U. S. Steel ownsis committed to effective environmental stewardship. We have implemented and operatescontinue to develop business practices that are environmentally effective. We believe part of being a cogeneration facilitygood corporate citizen requires a dedicated focus on how our industry affects the environment. U. S. Steel's environmental expenditures totaled $278 million in 2020, $376 million in 2019 and $350 million in 2018. Overall, environmental compliance expenditures represent approximately 2 percent of U. S. Steel’s total costs and expenses in 2020, 2019 and 2018. For further information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Environmental Matters.” We have taken the actions described below in furtherance of that utilizes by-products fromgoal.
U. S. Steel ownsplans to achieve its greenhouse gas emissions intensity reduction goal through the execution of multiple initiatives. These include the use of EAF steelmaking technology at U. S. Steel’s Fairfield Works and at Big River Steel the first LEED-certified steel mill in the nation. EAF steelmaking relies on scrap recycling to produce new steel products, leveraging the ability to continuously recycle steel. Further carbon intensity reductions are expected to come from the Company’s introduction of state-of-the-art endless rolling and casting technology and construction of a Researchcogeneration facility at its Mon Valley Works, as well as implementation of ongoing energy efficiency measures, continued use of renewable energy sources and Technology Centerother process improvements to be developed.
U. S. Steel participates in a number of joint ventures that are included in Flat-Rolled, most of which are conducted through subsidiaries. All of these joint ventures are accounted for under the equity method. The significant joint ventures and other investments are described below. For information regarding joint ventures and other investments, see Note 1112 to the Consolidated Financial Statements.
Tubular manufactures seamless and welded OCTG, standard pipe, line pipe and mechanical tubing.
Table of the hot end at the Fairfield Works in August 2015, the facility is currently purchasing rounds from third parties. At the appropriate time, with continued tubular market improvement, construction of the EAF should be completed and when it is it will be part of the Tubular segment and the Flat-rolled segment will not be supplying Fairfield Tubular Operations with rounds. The Fairfield Tubular Operations has the capability to produce outer diameter (O.D.) sizes from 4.5 to 9.875 inches and has quench and temper, hydrotester, threading and coupling and inspection capabilities. The slab and rounds casters of the former Fairfield Works remain capable of operation and are now part of the Fairfield Tubular Operations. The Lorain plant consists of the #3 facility and has historically consumed steel rounds supplied by Fairfield Works and external sources. Subsequent to the shutdown of the hot end at the Fairfield Works, the Company is sourcing rounds from third parties. Lorain #3 facility has the capability to produce 300,000 tons annually in O.D. sizes from 10.125 to 26 inches and has quench and temper, hydrotester, cutoff and inspection capabilities. In March 2017, U. S. Steel made a strategic decision to permanently shutdown the Lorain No. 6 Quench & Temper Mill and relocate the equipment.Contents Welded products are produced at Lone Star Tubular Operations #2 facility in Lone Star, Texas and it has the capability to produce O.D. sizes from 1.088 to 7.15 inches. It has quench and temper, hydrotester, threading and coupling and inspection capabilities. The Lone Star #2 facility was temporarily idled from April 2016 to April 2017 and has annual production capability of 300,000 tons.
Wheeling Machine Products manufactures couplings used to connect individual sections of oilfield casing and tubing. It produces sizes ranging from 2.375 to 20 inches at two locations: Pine Bluff, Arkansas, and Hughes Springs, Texas.
Tubular Processing, located in Houston, Texas, provides quench and temper and end-finishing services for oilfield production tubing. Offshore Operations, also located in Houston, Texas, provides threading, inspection, accessories and storage services to the OCTG market. Tubular Processing has been temporarily idled since 2015.
We have a Research and Development Laboratory and Test Facility in Houston, Texas where our engineers develop and test new steel products, including premium connections.
Joint Ventures Within Tubular
U. S. Steel and Butch Gilliam Enterprises LLC participate in a 50-50 joint venture, Patriot Premium Threading Services, LLC located in Midland, Texas, which provides oil country threading, accessory threading, repair services and rig site services to exploration and production companies located principally in the Permian Basin. For information regarding joint ventures and other investments, see Note 11 to the Consolidated Financial Statements.
Other Businesses
U. S. Steel’s Other Businesses include the operating results relating to our ownership interest in Big River Steel and our railroad services and real estate operations.
