Net Sales by Product (In millions):
| | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 | Flat-Rolled | Mini Mill | USSE | Tubular | Other | Total |
Semi-finished | $ | 49 | | $ | — | | $ | 1 | | $ | — | | $ | — | | $ | 50 | |
Hot-rolled sheets | 514 | | 399 | | 593 | | — | | — | | 1,506 | |
Cold-rolled sheets | 971 | | 92 | | 139 | | — | | — | | 1,202 | |
Coated sheets | 1,196 | | 224 | | 483 | | — | | — | | 1,903 | |
Tubular products | — | | — | | 15 | | 306 | | — | | 321 | |
All Other (a) | 224 | | 3 | | 20 | | 3 | | 2 | | 252 | |
Total | $ | 2,954 | | $ | 718 | | $ | 1,251 | | $ | 309 | | $ | 2 | | $ | 5,234 | |
(a) Consists primarily of sales of raw materials and coke making by-products. |
| | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 | Flat-Rolled | Mini Mill (b) | USSE | Tubular | Other | Total |
Semi-finished | $ | 12 | | $ | — | | $ | 3 | | $ | — | | $ | — | | $ | 15 | |
Hot-rolled sheets | 450 | | 249 | | 386 | | — | | — | | 1,085 | |
Cold-rolled sheets | 784 | | 79 | | 83 | | — | | — | | 946 | |
Coated sheets | 878 | | 121 | | 298 | | — | | — | | 1,297 | |
Tubular products | — | | — | | 10 | | 128 | | — | | 138 | |
All Other (a) | 148 | | 1 | | 18 | | 6 | | 10 | | 183 | |
Total | $ | 2,272 | | $ | 450 | | $ | 798 | | $ | 134 | | $ | 10 | | $ | 3,664 | |
(a) Consists primarily of sales of raw materials and coke making by-products. |
(b) Mini Mill segment added after January 15, 2021 with the purchase of the remaining equity interest in Big River Steel. |
7. 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 Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statement of Cash Flows:
| | | | | | | | | | | | | | | | | | | | |
(In millions) | | March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
Cash and cash equivalents | | $ | 2,866 | | | $ | 2,522 | | | $ | 753 | |
Restricted cash in other current assets | | 17 | | | 2 | | | 7 | |
Restricted cash in other noncurrent assets | | 58 | | | 76 | | | 122 | |
| | | | | | |
Total cash, cash equivalents and restricted cash | | $ | 2,941 | | | $ | 2,600 | | | $ | 882 | |
Amounts included in restricted cash represent cash balances which are legally or contractually restricted, primarily for electric arc furnace construction, environmental and other capital projects and insurance purposes.
8. Inventories
The LIFO method is the predominant method of inventory costing for our Flat-Rolled and Tubular segments. The FIFO and moving average methods are the predominant inventory costing methods for our Mini Mill segment and the FIFO method is the predominant inventory costing method for our USSE segment. At March 31, 2022 and December 31, 2021, the LIFO method accounted for 41 percent and 46 percent of total inventory values, respectively.
| | | | | | | | | | | |
(In millions) | March 31, 2022 | | December 31, 2021 |
Raw materials | $ | 1,098 | | | $ | 713 | |
Semi-finished products | 1,112 | | | 1,056 | |
Finished products | 407 | | | 388 | |
Supplies and sundry items | 46 | | | 53 | |
Total | $ | 2,663 | | | $ | 2,210 | |
Current acquisition costs were estimated to exceed the above inventory values by $1.62 billion and $896 million at March 31, 2022 and December 31, 2021, 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 $1 million for the three months ended March 31, 2022 and 2021, respectively.
9. Intangible Assets and Goodwill
Intangible assets that are being amortized on a straight-line basis over their estimated useful lives are detailed below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of March 31, 2022 | | As of December 31, 2021 |
(In millions) | Useful Lives | | Gross Carrying Amount | Accumulated Amortization | Net Amount | | Gross Carrying Amount | Accumulated Amortization | Net Amount |
Customer relationships | 22 Years | | $ | 413 | | $ | 22 | | $ | 391 | | | $ | 413 | | $ | 18 | | $ | 395 | |
Patents | 5-15 Years | | 17 | | 11 | | 6 | | | 17 | | 11 | | 6 | |
Energy Contract | 2 Years | | 54 | | 17 | | 37 | | | 54 | | 11 | | 43 | |
Total amortizable intangible assets | | | $ | 484 | | $ | 50 | | $ | 434 | | | $ | 484 | | $ | 40 | | $ | 444 | |
Total estimated amortization expense for the remainder of 2022 is $31 million. We expect approximately $120 million in annual amortization expense through 2027 and approximately $282 million in remaining amortization expense thereafter.
The carrying amount of acquired water rights with indefinite lives as of March 31, 2022 and December 31, 2021 totaled $75 million.
