433
|
|
|
445
|
|
|
Other noncurrent assets
|
|
137
|
|
|
171
|
|
|
Total assets
|
|
$
|
11,291
|
|
|
$
|
10,982
|
|
|
Liabilities
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable and other accrued liabilities
|
|
$
|
2,498
|
|
|
$
|
2,454
|
|
|
Accounts payable to related parties (Note 21)
|
|
117
|
|
|
81
|
|
|
Payroll and benefits payable
|
|
334
|
|
|
440
|
|
|
Accrued taxes
|
|
111
|
|
|
118
|
|
|
Accrued interest
|
|
39
|
|
|
39
|
|
|
Current operating lease liabilities (Note 8)
|
|
54
|
|
|
—
|
|
|
Current portion of long-term debt (Note 16)
|
|
70
|
|
|
65
|
|
|
Total current liabilities
|
|
3,223
|
|
|
3,197
|
|
|
Noncurrent operating lease liabilities (Note 8)
|
|
188
|
|
|
—
|
|
|
Long-term debt, less unamortized discount and debt issuance costs (Note 16)
|
|
2,345
|
|
|
2,316
|
|
|
Employee benefits
|
|
926
|
|
|
980
|
|
|
Deferred income tax liabilities (Note 13)
|
|
18
|
|
|
14
|
|
|
Deferred credits and other noncurrent liabilities
|
|
279
|
|
|
272
|
|
|
Total liabilities
|
|
6,979
|
|
|
6,779
|
|
|
Contingencies and commitments (Note 22)
|
|
|
|
|
|
Stockholders’ Equity (Note 19):
|
|
|
|
|
|
Common stock (178,533,023 and 177,386,430 shares issued) (Note 14)
|
|
179
|
|
|
177
|
|
|
Treasury stock, at cost (7,176,841 shares and 2,857,578 shares)
|
|
(155
|
)
|
|
(78
|
)
|
|
Additional paid-in capital
|
|
3,936
|
|
|
3,917
|
|
|
Retained earnings
|
|
1,314
|
|
|
1,212
|
|
|
Accumulated other comprehensive loss (Note 20)
|
|
(963
|
)
|
|
(1,026
|
)
|
|
Total United States Steel Corporation stockholders’ equity
|
|
4,311
|
|
|
4,202
|
|
|
Noncontrolling interests
|
|
1
|
|
|
1
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
11,291
|
|
|
$
|
10,982
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNITED STATES STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in millions)
|
|
2019
|
|
2018
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
Net earnings
|
|
$
|
122
|
|
|
$
|
232
|
|
|
Adjustments to reconcile to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
293
|
|
|
258
|
|
|
Gain on equity investee transactions (Note 25)
|
|
—
|
|
|
(18
|
)
|
|
Loss on debt extinguishment (Note 11)
|
|
—
|
|
|
74
|
|
|
Provision for doubtful accounts
|
|
—
|
|
|
1
|
|
|
Pensions and other postretirement benefits
|
|
55
|
|
|
37
|
|
|
Deferred income taxes (Note 13)
|
|
(3
|
)
|
|
(1
|
)
|
|
Net loss on disposal of assets
|
|
4
|
|
|
2
|
|
|
Equity investee earnings, net of distributions received
|
|
(35
|
)
|
|
(19
|
)
|
|
Changes in:
|
|
|
|
|
|
Current receivables
|
|
(28
|
)
|
|
(294
|
)
|
|
Inventories
|
|
(77
|
)
|
|
(123
|
)
|
|
Current accounts payable and accrued expenses
|
|
(28
|
)
|
|
146
|
|
|
Income taxes receivable/payable
|
|
39
|
|
|
(3
|
)
|
|
Bank checks outstanding
|
|
5
|
|
|
8
|
|
|
All other, net
|
|
19
|
|
|
(7
|
)
|
|
Net cash provided by operating activities
|
|
366
|
|
|
293
|
|
|
Investing activities:
|
|
|
|
|
|
Capital expenditures
|
|
(628
|
)
|
|
(381
|
)
|
|
Disposal of assets
|
|
1
|
|
|
1
|
|
|
Investments, net
|
|
—
|
|
|
(1
|
)
|
|
Net cash used in investing activities
|
|
(627
|
)
|
|
(381
|
)
|
|
Financing activities:
|
|
|
|
|
|
Issuance of long-term debt, net of financing costs (Note 16)
|
|
—
|
|
|
640
|
|
|
Repayment of long-term debt (Note 16)
|
|
(1
|
)
|
|
(874
|
)
|
|
Common stock repurchased (Note 24)
|
|
(70
|
)
|
|
—
|
|
|
Dividends paid
|
|
(18
|
)
|
|
(18
|
)
|
|
Receipt from exercise of stock options
|
|
—
|
|
|
33
|
|
|
Taxes paid for equity compensation plans (Note 12)
|
|
(7
|
)
|
|
(8
|
)
|
|
Net cash used in financing activities
|
|
(96
|
)
|
|
(227
|
)
|
|
Effect of exchange rate changes on cash
|
|
(1
|
)
|
|
(10
|
)
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
(358
|
)
|
|
(325
|
)
|
|
Cash, cash equivalents and restricted cash at beginning of year (Note 6)
|
|
1,040
|
|
|
1,597
|
|
|
Cash, cash equivalents and restricted cash at end of period (Note 6)
|
|
$
|
682
|
|
|
$
|
1,272
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.
Basis of Presentation and Significant Accounting Policies
United States Steel Corporation (U. S. Steel, or the Company) produces and sells steel products, including flat-rolled and tubular products, in North America and Europe. Operations in North America also include iron ore and coke production facilities, railroad services and real estate operations. Operations in Europe also include coke production facilities.
The year-end Consolidated Balance Sheet data was derived from audited statements but does not include all disclosures required for complete financial statements by accounting principles generally accepted in the United States of America (U.S. GAAP). The other information in these condensed financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair statement of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. Additional information is contained in the United States Steel Corporation Annual Report on Form 10-K for the fiscal year ended
December 31, 2018
, which should be read in conjunction with these condensed financial statements.
2.
New Accounting Standards
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2018-14,
Compensation - Retirement Benefits - Defined Benefit Plans
- General (Subtopic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
(ASU 2018-14). ASU 2018-14 removes certain disclosures that the FASB no longer considers cost beneficial, adds certain disclosure requirements and clarifies others. ASU 2018-14 is effective for public companies for fiscal years beginning after December 15, 2020, with early adoption permitted. U. S. Steel is currently assessing the impact of the ASU on its defined benefit plan disclosures.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments
(ASU 2016-13), which adds an impairment model that is based on expected losses rather than incurred losses. Under ASU 2016-13, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 is effective for public companies for fiscal years beginning after December 15, 2019 including interim reporting periods, with early adoption permitted. U. S. Steel is currently assessing the impact of the ASU, but does not believe this ASU will have a material impact on its overall Condensed Consolidated Financial Statements.
3.
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU 2016-02,
Leases
(ASU 2016-02). Under ASU 2016-02, for operating leases, a lessee should recognize in its statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term; recognize a single lease cost, which is allocated over the lease term, generally on a straight line basis, and classify all cash payments within operating activities in the statement of cash flows. For finance leases, a lessee is required to recognize a right-of-use asset and a lease liability; recognize interest on the lease liability separately from amortization of the right-of-use asset, and classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability within operating activities in the statement of cash flows. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. In July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842) -Targeted Improvements
(ASU 2018-11), which provides an option to use a modified retrospective transition method at the adoption date. U. S. Steel adopted the new lease accounting standard effective January 1, 2019 using the optional modified retrospective transition method outlined in ASU 2018-11. As a result of the adoption, an operating lease asset and current and noncurrent liabilities for operating leases were recorded, and there was an insignificant reduction in prior year retained earnings for the cumulative effect of adoption for operating leases where payment started after lease commencement. See Note 8 for further details.
U. S. Steel's adoption of the following ASU's effective January 1, 2019 did not have a material impact on U. S. Steel's financial position, results of operations or cash flows:
|
|
|
|
|
|
Accounting Standard Update
|
|
2018-07
|
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
|
|
2018-15
|
Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs in a Cloud Computing Arrangement That is a Service Contract
|
4.
Segment Information
U. S. Steel has
three
reportable segments: (1) Flat-Rolled Products (Flat-Rolled), which consists of the following
three
commercial entities that directly interact with our customers and service their needs: (i) automotive solutions, (ii) consumer solutions, and (iii) industrial, service center and mining solutions; (2) U. S. Steel Europe (USSE); and (3) Tubular Products (Tubular). The results of our railroad and real estate businesses that do not constitute reportable segments are combined and disclosed in the Other Businesses category.
The chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being earnings (loss) before interest and income taxes. Earnings (loss) before interest and income taxes for reportable segments and Other Businesses does not include net interest and other financial costs (income), income taxes, and certain other items that management believes are not indicative of future results.
The accounting principles applied at the operating segment level in determining earnings (loss) before interest and income taxes are generally the same as those applied at the consolidated financial statement level. Intersegment sales and transfers are accounted for at market-based prices and are eliminated at the corporate consolidation level. Corporate-level selling, general and administrative expenses and costs related to certain former businesses are allocated to the reportable segments and Other Businesses based on measures of activity that management believes are reasonable.
The results of segment operations for the
three months ended June 30, 2019
and
2018
are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
Three Months Ended June 30, 2019
|
|
Customer
Sales
|
|
Intersegment
Sales
|
|
Net
Sales
|
|
Earnings
from
investees
|
|
Earnings (loss) before interest and income taxes
|
|
Flat-Rolled
|
|
$
|
2,539
|
|
|
$
|
95
|
|
|
$
|
2,634
|
|
|
$
|
26
|
|
|
$
|
134
|
|
|
USSE
|
|
678
|
|
|
3
|
|
|
681
|
|
|
—
|
|
|
(10
|
)
|
|
Tubular
|
|
316
|
|
|
1
|
|
|
317
|
|
|
2
|
|
|
(6
|
)
|
|
Total reportable segments
|
|
3,533
|
|
|
99
|
|
|
3,632
|
|
|
28
|
|
|
118
|
|
|
Other Businesses
|
|
12
|
|
|
30
|
|
|
42
|
|
|
—
|
|
|
10
|
|
|
Reconciling Items and Eliminations
|
|
—
|
|
|
(129
|
)
|
|
(129
|
)
|
|
—
|
|
|
(13
|
)
|
|
Total
|
|
$
|
3,545
|
|
|
$
|
—
|
|
|
$
|
3,545
|
|
|
$
|
28
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Flat-Rolled
|
|
$
|
2,435
|
|
|
$
|
59
|
|
|
$
|
2,494
|
|
|
$
|
17
|
|
|
$
|
224
|
|
|
USSE
|
|
848
|
|
|
15
|
|
|
863
|
|
|
—
|
|
|
115
|
|
|
Tubular
|
|
309
|
|
|
2
|
|
|
311
|
|
|
2
|
|
|
(35
|
)
|
|
Total reportable segments
|
|
3,592
|
|
|
76
|
|
|
3,668
|
|
|
19
|
|
|
304
|
|
|
Other Businesses
|
|
17
|
|
|
32
|
|
|
49
|
|
|
—
|
|
|
17
|
|
|
Reconciling Items and Eliminations
|
|
—
|
|
|
(108
|
)
|
|
(108
|
)
|
|
—
|
|
|
(20
|
)
|
|
Total
|
|
$
|
3,609
|
|
|
$
|
—
|
|
|
$
|
3,609
|
|
|
$
|
19
|
|
|
$
|
301
|
|
The results of segment operations for the
six months ended June 30, 2019
and
2018
are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
Six Months Ended June 30, 2019
|
|
Customer
Sales
|
|
Intersegment
Sales
|
|
Net
Sales
|
|
Earnings
from
investees
|
|
Earnings (loss) before interest and income taxes
|
|
Flat-Rolled
|
|
$
|
4,944
|
|
|
$
|
164
|
|
|
$
|
5,108
|
|
|
$
|
33
|
|
|
$
|
229
|
|
|
USSE
|
|
1,415
|
|
|
6
|
|
|
1,421
|
|
|
—
|
|
|
19
|
|
|
Tubular
|
|
659
|
|
|
3
|
|
|
662
|
|
|
4
|
|
|
4
|
|
|
Total reportable segments
|
|
7,018
|
|
|
173
|
|
|
7,191
|
|
|
37
|
|
|
252
|
|
|
Other Businesses
|
|
26
|
|
|
60
|
|
|
86
|
|
|
—
|
|
|
18
|
|
|
Reconciling Items and Eliminations
|
|
—
|
|
|
(233
|
)
|
|
(233
|
)
|
|
—
|
|
|
(44
|
)
|
|
Total
|
|
$
|
7,044
|
|
|
$
|
—
|
|
|
$
|
7,044
|
|
|
$
|
37
|
|
|
$
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Flat-Rolled
|
|
$
|
4,482
|
|
|
$
|
116
|
|
|
$
|
4,598
|
|
|
$
|
19
|
|
|
$
|
257
|
|
|
USSE
|
|
1,671
|
|
|
16
|
|
|
1,687
|
|
|
—
|
|
|
225
|
|
|
Tubular
|
|
575
|
|
|
2
|
|
|
577
|
|
|
3
|
|
|
(62
|
)
|
|
Total reportable segments
|
|
6,728
|
|
|
134
|
|
|
6,862
|
|
|
22
|
|
|
420
|
|
|
Other Businesses
|
|
30
|
|
|
63
|
|
|
93
|
|
|
—
|
|
|
28
|
|
|
Reconciling Items and Eliminations
|
|
—
|
|
|
(197
|
)
|
|
(197
|
)
|
|
—
|
|
|
(10
|
)
|
|
Total
|
|
$
|
6,758
|
|
|
$
|
—
|
|
|
$
|
6,758
|
|
|
$
|
22
|
|
|
$
|
438
|
|
The following is a schedule of reconciling items to consolidated earnings before interest and income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(In millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Items not allocated to segments:
|
|
|
|
|
|
|
|
|
|
December 24, 2018 Clairton coke making facility fire
|
|
$
|
(13
|
)
|
|
$
|
—
|
|
|
$
|
(44
|
)
|
|
$
|
—
|
|
|
Gain on equity investee transactions
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
Granite City Works restart costs
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
(36
|
)
|
|
Granite City Works adjustment to temporary idling charges
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
8
|
|
|
Total reconciling items
|
|
$
|
(13
|
)
|
|
$
|
(20
|
)
|
|
$
|
(44
|
)
|
|
$
|
(10
|
)
|
5.
Revenue
Revenue is generated primarily from contracts to produce, ship and deliver steel products, and to a lesser extent, to deliver raw materials such as iron ore pellets, to deliver coke by-products
and for railroad services and real estate sales. Generally, U. S. Steel’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time, when title transfers to our customer for product shipped or services are provided. Revenues are recorded net of any sales incentives. Shipping and other transportation costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Costs related to obtaining sales contracts are incidental and are expensed when incurred. Because customers are invoiced at the time title transfers and U. S. Steel’s right to consideration is unconditional at that time, U. S. Steel does not maintain contract asset balances. Additionally, U. S. Steel does not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. U. S. Steel offers industry standard payment terms.