U. S. Steel owns the Gary Railway Company in Indiana, Lake Terminal Railroad Company and Lorain Northern Company in Ohio, Union Railroad Company, LLC in Pennsylvania, Fairfield Southern Company, Inc. in Alabama, Delray Connecting Railroad Company in Michigan and Texas & Northern Railroad Company in Texas, these entities comprise U. S. Steel’s transportation business. | | | | | | | | | | | | | | |
| Other Businesses Table |
| Operations/Joint Venture, (Property Location) | U. S. Steel's Ownership Percentage | Production Capability | Production Facility(s) | Principal Products and/or Services |
Big River Steel (a),(Osceola, AR) | 49.9% | 3.3 million tons | two EAFs, two Ruhrstahl Heraeus degassers and slab casters; finishing facilities include a hot strip mill, a pickle line, a cold reduction mill and a galvanizing line | hot-rolled, cold-rolled and coated sheets; and electrical |
Transtar, LLC, (Alabama, Indiana, Michigan, Ohio, Pennsylvania and Texas) | 100% | not applicable | Gary Railway Company in Indiana, Lake Terminal Railroad Company and Lorain Northern Company in Ohio, Union Railroad Company, LLC in Pennsylvania, Fairfield Southern Company, Inc. in Alabama, Delray Connecting Railroad Company in Michigan and Texas & Northern Railway Company in Texas | railroad operations |
U. S. Steel's owned real estate assets held for development or managed, (Alabama, Illinois, Michigan, Minnesota and Pennsylvania) | 100% | 45,000 acres | surface rights primarily in Alabama, Illinois, Michigan, Minnesota and Pennsylvania | develop and manage real estate |
(a)Big River Steel was an equity investee until the Company purchased the remaining interest on January 15, 2021, see Note 5 and Note 12 to the Consolidated Financial Statements. |
U. S. Steel owns, develops and manages various real estate assets, which include approximately 50,000 acres of surface rights primarily in Alabama and Michigan, with additional holdings in Pennsylvania and Illinois. In addition, U. S. Steel holds ownership interests in joint ventures that are developing real estate projects in Alabama.
Raw Materials and Energy
As an integrated producer, U. S. Steel’s primary raw materials are iron units in the form of iron ore pellets and sinter ore, carbon units in the form of coal and coke (which is produced from coking coal) and steel scrap. As an EAF producer, our primary raw material is scrap. U. S. Steel’s raw materials supply strategy consists of acquiring and expanding captive sources of certain primary raw materials and entering into flexible supply contracts for certain other raw materials at competitive market prices which are subject to fluctuations based on market conditions at the time.
The amounts of such raw materials needed to produce a ton of steel will fluctuate based upon the specifications of the final steel products, the quality of raw materials and, to a lesser extent, differences among steel producing equipment. In broad terms, U. S. Steel consumes approximately 1.4 tons of coal to produce one ton of coke and then it consumes approximately 0.3 tons of coke, 0.3 tons of steel scrap (40(61 percent of which is internally generated) and 1.3 tons of iron ore pellets to produce one ton of raw steel. At normal operating levels, we also consume approximately 6 mmbtu’s of natural gas per ton produced. While we believe that these estimated consumption amounts are useful for planning purposes, and are presented to give a general sense of raw material and energy consumption related to steel production, substantial variations may occur.
Iron Ore
Iron Ore Production(a)
(a)(a) Includes our share of production from Hibbing through December 31, 20172020 and Tilden Mining Company, L.C. (Tilden) to September 29, 2017. U. S. Steel's ownership interest in Tilden was sold on September 29, 2017. The decrease in iron ore production from 2014in 2020 was primarily related to the temporary idling of our Keetac facility during part of 2020. The increase in iron ore production in 2017 is primarily related to the idling ofrestarted production at our Keetac facility. In 2017, the Keetac facility restarted production.which was idled in 2014.
The iron ore facilities at Minntac and Keetac contain an estimated 860766 million short tons of recoverable reserves and our share of recoverable reserves at the Hibbing joint venturesventure is 85 million short tons. Recoverable reserves are defined as the tons of product that can be used internally or delivered to a customer after considering mining and beneficiation or preparation losses. Minntac and Keetac’s annual capability and our share of annual capability for the Hibbing joint
venture total approximately 2324 million tons. Through our wholly owned operations and our share of our joint ventures,venture, we have iron ore pellet production capability that exceeds our steelmaking capability in the U.S.
We sold iron ore pellets in 2017, 20162020, 2019 and 20152018 to third parties. The Company has agreements to supply iron ore pellets to third-party customers over the next several years.
Substantially all of USSE’s iron ore requirements are purchased from outside sources, primarily Russian and Ukrainian mining companies. However,Prices are determined in long-term contracts with strategic suppliers or as spot prices negotiated monthly or quarterly. In certain prior years, USSE also received iron ore from U. S. Steel’s iron ore facilities in North America. We believe that supplies of iron ore adequate to meet USSE’s needs are available at competitive market prices.