Below is a summary of goodwill by segment for the three months ended March 31, 2022:
| | | | | | | | | | | | | | | | | |
| Flat-Rolled | Mini Mill | USSE | Tubular | Total |
Balance at December 31, 2021 | $ | — | | $ | 916 | | $ | 4 | | $ | — | | $ | 920 | |
Additions | — | | — | | — | | — | | — | |
Balance at March 31, 2022 | $ | — | | $ | 916 | | $ | 4 | | $ | — | | $ | 920 | |
10. Pensions and Other Benefits
The following table reflects the components of net periodic benefit (income) cost for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
(In millions) | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | $ | 11 | | | $ | 14 | | | $ | 2 | | | $ | 3 | |
Interest cost | 39 | | | 40 | | | 12 | | | 12 | |
Expected return on plan assets | (89) | | | (89) | | | (22) | | | (20) | |
Amortization of prior service credit | — | | | — | | | (7) | | | (7) | |
Amortization of actuarial net loss (gain) | 18 | | | 38 | | | (13) | | | (6) | |
Net periodic benefit cost (income), excluding below | (21) | | | 3 | | | (28) | | | (18) | |
Multiemployer plans | 19 | | | 19 | | | — | | | — | |
Settlement, termination and curtailment losses (a) | 1 | | | — | | | — | | | — | |
Net periodic benefit cost (income) | $ | (1) | | | $ | 22 | | | $ | (28) | | | $ | (18) | |
(a) During the three months ended March 31, 2022, pension benefits incurred special termination charges of approximately $1 million due to workforce restructuring. |
Employer Contributions
During the first three months of 2022, U. S. Steel made cash payments of $18 million to the Steelworkers Pension Trust and $1 million of pension payments not funded by trusts.
During the first three months of 2022, cash payments of $12 million were made for other postretirement benefit payments not funded by trusts.
Company contributions to defined contribution plans totaled $11 million and $10 million for the three months ended March 31, 2022 and 2021, respectively.
11. 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, or its designee, under the 2005 Stock Incentive Plan (2005 Plan) and the 2016 Omnibus Incentive Compensation Plan, as amended and restated (Omnibus Plan). The Company's stockholders approved the Omnibus Plan and authorized the Company to issue up to 32,700,000 shares of U. S. Steel common stock under the Omnibus Plan. 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 March 31, 2022, there were 9,339,845 shares available for future grants under the Omnibus Plan.
Recent grants of stock-based compensation consist of restricted stock units, total stockholder 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 three months of 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
Grant Details | | Shares(a) | Fair Value(b) | | Shares(a) | Fair Value(b) |
| | | | | | |
Restricted Stock Units | | 1,169,470 | | $ | 24.27 | | | 1,418,380 | | $ | 17.92 | |
Performance Awards (c) | | | | | | |
TSR | | 225,030 | | $ | 28.53 | | | 306,930 | | $ | 19.46 | |
ROCE (d) | | 396,280 | | $ | 23.60 | | | 485,900 | | $ | 17.92 | |
| | | | | | |
(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 share grant of the award.
(d) A portion of ROCE awards granted in 2022 and 2021 are not shown in the table because they were granted in cash.
U. S. Steel recognized pretax stock-based compensation expense in the amount of $16 million and $11 million in the three-month periods ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, total future compensation expense related to nonvested stock-based compensation arrangements was $91 million, and the weighted average period over which this expense is expected to be recognized is approximately 22 months.
Stock Options
Compensation expense for stock options is recorded over the vesting period based on the fair value on the date of grant, as calculated by U. S. Steel using the Black-Scholes model and the assumptions listed below. Awards generally vest ratably over a three-year service period and have a term of ten years. Stock options are generally issued at the average market price of the underlying stock on the date of the grant. Upon exercise of stock options, shares of U. S. Steel stock are issued from treasury stock or from authorized, but unissued common stock. There have been no stock options granted since 2017 other than the 171,000 performance-based stock options granted in December 2021, which are further described below.
The expected annual dividends per share are based on the latest annualized dividend rate at the date of grant; the expected life in years is determined primarily from historical stock option exercise data; the expected volatility is based on the historical volatility of U. S. Steel stock; and the risk-free interest rate is based on the U.S. Treasury strip rate for the expected life of the option.
The 171,000 performance-based stock options granted in December 2021 do not become vested and exercisable until the Company's 20-trading day average closing stock price meets or exceeds the following stock price hurdles during the seven-year period beginning on the grant date, as follows:
| | | | | | | | |
20-trading day Average Closing Stock Price Achievement During 7-Year Period Beginning on Grant Date | | Percentage of Performance-Based Stock Options Exercisable |
$ | 35.00 | | | 33.33 | % |
$ | 45.00 | | | 33.33 | % |
$ | 55.00 | | | 33.34 | % |
Stock Awards
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 stockholder return compared to the total stockholder return of a peer group of companies meets specified performance criteria with each year in the three-year performance period weighted at 20 percent and the full three-year performance weighted at 40 percent. 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 performance metric. For the 2022 ROCE performance awards, each year in the three-year performance period is weighted at 20 percent and the full three-year period is weighted at 40 percent of the total award. ROCE performance awards can vest 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.