U. S. Steel has
three
reportable segments: Flat-Rolled, USSE and Tubular. Flat-Rolled primarily generates revenue from sheet and coated product sales to North American customers. Flat-Rolled also sells slabs, iron ore pellets and coke making by-products. USSE sells slabs, sheet, strip mill plate, coated products and spiral welded pipe to customers primarily in the Eastern European market. Tubular sells seamless and electric resistance welded (ERW) steel casing and tubing (commonly known as oil country tubular goods or OCTG), standard and line pipe and mechanical tubing and primarily serves customers in the oil, gas and petrochemical markets. Revenue from our railroad and real estate businesses is reported in the Other Businesses category in our segment reporting structure. The following tables disaggregate our revenue by product for each of our reportable business segments for the
three months and six months
ended
June 30, 2019
and
2018
, respectively:
Net Sales by Product (In millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Flat-Rolled
|
USSE
|
Tubular
|
Other Businesses
|
Total
|
|
Semi-finished
|
|
$
|
121
|
|
$
|
5
|
|
$
|
—
|
|
$
|
—
|
|
$
|
126
|
|
|
Hot-rolled sheets
|
|
682
|
|
287
|
|
—
|
|
—
|
|
969
|
|
|
Cold-rolled sheets
|
|
643
|
|
82
|
|
—
|
|
—
|
|
725
|
|
|
Coated sheets
|
|
816
|
|
269
|
|
—
|
|
—
|
|
1,085
|
|
|
Tubular products
|
|
—
|
|
11
|
|
311
|
|
—
|
|
322
|
|
|
All Other
(a)
|
|
277
|
|
24
|
|
5
|
|
12
|
|
318
|
|
|
Total
|
|
$
|
2,539
|
|
$
|
678
|
|
$
|
316
|
|
$
|
12
|
|
$
|
3,545
|
|
(a)
Consists primarily of sales of raw materials and coke making by-products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Flat-Rolled
|
USSE
|
Tubular
|
Other Businesses
|
Total
|
|
Semi-finished
|
|
$
|
1
|
|
$
|
52
|
|
$
|
—
|
|
$
|
—
|
|
$
|
53
|
|
|
Hot-rolled sheets
|
|
640
|
|
339
|
|
—
|
|
—
|
|
979
|
|
|
Cold-rolled sheets
|
|
735
|
|
104
|
|
—
|
|
—
|
|
839
|
|
|
Coated sheets
|
|
797
|
|
310
|
|
—
|
|
—
|
|
1,107
|
|
|
Tubular products
|
|
—
|
|
13
|
|
299
|
|
—
|
|
312
|
|
|
All Other
(a)
|
|
262
|
|
30
|
|
10
|
|
17
|
|
319
|
|
|
Total
|
|
$
|
2,435
|
|
$
|
848
|
|
$
|
309
|
|
$
|
17
|
|
$
|
3,609
|
|
(a)
Consists primarily of sales of raw materials and coke making by-products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Flat-Rolled
|
USSE
|
Tubular
|
Other Businesses
|
Total
|
|
Semi-finished
|
|
$
|
209
|
|
$
|
9
|
|
$
|
—
|
|
$
|
—
|
|
$
|
218
|
|
|
Hot-rolled sheets
|
|
1,445
|
|
619
|
|
—
|
|
—
|
|
2,064
|
|
|
Cold-rolled sheets
|
|
1,304
|
|
170
|
|
—
|
|
—
|
|
1,474
|
|
|
Coated sheets
|
|
1,544
|
|
548
|
|
—
|
|
—
|
|
2,092
|
|
|
Tubular products
|
|
—
|
|
20
|
|
646
|
|
—
|
|
666
|
|
|
All Other
(a)
|
|
442
|
|
49
|
|
13
|
|
26
|
|
530
|
|
|
Total
|
|
$
|
4,944
|
|
$
|
1,415
|
|
$
|
659
|
|
$
|
26
|
|
$
|
7,044
|
|
(a)
Consists primarily of sales of raw materials and coke making by-products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Flat-Rolled
|
USSE
|
Tubular
|
Other Businesses
|
Total
|
|
Semi-finished
|
|
$
|
10
|
|
$
|
89
|
|
$
|
—
|
|
$
|
—
|
|
$
|
99
|
|
|
Hot-rolled sheets
|
|
1,212
|
|
692
|
|
—
|
|
—
|
|
1,904
|
|
|
Cold-rolled sheets
|
|
1,374
|
|
202
|
|
—
|
|
—
|
|
1,576
|
|
|
Coated sheets
|
|
1,503
|
|
607
|
|
—
|
|
—
|
|
2,110
|
|
|
Tubular products
|
|
—
|
|
25
|
|
558
|
|
—
|
|
583
|
|
|
All Other
(a)
|
|
383
|
|
56
|
|
17
|
|
30
|
|
486
|
|
|
Total
|
|
$
|
4,482
|
|
$
|
1,671
|
|
$
|
575
|
|
$
|
30
|
|
$
|
6,758
|
|
(a)
Consists primarily of sales of raw materials and coke making by-products.
6.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within U. S. Steel's Condensed Consolidated Balance Sheets that sum to the total of the same amounts shown in the Condensed Consolidated Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2019
|
|
June 30, 2018
|
|
Cash and cash equivalents
|
|
$
|
651
|
|
|
$
|
1,231
|
|
|
Restricted cash in other current assets
|
|
1
|
|
|
5
|
|
|
Restricted cash in other noncurrent assets
|
|
30
|
|
|
36
|
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
682
|
|
|
$
|
1,272
|
|
Amounts included in restricted cash represent cash balances which are legally or contractually restricted, primarily for environmental capital expenditure projects and insurance purposes.
7.
Inventories
Inventories are carried at the lower of cost or market for last-in, first-out (LIFO) inventories and lower of cost and net realizable value for first-in, first-out (FIFO) method inventories. The LIFO method is the predominant method of inventory costing in the United States. The FIFO method is the predominant inventory costing method in Europe. At
June 30, 2019
and
December 31, 2018
, the LIFO method accounted for
70 percent
and
74 percent
of total inventory values, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Raw materials
|
|
$
|
650
|
|
|
$
|
605
|
|
|
Semi-finished products
|
|
1,033
|
|
|
1,021
|
|
|
Finished products
|
|
431
|
|
|
404
|
|
|
Supplies and sundry items
|
|
52
|
|
|
62
|
|
|
Total
|
|
$
|
2,166
|
|
|
$
|
2,092
|
|
Current acquisition costs were estimated to exceed the above inventory values by
$961 million
and
$1,038 million
at
June 30, 2019
and
December 31, 2018
, respectively. As a result of the liquidation of LIFO inventories, cost of sales decreased and earnings before interest and income taxes increased by
$8 million
and
$7 million
for the three and six months ended
June 30, 2019
, respectively. Cost of sales decreased and earnings before interest and income taxes increased by
$2 million
and
$1 million
for the three and six months ended
June 30, 2018
, respectively, as a result of liquidation of LIFO inventories.
Inventory includes
$39 million
of land held for residential/commercial development as of both
June 30, 2019
and
December 31, 2018
.
8.
Leases
Effective January 1, 2019, U. S. Steel adopted ASU 2016-02 using the optional modified retrospective transition method outlined in ASU 2018-11 which permitted application of ASU 2016-02 on January 1, 2019 using a cumulative effect adjustment to the opening balance of retained earnings. As of June 30, 2019, an operating lease asset of
$237 million
and current and noncurrent liabilities for operating leases of
$54 million
and
$188 million
, respectively, were recorded (see below tabular disclosure for further details). There was an insignificant cumulative effect of adoption for operating lease liabilities that exceeded their related asset values for leases where payment started after lease commencement.
Operating lease assets consist primarily of office space, heavy mobile equipment used in our mining operations and facilities and equipment under operating service agreements for electricity generation and scrap processing. We also have operating lease assets for light mobile equipment and information technology assets. Significant finance leases include the Fairfield slab caster lease and heavy mobile equipment used in our mining operations (see Note 16 for further details). Variable lease payments are primarily related to operating service agreements where payment is solely dependent on consumption of certain services, such as raw material and by-product processing. Most long-term leases include renewal options and, in certain leases, purchase options. Generally, we are not reasonably certain that these options will be exercised. We have residual value guarantees under certain light mobile equipment leases. There is no impact to our leased assets for residual value guarantees as the potential loss is not probable (see “Other Contingencies” in Note 22 for further details). We do not have material restrictive covenants associated with our leases or material amounts of sublease income. From time to time, U. S. Steel may enter into arrangements for the construction or purchase of an asset and then enter into a financing arrangement to lease the asset. U. S. Steel recognizes leased assets and liabilities under these arrangements when it obtains control of the asset.
U. S. Steel elected the option within ASU 2016-02 to straight-line expense and not record assets or liabilities for leases with an initial term of 12 months or less. For leases beginning in 2019 and later, we separate non-lease components from lease components for leases under operating service agreements. We do not separate non-lease components for other lease types as they are not significant. The Company does not have secured notes outstanding; therefore, we use an estimated secured borrowing rate as the discount rate for most of our leases. In accordance with the practical expedients outlined in ASU 2016-02, we did not use hindsight in determining the lease term for existing leases and elected not to reassess the following for existing leases: whether contracts contain a lease, lease classification, and initial direct costs.
The following table summarizes the lease amounts included in our Condensed Consolidated Balance Sheet as of June 30, 2019.
|
|
|
|
|
|
|
|
|
(In millions)
|
Balance Sheet Location
|
June 30, 2019
|
|
Assets
|
|
|
|
Operating
|
Operating lease assets
(a)
|
$
|
237
|
|
|
Finance
|
Property, plant and equipment
(b)
|
49
|
|
|
Total Lease Assets
|
|
$
|
286
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Operating
|
Current operating lease liabilities
|
$
|
54
|
|
|
Finance
|
Current portion of long-term debt
|
8
|
|
|
Non-Current
|
|
|
|
Operating
|
Noncurrent operating lease liabilities
|
188
|
|
|
Finance
|
Long-term debt less unamortized discount and issue costs
|
48
|
|
|
Total Lease Liabilities
|
|
$
|
298
|
|
(a)
Operating lease assets are recorded net of accumulated amortization of
$25 million
.
(b)
Finance lease assets are recorded net of accumulated depreciation of
$23 million
.
The following table summarizes lease costs included in our Condensed Consolidated Statement of Operations for the three and six month periods ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Classification
|
Three Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2019
|
|
Operating Lease Cost
(a)
|
Cost of sales
|
$
|
20
|
|
|
$
|
40
|
|
|
Operating Lease Cost
|
Selling, general and administrative expenses
|
3
|
|
|
6
|
|
|
Finance Lease Cost
|
|
|
|
|
|
Amortization
|
Depreciation, depletion and amortization
|
1
|
|
|
2
|
|
|
Interest
|
Interest expense
|
1
|
|
|
1
|
|
|
Total Lease Cost
|
|
$
|
25
|
|
|
$
|
49
|
|
(a)
Operating lease cost recorded in cost of sales includes
$4 million
and
$9 million
of variable lease cost for the three and six months ended June 30, 2019, respectively. An immaterial amount of variable lease cost is included in selling, general and administrative expenses and immaterial amounts of short-term lease cost are included in cost of sales and selling, general and administrative expenses.
Lease liability maturities as of June 30, 2019 are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Operating
|
|
Finance
|
|
Total
|
|
2019
|
$
|
38
|
|
|
$
|
6
|
|
|
$
|
44
|
|
|
2020
|
63
|
|
|
11
|
|
|
74
|
|
|
2021
|
51
|
|
|
11
|
|
|
62
|
|
|
2022
|
41
|
|
|
16
|
|
|
57
|
|
|
2023
|
32
|
|
|
5
|
|
|
37
|
|
|
After 2023
|
78
|
|
|
17
|
|
|
95
|
|
|
Total Lease Payments
|
$
|
303
|
|
|
$
|
66
|
|
|
$
|
369
|
|
|
Less: Interest
|
61
|
|
|
10
|
|
|
71
|
|
|
Present value of lease liabilities
|
$
|
242
|
|
|
$
|
56
|
|
|
$
|
298
|
|
Future minimum commitments for capital and operating leases having non-cancelable lease terms in excess of one year as of the year ended December 31, 2018 were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Capital
Leases
|
|
Operating
Leases
|
|
2019
|
|
$
|
5
|
|
|
$
|
66
|
|
|
2020
|
|
5
|
|
|
55
|
|
|
2021
|
|
5
|
|
|
45
|
|
|
2022
|
|
11
|
|
|
37
|
|
|
2023
|
|
—
|
|
|
28
|
|
|
After 2023
|
|
—
|
|
|
72
|
|
|
Total minimum lease payments
|
|
$
|
26
|
|
|
$
|
303
|
|
|
Less imputed interest costs
|
|
4
|
|
|
|
|
Present value of net minimum lease payments included in long-term debt
|
|
$
|
22
|
|
|
|
Lease terms and discount rates are shown below.
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Weighted average lease term
|
|
|
Finance
|
6 years
|
|
|
Operating
|
6 years
|
|
|
|
|
|
Weighted average discount rate
|
|
|
Finance
|
6.32
|
%
|
|
Operating
|
7.83
|
%
|
Supplemental cash flow information related to leases follows.
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Three Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
18
|
|
|
$
|
36
|
|
|
Operating cash flows from finance leases
|
1
|
|
|
1
|
|
|
Financing cash flows from finance leases
|
1
|
|
|
1
|
|
|
Right-of-use assets exchanged for lease liabilities:
|
|
|
|
|
Operating leases
|
16
|
|
|
24
|
|
|
Finance leases
|
19
|
|
|
35
|
|
9.
Intangible Assets
Intangible assets that are being amortized on a straight-line basis over their estimated useful lives are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2019
|
|
As of December 31, 2018
|
|
(In millions)
|
|
Useful
Lives
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Customer relationships
|
|
22 Years
|
|
$
|
132
|
|
|
$
|
73
|
|
|
$
|
59
|
|
|
$
|
132
|
|
|
$
|
70
|
|
|
$
|
62
|
|
|
Patents
|
|
10-15 Years
|
|
22
|
|
|
8
|
|
|
14
|
|
|
22
|
|
|
7
|
|
|
15
|
|
|
Other
|
|
4-20 Years
|
|
14
|
|
|
8
|
|
|
6
|
|
|
14
|
|
|
8
|
|
|
6
|
|
|
Total amortizable intangible assets
|
|
|
|
$
|
168
|
|
|
$
|
89
|
|
|
$
|
79
|
|
|
$
|
168
|
|
|
$
|
85
|
|
|
$
|
83
|
|
Identifiable intangible assets with finite lives are reviewed for impairment whenever events or circumstances indicate that the carrying values may not be recoverable.
Amortization expense was
$2 million
in both the
three months ended June 30, 2019
and
2018
. Amortization expense was
$4 million
in both the
six months ended June 30, 2019
and
2018
. The estimated amortization expense for the remainder of
2019
is
$4 million
. We expect a consistent level of annual amortization expense through
2023
.
The carrying amount of acquired water rights with indefinite lives as of
June 30, 2019
and
December 31, 2018
totaled
$75 million
. The acquired water rights are tested for impairment annually in the third quarter, or whenever events or circumstances indicate the carrying value may not be recoverable. U. S. Steel performed a qualitative impairment evaluation of its acquired water rights during the third quarter of 2018. Based on the results of the evaluation, the water rights were not impaired.
10.
Pensions and Other Benefits
The following table reflects the components of net periodic benefit cost for the
three months ended June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Other
Benefits
|
|
(In millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Service cost
|
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
Interest cost
|
|
59
|
|
|
58
|
|
|
23
|
|
|
23
|
|
|
Expected return on plan assets
|
|
(81
|
)
|
|
(90
|
)
|
|
(20
|
)
|
|
(21
|
)
|
|
Amortization of prior service cost
|
|
1
|
|
|
—
|
|
|
7
|
|
|
8
|
|
|
Amortization of actuarial net loss
|
|
33
|
|
|
38
|
|
|
1
|
|
|
1
|
|
|
Net periodic benefit cost, excluding below
|
|
23
|
|
|
18
|
|
|
14
|
|
|
15
|
|
|
Multiemployer plans
|
|
19
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
Net periodic benefit cost
|
|
$
|
42
|
|
|
$
|
33
|
|
|
$
|
14
|
|
|
$
|
15
|
|
The following table reflects the components of net periodic benefit cost for the
six months ended June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Other
Benefits
|
|
(In millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Service cost
|
|
$
|
22
|
|
|
$
|
25
|
|
|
$
|
6
|
|
|
$
|
8
|
|
|
Interest cost
|
|
119
|
|
|
116
|
|
|
46
|
|
|
46
|
|
|
Expected return on plan assets
|
|
(162
|
)
|
|
(180
|
)
|
|
(40
|
)
|
|
(41
|
)
|
|
Amortization of prior service cost
|
|
1
|
|
|
—
|
|
|
14
|
|
|
15
|
|
|
Amortization of actuarial net loss
|
|
66
|
|
|
76
|
|
|
2
|
|
|
2
|
|
|
Net periodic benefit cost, excluding below
|
|
46
|
|
|
37
|
|
|
28
|
|
|
30
|
|
|
Multiemployer plans
|
|
37
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
Net periodic benefit cost
|
|
$
|
83
|
|
|
$
|
66
|
|
|
$
|
28
|
|
|
$
|
30
|
|
Employer Contributions
During the first
six
months of
2019
, U. S. Steel made cash payments of $
37 million
to the Steelworkers’ Pension Trust and $
4 million
of pension payments not funded by trusts.
During the first
six
months of
2019
, cash payments of $
20 million
were made for other postretirement benefit payments not funded by trusts.
Company contributions to defined contribution plans totaled
$12 million
and
$11 million
for the
three months ended June 30, 2019
and
2018
, respectively. Company contributions to defined contribution plans totaled
$22 million
for both the
six months ended June 30, 2019
and
2018
.