Coking Coal
All of U. S. Steel’s coal requirements for our cokemaking facilities are purchased from outside sources. Pricing for Flat-Rolled's coking coal contracts are typically negotiated on a yearly basis, and from time to time we have entered into multi-year agreements for a portion of our coking coal requirements.
Prices for European contracts are negotiated at defined intervals, usually quarterly.quarterly, annually or determined as index-based prices.
We believe that supplies of coking coal adequate to meet our needs are available from outside sources at competitive market prices. The main source of coking coal for Flat-Rolled is the United States, and sources for USSE include Poland, the Czech Republic, Russia, Ukraine, Canada, Mozambique and the United States.
Coke
Coke Production(a)
(a) The decrease in 2016 coke production from 2015 was due to decreased internal steel production and depletion of existing coke inventory. The decrease in 2015 coke production from 2014 is due to the permanent shutdown of coke operations at Gary Works and Granite City Works. The decrease in 2014 coke production from 2013 is primarily due to the deconsolidation of USSC and the permanent shut down of two coke batteries at Gary Works.
In North America, the Flat-Rolled segment operates a cokemaking facility at the Clairton Plant of Mon Valley Works. At our Granite City Works, we also have a 15-year coke supply agreement with Gateway which began in 2009.that expires on December 31, 2024. Blast furnace injection of coal, and self-generated coke oven gas is also used to reduce coke usage.
With Flat-Rolled’s cokemaking facilities and the Gateway long-term supply agreement, it has the capability to be nearly self-sufficient with respect to its annual coke requirements at normal operating levels. Coke isfrom time to time has been purchased from, sold to, or swapped with suppliers and other end-users to adjust for production needs and reduce transportation costs.
In Europe, the USSE segment operates cokemaking facilities at USSK. While USSE is self-sufficient for coke at normal operating levels, it periodically purchases coke from Polish and Czech coke producers to meet production needs. Volume and price are negotiated quarterly.
Steel Scrap and Other Materials
We believe that supplies of steel scrap and alloys and coating materialsthat are adequate to meet our needs to support Flat-Rolled and USSE are readily available from outside sources at competitive market prices.prices for the Flat-Rolled and USSE segments and for our future Big River Steel segment. Generally, approximately 4055 percent of our steel scrap requirements arewere internally generated through normal operations.operations for the USSE and Flat-Rolled segments.
Limestone
All of Flat-Rolled’s limestone requirements and for USSE's lime and limestone requirements are purchased from outside sources. We believe that supplies of limestone and lime adequate to meet our needs are readily available from outside sources at competitive market prices.
Zinc and Tin
We believe that supplies of zinc and tin required to fulfill the requirements for Flat-Rolled and USSE are available from outside sources at competitive market prices. TheFor Flat-Rolled, the main sources of zinc are Canada, Peru and Mexico and the main sources of tin for Flat-Rolled includeare Bolivia and China. ThePeru. For USSE, the main sources of zinc for Flat-Rolled include Canadaare Finland, Netherlands, Germany and Mexico. Poland and the main sources of tin are Peru, Indonesia, Bolivia and China.
During 2017,2020, Flat-Rolled protected approximately 80%41% and 39% of its operation's zinc and tin purchases, respectively, with financial swap derivatives to manage our exposure to zinc and tin price fluctuations. The main sources of tin forDuring 2020, USSE include Indonesia, Peru and China. The main sources of zinc for USSE include Sweden, the Slovak Republic and Poland. During 2017, USSE executed approximately 40% of USSE'sdid not protect its zinc purchases from price fluctuations and protected 25% of its tin purchases with forward physical contractsfinancial swaps to partially manage our exposure to zinctin price fluctuations. For further information, see Note 16 to the Consolidated Financial Statements.
Natural Gas
All of U. S. Steel’s natural gas requirements are purchased from outside sources.
We believe that adequate supplies to meet Flat-Rolled’s and Tubular's needs are available at competitive market prices. For 2017,2020, approximately 7081 percent of our natural gas purchases in Flat-Rolled were based on bids solicited on a monthly basis from various vendors; the remainder were made daily or with term agreements.
We believe that adequate natural gas supplies to meet USSE’s needs are available at competitive market prices. During 2017,2020, we routinely executed fixed-price forward physical purchase contractcontracts for natural gas to partially manage our exposure to natural gas price increases. For 2017,2020, approximately 5654 percent of our natural gas purchases in USSKUSSE were made with fixed-price forward physical purchase contracts; the remainder were based on bids solicited on a quarterly monthly or a dailymonthly basis from various vendors.