In December 2021, special performance-based restricted stock unit awards (PSUs) were granted to members of the Company’s executive leadership team. Shares are earned based on the achievement of certain pre-set quantitative performance criteria during the four-year performance period, January 1, 2022 through December 31, 2025. Shares may vest following the expiration of the Performance Period if the Company satisfies the performance criteria.
The Chief Executive Officer was granted PSUs that vest with the following, equally weighted, performance metrics: (i) EBITDA margin expansion, (ii) greenhouse gas emissions intensity reduction, (iii) asset portfolio optimization, (iv) leverage metrics and (v) corporate relative valuation. Other members of the executive leadership team were granted PSUs that vest with performance criteria related to: (i) on time and on budget completion of the second mini mill (30% of the grant), (ii) EBITDA margin expansion (40% of the grant) and (iii) greenhouse gas emissions intensity reduction (30% of the grant).
For the PSU awards, a payout is achievable at threshold (50% of target), target (100% of target) or maximum (200% of target) performance achievement. Payout amounts will be interpolated between the threshold, target and maximum amounts.
12. Income Taxes
Tax provision
For the three months ended March 31, 2022 and 2021, the Company recorded a tax provision of $246 million and $1 million, respectively. The Company also recorded an increase in its long-term state deferred tax asset of $4 million and a decrease in its long-term federal deferred tax liability of $15 million related to the adoption of ASU 2020-06. The tax provisions for the first three months of 2022 and 2021 were based on an estimated annual effective rate, which requires management to make its best estimate of annual pretax income or loss and discrete items recognized during the period.
The tax provision for the three months ended March 31, 2021 includes a $4 million benefit relating to favorably settling prior tax period state income tax matters. Due to the full valuation allowance on our domestic deferred tax assets, the tax provision in 2021 does not reflect any material tax expense for domestic pretax earnings.
Throughout the year, management regularly updates forecasted annual pretax results for the various countries in which we operate based on changes in factors such as prices, shipments, product mix, plant operating performance and cost estimates. To the extent that actual 2022 pretax results for U.S. and foreign income or loss vary from estimates applied herein, the actual tax provision or benefit recognized in 2022 could be materially different from the forecasted amount used to estimate the tax provision for the three months ended March 31, 2022.
13. Earnings and Dividends Per Common Share
Earnings Per Share Attributable to United States Steel Corporation Stockholders
The effect of dilutive securities on weighted average common shares outstanding included in the calculation of diluted earnings per common share for the three months ended March 31, 2022 and March 31, 2021 were as follows.
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
(Dollars in millions, except per share amounts) | 2022 | 2021 | | | |
Earnings attributable to United States Steel Corporation stockholders | $ | 882 | | $ | 91 | | | | |
Weighted-average shares outstanding (in thousands): | | | | | |
Basic | 261,453 | | 249,351 | | | | |
Effect of Senior Convertible Notes (a) | 26,194 | | 8,467 | | | | |
Effect of stock options, restricted stock units and performance awards | 5,620 | | 4,151 | | | | |
Adjusted weighted-average shares outstanding, diluted (a) | 293,267 | | 261,969 | | | | |
Basic earnings per common share | $ | 3.37 | | $ | 0.36 | | | | |
Diluted earnings per common share | $ | 3.02 | | $ | 0.35 | | | | |
Excluded from the computation of diluted earnings per common share due to their anti-dilutive effect were 0.6 million and 1.4 million outstanding securities granted under the Omnibus Plan for the three months ended March 31, 2022 and 2021, respectively.
Dividends Paid Per Share
The dividend for the first quarter of 2022 and 2021 was five cents and one cent per common share, respectively.
14. Derivative Instruments
U. S. Steel uses foreign exchange forward sales contracts (foreign exchange forwards) with maturities up to 31 months to manage our currency requirements and exposure to foreign currency exchange rate fluctuations. The USSE and Flat-Rolled segments use hedge accounting for their foreign exchange forwards. The Mini Mill segment has not elected hedge accounting; therefore, the changes in the fair value of their foreign exchange forwards are recognized immediately in the Consolidated Statements of Operations (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, tin, electricity and iron ore pellets (commodity purchase swaps). We elected cash flow hedge accounting for commodity purchase swaps for natural gas, zinc and tin and iron ore pellets and use mark-to-market accounting for electricity swaps. The maximum derivative contract duration for commodity purchase swaps where hedge accounting was elected and was not elected is 9 months and 21 months, respectively.
U. S. Steel has entered into financial swaps that are used to partially manage the sales price risk of certain hot-rolled coil sales (sales swaps) and iron ore pellet sales (zero cost collars). Both the sales swaps and the zero cost collars are accounted for using hedge accounting and have maturities of up to 9 months.