11.
Net Interest and Other Financial Costs
Net interest and other financial costs includes interest expense (net of capitalized interest), interest income, financing costs, net periodic benefit costs (other than service costs) related to pension and other post-employment benefits (OPEB) plans, and foreign currency derivative and remeasurement gains and losses. During the
three months ended June 30, 2019
and
2018
, net foreign currency losses of
$1 million
and gains of
$12 million
, respectively were recorded in other financial costs. During the
six months ended June 30, 2019
and
2018
, net foreign currency gains of
$7 million
and
$8 million
, respectively, were recorded in other financial costs. Additionally, during the
six months ended June 30, 2018
, there was a loss on debt extinguishment recognized of
$74 million
. There were
no
debt extinguishment transactions in 2019.
See Note 15 for additional information on U. S. Steel’s use of derivatives to mitigate its foreign currency exchange rate exposure.
12.
Stock-Based Compensation Plans
U. S. Steel has outstanding stock-based compensation awards that were granted by the Compensation & Organization Committee of the Board of Directors (the Committee) under the 2005 Stock Incentive Plan (the 2005 Plan) and the 2016 Omnibus Incentive Compensation Plan (the Omnibus Plan). On April 26, 2016, the Company's stockholders approved the Omnibus Plan and authorized the Company to issue up to
7,200,000
shares of U. S. Steel common stock under the Omnibus Plan. The Company's stockholders authorized the issuance of an additional
6,300,000
shares under the Omnibus Plan on April 25, 2017. While the awards that were previously granted under the 2005 Plan remain outstanding, all future awards will be granted under the Omnibus Plan. As of
June 30, 2019
, there were
6,812,857
shares available for future grants under the Omnibus Plan.
Recent grants of stock-based compensation consist of restricted stock units, total shareholder return (TSR) performance awards and return on capital employed (ROCE) performance awards. Shares of common stock under the Omnibus Plan are issued from authorized, but unissued stock. The following table is a summary of the awards made under the Omnibus Plan during the first six months of
2019
and
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Grant Details
|
|
Shares
(a)
|
Fair Value
(b)
|
|
Shares
(a)
|
Fair Value
(b)
|
|
Restricted Stock Units
|
|
1,002,400
|
|
$
|
23.78
|
|
|
728,945
|
|
$
|
41.52
|
|
|
Performance Awards
(c)
|
|
|
|
|
|
|
|
TSR
|
|
210,520
|
|
$
|
29.22
|
|
|
79,190
|
|
$
|
61.57
|
|
|
ROCE
|
|
526,140
|
|
$
|
23.92
|
|
|
247,510
|
|
$
|
43.50
|
|
(a)
The share amounts shown in this table do not reflect an adjustment for estimated forfeitures.
(b)
Represents the per share weighted-average for all grants during the period.
(c)
The number of performance awards shown represents the target value of the award.
U. S. Steel recognized pretax stock-based compensation expense in the amount of
$12 million
and
$10 million
in the three-month periods ended
June 30, 2019
and
2018
, respectively, and
$20 million
and
$17 million
in the first six months of
2019
and
2018
, respectively.
As of
June 30, 2019
, total future compensation expense related to nonvested stock-based compensation arrangements was
$36 million
, and the weighted average period over which this expense is expected to be recognized is approximately
20 months
.
Restricted stock units awarded as part of annual grants generally vest ratably over
three years
. Their fair value is the market price of the underlying common stock on the date of grant. Restricted stock units granted in connection with new-hire or retention grants generally cliff vest
three years
from the date of the grant.
TSR performance awards may vest at varying levels at the end of a
three
-year performance period if U. S. Steel's total shareholder return compared to the total shareholder return of a peer group of companies meets performance criteria during the
three
-year performance period. TSR performance awards can vest at between
zero
and
200 percent
of the target award. The fair value of the TSR performance awards is calculated using a Monte-Carlo simulation.
ROCE performance awards may vest at the end of a
three
-year performance period contingent upon meeting the specified ROCE metric. ROCE performance awards can vest at between
zero
and
200 percent
of the target award. The fair value of the ROCE performance awards is the average market price of the underlying common stock on the date of grant.
For further details about our stock-based compensation incentive plans and stock awards see Note 15 of the United States Steel Corporation Annual Report on Form 10-K for the fiscal year-ended December 31, 2018.
13.
Income Taxes
Tax provision
For the
six months ended
June 30, 2019
and
2018
, we recorded a tax provision of
$1 million
on our pretax earnings of
$123 million
and a tax provision of
$13 million
on our pretax earnings of
$245 million
, respectively. The tax provision in both periods reflects a benefit for percentage depletion in excess of cost depletion from iron ore that we produce and consume or sell. In 2018, the tax provision also reflects a tax benefit for the release of a portion of the valuation allowance due to pretax income.
The tax provision for the first quarter of 2019 was based on an estimated annual effective rate, which requires management to make its best estimate of annual pretax income or loss. For the quarter ended June 30, 2019, the Company computed its tax benefit using a discrete period effective tax rate, which reflects the actual taxes attributable to year-to-date earnings and losses, because we determined that a reliable estimate of the expected annual effective tax rate could not be made. A small change in our estimated marginal pretax results for the year ended December 31, 2019 could create a large change in the expected annual effective tax rate. The sensitivity of the effective tax rate was increased by the benefit for percentage depletion in excess of cost depletion for iron ore.
Deferred taxes
Each quarter U. S. Steel analyzes the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion, or all, of the deferred tax asset may not be realized.
At
June 30, 2019
, U. S. Steel reviewed all available positive and negative evidence and determined that it is more likely than not that certain domestic deferred tax assets may not be realized.
U. S. Steel will continue to monitor the realizability of its deferred tax assets on a quarterly basis taking into consideration, among other items, the uncertainty regarding the Company's continued ability to generate domestic income in the near term. In the future, if we determine that realization is more likely than not for deferred tax assets with a valuation allowance, the related valuation allowance will be reduced, and we will record a non-cash benefit to earnings.
Unrecognized tax benefits
Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken, in a tax return and the benefit recognized for accounting purposes pursuant to the guidance in Accounting Standards Codification (ASC) Topic 740 on income taxes. As of
June 30, 2019
, and
December 31, 2018
, the total amount of gross unrecognized tax benefits was
$34 million
and
$35 million
, respectively. The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was
$2 million
as of both
June 30, 2019
and
December 31, 2018
.
U. S. Steel records interest related to uncertain tax positions as a part of net interest and other financial costs in the Condensed Consolidated Statement of Operations. Any penalties are recognized as part of selling, general and administrative expenses. As of both
June 30, 2019
and
December 31, 2018
, U. S. Steel had accrued liabilities of
$2 million
for interest and penalties related to uncertain tax positions.
It is reasonably expected that during the next 12 months unrecognized tax benefits related to income tax positions will decrease by approximately
$32 million
.
14.
Earnings and Dividends Per Common Share
Earnings Per Share Attributable to United States Steel Corporation Stockholders
Basic earnings per common share is based on the weighted average number of common shares outstanding during the period.
Diluted earnings per common share assumes the exercise of stock options, the vesting of restricted stock units and performance awards, provided in each case the effect is dilutive.
The computations for basic and diluted earnings per common share from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(Dollars in millions, except per share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Earnings attributable to United States Steel Corporation stockholders
|
|
$
|
68
|
|
|
$
|
214
|
|
|
$
|
122
|
|
|
$
|
232
|
|
|
Weighted-average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
Basic
|
|
171,992
|
|
|
177,027
|
|
|
172,613
|
|
|
176,594
|
|
|
Effect of stock options, restricted stock units and performance awards
|
|
520
|
|
|
1,876
|
|
|
862
|
|
|
1,891
|
|
|
Adjusted weighted-average shares outstanding, diluted
|
|
172,512
|
|
|
178,903
|
|
|
173,475
|
|
|
178,485
|
|
|
Basic earnings per common share
|
|
$
|
0.39
|
|
|
$
|
1.21
|
|
|
$
|
0.71
|
|
|
$
|
1.32
|
|
|
Diluted earnings per common share
|
|
$
|
0.39
|
|
|
$
|
1.20
|
|
|
$
|
0.70
|
|
|
$
|
1.30
|
|
The following table summarizes the securities that were antidilutive, and therefore, were not included in the computations of diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Securities granted under the 2016 Omnibus Incentive Compensation Plan, as amended
|
|
3,758
|
|
|
1,832
|
|
|
3,430
|
|
|
1,572
|
|
Dividends Paid Per Share
The dividend for each of the first and second quarters of
2019
and
2018
was
five
cents per common share.
15.
Derivative Instruments
U. S. Steel is exposed to foreign currency exchange rate risks in our European operations. USSE’s revenues are primarily in euros and costs are primarily in euros and U.S. dollars. U. S. Steel uses foreign exchange forward sales contracts (foreign exchange forwards) with maturities no longer than
12 months
to exchange euros for U.S. dollars to manage our currency requirements and exposure to foreign currency exchange rate fluctuations. Derivative instruments are required to be recognized at fair value in the Condensed Consolidated Balance Sheet. U. S. Steel did not designate euro foreign exchange forwards entered into prior to July 1, 2019, as hedges; therefore, changes in their fair value were recognized immediately in the Condensed Consolidated Statements of Operations (mark-to-market accounting). For those contracts, U. S. Steel will continue to recognize changes in fair value immediately through earnings until the contracts mature. U. S. Steel elected cash flow hedge accounting for euro foreign exchange forwards prospectively effective July 1, 2019. Accordingly, future gains and losses for euro foreign exchange forwards entered into after July 1, 2019 will be recorded within accumulated other comprehensive income (AOCI) until the related contract impacts earnings. We mitigate the risk of concentration of counterparty credit risk by purchasing our forwards from several counterparties.
In 2018, U. S. Steel entered into long-term freight contracts in its domestic operations that require payment in Canadian dollars (CAD). We entered into foreign exchange forward contracts with remaining maturities up to
17 months
to exchange USD for CAD to mitigate a portion of the related risk of exchange rate fluctuations and to manage our currency requirements. We elected to designate these contracts as cash flow hedges.
U. S. Steel may use fixed-price forward physical purchase contracts to partially manage our exposure to price risk related to the purchases of natural gas, zinc and tin used in the production process. Generally, forward physical purchase contracts qualify for the normal purchase and normal sales exceptions described in ASC Topic 815 and are not subject to mark-to-market accounting. U. S. Steel also uses financial swaps to protect from the commodity price risk associated with purchases of natural gas, zinc and tin (commodity purchase swaps). We elected cash flow hedge accounting for domestic commodity purchase swaps and use mark-to-market accounting for commodity purchase swaps used in our European operations.
From time to time, we enter into financial swaps that are used to partially manage the sales price of certain hot-rolled coil and iron ore pellet sales (sales swaps). We elected cash flow hedge accounting for hot-rolled coil sales swaps effective January 1, 2018 and for iron ore pellet sales swaps effective January 1, 2019.
In accordance with the guidance in ASC Topic 820 on fair value measurements and disclosures, the fair value of our foreign exchange forwards, commodity purchase swaps and sales swaps was determined using Level 2 inputs, which are defined as "significant other observable" inputs. The inputs used are from market sources that aggregate data based upon market transactions.
The table below shows the outstanding swap quantities used to hedge forecasted purchases and sales as of
June 30, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge Contracts
|
Classification
|
|
June 30, 2019
|
|
June 30, 2018
|
|
Natural gas (in mmbtus)
|
Commodity purchase swaps
|
|
64,354,000
|
|
|
13,845,000
|
|
|
Tin (in metric tons)
|
Commodity purchase swaps
|
|
990
|
|
|
705
|
|
|
Zinc (in metric tons)
|
Commodity purchase swaps
|
|
13,942
|
|
|
13,468
|
|
|
Hot-rolled coils (in tons)
|
Sales swaps
|
|
—
|
|
|
60,000
|
|
|
Foreign currency (in millions of euros)
|
Foreign exchange forwards
|
|
€
|
301
|
|
|
€
|
266
|
|
|
Foreign currency (in millions of CAD)
|
Foreign exchange forwards
|
|
C$
|
40
|
|
|
C$
|
—
|
|
The following summarizes the fair value amounts included in our Condensed Consolidated Balance Sheets as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) Designated as Hedging Instruments
|
Balance Sheet Location
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Sales swaps
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Commodity purchase swaps
|
Accounts receivable
|
|
2
|
|
|
2
|
|
|
Commodity purchase swaps
|
Accounts payable
|
|
11
|
|
|
17
|
|
|
Commodity purchase swaps
|
Investments and long-term receivables
|
|
2
|
|
|
—
|
|
|
Commodity purchase swaps
|
Other long-term liabilities
|
|
5
|
|
|
1
|
|
|
Foreign exchange forwards
|
Accounts payable
|
|
—
|
|
|
1
|
|
|
Foreign exchange forwards
|
Other long-term liabilities
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Not Designated as Hedging Instruments
|
|
|
|
|
|
|
Foreign exchange forwards
|
Accounts receivable
|
|
6
|
|
|
12
|
|
|
Foreign exchange forwards
|
Accounts payable
|
|
1
|
|
|
—
|
|
The table below summarizes the effect of hedge accounting on AOCI and amounts reclassified from AOCI into earnings for the three and six months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on Derivatives in AOCI
|
|
|
Amount of Gain (Loss) Recognized in Income
|
|
(In millions)
|
Three Months Ended June 30, 2019
|
|
Three Months Ended June 30, 2018
|
|
Location of Reclassification from AOCI
(a)
|
Three Months Ended June 30, 2019
|
|
Three Months Ended June 30, 2018
|
|
Sales swaps
(b)
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
Net sales
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
Commodity purchase swaps
|
(15
|
)
|
|
—
|
|
|
Cost of sales
(c)
|
(6
|
)
|
|
(2
|
)
|
|
Foreign exchange forwards
|
1
|
|
|
—
|
|
|
Cost of sales
|
—
|
|
|
—
|
|
(a)
The earnings impact of our hedging instruments substantially offsets the earnings impact of the related hedged items since ineffectiveness is less than
$1 million
.
(b)
U. S. Steel has elected hedge accounting prospectively for iron ore pellet sales swaps on January 1, 2019.
(c)
Costs for commodity purchase swaps are recognized in cost of sales as products are sold.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on Derivatives in AOCI
|
|
|
|
Amount of Gain (Loss) Recognized in Income
|
|
(In millions)
|
|
Six Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2018
|
|
Location of Reclassification from AOCI
(a)
|
|
Six Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2018
|
|
Sales swaps
(b)
|
|
$
|
1
|
|
|
$
|
(12
|
)
|
|
Net sales
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
|
Commodity purchase swaps
|
|
3
|
|
|
(7
|
)
|
|
Cost of sales
(c)
|
|
(10
|
)
|
|
1
|
|
|
Foreign exchange forwards
|
|
1
|
|
|
—
|
|
|
Cost of sales
|
|
—
|
|
|
—
|
|
(a)
The earnings impact of our hedging instruments substantially offsets the earnings impact of the related hedged items since ineffectiveness is less than
$1 million
.
(b)
U. S. Steel has elected hedge accounting prospectively for iron ore pellet sales swaps on January 1, 2019.
(c)
Costs for commodity purchase swaps are recognized in cost of sales as products are sold.
For euro foreign exchange forward derivatives where hedge accounting was not elected, there were losses of
$2 million
and gains of
$19 million
in the three-month periods ended June 30, 2019 and 2018, respectively, and gains of
$7 million
and
$13 million
in the first six months of 2019 and 2018, respectively, recognized in other financial costs. There were no other material impacts for derivatives where hedge accounting was not elected.
At current contract values,
$9 million
currently in AOCI as of
June 30, 2019
will be recognized as an increase in cost of sales over the next year as related hedged items are recognized in earnings. The maximum derivative contract duration for commodity purchase swaps is
29 months
. There are no outstanding contracts for sales swaps.
16.