Both Flat-Rolled and USSE use self-generated coke oven and blast furnace gas to reduce consumption of natural gas. USSE also captures and consumes converter gas from its four steelmaking vessels.
Industrial Gases
U. S. Steel purchases industrial gas in the U.S. under long-term contracts with various suppliers. USSE owns and operates its own industrial gas facilities,facility, but also may purchase industrial gases from time to time.
Commercial Sales of Product
U. S. Steel characterizes sales as contract sales if sold pursuant to an agreement with a defined volume and pricing and a duration of longer than three months, and as spot if sold without a defined volume and pricing agreement.agreement, typically three months or less. In 2017,2020, approximately 7973 percent, 6448 percent and 5360 percent of sales by Flat-Rolled, USSE and Tubular, respectively, were contract sales. Some contract pricing agreements include fixed prices while others are adjusted periodically based upon published prices of steel products or cost components.
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, currently estimated to be over 700 million metric tons per year—over seven times the entire U.S. steel market and over twenty-five times total U.S. steel imports. These imports, as well as the underlying policies/practices and overcapacity, impact the Company’s operational and financial performance. U. S. Steel continues to lead efforts to address these challenges that threaten the Company, our workers, our stockholders, and our country’s national and economic security.
As of the date of this filing, pursuant to a series of Presidential Proclamations issued in accordance with Section 232 of the Trade Expansion Act of 1962, 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 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. Pursuant to a January 2020 Presidential Proclamation, the Section 232 action was expanded to cover certain downstream steel products from countries subject to the Section 232 tariffs, effective February 8, 2020.
An August 2020 Presidential Proclamation reduced the Section 232 quota for fourth quarter 2020 for semi-finished steel imports from Brazil. In August 2020, the United States and Mexico announced that Mexico would establish a steel export licensing system to monitor recent U.S. import surges of semi-finished steel, standard pipe, and mechanical tubing from Mexico through June 2021. In September 2020, the U.S. Department of Commerce (DOC) published new regulations that require steel import license applicants to report the “melt and pour” country of origin for all U.S. steel imports covered by the Section 232 action. These regulatory changes will facilitate monitoring for import surges and circumvention of tariffs/duties, quotas, product exclusions and country exemptions.
DOC is managing a process in which U.S. companies may request and/or oppose temporary product exclusions from the Section 232 tariffs and quotas. Over 214,000 exclusions have been requested for steel products. U. S. Steel opposes exclusion requests for products that are the same as, or substitutes for, products manufactured by U. S. Steel.
Multiple legal challenges to the Section 232 action continue before the U.S. Court of International Trade (CIT) and U.S. Court of Appeals for the Federal Circuit (CAFC). Several appeals of DOC exclusion denials have resulted in confidential settlements. Multiple countries have challenged the Section 232 action at the World Trade Organization (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.
Since its implementation in March 2018, the Section 232 action has supported the U.S. steel industry’s and U. S. Steel’s investments in advanced steel capacity, technology, and skills, thereby strengthening U.S. national and economic security. The Company continues to actively defend the Section 232 action.
In February 2019, the European Commission (EC) imposed a definitive tariff rate quota safeguard of 25 percent on certain steel imports that exceed established quotas. In June 2020, the EC made several minor adjustments to the safeguard, which will remain in effect through June 2021. The European steel industry has asked for the opening of a review with a view to extending the safeguard measures beyond June 2021.
Antidumping duties (AD) and countervailing duties (CVD or antisubsidy duties) apply in addition to the Section 232 tariffs and quotas and the EC’s safeguard, and AD/CVD orders will continue beyond the Section 232 action and the EC’s safeguard. Thus, U. S. Steel continues to actively defend and maintain the 54 U.S. AD/CVD orders and 11 European Union (EU) AD/CVD orders covering U. S. Steel products in multiple proceedings before the DOC, U.S. International Trade Commission (ITC), CIT, CAFC, the EC and European courts, and the WTO.
In July and November 2020, in the first sunset review of the 2014 AD/CVD orders on oil country tubular goods (OCTG) from India, South Korea, Turkey, Ukraine, and Vietnam and the second sunset review of the 2010 AD/CVD orders on OCTG from China, respectively, the ITC voted to continue those AD/CVD orders for another five years.
In July 2020, DOC announced final affirmative determinations in self-initiated circumvention investigations of imports of corrosion-resistant steel (CORE) from Costa Rica and the United Arab Emirates made from Chinese substrate, resulting in a combined AD/CVD rate of 239 percent on such imports. DOC made a final negative circumvention determination regarding CORE imported from Guatemala in July 2020, and final circumvention determinations regarding CORE imports from Malaysia and South Africa are expected in 2021.