The table below shows the outstanding swap quantities used to hedge forecasted purchases and sales as of March 31, 2022 and March 31, 2021:
| | | | | | | | | | | | | | |
Hedge Contracts | Classification | March 31, 2022 | | March 31, 2021 |
Natural gas (in mmbtus) | Commodity purchase swaps | 43,265,000 | | 26,223,000 |
Tin (in metric tons) | Commodity purchase swaps | 2,430 | | 1,555 |
Zinc (in metric tons) | Commodity purchase swaps | 15,679 | | 19,021 |
Electricity (in megawatt hours) | Commodity purchase swaps | 724,320 | | 1,074,720 |
Iron ore pellets (in metric tons) | Commodity purchase swaps | 30,000 | | — |
Iron ore pellets (in metric tons) | Zero-cost collars | 1,080,000 | | — |
Hot-rolled coils (in tons) | Sales swaps | 110,000 | | 192,720 |
Foreign currency (in millions of euros) | Foreign exchange forwards | € | 311 | | | € | 237 | |
Foreign currency (in millions of dollars) | Foreign exchange forwards | $ | 158 | | | $ | 9 | |
The following summarizes the fair value amounts included in our Condensed Consolidated Balance Sheets as of March 31, 2022, and December 31, 2021:
| | | | | | | | |
Balance Sheet Location (in millions) | March 31, 2022 | December 31, 2021 |
Designated as Hedging Instruments | | |
Accounts receivable | $ | 103 | | $ | 42 | |
Accounts payable | 98 | | 59 | |
Investments and long-term receivables | — | | 2 | |
Other long-term liabilities | 3 | | 4 | |
Not Designated as Hedging Instruments | | |
Accounts receivable | 13 | | 5 | |
Investments and long-term receivables | 7 | | 5 | |
The table below summarizes the effect of hedge accounting on Accumulated Other Comprehensive Income (AOCI) and amounts reclassified from AOCI into earnings for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
| Gain (Loss) on Derivatives in AOCI | | | Amount of Gain (Loss) Recognized in Income |
(In millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | Location of Reclassification from AOCI (a) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 |
Sales swaps | $ | (57) | | $ | (44) | | | Net sales | $ | (26) | | $ | (10) | |
Commodity purchase swaps | 88 | | 10 | | | Cost of sales (b) | 22 | | (1) | |
Foreign exchange forwards | (2) | | 19 | | | Cost of sales | 8 | | (5) | |
(a) The earnings impact of our hedging instruments substantially offsets the earnings impact of the related hedged items resulting in immaterial ineffectiveness.
(b) Costs for commodity purchase swaps are recognized in cost of sales as products are sold.
At current contract values, $86 million currently in AOCI as of March 31, 2022 will be recognized as a decrease in cost of sales over the next year and $81 million currently in AOCI as of March 31, 2022 will be recognized as a decrease in net sales over the next year.
The loss recognized for foreign exchange forwards and financial swaps where hedge accounting was not elected was $9 million for the three months ended March 31, 2022. The loss recognized for foreign exchange forwards and financial swaps where hedge accounting was not elected was $9 million for the three months ended March 31, 2021.
15. Debt
| | | | | | | | | | | | | | | | | | | | |
(In millions) | Issuer/Borrower | Interest Rates % | Maturity | March 31, 2022 | | December 31, 2021 |
2037 Senior Notes | U. S. Steel | 6.650 | 2037 | 350 | | | 350 | |
2029 Senior Secured Notes | Big River Steel | 6.625 | 2029 | 720 | | | 720 | |
2029 Senior Notes | U. S. Steel | 6.875 | 2029 | 748 | | | 750 | |
2026 Senior Convertible Notes | U. S. Steel | 5.000 | 2026 | 350 | | | 350 | |
Environmental Revenue Bonds | U. S. Steel | 4.125 - 6.750 | 2024 - 2050 | 647 | | | 647 | |
Environmental Revenue Bonds | Big River Steel | 4.500 - 4.750 | 2049 | 752 | | | 752 | |
Finance leases and all other obligations | U. S. Steel | Various | 2022 - 2029 | 74 | | | 67 | |
Finance leases and all other obligations | Big River Steel | Various | 2022 - 2031 | 126 | | | 122 | |
Export Credit Agreement | U. S. Steel | Variable | 2031 | 136 | | | 136 | |
Credit Facility Agreement | U. S. Steel | Variable | 2024 | — | | | — | |
Big River Steel ABL Facility | Big River Steel | Variable | 2026 | — | | | — | |
USSK Credit Agreement | U. S. Steel Kosice | Variable | 2026 | — | | | — | |
USSK Credit Facility | U. S. Steel Kosice | Variable | 2024 | — | | | — | |
Total Debt | | | | 3,903 | | | 3,894 | |
Less unamortized discount, premium, and debt issuance costs | | | | (74) | | | 3 | |
Less short-term debt, long-term debt due within one year, and short-term issuance costs | | | | 60 | | | 28 | |
Long-term debt | | | | $ | 3,917 | | | $ | 3,863 | |
2029 Senior Notes
During the three months ended March 31, 2022, open market repurchases were made of approximately $2 million of aggregate principal on the 6.875% Senior Notes due 2029. An immaterial amount of repurchase premium was incurred related to the repayment.