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Interest
Rates %
|
|
Maturity
|
|
June 30, 2019
|
|
December 31, 2018
|
|
2037 Senior Notes
|
|
6.650
|
|
2037
|
|
$
|
350
|
|
|
$
|
350
|
|
|
2026 Senior Notes
|
|
6.250
|
|
2026
|
|
650
|
|
|
650
|
|
|
2025 Senior Notes
|
|
6.875
|
|
2025
|
|
750
|
|
|
750
|
|
|
Environmental Revenue Bonds
|
|
5.750 - 6.875
|
|
2019 - 2042
|
|
400
|
|
|
400
|
|
|
Fairfield Caster Lease
|
|
|
|
2022
|
|
21
|
|
|
22
|
|
|
Other finance leases and all other obligations
|
|
|
|
2019 - 2029
|
|
41
|
|
|
6
|
|
|
Fourth Amended and Restated Credit Agreement
|
|
Variable
|
|
2023
|
|
—
|
|
|
—
|
|
|
USSK Credit Agreement
|
|
Variable
|
|
2023
|
|
228
|
|
|
229
|
|
|
USSK credit facilities
|
|
Variable
|
|
2021
|
|
—
|
|
|
—
|
|
|
Total Debt
|
|
|
|
|
|
2,440
|
|
|
2,407
|
|
|
Less unamortized discount and debt issuance costs
|
|
|
|
|
|
25
|
|
|
26
|
|
|
Less short-term debt and long-term debt due within one year
|
|
|
|
|
|
70
|
|
|
65
|
|
|
Long-term debt
|
|
|
|
|
|
$
|
2,345
|
|
|
$
|
2,316
|
|
To the extent not otherwise discussed below, information concerning the senior notes and other listed obligations can be found in Note 17 of the audited financial statements in the United States Steel Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Fourth Amended and Restated Credit Agreement
As of
June 30, 2019
, there were
no
amounts drawn under the
$1.5 billion
Fourth Amended and Restated Credit Agreement (Credit Facility Agreement). U. S. Steel must maintain a fixed charge coverage ratio of at least
1.00
to
1.00
for the most recent four consecutive quarters when availability under the Credit Facility Agreement is less than the greater of
10 percent
of the total aggregate commitments and
$150 million
. Based on the most recent four quarters as of
June 30, 2019
, we would have met this covenant. If we are unable to meet this
covenant in future periods, the amount available to the Company under this facility would be reduced by
$150 million
.
The Credit Facility Agreement provides for borrowings at interest rates based on defined, short-term market rates plus a spread based on availability and includes other customary terms and conditions including restrictions on our ability to create certain liens and to consolidate, merge or transfer all, or substantially all, of our assets. The Credit Facility Agreement expires in February 2023. Maturity may be accelerated
91
days prior to the stated maturity of any outstanding senior debt if excess cash and credit facility availability do not meet the liquidity conditions set forth in the Credit Facility Agreement. Borrowings are secured by liens on certain North American inventory and trade accounts receivable.
U. S. Steel Košice
(
USSK) credit facilities
At
June 30, 2019
, USSK had borrowings of
€200 million
(approximately
$228 million
) under its
€460 million
(approximately
$524 million
) unsecured revolving credit facility. The USSK Credit Agreement contains certain USSK financial covenants, including a maximum net debt to EBITDA ratio and a minimum stockholders' equity to assets ratio. The covenants are measured semi-annually for the period covering the last twelve calendar months and calculated as set forth in the USSK Credit Agreement. If USSK does not comply with the USSK Credit Agreement financial covenants, it may not draw on the facility until the next measurement date, outstanding borrowings may be accelerated, or the margin on outstanding borrowings may be increased. At
June 30, 2019
, USSK had availability of
€260 million
(approximately
$296 million
) under the USSK Credit Agreement.
At
June 30, 2019
, USSK had
no
borrowings under its
€20 million
and
€10 million
unsecured credit facilities (collectively, approximately
$34 million
) and the availability was approximately
$33 million
due to approximately
$1 million
of customs and other guarantees outstanding.
Each of these facilities bear interest at the applicable inter-bank offer rate plus a margin and contain customary terms and conditions.
Change in control event
If there is a change in control of U. S. Steel, the following may occur: (a) debt obligations totaling
$1,978 million
as of
June 30, 2019
may be declared due and payable; (b) the Credit Facility Agreement and the USSK credit facilities may be terminated and any amounts outstanding declared due and payable; and (c) U. S. Steel may be required to either purchase the leased Fairfield Works slab caster for approximately
$21 million
or provide a letter of credit to secure the remaining obligation.
17.
Asset Retirement Obligations
U. S. Steel’s asset retirement obligations (AROs) primarily relate to mine, landfill closure and post-closure costs. The following table reflects changes in the carrying values of AROs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
Balance at beginning of year
|
|
$
|
60
|
|
|
$
|
69
|
|
|
|
Obligations settled
|
|
(4
|
)
|
|
(12
|
)
|
|
|
Accretion expense
|
|
1
|
|
|
3
|
|
|
|
Balance at end of period
|
|
$
|
57
|
|
|
$
|
60
|
|
|
Certain AROs related to disposal costs of the majority of fixed assets at our integrated steel facilities have not been recorded because they have an indeterminate settlement date. These AROs will be initially recognized in the period in which sufficient information exists to estimate their fair value.
18.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, current accounts and notes receivable, accounts payable, bank checks outstanding, and accrued interest included in the Condensed Consolidated Balance Sheet approximate fair value. See Note 15 for disclosure of U. S. Steel’s derivative instruments, which are accounted for at fair value on a recurring basis.
The following table summarizes U. S. Steel’s financial liabilities that were not carried at fair value at
June 30, 2019
and
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
(In millions)
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Long-term debt
(a)
|
|
$
|
2,160
|
|
|
$
|
2,298
|
|
|
$
|
2,182
|
|
|
$
|
2,353
|
|
(a)
Excludes finance lease obligations.
The following methods and assumptions were used to estimate the fair value of financial instruments included in the table above:
Long-term debt
: Fair value was determined using Level 2 inputs which were derived from quoted market prices and is based on the yield on public debt where available or current borrowing rates available for financings with similar terms and maturities.
Fair value of the financial liabilities disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.
Financial guarantees are U. S. Steel’s only unrecognized financial instrument. For details relating to financial guarantees see Note 22.
19.
Statement of Changes in Stockholders’ Equity
The following table reflects the first
six
months of
2019
and
2018
reconciliation of the carrying amount of total equity, equity attributable to U. S. Steel and equity attributable to noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019 (In millions)
|
|
Total
|
|
Retained Earnings
|
|
Accumulated
Other
Comprehensive
(Loss) Income
|
|
Common
Stock
|
|
Treasury
Stock
|
|
Paid-in
Capital
|
|
Non-
Controlling
Interest
|
|
Balance at beginning of year
|
|
$
|
4,203
|
|
|
$
|
1,212
|
|
|
$
|
(1,026
|
)
|
|
$
|
177
|
|
|
$
|
(78
|
)
|
|
$
|
3,917
|
|
|
$
|
1
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
54
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other benefit adjustments
|
|
32
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
(17
|
)
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
15
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
2
|
|
|
|
|
|
|
1
|
|
|
(6
|
)
|
|
7
|
|
|
|
|
Common stock repurchased
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
(9
|
)
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect upon adoption of lease accounting standard
|
|
(2
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
4,236
|
|
|
1,255
|
|
|
(996
|
)
|
|
178
|
|
|
(126
|
)
|
|
3,924
|
|
|
1
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
68
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other benefit adjustments
|
|
32
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
12
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
12
|
|
|
|
|
|
|
|
|
1
|
|
|
(1
|
)
|
|
12
|
|
|
|
|
|
Common stock repurchased
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
(9
|
)
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
|
$
|
4,312
|
|
|
$
|
1,314
|
|
|
$
|
(963
|
)
|
|
$
|
179
|
|
|
$
|
(155
|
)
|
|
$
|
3,936
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018 (In millions)
|
|
Total
|
|
Retained Earnings
|
|
Accumulated
Other
Comprehensive
(Loss) Income
|
|
Common
Stock
|
|
Treasury
Stock
|
|
Paid-in
Capital
|
|
Non-
Controlling
Interest
|
|
Balance at beginning of year
|
|
$
|
3,321
|
|
|
$
|
133
|
|
|
$
|
(845
|
)
|
|
$
|
176
|
|
|
$
|
(76
|
)
|
|
$
|
3,932
|
|
|
$
|
1
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
18
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other benefit adjustments
|
|
46
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
40
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
(16
|
)
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
39
|
|
|
|
|
|
|
1
|
|
|
75
|
|
|
(37
|
)
|
|
|
|
Dividends paid on common stock
|
|
(9
|
)
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2018
|
|
3,439
|
|
|
142
|
|
|
(775
|
)
|
|
177
|
|
|
(1
|
)
|
|
3,895
|
|
|
1
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
214
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other benefit adjustments
|
|
47
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
(87
|
)
|
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
(3
|
)
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Dividends paid on common stock
|
|
(9
|
)
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
$
|
3,606
|
|
|
$
|
347
|
|
|
$
|
(818
|
)
|
|
$
|
177
|
|
|
$
|
(1
|
)
|
|
$
|
3,900
|
|
|
$
|
1
|
|
20.
Reclassifications from Accumulated Other Comprehensive Income (AOCI)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Pension and
Other Benefit
Items
|
|
Foreign
Currency
Items
|
|
Unrealized Gain (Loss) on Derivatives
|
|
Total
|
|
Balance at December 31, 2018
|
|
$
|
(1,416
|
)
|
|
$
|
403
|
|
|
$
|
(13
|
)
|
|
$
|
(1,026
|
)
|
|
Other comprehensive income before reclassifications
|
|
1
|
|
|
(5
|
)
|
|
15
|
|
|
11
|
|
|
Amounts reclassified from AOCI
(a)
|
|
63
|
|
|
—
|
|
|
(11
|
)
|
|
52
|
|
|
Net current-period other comprehensive income
|
|
64
|
|
|
(5
|
)
|
|
4
|
|
|
63
|
|
|
Balance at June 30, 2019
|
|
$
|
(1,352
|
)
|
|
$
|
398
|
|
|
$
|
(9
|
)
|
|
$
|
(963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
(1,309
|
)
|
|
$
|
463
|
|
|
$
|
1
|
|
|
$
|
(845
|
)
|
|
Other comprehensive income before reclassifications
(b)
|
|
—
|
|
|
(47
|
)
|
|
(18
|
)
|
|
(65
|
)
|
|
Amounts reclassified from AOCI
(a)(b)
|
|
93
|
|
|
—
|
|
|
(1
|
)
|
|
92
|
|
|
Net current-period other comprehensive income
|
|
93
|
|
|
(47
|
)
|
|
(19
|
)
|
|
27
|
|
|
Balance at June 30, 2018
|
|
$
|
(1,216
|
)
|
|
$
|
416
|
|
|
$
|
(18
|
)
|
|
$
|
(818
|
)
|
(a)
See table below for further details.
(b)
The Company previously disclosed in Note 19 to the Consolidated Financial Statements in its Quarterly Report on Form 10-Q for the period ended June 30, 2018, an increase to AOCI of
$186 million
in the Other comprehensive income before reclassifications line item and a decrease to AOCI of
$93 million
in the Amounts reclassified from AOCI line item for the six months ended June 30, 2018 amounts for Pension and Other Benefit Items. These amounts should have been disclosed as
zero
and an increase to AOCI of
$93 million
, respectively, which have been corrected in the table above. The Company concluded that the errors were not material to the financial statements of any prior annual or interim period and therefore, amendments of previously filed reports are not required. The revision had no impact on the Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Cash Flows or the Consolidated Statements of Comprehensive Income (Loss). Quarterly periods not presented herein will be revised, as applicable, in future filings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI
(c)
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(In millions)
|
Details about AOCI components
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
Amortization of pension and other benefit items
|
|
|
|
|
|
|
|
|
|
|
Prior service costs
(a)
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
15
|
|
|
$
|
15
|
|
|
|
Actuarial losses
(a)
|
|
34
|
|
|
39
|
|
|
68
|
|
|
78
|
|
|
|
Total pensions and other benefits items
|
|
42
|
|
|
47
|
|
|
83
|
|
|
93
|
|
|
|
Derivative reclassifications to Condensed Consolidated Statements of Operations
|
|
(1
|
)
|
|
2
|
|
|
(14
|
)
|
|
(1
|
)
|
|
|
Total before tax
|
|
41
|
|
|
49
|
|
|
69
|
|
|
92
|
|
|
|
Tax provision
(b)
|
|
(10
|
)
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
|
Net of tax
|
|
$
|
31
|
|
|
$
|
49
|
|
|
$
|
52
|
|
|
$
|
92
|
|
(a)
These AOCI components are included in the computation of net periodic benefit cost (see Note 10 for additional details).
(b)
Amounts in 2018 do not reflect a tax provision as a result of a full valuation allowance on our domestic deferred tax assets.
(c)
The corrections noted in footnote
(b)
to the table above are consistently reflected in this table.
21.
Transactions with Related Parties
Net sales to related parties and receivables from related parties primarily reflect sales of raw materials and steel products to equity investees. Generally, transactions are conducted under long-term contractual arrangements. Related party sales and service transactions were
$370 million
and
$367 million
for the three months ended
June 30, 2019
and
2018
, respectively and
$745 million
and
$695 million
for the six months ended
June 30, 2019
and
2018
, respectively.
Purchases from related parties for outside processing services provided by equity investees amounted to
$7 million
and
$8 million
for the three months ended
June 30, 2019
and
2018
, respectively and
$16 million
and
$15 million
for the six months ended
June 30, 2019
and
2018
, respectively. Purchases of iron ore pellets from related parties amounted to
$31 million
and
$25 million
for the three months ended
June 30, 2019
and
2018
, respectively, and
$51 million
and
$42 million
for the six months ended
June 30, 2019
and
2018
.
Accounts payable to related parties include balances due to PRO-TEC Coating Company, LLC (PRO-TEC) of
$114 million
and
$80 million
at
June 30, 2019
and
December 31, 2018
, respectively for invoicing and receivables collection services provided by U. S. Steel on PRO-TEC's behalf. U. S. Steel, as PRO-TEC’s exclusive sales agent, is responsible for credit risk related to those receivables. U. S. Steel also provides PRO-TEC marketing, selling and customer service functions. Payables to other related parties totaled
$3 million
and
$1 million
at
June 30, 2019
and
December 31, 2018
, respectively.
22.
Contingencies and Commitments
U. S. Steel is the subject of, or party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Certain of these matters are discussed below. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the Condensed Consolidated Financial Statements. However, management believes that U. S. Steel will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably.
U. S. Steel accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that it will incur these costs in the future and the costs are reasonably estimable.
Asbestos matters
–
As of
June 30, 2019
, U. S. Steel was a defendant in approximately
777
active cases involving approximately
2,360
plaintiffs. The vast majority of these cases involve multiple defendants. About
1,540
, or approximately
65 percent
, of these plaintiff claims are currently pending in jurisdictions which permit filings with massive numbers of plaintiffs. At December 31, 2018, U. S. Steel was a defendant in approximately
755
cases involving approximately
2,320
plaintiffs. Based upon U. S. Steel’s experience in such cases, it believes that the actual number of plaintiffs who ultimately assert claims against U. S. Steel will likely be a small fraction of the total number of plaintiffs.
The following table shows the number of asbestos claims in the current period and the prior three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended
|
|
Opening
Number
of Claims
|
|
Claims
Dismissed,
Settled and
Resolved
(a)
|
|
New Claims
|
|
Closing
Number
of Claims
|
|
December 31, 2016
|
|
3,315
|
|
225
|
|
250
|
|
3,340
|
|
December 31, 2017
|
|
3,340
|
|
275
|
|
250
|
|
3,315
|
|
December 31, 2018
|
|
3,315
|
|
1,285
|
|
290
|
|
2,320
|
|
June 30, 2019
|
|
2,320
|
|
100
|
|
140
|
|
2,360
|
(a) The period ending December 31, 2018 includes approximately
1,000
dismissed cases previously pending in the State of Texas.
Historically, asbestos-related claims against U. S. Steel fall into
three
groups: (1) claims made by persons who allegedly were exposed to asbestos on the premises of U. S. Steel facilities; (2) claims made by persons allegedly exposed to products manufactured by U. S. Steel; and (3) claims made under certain federal and maritime laws by employees of former operations of U. S. Steel.
The amount U. S. Steel accrues for pending asbestos claims is not material to U. S. Steel’s financial condition. However, U. S. Steel is unable to estimate the ultimate outcome of asbestos-related claims due to a number of uncertainties, including: (1) the rates at which new claims are filed, (2) the number of and effect of bankruptcies of other companies traditionally defending asbestos claims, (3) uncertainties associated with the variations in the litigation process from jurisdiction to jurisdiction, (4) uncertainties regarding the facts, circumstances and disease process with each claim, and (5) any new legislation enacted to address asbestos-related claims.