In November 2020, DOC self-initiated additional circumvention investigations of imports of OCTG from Brunei and the Philippines made from Chinese hot-rolled steel sheet and strip.
In July 2020, based on petitions filed by Vallourec Star, DOC initiated new AD/CVD investigations on U.S. imports of seamless steel standard, line, and pressure pipe from Czechia, South Korea, Russia, and Ukraine. Provisional measures were imposed on Czechia, South Korea and Russia in December 2020, with provisional measures expected on Ukraine in February 2021 and final duties could be imposed as early as April 2021. In May and June 2020, the EC initiated new AD/CVD investigations on EU imports of hot-rolled steel from Turkey. The EC has set provisional anti-dumping duties in range between 4.8% to 7.6% on hot-rolled coil originating from Turkey, with effect from January 8, 2021, for a period of six months. Definitive measures if adopted should apply as of July 2021.
Following the 2018 investigation under Section 301 of the Trade Act of 1974, the United States began imposing 15 and 25 percent tariffs on certain imports from China, including certain steel products. Following the U.S.-China “Phase One” trade agreement, the 15 percent tariffs declined to 7.5 in February 2020, but the 25 percent tariffs remain in effect.
The Global Forum on Steel Excess Capacity, the Organisation for Economic Co-operation and Development Steel Committee, and trilateral negotiations between the United States, EU and Japan continue to address 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.
Environmental Matters,
Litigation and Contingencies
Some of U. S. Steel’s facilities were in operation before 1900. Although managementthe Company believes that U. S. Steel’sits environmental practices have either led the industry or at least been consistent with prevailing industry practices, hazardous materials may have been and may continue to be 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 IncidentEU Environmental Requirements and Slovak Operations
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 dischargesUnder the EU Emissions Trading System (EU ETS), USSE's final allocation of allowances for the Phase III period, which covers the years 2013 through 2020 is 48 million allowances. Based on projected total production levels, we started 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 and intends to amicably resolve the matter with those agencies. Separately, the Company was placed on notice of potential citizens’ enforcement suits regarding the April 2017 incident and other historical alleged Clean Water Act and Permit violations at Midwest. In January of 2018, The Surfrider Foundation and the City of Chicago initiated suitspurchase allowances in the Northern Districtthird quarter of Indiana alleging such violations. The Company intends2017 to defend against those actions.
Slovak Operations
A Memorandummeet the annual compliance submission. As of Understanding (MOU) was signed in March 2013 between U. S. Steel and the government of Slovakia. The MOU outlines areas in which the government and U. S. Steel will work together to help create a more competitive environment and conditions for USSK. Incentives the government of Slovakia agreed to provide include potential participation in a renewable energy program that provides the opportunity to reduce electricity costs, as well as the potential for government grants and other support concerning investments in environmental control technology. Although there are many conditions and uncertainties regarding the grants, including matters controlled by theDecember 31, 2020, we have purchased approximately 12.3 million European Union (EU), the value of these incentives as stated in the MOU could be as much as €75Allowances (EUA) totaling €141 million (approximately $90$173 million). U. S. Steel also agreed to paycover the governmentestimated Phase III period shortfall of Slovakia specified declining amounts should U. S. Steel sell USSK within five yearsemission allowances. The exact cost of complying with the date of the MOU. We expect the total amount of EU funds will be as much as €85 million (approximately $102 million). The final grant valueETS regulations will depend on public procurement results. The MOU is set to expire in March 2018.verified 2020 emissions.
Slovakia adopted a new waste code in March 2015 that became effective January 1, 2016. This legislation implementsIn the EU Waste Framework Directive that strictly regulates waste disposal and encourages recycling, among other provisions, by increasing feesfourth quarter of 2020 USSE started with purchases of allowances for waste disposedPhase IV period. As of in landfills, including privately owned landfills. The impact of this legislation is estimated to be €2December 31, 2020, we have pre-purchased approximately 1.5 million EUA totaling €38 million (approximately $2$47 million) annually due to waste stabilization requirements and increased fees for packaging materials recycling fees. Slovakia is considering legislation implementing an EU Directive, which is expected to increase existing fees upon USSK for use of its landfills. Because the legislation has not yet been adopted, the impact on operations at USSK facilities cannot be estimated at this time.
.
The EU’s Industry EmissionEU'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. This directive includes operational requirements for air emissions, wastewater discharges, solid waste disposal and energy conservation, dictates certain operating practices and imposes stricter emission limits. Producers were required to be in compliance with the iron and steel BAT by March 8, 2016, unless specific exceptions or extensions were granted by the Slovak environmental authority. USSK updated existing operating permits for different facilities involved in producing iron and steel in the plant in accordance with the new BAT requirements. Through this process for some facilities, USSK has obtained extensions from the 2016 compliance deadline in order to meet or exceed the BAT requirements. Compliance with stricter emission limits going beyond BAT requirements makes us eligible for EU funding support and prepares us for any further tighteningTotal capital
expenditures for projects to comply with or go beyond the BAT requirements iswere €138 million (approximately $166$169 million) over the 2017 to 2020 timeactual program period.