2026 Senior Convertible Notes
In October 2019, U. S. Steel issued $350 million of 5.00% Senior Convertible Notes due November 1, 2026 (2026 Senior Convertible Notes). Interest on the 2026 Senior Convertible Notes is payable semi-annually on May 1 and November 1 of each year. The initial conversion rate for the 2026 Senior Convertible Notes is 74.8391 shares of U. S. Steel common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $13.36 per share of common stock, subject to adjustment pursuant to the 2026 Senior Convertible Notes indenture. Based on the initial conversion rate, the 2026 Senior Convertible Notes are convertible into 26,193,685 shares of U. S. Steel common stock and we reserved for the possible issuance of 33,396,930 shares, which is the maximum amount that could be issued upon conversion. Prior to August 1, 2026, holders of notes may convert all or a portion of their notes at their option only upon the satisfaction of specified conditions and during certain periods. On or after August 1, 2026, holders may convert all or a portion of their notes prior to the maturity date. Upon conversion, we will satisfy the obligation with cash, common stock, or a combination thereof, at our election. U. S. Steel may not redeem the 2026 Senior Convertible Notes prior to November 5, 2023. On or after November 5, 2023 and prior to August 1, 2026, if the price per share of U. S. Steel's common stock has been at least 130% of the conversion price for specified periods, U. S. Steel may redeem all or a portion of the 2026 Senior Convertible Notes at a cash redemption price of 100% of the principal amount, plus accrued and unpaid interest.
If U. S. Steel undergoes a fundamental change, as defined in the 2026 Senior Convertible Notes, holders may require us to repurchase the 2026 Senior Convertible Notes in whole or in part for cash at a price equal to 100% of the principal amount of the 2026 Senior Convertible Notes to be purchased plus any accrued and unpaid interest up to, but excluding the repurchase date.
Big River Steel - Sustainability Linked ABL Facility
Big River Steel's amended senior secured asset-based revolving credit facility (Big River Steel ABL Facility) matures on July 23, 2026. The facility is secured by first-priority liens on accounts receivable and inventory and certain other assets and second priority liens on most tangible and intangible assets of Big River Steel in each case subject to permitted liens. Additionally, the amendment includes sustainability targets related to carbon reduction, safety performance and facility certification by ResponsibleSteel™.
The Big River Steel ABL Facility provides for borrowings for working capital and general corporate purposes in an amount equal up to the lesser of (a) $350 million and (b) a borrowing base calculated based on specified percentages of eligible accounts receivables and inventory, subject to certain adjustments and reserves.
Big River Steel LLC must maintain a fixed charge coverage ratio of at least 1.00 to 1.00 for the most recent twelve consecutive months when availability under the Big River Steel ABL Facility is less than the greater of ten percent of the borrowing base availability and $13 million. Based on the most recent four quarters as of March 31, 2022, Big River Steel would have met the fixed charge coverage ratio test. The facility includes affirmative and negative covenants and events of default that are customary for facilities of this type.
There were no loans outstanding under the Big River Steel ABL Facility at March 31, 2022.
U. S. Steel - Sustainability Linked Credit Facility Agreement
U. S. Steel's Fifth Amended and Restated Credit Facility Agreement (Credit Facility Agreement) matures on October 25, 2024. The facility is secured by first-priority liens on certain accounts receivable and inventory and includes targets related to carbon reduction, safety performance and facility certification by ResponsibleSteel™.
The Credit Facility Agreement provides for borrowings for working capital and general corporate purchases in an amount equal to the lesser of (a) $1,750 million or (b) a borrowing base calculated based on specified percentages of eligible accounts receivable and inventory, subject to certain adjustments and reserves. As of March 31, 2022, there were approximately $4 million of letters of credit issued and no loans drawn under the 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 ten percent of the total aggregate commitments and $175 million. Based on the most recent four quarters as of March 31, 2022, the Company would have met the fixed charge coverage ratio test.
U. S. Steel Košice (USSK) Credit Facilities
On September 29, 2021, USSK entered into a €300 million (approximately $333 million) unsecured sustainability linked credit agreement (USSK Credit Agreement). The USSK Credit Agreement matures in 2026 and contains sustainability targets related to carbon reduction, safety performance and facility certification by ResponsibleSteel™. At March 31, 2022, USSK had no borrowings under the USSK Credit Agreement.
At March 31, 2022, USSK had no borrowings under its €20 million credit facility (approximately $22 million) (USSK Credit Facility) and the availability was approximately $14 million due to approximately $8 million of customs and other guarantees outstanding.
16. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, current accounts and notes receivable, accounts payable and accrued interest included in the Condensed Consolidated Balance Sheet approximate fair value. See Note 14 for disclosure of U. S. Steel’s derivative instruments, which are accounted for at fair value on a recurring basis.