Further, U. S. Steel does not believe that an accrual for unasserted claims is required. At any given reporting date, it is probable that there are unasserted claims that will be filed against the Company in the future. In 2018, the Company engaged an outside valuation consultant to assist in assessing its ability to estimate an accrual
for unasserted claims. This assessment was based on the Company's settlement experience, including recent claims trends. The analysis focused on settlements made over the last several years as these claims are likely to best represent future claim characteristics. After review by the valuation consultant and U. S. Steel management, it was determined that the Company could not estimate an accrual for unasserted claims.
Despite these uncertainties, management believes that the ultimate resolution of these matters will not have a material adverse effect on U. S. Steel’s financial condition.
Environmental matters
–
U. S. Steel is subject to federal, state, local and foreign laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for noncompliance. Changes in accrued liabilities for remediation activities where U. S. Steel is identified as a named party are summarized in the following table:
|
|
|
|
|
|
|
|
(In millions)
|
Six Months Ended June 30, 2019
|
|
Beginning of period
|
$
|
187
|
|
|
Accruals for environmental remediation deemed probable and reasonably estimable
|
2
|
|
|
Obligations settled
|
(7
|
)
|
|
End of period
|
$
|
182
|
|
Accrued liabilities for remediation activities are included in the following Condensed Consolidated Balance Sheet lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Accounts payable
|
|
$
|
38
|
|
|
$
|
37
|
|
|
Deferred credits and other noncurrent liabilities
|
|
144
|
|
|
150
|
|
|
Total
|
|
$
|
182
|
|
|
$
|
187
|
|
Expenses related to remediation are recorded in cost of sales and were immaterial for both the three and
six
-month periods ended
June 30, 2019
and
June 30, 2018
. It is not currently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed. Due to uncertainties inherent in remediation projects and the associated liabilities, it is reasonably possible that total remediation costs for active matters may exceed the accrued liabilities by as much as
15
to
30 percent
.
Remediation Projects
U. S. Steel is involved in environmental remediation projects at or adjacent to several current and former U. S. Steel facilities and other locations that are in various stages of completion ranging from initial characterization through post-closure monitoring. Based on the anticipated scope and degree of uncertainty of projects, we categorize projects as follows:
|
|
|
|
(1)
|
Projects with Ongoing Study and Scope Development -
Projects which are still in the development phase. For these projects, the extent of remediation that may be required is not yet known, the remediation methods and plans are not yet developed, and/or cost estimates cannot be determined. Therefore, significant costs, in addition to the accrued liabilities for these projects, are reasonably possible. There are
six
environmental remediation projects where additional costs for completion are not currently estimable, but could be material. These projects are at Fairfield Works, Lorain Tubular, USS-POSCO Industries (UPI), the Fairless Plant, Gary Works and the former steelmaking plant at Joliet, Illinois. As of
June 30, 2019
, accrued liabilities for these projects totaled
$3 million
for the costs of studies, investigations, interim measures, design and/or remediation. It is reasonably possible that additional liabilities associated with future requirements regarding studies, investigations, design and remediation for these projects could be as much as
$30 million
to
$45 million
.
|
|
|
|
|
(2)
|
Significant Projects with Defined Scope -
Projects with significant accrued liabilities with a defined scope. As of
June 30, 2019
, there are
four
significant projects with defined scope greater than or equal to
$5 million
each, with a total accrued liability of
$138 million
. These projects are Gary Resource Conservation and Recovery Act (RCRA) (accrued liability of
$25 million
), the former Geneva facility (accrued liability of
$58 million
), the Cherryvale zinc site (accrued liability of
$10 million
) and the former Duluth facility St. Louis River Estuary (accrued liability of
$45 million
).
|
|
|
|
|
(3)
|
Other Projects with a Defined Scope -
Projects with relatively small accrued liabilities for which we believe that, while additional costs are possible, they are not likely to be significant, and also include those projects for which we do not yet possess sufficient information to estimate potential costs to U. S. Steel. There are
two
other environmental remediation projects which each had an accrued liability of between
$1 million
and
$5 million
. The total accrued liability for these projects at
June 30, 2019
was
$4 million
. These projects have progressed through a significant portion of the design phase and material additional costs are not expected.
|
The remaining environmental remediation projects each have an accrued liability of less than
$1 million
each. The total accrued liability for these projects at
June 30, 2019
was approximately
$5 million
. We do not foresee material additional liabilities for any of these sites.
Post-Closure Costs
– Accrued liabilities for post-closure site monitoring and other costs at various closed landfills totaled
$22 million
at
June 30, 2019
and were based on known scopes of work.
Administrative and Legal Costs
– As of
June 30, 2019
, U. S. Steel had an accrued liability of
$9 million
for administrative and legal costs related to environmental remediation projects. These accrued liabilities were based on projected administrative and legal costs for the next
three years
and do not change significantly from year to year.
Capital Expenditures
–
For a number of years, U. S. Steel has made substantial capital expenditures to comply with various regulations, laws and other requirements relating to the environment. In the first
six
months of
2019
and
2018
, such capital expenditures totaled
$30 million
and
$33 million
, respectively. U. S. Steel anticipates making additional such expenditures in the future, which may be material; however, the exact amounts and timing of such expenditures are uncertain because of the continuing evolution of specific regulatory requirements.
EU Environmental Requirements
- Under the Emissions Trading Scheme (ETS), USSK's final allocation of allowances for the Phase III period, which covers the years 2013 through 2020 is
48 million
allowances. We estimate a shortfall of approximately
14 million
allowances for the Phase III period. Based on projected total production levels, we started to purchase allowances in the third quarter of 2017 to meet the annual compliance submission in the future. As of
June 30, 2019
, we have purchased approximately
12 million
European Union Allowances totaling
€132 million
(approximately
$150 million
). However, due to a number of variables such as the future market value of allowances, future production levels and future emissions intensity levels, we cannot reliably estimate the full cost of complying with the ETS regulations at this time.
The EU’s Industrial Emissions Directive requires implementation of EU determined best available techniques (BAT) for Iron and Steel production to reduce environmental impacts as well as compliance with BAT associated emission levels. Our most recent broad estimate of future capital expenditures for projects to comply with or go beyond BAT requirements is
€138 million
(approximately
$157 million
) over the 2017 to 2020 program period. These costs may be mitigated if USSK complies with certain financial covenants, which are assessed annually. USSK complied with these covenants as of
June 30, 2019
. If we are unable to meet these covenants in the future, USSK might be required to provide additional collateral (e.g. bank guarantee) to secure the full value of estimated expenditures. There could be increased operating costs associated with these projects, such as increased energy and maintenance costs. We are currently unable to reliably estimate what the increase in operating costs will be as many projects are in the development stage.
Environmental indemnifications
– Throughout its history, U. S. Steel has sold numerous properties and businesses and many of these sales included indemnifications and cost sharing agreements related to the assets that were divested. These indemnifications and cost sharing agreements have included provisions related to the condition of the property, the approved use, certain representations and warranties, matters of title, and
environmental matters. While most of these provisions have not specifically dealt with environmental issues, there have been transactions in which U. S. Steel indemnified the buyer for clean-up or remediation costs relating to the business sold or its then existing conditions or past practices related to non-compliance with environmental laws. Most of the recent indemnification and cost sharing agreements are of a limited nature, only applying to non-compliance with past and/or current laws. Some indemnifications and cost sharing
agreements only run for a specified period of time after the transactions close and others run indefinitely. In addition, current owners or operators of property formerly owned or operated by U. S. Steel may have common law claims and cost recovery and contribution rights against U. S. Steel related to environmental matters. The amount of potential environmental liability associated with these transactions and properties is not estimable due to the nature and extent of the unknown conditions related to the properties divested and deconsolidated. Aside from the environmental liabilities already recorded as a result of these transactions due to specific environmental remediation activities and cases (included in the $
182 million
of accrued liabilities for remediation discussed above), there are no other known probable and estimable environmental liabilities related to these transactions.
Guarantees
– The maximum guarantees of the indebtedness of unconsolidated entities of U. S. Steel totaled
$4 million
at
June 30, 2019
.
Other contingencies
–
Under certain operating lease agreements covering various equipment, U. S. Steel has the option to renew the lease or to purchase the equipment at the end of the lease term. If U. S. Steel does not exercise the purchase option by the end of the lease term, U. S. Steel guarantees a residual value of the equipment as determined at the lease inception date (totaling approximately
$19 million
at
June 30, 2019
).
No
liability has been recorded for these guarantees as the potential loss is not probable.
Insurance
–
U
.
S. Steel maintains insurance for certain property damage, equipment, business interruption and general liability exposures; however, insurance is applicable only after certain deductibles and retainages. U. S. Steel is self-insured for certain other exposures including workers’ compensation (where permitted by law) and auto liability. Liabilities are recorded for workers’ compensation and personal injury obligations. Other costs resulting from losses under deductible or retainage amounts or not otherwise covered by insurance are charged against income upon occurrence.
U. S. Steel uses surety bonds, trusts and letters of credit to provide whole or partial financial assurance for certain obligations such as workers’ compensation. The total amount of active surety bonds, trusts and letters of credit being used for financial assurance purposes was approximately
$180 million
as of
June 30, 2019
, which reflects U. S. Steel’s maximum exposure under these financial guarantees, but not its total exposure for the underlying obligations. A significant portion of our trust arrangements and letters of credit are collateralized by our Credit Facility Agreement. The remaining trust arrangements and letters of credit are collateralized by restricted cash. Restricted cash, which is recorded in other current and noncurrent assets, totaled
$31 million
and
$40 million
at
June 30, 2019
and
December 31, 2018
, respectively.
Capital Commitments
–
At
June 30, 2019
, U. S. Steel’s contractual commitments to acquire property, plant and equipment totaled
$820 million
.
Contractual Purchase Commitments –
U. S. Steel is obligated to make payments under contractual purchase commitments, including unconditional purchase obligations. Payments for contracts with remaining terms in excess of one year are summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Later
Years
|
|
Total
|
|
$358
|
|
$554
|
|
$390
|
|
$322
|
|
$317
|
|
$717
|
|
$2,658
|
The majority of U. S. Steel’s unconditional purchase obligations relates to the supply of industrial gases, and certain energy and utility services with terms ranging from two to
16 years
. Unconditional purchase obligations also include coke and steam purchase commitments related to a coke supply agreement with Gateway Energy & Coke Company LLC (Gateway) under which Gateway is obligated to supply a minimum volume of the expected targeted annual production of the heat recovery coke plant, and U. S. Steel is obligated to purchase the coke from Gateway at the contract price. As of
June 30, 2019
, if U. S. Steel were to terminate the agreement, it may be obligated to pay in excess of
$127 million
.
Total payments relating to unconditional purchase obligations were
$168 million
and
$146 million
for the three months ended
June 30, 2019
and
2018
, respectively, and
$326 million
and
$307 million
for the
six months ended June 30, 2019
and
2018
, respectively.
23.
Significant Equity Investments
Summarized unaudited income statement information for our significant equity investments for the
six months ended June 30, 2019
and
2018
is reported below (amounts represent 100% of investee financial information):
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2019
|
|
2018
|
|
Net sales
|
|
$
|
648
|
|
|
$
|
571
|
|
|
Cost of sales
|
|
559
|
|
|
511
|
|
|
Operating income
|
|
64
|
|
|
38
|
|
|
Net earnings
|
|
58
|
|
|
33
|
|
|
Net earnings attributable to significant equity investments
|
|
58
|
|
|
33
|
|
U. S. Steel's portion of the equity in net earnings of the significant equity investments above was
$30 million
and
$18 million
for the
six months ended June 30, 2019
and
2018
, respectively, which is included in the earnings from investees line on the Condensed Consolidated Statement of Operations.
24.
Common Stock Repurchase Program
In November 2018, U. S. Steel announced a
two
year common stock repurchase program that allows for the repurchase of up to
$300 million
of its outstanding common stock from time to time in the open market or privately negotiated transactions at the discretion of management. During the six months ended
June 30, 2019
, U. S. Steel repurchased
3,964,191
shares of common stock for approximately
$70 million
. As of
June 30, 2019
, there is approximately
$155 million
remaining under the share repurchase authorization.
25.
Equity Investee Transactions
On May 31, 2018, U. S. Steel assigned its equity ownership interest in Leeds Retail Center, LLC and recognized a pre-tax gain of approximately
$18 million
.
|
|
|
|
|
|
Item 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
RESULTS OF OPERATIONS
Net sales
by segment for the
three and six months
ended
June 30, 2019
and
2018
are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
(Dollars in millions, excluding intersegment sales)
|
|
2019
|
|
2018
|
|
%
Change
|
|
2019
|
|
2018
|
|
%
Change
|
|
Flat-Rolled Products (Flat-Rolled)
|
|
$
|
2,539
|
|
|
$
|
2,435
|
|
|
4
|
%
|
|
$
|
4,944
|
|
|
$
|
4,482
|
|
|
10
|
%
|
|
U. S. Steel Europe (USSE)
|
|
678
|
|
|
848
|
|
|
(20
|
)%
|
|
1,415
|
|
|
1,671
|
|
|
(15
|
)%
|
|
Tubular Products (Tubular)
|
|
316
|
|
|
309
|
|
|
2
|
%
|
|
659
|
|
|
575
|
|
|
15
|
%
|
|
Total sales from reportable segments
|
|
3,533
|
|
|
3,592
|
|
|
(2
|
)%
|
|
7,018
|
|
|
6,728
|
|
|
4
|
%
|
|
Other Businesses
|
|
12
|
|
|
17
|
|
|
(29
|
)%
|
|
26
|
|
|
30
|
|
|
(13
|
)%
|
|
Net sales
|
|
$
|
3,545
|
|
|
$
|
3,609
|
|
|
(2
|
)%
|
|
$
|
7,044
|
|
|
$
|
6,758
|
|
|
4
|
%
|
Management’s analysis of the
percentage change in net sales
for U. S. Steel’s reportable business segments for the three months ended
June 30, 2019
versus the three months ended
June 30, 2018
is set forth in the following table:
Three Months Ended
June 30, 2019
versus Three Months Ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Products
(a)
|
|
|
|
|
|
|
|
Volume
|
|
Price
|
|
Mix
|
|
FX
(b)
|
|
Coke & Other
(c)
|
|
Net Change
|
|
Flat-Rolled
|
|
9%
|
|
(2)%
|
|
(4)%
|
|
—%
|
|
1%
|
|
4%
|
|
USSE
|
|
(13)%
|
|
(4)%
|
|
3%
|
|
(5)%
|
|
(1)%
|
|
(20)%
|
|
Tubular
|
|
(5)%
|
|
9%
|
|
(1)%
|
|
—%
|
|
(1)%
|
|
2%
|
a)
Excludes intersegment sales
(b)
Foreign currency translation effects
(c)
Includes sales of coke and scrap inventory
Net sales were
$3,545 million
in the three months ended
June 30, 2019
, compared with
$3,609 million
in the same period last year. The increase in sales for the Flat-Rolled segment primarily reflects increased shipments (increase of 220 thousand net tons) primarily of hot rolled and semi-finished products. The decrease in sales for the USSE segment was primarily due to decreased shipments (decrease of 152 thousand net tons) in most product categories due to increased import competition, flat to declining demand and the weakening of the euro versus the U.S dollar. The increase in sales for the Tubular segment resulted from higher realized prices (increase of $75 per net ton) partially offset by decreased shipments (decrease of 6 thousand net tons) from lower demand levels.
Management’s analysis of the
percentage change in net sales
for U. S. Steel’s reportable business segments for the six months ended
June 30, 2019
versus the six months ended
June 30, 2018
is set forth in the following table:
Six Months Ended
June 30, 2019
versus Six Months Ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Products
(a)
|
|
|
|
|
|
|
|
Volume
|
|
Price
|
|
Mix
|
|
FX
(b)
|
|
Coke & Other
(c)
|
|
Net Change
|
|
Flat-Rolled
|
|
8%
|
|
4%
|
|
(3)%
|
|
—%
|
|
1%
|
|
10%
|
|
USSE
|
|
(9)%
|
|
(2)%
|
|
3%
|
|
(7)%
|
|
—%
|
|
(15)%
|
|
Tubular
|
|
6%
|
|
9%
|
|
1%
|
|
—%
|
|
(1)%
|
|
15%
|
(a)
Excludes intersegment sales
(b)
Foreign currency translation effects
(c)
Includes sales of coke and scrap inventory
Net sales were
$7,044 million
in the six months ended
June 30, 2019
, compared with
$6,758 million
in the same period last year. The increase in sales for the Flat-Rolled segment primarily reflects increased shipments (increase of 411 thousand net tons), primarily of hot rolled and semi-finished products. The decrease in sales for the USSE segment was primarily due to decreased shipments (decrease of 215 thousand net tons) in most product categories due to increased import competition, flat to declining demand and the weakening of the euro versus the U.S dollar. The increase in sales for the Tubular segment resulted from higher realized prices (increase of $117 per net ton) and increased shipments (increase of 22 thousand net tons).