The These costs were partially offset by the EU has various programs under which funds are allocated to member states to implement broad public policiesfunding received and may be mitigated over the next measurement periods if USSK complies with certain financial covenants, which are then awarded byassessed annually. USSK complied with these covenants as of December 31, 2020. If we are unable to meet these covenants in the member statesfuture, USSK might be required to public and private entities on a competitive basis. The funding intensity under these programs currently ranges from 55provide additional collateral (e.g. bank guarantee) to secure 50 percent of defined eligible costs on a project under the standard state scheme to 90 percent on an approved ad hoc scheme to improve the air quality in the Košice region of Slovakia. Based on our list of projects that comprise the approximate €138 million (approximately $166 million) of spending
noted, we currently believe we will be eligible to receive up to €85 million (approximately $102 million) of incentive grants. This could potentially reduce our net cash expenditures to approximately €53 million (approximately $64 million). The actual amount of capital spending will be dependent upon, among other things, the actual amount of incentive grants received.
We also believe there will 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.
On March 28, 2017, the Regional Court in Košice issued an ex parte judicial lien on USSK's real property to plaintiffs in an ongoing legal case. Following a decision of the Supreme Court, which reversed and remanded the lien petition to the Regional Court, the lien has been removed. The case is still ongoing. We do not expect this matter to have an impact on the eligibility of USSK to obtain EU funding support for BAT projects.
received.
For further discussion of laws applicable in Slovakia and the EU and their impact on USSK, see Note 2526 to the 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 carbon dioxide (CO2)CO2 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 basedcarbon-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 United States Environmental Protection Agency (EPA)(U.S. EPA) to review the Clean Power Plan. On October 16, 2017,Plan (CPP). As a result, in June 2019, the U.S. EPA proposed topublished a final rule, the “Affordable Clean Energy (ACE) Rule” that replaced the CPP. Twenty-three states, the District of Columbia, and seven municipalities are challenging the CPP repeal and ACE rule in the Clean Power Plan after reviewingU.S. Court of Appeals for the plan pursuant to President Trump’s executive order. Any repeal and/or replacementD.C. Circuit. A coalition of 21 states has intervened in the litigation in support of the Clean Power Plan is likely to be challenged by various proponents of the plan, such as environmentalU.S. EPA. Various other public interest organizations, industry groups, and certain states.Members of Congress are also participating in the litigation. On January 19, 2021, the D.C. Circuit vacated and remanded the ACE to EPA, while the CPP remains stayed. It is unclear as to how the new Biden administration will proceed with the remand. 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 were no material changes
The Phase IV EU ETS period spans 2021-2030 and began on January 1, 2021. The Phase IV period is divided into two sub periods (2021-2025 and 2026-2030). Revised rules for Phase IV are still being finalized and may differ between the periods. However, the legislation as currently drafted places more stringent requirements over reduction targets and the amount of the free allocation of CO2 emissions credits. Currently, the overall target is a 40 percent reduction of 1990 emissions by 2030. Ongoing political discussions indicate that an even more stringent target of 60 percent may be instituted. At this time, carbon neutrality of the EU industry is set to be achieved by 2050.
Revised rules for free allocation of CO2 emissions credits are based on reduced benchmark values which have not yet been published and historical levels of production from 2014-2018. USSE submitted all required historical production data in U. S. Steel’s exposure2019. The final EU decision on the free allocation amount for 2021-2025 is expected in the second quarter of 2021. Allocations to European Greenhouse Gas Emissions regulations since December 31, 2016.individual installations may be adjusted annually to reflect relevant increases and decreases in production. The threshold for adjustments was set at 15 percent and will be assessed on the basis of a rolling average of two years. The average production level of 2019 and 2020 will be assessed to determine the free allocation for 2021. Preliminary production data shows that USSE missed the 15 percent threshold in 2020; therefore, the free allocation for 2021 may be decreased. Lower production in 2019 and 2020 may have an impact on the future free allocation for 2026-2030, where historical production average for years 2019-2023 are assessed.
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.