Stelco Option for Minntac Mine Interest
On April 30, 2020 (Effective Date), the Company entered into an Option Agreement with Stelco, Inc. (Stelco), that grants Stelco the option to purchase a 25 percent interest (Option Interest) in a to-be-formed entity (Joint Venture) that will own the Company’s current iron ore mine located in Mt. Iron, Minnesota (Minntac Mine). As consideration for the Option, Stelco paid the Company an aggregate amount of $100 million in five $20 million installments during the year-ended December 31, 2020 which are recorded net of transaction costs in the Condensed Consolidated Balance Sheet. In the event Stelco exercises the option, Stelco will contribute an additional $500 million to the Joint Venture, which amount shall be remitted solely to U. S. Steel in the form of a one-time special distribution, and the parties will engage in good faith negotiations to finalize the master agreement (pursuant to which Stelco will acquire the Option Interest) and the limited liability company agreement of the Joint Venture.
The following table summarizes U. S. Steel’s financial liabilities that were not carried at fair value at March 31, 2022 and December 31, 2021. The fair value of long-term debt was determined using Level 2 inputs.
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
(In millions) | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount |
Financial liabilities: | | | | | | | |
Long-term debt (a) | $ | 4,508 | | | $ | 3,777 | | | $ | 4,379 | | | $ | 3,702 | |
(a) Excludes finance lease obligations.
17. Statement of Changes in Stockholders’ Equity
The following table reflects the first three months of 2022 and 2021 reconciliation of the carrying amount of total equity, equity attributable to U. S. Steel and equity attributable to noncontrolling interests:
| | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 (In millions) | Total | Retained Earnings | Accumulated Other Comprehensive Income | Common Stock | Treasury Stock | Paid-in Capital | Non- Controlling Interest |
Balance at beginning of year | $ | 9,103 | | $ | 3,534 | | $ | 331 | | $ | 280 | | $ | (334) | | $ | 5,199 | | $ | 93 | |
Comprehensive income (loss): | | | | | | | |
Net earnings | 882 | | 882 | | — | | — | | — | | — | | — | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Pension and other benefit adjustments | (3) | | — | | (3) | | — | | — | | — | | — | |
Currency translation adjustment | (28) | | — | | (28) | | — | | — | | — | | — | |
Derivative financial instruments | 22 | | — | | 22 | | — | | — | | — | | — | |
Employee stock plans | 7 | | — | | — | | 2 | | (20) | | 25 | | — | |
Common Stock Repurchased | (123) | | — | | — | | — | | (123) | | — | | — | |
Dividends paid on common stock | (13) | | (13) | | — | | — | | — | | — | | — | |
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Cumulative effect upon adoption of Accounting Standards Update 2020-06 | (56) | | 22 | | — | | — | | — | | (78) | | — | |
Balance at March 31, 2022 | $ | 9,791 | | $ | 4,425 | | $ | 322 | | $ | 282 | | $ | (477) | | $ | 5,146 | | $ | 93 | |
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Three Months Ended March 31, 2021 (In millions) | Total | Accumulated Deficit | Accumulated Other Comprehensive Loss | Common Stock | Treasury Stock | Paid-in Capital | Non- Controlling Interest |
Balance at beginning of year | $ | 3,879 | | $ | (623) | | $ | (47) | | $ | 229 | | $ | (175) | | $ | 4,402 | | $ | 93 | |
Comprehensive income (loss): | | | | | | | |
Net earnings | 91 | | 91 | | — | | — | | — | | — | | — | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Pension and other benefit adjustments | 24 | | — | | 24 | | — | | — | | — | | — | |
Currency translation adjustment | (47) | | — | | (47) | | — | | — | | — | | — | |
Derivative financial instruments | (20) | | — | | (20) | | — | | — | | — | | — | |
Employee stock plans | 6 | | — | | — | | 2 | | (7) | | 11 | | — | |
Common Stock Issued | 790 | | — | | — | | 48 | | | 742 | | — | |
Dividends paid on common stock | (3) | | | — | | — | | — | | (3) | | — | |
Balance at March 31, 2021 | $ | 4,720 | | $ | (532) | | $ | (90) | | $ | 279 | | $ | (182) | | $ | 5,152 | | $ | 93 | |
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18. Reclassifications from Accumulated Other Comprehensive Income (AOCI)
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(In millions) | Pension and Other Benefit Items | | Foreign Currency Items | | Unrealized (Loss) Gain on Derivatives | | Total |
Balance at December 31, 2021 | $ | (25) | | | $ | 371 | | | $ | (15) | | | $ | 331 | |
Other comprehensive (loss) income before reclassifications | (2) | | | (28) | | | 15 | | | (15) | |
Amounts reclassified from AOCI (a) | (1) | | | — | | | 7 | | | 6 | |
Net current-period other comprehensive (loss) income | (3) | | | (28) | | | 22 | | | (9) | |
Balance at March 31, 2022 | $ | (28) | | | $ | 343 | | | $ | 7 | | | $ | 322 | |
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Balance at December 31, 2020 | $ | (458) | | | $ | 449 | | | $ | (38) | | | $ | (47) | |
Other comprehensive loss before reclassifications | — | | | (47) | | | (34) | | | (81) | |
Amounts reclassified from AOCI (a) | 24 | | | — | | | 14 | | | 38 | |
Net current-period other comprehensive income (loss) | 24 | | | (47) | | | (20) | | | (43) | |
Balance at March 31, 2021 | $ | (434) | | | $ | 402 | | | $ | (58) | | | $ | (90) | |
(a) See table below for further details.