Pension and other benefits costs
Pension and other benefit costs (other than service cost) are reflected within net interest and other financial costs and the service cost component is reflected within cost of sales in the Condensed Consolidated Statements of Operations.
Defined benefit and multiemployer pension plan costs included in cost of goods sold totaled
$30 million
and
$59 million
in the
three and six months
ended
June 30, 2019
, respectively, compared to
$27 million
and
$54 million
in the comparable periods in
2018
.
Costs related to defined contribution plans totaled
$11 million
and
$23 million
for the
three and six months
ended
June 30, 2019
, respectively, compared to
$11 million
and
$21 million
in the comparable periods in
2018
.
Other benefit expense included in cost of sales totaled
$3 million
and
$6 million
in the three and six months ended
June 30, 2019
, respectively, and
$4 million
and
$8 million
in the comparable periods in
2018
.
Selling, general and administrative expenses
Selling, general and administrative expenses were
$82 million
and
$160 million
in the
three and six months
ended
June 30, 2019
, respectively, compared to
$92 million
and
$170 million
in the
three and six months
ended
June 30, 2018
, respectively. For both the three and six months ended June 30, 2019 the decrease is primarily due to a decrease in variable compensation.
Strategic projects and operating configuration update
In June 2019, U. S. Steel announced that it would idle two blast furnaces in the U.S. and one blast furnace in Europe to better align global production with its order book. As a result, monthly blast furnace production capacity was reduced by approximately 200,000 - 225,000 tons in the U.S. and 125,000 tons in Europe. Blast furnace production at one or more of the idled furnaces may resume when market conditions improve.
In June 2019, U. S. Steel restarted the No. 1 Electric-Weld Pipe Mill (No. 1 Pipe Mill) at its Lone Star Tubular Operations to enable the Company to support increased demand for high-quality electric-welded pipe produced in the United States. The No. 1 Pipe Mill produces 7-16 inch welded pipe and is complimenting our current Tubular product offerings. It had been idled since 2016.
In May 2019, U. S. Steel announced that it will invest approximately $1.2 billion through 2022 to construct a new endless casting and rolling facility at its Edgar Thomson Plant in Braddock, Pennsylvania, and a cogeneration facility at its Clairton Plant in Clairton, Pennsylvania, both part of the Company's Mon Valley Works. This investment in state-of-the-art sustainable steel technology is expected to significantly upgrade the production capability of our lowest liquid steel cost mill in the U.S.
The installation of endless casting and rolling technology will give U. S. Steel another world-class asset with differentiated product capabilities to serve strategic markets. The Mon Valley Works will also become the principal source of substrate for the production of the Company's industry-leading XG3
TM
Advanced High Strength Steel (AHSS) a market leading solution for our customers to improve fuel efficiency. The cogeneration facility, equipped with state-of-the-art emissions control systems at the Company's Clairton Plant, will convert a portion of the coke oven gas generated at its Clairton Plant into electricity to power the steelmaking and finishing facilities throughout U. S. Steel's Mon Valley operations.
This project, in addition to producing sustainable AHSS, is expected to improve environmental performance, energy conservation and reduce our carbon footprint associated with Mon Valley Works. First steel production is expected in 2022, contingent upon permitting and construction.
In February 2019, U. S. Steel announced that it will restart construction of the electric arc furnace (EAF) steelmaking facility at its Tubular Operations in Fairfield, Alabama. The EAF is expected to strengthen our competitive position and reduce cost by $90 per ton as the Company becomes self-sufficient in its rounds supply. The EAF is expected to begin producing steel in the second half of 2020.
In January 2019, U. S. Steel announced the construction of a new Dynamo line at USSE. The new line, a $130 million investment, has an annual capacity of approximately 100,000 metric tons. Construction began in mid-2019 and is targeted to be operational in the fourth quarter of 2020. The new line will enable production of sophisticated silicon grades of non-grain oriented (NGO) electrical steels to support increased demand in vehicles and generators.
In June and October 2018, U. S. Steel restarted the "B" blast furnace and steelmaking facilities and the "A" blast furnace, respectively, at its Granite City Works facility.
U. S. Steel will continue to evaluate potential strategic and organizational opportunities, which may include the acquisition, divestiture or consolidation of assets. Given the cyclicality of our industry, we are focused on strategically maintaining and spending cash (including capital investments under our asset revitalization program), in order to invest in areas consistent with our long-term strategy, such as sustainable steel technologies, and are considering various possibilities, including exiting lines of business and the sale of certain assets, that we believe would ultimately result in maintaining a stronger balance sheet and greater stockholder value. The Company will pursue opportunities based on its long-term strategy, and what the Board of Directors determines to be in the best interests of the Company's stockholders at the time.
As we continue with the implementation of our asset revitalization program, described below, and increase investment in our facilities, we expect the sustainable improvements in safety, quality, delivery and costs we are targeting to position us to succeed over the long term, and support future growth initiatives.
Asset Revitalization
In 2017, we launched our asset revitalization program, a multi-year, comprehensive $2 billion investment in our most critical assets within our Flat-rolled segment. The program is composed of many projects designed to continuously improve safety, quality, delivery and cost performance. We expect capital spending for the entire program to be approximately $1.5 billion. As we revitalize our assets, we are increasing profitability, productivity and operational stability, and reducing volatility. This program is designed to prioritize investment in the areas with the highest returns.
We are investing approximately $500 million to upgrade the Gary hot strip mill through a series of projects focused on expanding the line's competitive advantages. The Gary hot strip mill will further differentiate itself as a leader in heavy gauge products in strategic markets. Asset Revitalization investments are also being made at other critical Flat-rolled steel making assets, including the Mon Valley steel shop, which will provide high quality, low cost liquid steel for our future endless casting and rolling line.
The investments we are making in our strategic projects, as well as the continued execution of our Asset Revitalization program, are making the Company more competitive and better positioned to achieve our critical success factors.
Earnings (loss) before interest and income taxes
by segment for the
three and six months
ended
June 30, 2019
and
2018
is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
%
Change
|
|
Six Months Ended
June 30,
|
|
%
Change
|
|
|
(Dollars in millions)
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|
|
Flat-Rolled
|
|
$
|
134
|
|
|
$
|
224
|
|
|
(40
|
)%
|
|
$
|
229
|
|
|
$
|
257
|
|
|
(11
|
)%
|
|
USSE
|
|
(10
|
)
|
|
115
|
|
|
(109
|
)%
|
|
19
|
|
|
225
|
|
|
(92
|
)%
|
|
Tubular
|
|
(6
|
)
|
|
(35
|
)
|
|
83
|
%
|
|
4
|
|
|
(62
|
)
|
|
106
|
%
|
|
|
Total earnings from reportable segments
|
|
118
|
|
|
304
|
|
|
(61
|
)%
|
|
252
|
|
|
420
|
|
|
(40
|
)%
|
|
Other Businesses
|
|
10
|
|
|
17
|
|
|
(41
|
)%
|
|
18
|
|
|
28
|
|
|
(36
|
)%
|
|
|
Segment earnings before interest and income taxes
|
|
128
|
|
|
321
|
|
|
(60
|
)%
|
|
270
|
|
|
448
|
|
|
(40
|
)%
|
|
Items not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 24, 2018 Clairton coke making facility fire
|
|
(13
|
)
|
|
—
|
|
|
|
|
(44
|
)
|
|
—
|
|
|
|
|
|
Gain on equity investee transactions
|
|
—
|
|
|
18
|
|
|
|
|
—
|
|
|
18
|
|
|
|
|
|
Granite City Works restart costs
|
|
—
|
|
|
(36
|
)
|
|
|
|
—
|
|
|
(36
|
)
|
|
|
|
|
Granite City Works adjustment to temporary idling charges
|
|
—
|
|
|
(2
|
)
|
|
|
|
—
|
|
|
8
|
|
|
|
|
Total earnings before interest and income taxes
|
|
$
|
115
|
|
|
$
|
301
|
|
|
(62
|
)%
|
|
$
|
226
|
|
|
$
|
438
|
|
|
(48
|
)%
|
Segment results for Flat-Rolled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
%
Change
|
|
Six Months Ended
June 30,
|
%
Change
|
|
|
2019
|
2018
|
|
2019
|
2018
|
|
Earnings before interest and taxes ($ millions)
|
$
|
134
|
|
$
|
224
|
|
(40
|
)%
|
|
$
|
229
|
|
$
|
257
|
|
(11
|
)%
|
|
Gross margin
|
11
|
%
|
15
|
%
|
(4
|
)%
|
|
11
|
%
|
12
|
%
|
(1
|
)%
|
|
Raw steel production (mnt)
|
2,984
|
|
2,841
|
|
5
|
%
|
|
6,059
|
|
5,626
|
|
8
|
%
|
|
Capability utilization
|
70
|
%
|
67
|
%
|
3
|
%
|
|
72
|
%
|
67
|
%
|
5
|
%
|
|
Steel shipments (mnt)
|
2,804
|
|
2,584
|
|
9
|
%
|
|
5,529
|
|
5,118
|
|
8
|
%
|
|
Average realized steel price per ton
|
$
|
779
|
|
$
|
819
|
|
(5
|
)%
|
|
$
|
789
|
|
$
|
780
|
|
1
|
%
|
The decrease in Flat-Rolled results for the
three months ended June 30, 2019
compared to the same period in
2018
was primarily due to lower average realized prices (approximately $65 million), higher raw material costs (approximately $30 million), increased spending for operating costs (approximately $40 million). These changes were partially offset by increased shipments, including substrate to our Tubular segment (approximately $30 million) and decreased other costs, including variable compensation (approximately $15 million).
The decrease in Flat-Rolled results for the
six months ended June 30, 2019
compared to the same period in
2018
was primarily due to higher raw material costs (approximately $90 million), increased spending for operating costs (approximately $90 million) and higher energy costs (approximately $20 million). These changes were partially offset by higher realized prices (approximately $110 million) and increased shipments, including substrate to our Tubular segment (approximately $60 million)
Gross margin for the three months ended
June 30, 2019
compared to the same period in
2018
decreased primarily as a result of lower average realized prices due to an increased mix of semi-finished sales and continued high import levels.
Segment results for USSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
%
Change
|
|
Six Months Ended
June 30,
|
%
Change
|
|
USSE
|
2019
|
2018
|
|
2019
|
2018
|
|
(Loss) earnings before interest and taxes ($ millions)
|
$
|
(10
|
)
|
$
|
115
|
|
(109
|
)%
|
|
$
|
19
|
|
$
|
225
|
|
(92
|
)%
|
|
Gross margin
|
4
|
%
|
18
|
%
|
(14
|
)%
|
|
6
|
%
|
17
|
%
|
(11
|
)%
|
|
Raw steel production (mnt)
|
1,148
|
|
1,308
|
|
(12
|
)%
|
|
2,307
|
|
2,600
|
|
(11
|
)%
|
|
Capability utilization
|
92
|
%
|
105
|
%
|
(13
|
)%
|
|
93
|
%
|
105
|
%
|
(12
|
)%
|
|
Steel shipments (mnt)
|
1,004
|
|
1,156
|
|
(13
|
)%
|
|
2,068
|
|
2,283
|
|
(9
|
)%
|
|
Average realized steel price per ($/ton)
|
$
|
652
|
|
$
|
707
|
|
(8
|
)%
|
|
$
|
661
|
|
$
|
707
|
|
(7
|
)%
|
|
Average realized steel price per (€/ton)
|
€
|
580
|
|
€
|
593
|
|
(2
|
)%
|
|
€
|
585
|
|
€
|
584
|
|
—
|
%
|
The decrease in USSE results for the
three months ended June 30, 2019
compared to the same period in
2018
was primarily due lower average realized euro-based prices (approximately $40 million) and decreased shipments (approximately $20 million) primarily from increasing imports and adverse European Union economic conditions and the weakening of the euro versus the U.S. dollar (approximately $20 million). Additionally, USSE results reflect higher raw material costs, primarily for iron ore, (approximately $35 million) and higher energy costs (approximately $10 million).
The decrease in USSE results for the
six months ended June 30, 2019
compared to the same period in
2018
was primarily due to lower average realized prices (approximately $30 million) and decreased shipments (approximately $30 million) primarily from increasing imports and adverse European Union economic conditions and the weakening of the euro versus the U.S. dollar (approximately $50 million). Additionally, USSE results reflect higher raw material costs, primarily for iron ore and an unfavorable first-in-first-out (FIFO) inventory impact, (approximately $55 million), higher energy costs (approximately $15 million), increased operating costs (approximately $15 million) and increased costs for carbon dioxide (CO
2
) emissions allowance (approximately $10 million).
Gross margin for the three and six months ended
June 30, 2019
compared to the same period in
2018
decreased primarily as a result of lower average realized prices from increasing imports and adverse European Union economic conditions.
Segment results for Tubular
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
%
Change
|
|
Six Months Ended
June 30,
|
%
Change
|
|
Tubular
|
2019
|
2018
|
|
2019
|
2018
|
|
(Loss) earnings before interest and taxes ($ millions)
|
$
|
(6
|
)
|
$
|
(35
|
)
|
83
|
%
|
|
$
|
4
|
|
$
|
(62
|
)
|
106
|
%
|
|
Gross margin
|
2
|
%
|
(5
|
)%
|
7
|
%
|
|
5
|
%
|
(5
|
)%
|
10
|
%
|
|
Steel shipments (mnt)
|
195
|
|
201
|
|
(3
|
)%
|
|
402
|
|
380
|
|
6
|
%
|
|
Average realized steel price per ton
|
$
|
1,524
|
|
$
|
1,449
|
|
5
|
%
|
|
$
|
1,537
|
|
$
|
1,420
|
|
8
|
%
|
The increase in Tubular results for the
three months ended June 30, 2019
as compared to the same period in
2018
was primarily due to higher average realized prices (approximately $15 million) and lower substrate costs (approximately $25 million). These changes were partially offset by increased operating costs (approximately $10 million).
The increase in Tubular results for the
six months ended June 30, 2019
compared to the same period in
2018
was primarily due to higher average realized prices (approximately $45 million), increased shipments (approximately $5 million) and lower substrate costs (approximately $20 million). These changes were partially offset by increased operating costs (approximately $5 million).
Gross margin for the three and six months ended
June 30, 2019
compared to the same period in
2018
increased primarily as a result of higher average realized prices.
Tubular continues to face significant import competition, with tubular imports comprising nearly half of the U.S tubular market.
Results for Other Businesses
Other Businesses had earnings of
$10 million
and
$18 million
in the
three and six months
ended
June 30, 2019
, compared to earnings of
$17 million
and
$28 million
in the
three and six months
ended
June 30, 2018
.
Items not allocated to segments
We incurred $13 million and $44 million of costs associated with the
December 24, 2018 Clairton coke making facility fire
in the three and six months ended June 30, 2019, respectively (see Environmental Matters, Litigation and Contingencies in the Liquidity and Capital Resources section for more details).
We recognized a
gain on equity investee transactions
of $18 million in the three and six months ended June 30, 2018 as a result of the assignment of our entire equity ownership interest in Leed's Retail Center, LLC in May 2018.
We recognized $36 million in
Granite City Works restart costs
in the three and six months ended June 30, 2018 as a result of costs associated with the restart of the "B" blast furnace at Granite City Works.
We recorded an $8 million favorable adjustment in the six months ended June 30, 2018 related to
Granite City Works temporary idling charges
as a result of the decision to restart the "B" blast furnace and steelmaking facilities at this facility in 2018.