TheOn July 13, 2020, the U.S. EPA is currently in the process of completingpublished a Residual Risk and Technology Review of(RTR) rule for the Integrated Iron and Steel MACT category in the Federal Register. Based on the results of the U.S. EPA’s risk review, the Agency determined that risks due to emissions of air toxics from the Integrated Iron and Steel category are acceptable and that the current regulations and Coke MACT regulations as requiredprovided an ample margin of safety to protect public health. Under the technology review, the U.S. EPA determined that there are no developments in practices, processes or control technologies that necessitate revision of the standards. In September 2020, several petitions for review of the rule, including those filed by the CAA.Company, AISI, Clean Air Council and others, were filed with
the United States Court of Appeals for the District of Columbia Circuit. The cases were consolidated and are being held in abeyance until EPA reviews and responds to administrative petitions for review. For the Taconite Iron Ore Processing category, based on the results of the Agency’s risk review, U.S. EPA promulgated a final rule on July 28, 2020, in which EPA determined that risks from emissions of air toxics from this source category are acceptable and that the existing standards provide an ample margin of safety. Furthermore, under the technology review, the Agency identified no cost-effective developments in controls, practices, or processes to achieve further emissions reductions. Based upon our analysis of the proposed taconite rule, the Company does not expect any material impact if the rule as a result of the rule. However, petitions for review of the rule were filed in the United States Court of Appeals for the District of Columbia Circuit, in which the Company and AISI intervened. Because the U.S. EPA has not completed its review of the Coke MACT regulations, any impacts related to the U.S. EPA’s review of thesethe coke standards cannot be estimated at this time.
TheOn March 12, 2018, the New York State Department of Environmental Conservation (DEC), along with other petitioners, submitted a CAA also requiresSection 126(b) petition to the EPA to developU.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 implement2015 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. In a final rule promulgated in the October 18, 2019, Federal Register, EPA denied the petition. On October 29, 2019, New York, New Jersey, and the City of New York petitioned the United States Court of Appeals for the District of Columbia Circuit for review of U.S. EPA’s denial of the petition. In July 2020, the Court vacated EPA’s determination and remanded it back to EPA to reconsider the 126(b) petition in a manner consistent with the Court’s opinion. At this time, since EPA’s decision after its reconsideration is unknown, the impacts of any reconsideration are indeterminable and inestimable.
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 PM10 and PM2.5, lead, carbon monoxide, nitrogen dioxide, sulfur dioxide (SO2), and ozone. Sulfur dioxide is the NAAQS criteria pollutant of most concern to the Company at this time.
In June 2010, the EPA significantly lowered the primary NAAQS for sulfur dioxide (SO2) from 140 parts per billion (ppb) on a 24-hour basis to an hourly standard of 75 ppb. Subsequently, the EPA designated the areas in which Great Lakes Works and Mon Valley Works facilities are located as nonattainment with the 2010 standard for the SO2 NAAQS. The non-attainment designation will require the facilities to implement operational and/or capital improvements to demonstrate attainment with the 2010 standard. In addition, the EPA is currently evaluating the attainment status for all other areas as required by a Consent Decree that the EPA entered with the Sierra Club and the Natural Resources Defense Council in March 2015 pursuant to a lawsuit filed by the non-governmental organizations. U. S. Steel is working with the relevant regulatory agencies in completing the evaluation process as required by the Consent Decree. While U. S. Steel has determined that it will face increased capital, operating and compliance costs, the operational and financial impact of the SO2 NAAQS is not estimated to be material at this time.
In October 2015, the U.S. EPA lowered the NAAQS for ozone from 75 ppbparts per billion (ppb) to 70 ppb. TheOn November 6, 2017, the U.S. EPA has designated certainmost areas in which we operate as nonattainmentattainment with the 2008 ozone2015 standard. In addition, somea separate ruling, on June 4, 2018, the U.S. EPA designated other areas in which we operate have been recommended as nonattainment“marginal nonattainment” with the 2015 ozone standard by the respective states. Thestandard. On December 6, 2018, U.S. EPA has yet to act on the recommendations. In June 2017, the EPA had published a notice extendingfinal rule regarding implementation of the deadline to promulgate initial designations by one year, extending the deadline from October 1, 2017 to October 1, 2018. However, in August 2017, the EPA withdrew the notice; and therefore, the designation deadline remained October 1, 2017. On November 16, 2017, the EPA published its initial designations for areas that the EPA is designating as attainment/unclassifiable. The rule lists most areas in which U. S. Steel operates as attainment/unclassifiable. The EPA has yet to publish a notice regarding areas that it is designating as nonattainment.2015 ozone standard. Because nonattainment designations and any implementation plansno 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 31, 2020, EPA published a final rule pursuant to its statutorily required review of NAAQS that retains the ozone NAAQS at 70 ppb.