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| Amount reclassified from AOCI |
| Three Months Ended March 31, | | |
Details about AOCI components (in millions) | 2022 | | 2021 | | | | |
Amortization of pension and other benefit items (a) | | | | | | | |
Prior service credits | $ | (7) | | | $ | (7) | | | | | |
Actuarial losses | 6 | | | 31 | | | | | |
Settlement, termination and curtailment losses | — | | | — | | | | | |
Total pensions and other benefits items | (1) | | | 24 | | | | | |
Derivative reclassifications to Condensed Consolidated Statements of Operations | 10 | | | 15 | | | | | |
Total before tax | 9 | | | 39 | | | | | |
Tax provision | (3) | | | (1) | | | | | |
Net of tax | $ | 6 | | | $ | 38 | | | | | |
(a) These AOCI components are included in the computation of net periodic benefit cost. See Note 10 for additional details.
19. Transactions with Related Parties
Related party sales and service transactions are primarily related to equity investees and were $391 million and $295 million for the three months ended March 31, 2022 and 2021.
Accounts payable to related parties include balances due to PRO-TEC Coating Company, LLC (PRO-TEC) of $170 million and $98 million at March 31, 2022 and December 31, 2021, 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 $1 million for both periods ending March 31, 2022 and December 31, 2021, respectively.
Purchases from related parties for outside processing services provided by equity investees amounted to $7 million and $20 million for the three months ended March 31, 2022 and 2021, respectively. Purchases of iron ore pellets from related parties amounted to $25 million and $24 million for the three months ended March 31, 2022 and 2021, respectively.
20. Restructuring and Other Charges
During the three months ended March 31, 2022, the Company recorded restructuring and other charges of $17 million related to the planned sale of a component within the Flat-Rolled segment. Cash payments were made related to severance and exit costs of approximately $23 million.
During the three months ended March 31, 2021, the Company recorded restructuring and other charges of $6 million. Cash payments were made related to severance and exit costs of approximately $29 million.
The activity in the accrued balances incurred in relation to restructuring during the three months ended March 31, 2022 were as follows:
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(In millions) | Employee Related Costs | Exit Costs | Non-cash Charges | Total |
Balance at December 31, 2021 | $ | 91 | | $ | 149 | | $ | — | | $ | 240 | |
Additional charges | 18 | | (1) | | — | | 17 | |
Cash payments/utilization (a) | (7) | | (21) | | — | | (28) | |
Balance at March 31, 2022 | $ | 102 | | $ | 127 | | $ | — | | $ | 229 | |
(a)$5 million of payments were made from the pension fund trust assets in the Employee Related Costs column. |
Accrued liabilities for restructuring programs are included in the following balance sheet lines:
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(In millions) | March 31, 2022 | December 31, 2021 |
Accounts payable | $ | 31 | | $ | 34 | |
Payroll and benefits payable | 1 | | 2 | |
Employee benefits | 101 | | 88 | |
Deferred credits and other noncurrent liabilities | 96 | | 116 | |
Total | $ | 229 | | $ | 240 | |
21. 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 March 31, 2022, U. S. Steel was a defendant in approximately 919 active asbestos cases involving approximately 2,509 plaintiffs. The vast majority of these cases involve multiple defendants. About 1,545, or approximately 61 percent, of these plaintiff claims are currently pending in a jurisdiction which permits filings with massive numbers of plaintiffs. At December 31, 2021, U. S. Steel was a defendant in approximately 915 active asbestos cases involving approximately 2,505 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:
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Period ended | | Opening Number of Claims | | Claims Dismissed, Settled and Resolved | | New Claims | | Closing Number of Claims |
December 31, 2019 | | 2,320 | | 195 | | 265 | | 2,390 |
December 31, 2020 | | 2,390 | | 240 | | 295 | | 2,445 |
December 31, 2021 | | 2,445 | | 198 | | 258 | | 2,505 |
March 31, 2022 | | 2,505 | | 61 | | 65 | | 2,509 |
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. The Company engages an outside valuation consultant to assist in assessing its ability to estimate an accrual for unasserted claims. This assessment is based on the Company's settlement experience, including recent claims trends. The analysis focuses 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:
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(In millions) | Three Months Ended March 31, 2022 |
Beginning of period | $ | 158 | |
Accruals for environmental remediation deemed probable and reasonably estimable | 1 | |
Obligations settled | (8) | |
End of period | $ | 151 | |
Accrued liabilities for remediation activities are included in the following Condensed Consolidated Balance Sheet lines:
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(In millions) | | March 31, 2022 | | December 31, 2021 |
Accounts payable and other accrued liabilities | | $ | 64 | | | $ | 65 | |
Deferred credits and other noncurrent liabilities | | 87 | | | 93 | |
Total | | $ | 151 | | | $ | 158 | |
Expenses related to remediation are recorded in cost of sales and were immaterial for both the three-month periods ended March 31, 2022 and March 31, 2021. 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, the Company categorizes projects as follows:
(1)Projects with Ongoing Study and Scope Development - 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 four 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-UPI LLC (UPI) and the former steelmaking plant at Joliet, Illinois. As of March 31, 2022, accrued liabilities for these projects totaled $1 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 $22 million to $36 million.