Net interest and other financial costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
%
Change
|
|
Six Months Ended
June 30,
|
|
%
Change
|
|
(Dollars in millions)
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|
|
Interest expense
|
|
$
|
31
|
|
|
$
|
43
|
|
|
(28
|
)%
|
|
$
|
65
|
|
|
$
|
93
|
|
|
(30
|
)%
|
|
Interest income
|
|
(5
|
)
|
|
(5
|
)
|
|
—
|
%
|
|
(10
|
)
|
|
(10
|
)
|
|
—
|
%
|
|
Loss on debt extinguishment
|
|
—
|
|
|
28
|
|
|
(100
|
)%
|
|
—
|
|
|
74
|
|
|
(100
|
)%
|
|
Other financial costs
|
|
5
|
|
|
(8
|
)
|
|
(163
|
)%
|
|
2
|
|
|
2
|
|
|
—
|
%
|
|
Net periodic benefit cost (other than service cost)
|
|
23
|
|
|
17
|
|
|
35
|
%
|
|
46
|
|
|
34
|
|
|
35
|
%
|
|
Total net interest and other financial costs
|
|
$
|
54
|
|
|
$
|
75
|
|
|
(28
|
)%
|
|
$
|
103
|
|
|
$
|
193
|
|
|
(47
|
)%
|
The decrease in net interest and other financial costs in the three months ended June 30, 2019 as compared to the same period last year is primarily due to the loss on debt extinguishment in the three months ended June 30, 2018, reduced interest expense due to our improved debt profile and foreign exchange gains.
The decrease in net interest and other financial costs in the six months ended June 30, 2019 as compared to the same period last year is primarily due to the loss on debt extinguishment in the six months ended June 30, 2018 as described below, reduced interest expense due to our improved debt profile and higher net periodic benefit cost as discussed below.
During the
six months ended June 30, 2018
, U. S. Steel issued $650 million aggregate principal amount of 2026 Senior Notes and repurchased through a tender offer and redemption $780 million of its 2021 Senior Secured Notes for an aggregate cash outflow of approximately $840 million, which included $60 million in premiums. Additionally, U. S. Steel repurchased approximately $31 million of its 2020 Senior Notes during the first six months of 2018. The loss on debt extinguishment line in the table above includes $63 million in premiums and $11 million in unamortized debt issuance costs which were written off in connection with the extinguishment of debt. For further information, see Note 16 to the Condensed Consolidated Financial Statements.
The net periodic benefit cost (other than service cost) components of pension and other benefit costs are reflected in the table above, and increased in the three and six month periods ended June 30, 2019 as compared to the same periods last year primarily due to a lower expected return on asset assumption for pension assets, a lower asset return than expected in 2018 partially offset by the natural maturation of the plan and increased discount rates.
Total net periodic pension cost, including service cost and multiemployer plans, is expected to total approximately
$165 million
in
2019
. Total other benefits costs, including service cost, in
2019
are expected to total approximately
$55 million
. The pension cost projection includes approximately
$72 million
of contributions to the Steelworkers Pension Trust.
Income taxes
The
income tax (benefit) provision
was
$(7) million
and
$1 million
in the
three and six months
ended
June 30, 2019
compared to
$12 million
and
$13 million
in the
three and six months
ended
June 30, 2018
. The tax provision in both periods reflects a benefit for percentage depletion in excess of cost depletion from iron ore that we produce and consume or sell. In 2018, the tax provision also reflects a tax benefit for the release of a portion of the valuation allowance due to pretax income.
The tax provision for the first quarter of 2019 was based on an estimated annual effective rate, which requires management to make its best estimate of annual pretax income or loss. For the quarter ended June 30, 2019, the Company computed its tax benefit using the discrete period effective tax rate, which reflects the actual taxes attributable to year-to-date earnings and losses, because we determined that a reliable estimate of the expected annual effective tax rate could not be made. A small change in our estimated marginal pretax results for the year ended December 31, 2019 could create a large change in the expected annual effective tax rate. The sensitivity of the effective tax rate was increased by the benefit for percentage depletion in excess of cost depletion for iron ore.
For further information on income taxes see Note 13 to the Condensed Consolidated Financial Statements.
Net earnings attributable to United States Steel Corporation were
$68 million
and
$122 million
in the
three and six months
ended
June 30, 2019
, compared to net earnings of
$214 million
and
$232 million
in the
three and six months
ended
June 30, 2018
. The changes primarily reflect the factors discussed above.
BALANCE SHEET
Inventories
increased by
$74 million
from year-end
2018
primarily as a result of higher raw material prices for our Flat-Rolled and USSE segments.
Operating lease assets
increased by
$237 million
from year-end 2018 as a result of the adoption of the new accounting standard for leases (see Note 8 for further details).
Property, plant and equipment, net
increased by
$368 million
from year-end
2018
primarily due to the level of capital expenditures exceeding depreciation expense.
Accounts payable and other accrued liabilities
increased by
$80 million
from year-end
2018
primarily as a result of higher raw material prices for our Flat-Rolled and USSE segments.
Payroll and benefits payable
decreased by
$106 million
from year-end 2018 primarily due to profit-based incentive payments related to 2018 financial performance that were paid in the first quarter of 2019.
Current operating lease liabilities
increased by
$54 million
from year-end 2018 as a result of the adoption of the new accounting standard for leases (see Note 8 for further details).
Noncurrent operating lease liabilities
increased by
$188 million
from year-end 2018 as a result of the adoption of the new accounting standard for leases (see Note 8 for further details).
Employee benefits
decreased by
$54 million
from year-end
2018
primarily as a result of impacts from the natural maturation of our pension plans.
CASH FLOW
Net cash provided by operating activities
was
$366 million
for the
six months ended
June 30, 2019
compared to net cash provided by operating activities of
$293 million
in the same period last year. The increase in cash from operations is primarily due to changes in working capital period over period, partially offset by lower financial results.
Changes in working capital can vary significantly depending on factors such as the timing of inventory production and purchases, which is affected by the length of our business cycles as well as our captive raw materials position, customer payments of accounts receivable and payments to vendors in the regular course of business.
Our key working capital components include accounts receivable and inventory. The accounts receivable and inventory turnover ratios for the three months and twelve months ended
June 30,
2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Twelve Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Accounts Receivable Turnover
|
|
2.1
|
|
|
2.2
|
|
|
8.8
|
|
|
8.5
|
|
|
Inventory Turnover
|
|
1.5
|
|
|
1.7
|
|
|
6.4
|
|
|
6.4
|
|
The decrease in the accounts receivable turnover approximates 3 days for the three months ended
June 30, 2019
as compared to the same period ended
June 30, 2018
and is primarily due to decreased sales as a result of lower average realized prices and decreased shipments in our USSE segment. The increase in the accounts receivable turnover approximates 1 day for the twelve months ended
June 30, 2019
as compared to the same period ended
June 30, 2018
and is primarily due to increased sales as a result of higher average realized prices and increased shipments in our Flat-Rolled and Tubular segments.
The decrease in the inventory turnover approximates 7 days for the three months ended
June 30, 2019
as compared to the three months ended
June 30, 2018
and is primarily due to an increase in cost of goods sold mainly attributed to higher raw material costs.
The last-in, first-out (LIFO) inventory method is the predominant method of inventory costing in the United States. At
June 30, 2019
and
June 30, 2018
, the LIFO method accounted for
70 percent
and 73 percent of total inventory values, respectively. In the U.S., management monitors inventory realizability by comparing the LIFO cost of inventory with the replacement cost of inventory. To the extent the replacement cost (i.e., market value) of inventory is lower than the LIFO cost of inventory, management will write the inventory down. As of
June 30, 2019
, and December 31, 2018 the
replacement cost of the inventory was higher by approximately
$961 million
and
$1,038 million
, respectively. Additionally, based on the Company’s latest internal forecasts and its inventory requirements, management does not believe there will be significant permanent LIFO liquidations that would impact earnings for the remainder of 2019.
Our cash conversion cycle for the second quarter of 2019 increased by five days as compared to the fourth quarter of 2018 as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Conversion Cycle
|
2019
|
|
|
2018
|
|
|
$ millions
|
|
Days
|
|
|
$ millions
|
|
Days
|
|
Accounts receivable, net
(a)
|
$1,638
|
|
43
|
|
|
$1,659
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
+ Inventories
(b)
|
$2,166
|
|
61
|
|
|
$2,092
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
- Accounts Payable and Other Accrued Liabilities
(c)
|
$2,565
|
|
71
|
|
|
$2,477
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
= Cash Conversion Cycle
(d)
|
|
|
33
|
|
|
|
|
28
|
(a)
Calculated as Average Accounts Receivable, net divided by total Net Sales multiplied by the number of days in the period.
(b)
Calculated as Average Inventory divided by total Cost of Sales multiplied by the number of days in the period.
(c)
Calculated as Average Accounts Payable and Other Accrued Liabilities less bank checks outstanding and other current liabilities divided by total Cost of Sales multiplied by the number of days in the period.
(d)
Calculated as Accounts Receivable Days plus Inventory Days less Accounts Payable Days.
The cash conversion cycle is a non-generally accepted accounting principles (non-GAAP) financial measure. We believe the cash conversion cycle is a useful measure in providing investors with information regarding our cash management performance and is a widely accepted measure of working capital management efficiency. The cash conversion cycle should not be considered in isolation or as an alternative to other GAAP metrics as an indicator of performance.
Capital expenditures
for the
six months ended
June 30, 2019
, were
$628 million
, compared with
$381 million
in the same period in
2018
. Flat-rolled capital expenditures were
$501 million
and included spending for the Mon Valley No. 3 Blast Furnace outage, Gary Hot Strip Mill upgrades, Great Lakes B2 Blast Furnace outage, Midwest Tin Cold Mill upgrades, and various other infrastructure, environmental and strategic projects. Tubular capital expenditures were
$48 million
and included spending for the Fairfield Electric Arc Furnace (EAF) project, Offshore Operations threading line & swage extension and various other strategic capital projects. USSE capital expenditures of
$75 million
consisted of spending for a Sinter Strand emission control, the new Dynamo line, Ore Bridges Emission control and various other infrastructure and environmental projects.
U. S. Steel’s contractual commitments to acquire property, plant and equipment at
June 30, 2019
, totaled
$820 million
.
Capital expenditures for 2019 are expected to total approximately $1.3 billion and remain focused largely on projects that further our strategy (including the Fairfield EAF project and continued execution of Asset Revitalization), infrastructure and environmental projects.
Common stock repurchased
under our common stock repurchase program approved in 2018 totaled
3,964,191
shares and approximately $70 million in the six months ended June 30, 2019. See Note 24 to the Condensed Consolidated Financial Statements for further details.
Issuance of long-term debt, net of financing costs,
totaled $640 million in the six months ended June 30, 2018. During the six months ended June 30, 2018, U. S. Steel issued $650 million aggregate principal amount of 2026 Senior Notes. U. S. Steel received net proceeds from the offering of approximately $640 million after fees of approximately $10 million related to underwriting and third party expenses.
Repayment of long-term debt
totaled $874 million in the six months ended June 30, 2018. U. S. Steel repurchased through a tender offer and subsequent redemption approximately $780 million of its outstanding 2021 Senior Secured Notes and paid premiums of $60 million for the tender. Additionally, U. S. Steel repurchased approximately $31 million of its 2020 Senior Notes through a series of open market purchases in June 2018 and paid premiums of approximately $3 million.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes U. S. Steel’s liquidity as of
June 30, 2019
:
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Cash and cash equivalents
|
$
|
651
|
|
|
Amount available under $1.5 Billion Credit Facility Agreement
|
1,500
|
|
|
Amount available under USSK credit facilities
|
329
|
|
|
Total estimated liquidity
|
$
|
2,480
|
|
As of
June 30, 2019
, $122 million of the total cash and cash equivalents was held by our foreign subsidiaries. Substantially all of the liquidity attributable to our foreign subsidiaries can be accessed without the imposition of income taxes as a result of the election effective December 31, 2013 to liquidate for U.S. income tax purposes a foreign subsidiary that holds most of our international operations.
As of
June 30, 2019
, there were
no
amounts drawn under the
$1.5 billion
Credit Facility Agreement. U. S. Steel must maintain a fixed charge coverage ratio of at least 1.00 to 1.00 for the most recent four consecutive quarters when availability under the Credit Facility Agreement is less than the greater of 10 percent of the total aggregate commitments and
$150 million
. Based on the four quarters as of
June 30, 2019
, we would have met this covenant. If we are unable to meet this covenant in future periods, the amount available to the Company under this facility would be reduced by
$150 million
. The Credit Facility Agreement expires in February 2023.
At
June 30, 2019
, USSK had borrowings of
€200 million
(approximately
$228 million
) under its
€460 million
(approximately
$524 million
) unsecured revolving credit facility. The USSK Credit Agreement contains certain USSK financial covenants, including a maximum net debt to EBITDA ratio and a minimum stockholders' equity to assets ratio. At
June 30, 2019
, USSK had availability of
€260 million
(approximately
$296 million
) under the USSK Credit Agreement. The USSK Credit Agreement expires in September 2023.
At
June 30, 2019
, USSK had
no
borrowings under its
€20 million
and
€10 million
unsecured credit facilities (collectively, approximately
$34 million
) and the availability was approximately
$33 million
due to approximately
$1 million
of customs and other guarantees outstanding.
We may from time to time seek to retire or repurchase our outstanding long-term debt through open market purchases, privately negotiated transactions, exchange transactions, redemptions or otherwise. Such purchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, and other factors and may be commenced or suspended at any time. The amounts involved may be material.
We use surety bonds, trusts and letters of credit to provide financial assurance for certain transactions and business activities. The use of some forms of financial assurance and cash collateral have a negative impact on liquidity. U. S. Steel has committed
$180 million
of liquidity sources for financial assurance purposes as of
June 30, 2019
. Increases in certain of these commitments which use collateral are reflected within cash, cash equivalents and restricted cash on the Condensed Consolidated Statement of Cash Flows.
At
June 30, 2019
, in the event of a change in control of U. S. Steel, the following may occur: (a) debt obligations totaling
$1,978 million
as of
June 30, 2019
may be declared due and payable; (b) the Credit Facility Agreement and the USSK credit facilities may be terminated and any amounts outstanding declared due and payable; and (c) U. S. Steel may be required to either repurchase the leased Fairfield slab caster for
$21 million
or provide a cash collateralized letter of credit to secure the remaining obligation.
The maximum guarantees of the indebtedness of unconsolidated entities of U. S. Steel totaled
$4 million
at
June 30, 2019
. If any default related to the guaranteed indebtedness occurs, U. S. Steel has access to its interest in the assets of the investees to reduce its potential losses under the guarantees.
Our major cash requirements in
2019
are expected to be for capital expenditures, including asset revitalization, employee benefits and operating costs, which includes purchases of raw materials. We finished the
second
quarter of
2019
with
$651 million
of cash and cash equivalents and
$2.5 billion
of total liquidity. Available cash is left on deposit with financial institutions or invested in highly liquid securities with parties we believe to be creditworthy.
U. S. Steel management believes that U. S. Steel's liquidity will be adequate to satisfy our obligations for the foreseeable future, including obligations to complete currently authorized capital spending programs. Future requirements for U. S. Steel’s business needs, including the funding of acquisitions and capital expenditures, scheduled debt maturities, repurchase of debt, share buyback, contributions to employee benefit plans, and any amounts that may ultimately be paid in connection with contingencies, are expected to be financed by a combination of internally generated funds (including asset sales), proceeds from the sale of stock, borrowings, refinancings and other external financing sources.
Environmental Matters, Litigation and Contingencies
Some of U. S. Steel’s facilities were in operation before 1900. Although management believes that U. S. Steel’s environmental practices have either led the industry or at least been consistent with prevailing industry practices, hazardous materials may have been released at current or former operating sites or delivered to sites operated by third parties.
Our U.S. facilities are subject to environmental laws applicable in the U.S., including the Clean Air Act (CAA), the Clean Water Act (CWA), the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as well as state and local laws and regulations.
U. S. Steel has incurred and will continue to incur substantial capital, operating, and maintenance and remediation expenditures as a result of environmental laws and regulations, related to release of hazardous materials, which in recent years have been mainly for process changes to meet CAA obligations and similar obligations in Europe.
Midwest Plant Incident
On April 11, 2017, there was a process waste water release at our Midwest Plant (Midwest) in Portage, Indiana that impacted a water outfall that discharges to Burns Waterway near Lake Michigan. U. S. Steel identified the source of the release and made the necessary repairs. We determined that all repairs were safely working as intended and, on April 14, 2017, resumed operations in a controlled, phased and highly monitored approach with extensive input from participating government agencies. The Company has since implemented substantial operational, process and notification improvements at Midwest. The Company has been presented with cost reimbursements, loss of use and penalty requests from the involved governmental agencies. In January of 2018, The Surfrider Foundation and the City of Chicago initiated suits in the Northern District of Indiana alleging CWA and Permit violations at Midwest. On April 2, 2018, the U.S. Environmental Protection Agency (U.S. EPA) and the State of Indiana initiated a separate action against the Company and lodged a Consent Decree negotiated between U. S. Steel and the relevant governmental agencies consisting of all material terms to resolve the CWA and National Pollutant Discharge Elimination System (NPDES) violations at the Midwest Plant. A public comment period for the Consent Decree ensued. The suits that the Surfrider Foundation and the City of Chicago filed are currently stayed. The Surfrider Foundation and the City of Chicago also filed motions, which were granted, to intervene in the Consent Decree case. U. S. Steel continues to work with United States Department of Justice, U.S. EPA, and Indiana Department of Environmental Management (IDEM) towards a finalized Consent Decree.