(2)Projects with Significant Accrued liabilities with a Defined Scope - As of March 31, 2022, there are three significant projects with defined scope greater than or equal to $5 million each, with a total accrued liability of $96 million. These projects are Gary Resource Conservation and Recovery Act (the RCRA) (accrued liability of $24 million), Duluth Works (accrued liability of $53 million) and the former Geneva facility (accrued liability of $19 million).
(3)Other Projects with a Defined Scope - These projects involve 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 three 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 March 31, 2022 was $5 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 March 31, 2022 was approximately $5 million. The Company does 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 $24 million at March 31, 2022 and were based on known scopes of work.
Administrative and Legal Costs – As of March 31, 2022, U. S. Steel had an accrued liability of $10 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. Such capital expenditures totaled $5 million and $3 million in the first three months of 2022 and 2021, 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.
European Union (the EU) Environmental Requirements - Phase IV of the EU Emissions Trading System (the EU ETS) commenced on January 1, 2021 and will finish on December 31, 2030. The European Commission issued final approval of the Slovak National Allocation table in July 2021. The Slovak Ministry of Environment, after consent from the European Commission, allocated the full amount of 2021 free allowances to USSE in December 2021. In addition, a portion of the 2022 expected free allowances were received by USSE in February 2022. In the fourth quarter of 2020, USSE started purchasing European Union Allowances (EUA) for the Phase IV period. As of March 31, 2022, we have pre-purchased approximately 3.8 million EUA totaling €168 million (approximately $186 million) to fully cover the estimated 2021 shortfall and 1.5 million EUA totaling €95 million (approximately $105 million) to cover the expected 2022 shortfall of emission allowances..
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. Total capital expenditures for projects to comply with or go beyond BAT requirements were €138 million (approximately $153 million) over the actual program period. These costs were partially offset by the EU funding received and may be mitigated over the next measurement periods if USSK complies with certain financial covenants, which are assessed annually. USSK complied with these covenants as of March 31, 2022. 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 50 percent of the EU funding received.
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. 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 $151 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 $7 million at March 31, 2022.
Other contingencies – Under certain 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 $14 million at March 31, 2022). No liability has been recorded for these guarantees as the potential loss is not probable.
The Company's project to develop a new highly sustainable and technologically advanced steel mill in Osceola, Arkansas qualifies for financing and related economic incentives associated with the acquisition, development, construction, and
operation of the facility. These incentives consist of advance lump-sum payments which are included in deferred credits and other noncurrent liabilities on the condensed consolidated balance sheet. In March 2022, the Company received a lump-sum payment of approximately $82 million from proceeds from the sale of tax credits under the State of Arkansas's Recycling Tax Credit (RTC) program. These funds are to be used primarily for the acquisition of project related equipment, however they may also be used for the training and development of new employees hired for the project. The Company is contingently liable for certain repayment penalties if the Company fails to meet certain employment requirements in any given period. Deferred income will be recognized into other gains, net in the accompanying condensed consolidated statements of operations on a systematic basis over the periods in which the Company earns the granted funds by complying with the investment and employment requirements of the grant programs.
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 $295 million as of March 31, 2022, 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 the 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 $75 million and $78 million at March 31, 2022 and December 31, 2021, respectively.
Capital Commitments – At March 31, 2022, U. S. Steel’s contractual commitments to acquire property, plant and equipment totaled $1.875 billion.
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):
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Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Later Years | | Total |
$438 | | $562 | | $339 | | $335 | | $259 | | $741 | | $2,674 |
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 14 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 March 31, 2022, if U. S. Steel were to terminate the agreement, it may be obligated to pay in excess of $57 million.
Total payments relating to unconditional purchase obligations were $217 million and $200 million for the three months ended March 31, 2022 and 2021, respectively.
22. Common Stock Issued and Repurchased
On October 25, 2021, the Board of Directors authorized a common stock repurchase program that allowed 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. On January 24, 2022 the Board of Directors authorized an additional $500 million under the stock repurchase program. U. S. Steel repurchased 5,031,970 shares of common stock for approximately $123 million under this program during the three months ended March 31, 2022.
In February 2021, U. S. Steel issued 48.3 million shares of common stock for net proceeds of approximately $790 million, of which $1 million in issuance costs were paid during the three months ended June 30, 2021.