EU Environmental Requirements and Slovak Operations
Under the Emissions Trading Scheme (ETS), USSK's final allocation of allowances for the Phase III period, which covers the years 2013 through 2020 is
48 million
allowances. We estimate a shortfall of approximately
14 million
allowances for the Phase III period. Based on projected future production levels, we started to purchase allowances in the third quarter of 2017 to meet the annual compliance submission in the future. As of June 30, 2019, we have purchased approximately
12 million
European Union Allowances totaling €
132 million
(approximately
$150 million
). However, due to a number of variables such as the future market value of allowances, future production levels and future emissions intensity levels, we cannot reliably estimate the full cost of complying with the ETS regulations at this time.
The EU’s Industrial Emissions Directive requires implementation of EU determined best available techniques (BAT) for iron and steel production, to reduce environmental impacts as well as compliance with BAT associated emission levels. Our most recent broad estimate of future capital expenditures for projects that go beyond BAT requirements is up to €
138 million
(approximately $
157 million
) over the 2017 to 2020 program period. These costs may be mitigated if USSK complies with certain financial covenants, which are assessed annually. USSK complied with these covenants as of
June 30, 2019
. If we are unable to meet these covenants in the future, USSK might be required to provide additional collateral (e.g. bank guarantee) to secure the full value of estimated expenditures. There could be increased operating costs associated with these projects, such as increased energy and maintenance costs. We are currently unable to reliably estimate what the increase in operating costs will be as many projects are still in the development stage.
For further discussion of laws applicable in Slovakia and the EU and their impact on USSK, see Note 22 to the Condensed Consolidated Financial Statements, “Contingencies and Commitments - Environmental Matters, EU Environmental Requirements.”
New and Emerging Environmental Regulations
United States and European Greenhouse Gas Emissions Regulations
Future compliance with CO
2
emission requirements may include substantial costs for emission allowances, restriction of production and higher prices for coking coal, natural gas and electricity generated by carbon based systems. Because we cannot predict what requirements ultimately will be imposed in the U.S. and Europe, it is difficult to estimate the likely impact on U. S. Steel, but it could be substantial. On March 28, 2017, President Trump signed Executive Order 13783 instructing the U.S. EPA to review the Clean Power Plan. On October 16, 2017, the U.S. EPA proposed to repeal the Clean Power Plan after reviewing the plan pursuant to President Trump’s executive order. Any repeal and/or replacement of the Clean Power Plan is likely to be challenged by various proponents of the plan, such as environmental groups and certain states. Any impacts to our operations as a result of any future greenhouse gas regulations are not estimable at this time since the matter is unsettled. In any case, to the extent expenditures associated with any greenhouse gas regulation, as with all costs, are not ultimately reflected in the prices of U. S. Steel's products and services, operating results will be reduced.
There have been no material changes in U. S. Steel’s exposure to European Greenhouse Gas Emissions regulations since December 31, 2018.
United States - Air
The CAA imposes stringent limits on air emissions with a federally mandated operating permit program and civil and criminal enforcement sanctions. The CAA requires, among other things, the regulation of hazardous air pollutants through the development and promulgation of National Emission Standards for Hazardous Air Pollutants (NESHAP) and Maximum Achievable Control Technology (MACT) Standards. The U.S. EPA has developed various industry-specific MACT standards pursuant to this requirement. The CAA requires the U.S. EPA to promulgate regulations establishing emission standards for each category of Hazardous Air Pollutants. The U.S. EPA also must conduct risk assessments on each source category that is already subject to MACT standards and determine if additional standards are needed to reduce residual risks.
While our operations are subject to several different categories of NESHAP and MACT standards, the principal impact of these standards on U. S. Steel operations includes those that are specific to coke making, iron making, steel making and iron ore processing.
The U.S. EPA is currently in the process of completing a Residual Risk and Technology Review of the Integrated Iron and Steel MACT regulations, Coke MACT regulations, and Taconite Iron Ore Processing MACT regulations as required by the CAA. The U.S. EPA is under a court order to complete the Residual Risk and Technology Review of the Integrated Iron and Steel regulations no later than March 13, 2020; and to complete the Residual Risk and Technology Review of the Taconite Iron Ore Processing Regulations by June 30, 2020. Because the U.S. EPA has not completed its review, any impacts related to the U.S. EPA’s review of these standards cannot be estimated at this time.
On March 12, 2018, the New York State Department of Environmental Conservation (DEC) submitted a CAA Section 126(b) petition to the U.S. EPA. In the petition, the DEC asserts that stationary sources from the following nine states are interfering with attainment or maintenance of the 2008 and 2015 ozone National Ambient Air Quality Standards (NAAQS) in New York: Illinois, Indiana, Kentucky, Maryland, Michigan, Ohio, Pennsylvania, Virginia, and West Virginia. DEC is requesting the U.S. EPA to require sources of nitrogen oxides in the nine states to reduce such emissions. On May 4, 2018, citing Section 307(d)(10) of the CAA, the U.S. EPA issued a notice extending the deadline for the agency to respond to the petition until November 9, 2018. On May 20, 2019, U.S. EPA published a notice in the Federal Register in which it proposed to deny DEC’s 126(b) petition. The public comment period for the proposed action closed on July 15, 2019.
The CAA also requires the U.S. EPA to develop and implement NAAQS for criteria pollutants, which include, among others, particulate matter (PM) - consisting of PM
10
and PM
2.5
, lead, carbon monoxide, nitrogen dioxide, sulfur dioxide (SO
2
), and ozone.
In June 2010, the U.S. EPA significantly lowered the primary NAAQS for SO
2
from 140 parts per billion (ppb) on a 24-hour basis to an hourly standard of 75 ppb. Subsequently, U.S. EPA designated the areas in which Great Lakes Works and Mon Valley Works facilities are located as nonattainment with the 2010 standard for the SO
2
NAAQS. The non-
attainment designation requires the region to implement operational and/or capital improvements to demonstrate attainment with the 2010 standard. U. S. Steel worked with the Allegheny County Health Department (ACHD) in developing a State Implementation Plan (SIP) for the Allegheny County portion of the Pennsylvania SIP that includes reductions of SO
2
and improved dispersion from U. S. Steel sources. On November 19, 2018, U.S. EPA published a proposed rule to approve the SIP. Comments on the proposed rule were accepted until December 19, 2018. In addition, as noted in the Legal Proceedings section, U. S. Steel continues to work with the regulatory authorities to address the Wayne County, Michigan (where Great Lakes Works is located) nonattainment status. The operational and financial impacts of the SO
2
NAAQS are not estimated to be material at this time.
In October 2015, the U.S. EPA lowered the NAAQS for ozone from 75 ppb to 70 ppb. On November 6, 2017, the U.S. EPA designated most areas in which we operate as attainment with the 2015 standard. In a separate ruling, on June 4, 2018, the U.S. EPA designated other areas in which we operate as “marginal nonattainment” with the 2015 ozone standard. While on December 6, 2018, U.S. EPA published a final rule regarding implementation of the 2015 ozone standard. Because no state regulatory or permitting actions to bring the ozone nonattainment areas into attainment have yet to be proposed or developed for U. S. Steel facilities, the operational and financial impact of the ozone NAAQS cannot be reasonably estimated at this time.
On December 14, 2012, the U.S. EPA lowered the annual standard for PM
2.5
from 15 micrograms per cubic meter (ug/m3) to 12 ug/m3, and retained the PM
2.5
24-hour and PM
10
NAAQS rules. In December 2014, the U.S. EPA designated some areas in which U. S. Steel operates as nonattainment with the 2012 annual PM
2.5
standard. On April 6, 2018, the U.S. EPA published a notice that Pennsylvania, California and Idaho failed to submit a SIP to demonstrate attainment with the 2012 fine particulate standard by the deadline established by the CAA. As a result of the notice, Pennsylvania, a state in which we operate, is required to submit a SIP to the U.S. EPA no later than November 7, 2019 to avoid sanctions. On April 29, 2019, the ACHD published a draft SIP for the Allegheny County nonattainment area which demonstrates that all of Allegheny County will meet its reasonable further progress requirements and be in attainment with the 2012 PM
2.5
annual and 24-hour NAAQS by December 31, 2021 with the existing controls that are in place.
In 2010, the U.S. EPA retained the annual nitrogen dioxide NAAQS standard, but created a new 1-hour NAAQS and established new data reduction and monitoring requirements. While the U.S. EPA has classified all areas as being in attainment or unclassifiable, it is requiring implementation of a network of monitoring stations to assess air quality. Until the network is implemented and further designations are made, the impact on operations at U. S. Steel facilities cannot be reasonably estimated.
In July 2018, the ACHD provided U. S. Steel, ACHD Regulation Subcommittee members and interested parties with draft regulations that would modify the existing air regulations applicable to coke plants in Allegheny County. While ACHD currently has some of the most stringent air regulations in the country governing coke plants, which apply to U. S. Steel’s coke plant in Clairton, Pennsylvania (the only remaining coke plant in Allegheny County and one of two remaining in Pennsylvania), the draft regulations would reduce the current allowable emissions from coke plant operations and would be more stringent than the Federal Best Available Control Technology and Lowest Achievable Emission Rate requirements. In various meetings with ACHD, U. S. Steel has raised significant objections, in particular, that ACHD has not demonstrated that continuous compliance with the draft rule is economically and technologically feasible. While U. S. Steel continues to meet with ACHD regarding the draft rule, U. S. Steel believes that any rule promulgated by ACHD must comply with their statutory authority. If the draft rule or similar rule is adopted, the financial and operational impacts to U. S. Steel could be material. In U. S. Steel’s June 27, 2019, Settlement Agreement with ACHD, in which the appeals of four recently issued Orders were resolved as discussed in the Legal Proceedings, to assist in developing rules objectively and with technical justification, U. S. Steel and ACHD agreed to certain procedures that ACHD will follow in developing a new rule.
Environmental Remediation
In the United States, U. S. Steel has been identified as a potentially responsible party (PRP) at eight sites under CERCLA as of June 30, 2019. Of these, there are three sites where information requests have been received or there are other indications that U. S. Steel may be a PRP under CERCLA, but where sufficient information is not presently available to confirm the existence of liability or to make a reasonable estimate with respect to any potential liabilities. There are also 17 additional sites where U. S. Steel may be liable for remediation costs in excess of $100,000 under other environmental statutes, both federal and state, or where private parties are seeking to impose liability on U. S. Steel for remediation costs through discussions or litigation. At many of these sites, U. S. Steel is one of a number of parties involved and the total cost of remediation, as well as U. S. Steel’s share, is frequently dependent upon the outcome of ongoing investigations and remedial studies. U. S. Steel accrues for environmental remediation activities
when the responsibility to remediate is probable and the amount of associated costs is reasonably estimable. As environmental remediation matters proceed toward ultimate resolution or as remediation obligations arise, charges in excess of those previously accrued may be required.
For further discussion of relevant environmental matters, see "Item 1. Legal Proceedings - Environmental Proceedings."
OFF-BALANCE SHEET ARRANGEMENTS
U. S. Steel did not enter into any new material off-balance sheet arrangements during the
second
quarter of
2019
.
INTERNATIONAL TRADE
U. S. Steel continues to face import competition, much of which is unfairly-traded, supported by foreign governments, and fueled by massive global steel overcapacity. Such practices, policies and overcapacity impact the Company's operational and financial performance. U. S. Steel continues to lead the industry in efforts to address these challenges that threaten the Company, our workers, our stockholders, and our country’s national and economic security.
Through a series of Presidential Proclamations pursuant to Section 232 of the Trade Expansion Act of 1962, as of the date of this filing, U.S. imports of certain steel products are subject to a 25 percent tariff, except for imports from: (1) Argentina, Brazil, and South Korea, which are subject to restrictive quotas; (2) Canada and Mexico, which are currently not subject to either tariffs or quotas but tariffs could be re-imposed on surging product groups after consultations; and (3) Australia, which is not subject to tariffs, quotas, or an anti-surge mechanism.
In May 2019, the Section 232 tariffs for imports from Turkey were adjusted from 50 to 25 percent. Also in May 2019, the United States announced agreements with Canada and Mexico to eliminate the Section 232 tariffs on imports from Canada and Mexico; eliminate the retaliatory tariffs on U.S. exports to Canada and Mexico; terminate World Trade Organization (WTO) disputes regarding Section 232 and retaliation; implement effective measures to prevent unfairly traded imports and transshipment, to monitor for import surges, re-impose Section 232 tariffs on import surges after consultations; and limit retaliation to steel.
The U.S. Department of Commerce (DOC) is managing a process in which U.S. companies may request and/or oppose temporary product exclusions from the Section 232 tariffs or quotas. Over 77,000 exclusions have been requested for steel products. U. S. Steel is opposing exclusion requests for products that are the same as, or substitute products for, those U. S. Steel produces.
Several legal challenges and retaliatory trade measures have been initiated in response to the Section 232 action. In June 2019, the Supreme Court denied the American Institute for International Steel’s (AIIS) petition for writ of certiorari in AIIS’ constitutional challenge to the Section 232 statute. AIIS’ appeal of the U.S. Court of International Trade’s (CIT) March 2019 decision upholding the constitutionality of the Section 232 statute is still pending before the U.S. Court of Appeals for the Federal Circuit (CAFC). Multiple countries have challenged the Section 232 action at the WTO, imposed retaliatory tariffs, and/or acted to safeguard their domestic steel industries from increased steel imports. In turn, the United States has challenged the retaliation at the WTO. Decisions in these WTO disputes are not expected until the fourth quarter of 2019 at the earliest.
Since its implementation in March 2018, the Section 232 action has supported the U.S. steel industry's and U. S. Steel’s multiple restarts and investment initiatives. The Company continues to actively defend the Section 232 action through all available tools and strategies, including by highlighting these benefits and the importance of maintaining the Section 232 action.
In February 2019, the European Commission (EC) imposed a definitive tariff rate quota (TRQ) safeguard on certain steel imports: 25 percent tariffs on certain steel imports that exceed quotas based on 105 percent of average import volumes for 2015-2017 and increasing 5 percent annually, effective February 2019 through June 2021. In May 2019, the EC initiated a review of the safeguard with a decision on any changes to the safeguard expected by late September 2019. In July 2019, the EC increased its safeguard quotas by 5 percent, pursuant to automatic increase provisions, despite the current EC review and the significant opposition to the increase from the EU steel industry.
Antidumping (AD) and countervailing (CVD or antisubsidy) duties apply in addition to the Section 232 tariffs and quotas and the EC’s TRQ safeguard, and AD/CVD orders will last beyond the Section 232 action and EC’s TRQ safeguard. Thus, U. S. Steel continues to actively defend and maintain the 54 U.S. AD/CVD orders and 11 EU AD/CVD orders
covering products U. S. Steel produces in multiple proceedings before the DOC, U.S. International Trade Commission (ITC), CIT, CAFC, the EC and European courts, and the WTO.
In 2018, following an investigation of China’s technology transfer and intellectual property violations by the U.S. Trade Representative (USTR) under Section 301 of the Trade Act of 1974, the United States imposed 10 and 25 percent tariffs on approximately $250 billion of U.S. imports from China, including finished steel couplings, some products used in steel production and certain downstream products. In May 2019, the Section 301 tariffs on certain imports from China increased from 10 to 25 percent. As of the date of this filing, the United States plans to impose 10 percent tariffs on the approximately $300 billion of imports from China that are currently not subject to the Section 301 tariffs, including many steel products, effective September 1. The United States continues to negotiate with China on structural trade issues, including China's subsidies and government support of its steel industry.
The G-20’s Global Forum on Steel Excess Capacity continues to work to reduce global steel overcapacity, currently estimated at 425 million tons. The Organization for Economic Co-operation and Development Steel Committee and trilateral negotiations between the United States, EU, and Japan also continue to address global steel overcapacity.
U. S. Steel will continue to execute a broad, global strategy to maximize opportunities and navigate challenges presented by imports, global steel overcapacity, and international trade law and policy developments.
NEW ACCOUNTING STANDARDS
See Notes 2 and 3 to the Condensed Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.