On December 14, 2012, the U.S. EPA lowered the annual standard for PM2.5PM2.5 from 15 micrograms per cubic meter (ug/m3) to 12 ug/m3, and retained the PM2.5PM2.5 24-hour and PM10PM10 NAAQS rules. In December 2014, the U.S. EPA designated some areas in which U. S. Steel operates as nonattainment with the 2012 annual PM2.5PM2.5 standard. Because it is early inOn April 6, 2018, the U.S. EPA published a notice that Pennsylvania, California and Idaho failed to submit a State Implementation Plan development stages,(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, was 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 PM2.5 annual and 24-hour NAAQS by December 31, 2021 with the existing controls that are in place. On September 12, 2019, the Allegheny County Board of Health unanimously approved the draft SIP. The draft SIP was then sent to the Pennsylvania Department of Environmental Protection (PADEP). PADEP submitted the SIP to U.S. EPA for approval on November 1, 2019. To date, U.S. EPA has not taken action on PADEP’s submittal. December 18, 2020, EPA published a final rule pursuant to its statutorily required review of NAAQS that retains the existing PM2.5 standards without revision.
On January 26, 2021, ACHD announced that for the first time in history all eight air quality monitors in Allegheny County met the federal air quality standards including particulate matter (PM2.5 and PM10).
On November 20, 2020, ACHD proposed a reduction to the current allowable emissions from coke plant operations, including the hydrogen sulfide content of coke oven gas, that 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 its statutory authority. If the draft rule or similar rule is adopted, the financial and operational impacts to U. S. Steel cannotcould be reasonably estimated at this time.
In 2010,material. To assist in developing rules objectively and with adequate technical justification, the EPA retained the annual nitrogen dioxide NAAQS standard, but createdJune 27, 2019, Settlement Agreement, establishes procedures that would be used when developing a new 1-hour NAAQS and established new data reduction and monitoring requirements. While the 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 andrule. For further designations are made, the impact on operations at U. S. Steel facilities cannot be reasonably estimated at this time.
United States - CERCLA 108(b) Financial Assurance
In December 2016, the EPA published a proposed rule focused on developing financial assurance for managing hazardous substances in the hard rock, mining industry, in accordance with CERCLA Section 108(b). The EPA had a court-mandated deadline for publication of the final rule by December 1, 2017. The draft form of the proposed rule was commented upon by the public and the regulated community. Based on information provided by the comments, EPA decided that a new financial assurance rule was not necessary for the hard rock mining industry. EPA’s decision may be challenged in court and a possible result of such a challenge may be a new proposed rule at some point in the future that could have a material impactdetails on the Company’s liquidity.June 27, 2019 Settlement Agreement with ACHD see "Item 3. Legal Proceedings, Environmental Proceedings, Mon Valley Works."
Environmental Remediation
In the United States, U. S. Steel has been identified as a potentially responsible party (PRP) at seven sites under CERCLA as of December 31, 2017. Of these, there are two 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 19 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 determinable. 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, including environmental remediation obligations, see "Item 3. Legal Proceedings, - Environmental Proceedings."
Property, Plant and Equipment Additions
For property, plant and equipment additions, including capitalfinance leases, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Cash FlowsLiquidity and Liquidity – Cash Flows”Capital Resources” and Note 1213 to the Consolidated Financial Statements.
Employees
As of December 31, 2017, U. S. Steel had approximately 17,200 employees in the U.S. and approximately 12,000 in Europe.
Most hourly employees of U. S. Steel’s flat-rolled, tubular, cokemaking and iron ore pellet facilities in the United States are covered by the 2015 Labor Agreements. Our U.S. collective bargaining agreements contain no-strike provisions which are applicable during the term of the respective agreements.
In Europe, excluding U.S. expatriates, most employees at USSK are represented by the OZ KOVO union and all employees are covered by an agreement that expires at the end of March 2020.
A small number of workers at some of our North American facilities and at our transportation operations are covered by agreements with the USW or other unions that have varying expiration dates.
Available Information
U. S. Steel’s Internet address is www.ussteel.com. We post our annual reportAnnual Report on Form 10-K, our quarterly reports on Form 10-Q, our proxy statement and our interactive data files to our website free of charge as soon as reasonably practicable after such reports are filed with the Securities and Exchange Commission (SEC). We also post all press releases and earnings releases to our website.
All other filings with the SEC are available via a direct link on the U. S. Steel website to the SEC’s website, www.sec.gov.
Also available on the U. S. Steel website are U. S. Steel’s Corporate Governance Principles, Code of Ethical Business Conduct and the charters of the Audit Committee, the Compensation & Organization Committee and the Corporate Governance & Public PolicySustainability Committee of the Board of Directors. These documents and the Annual Report on Form 10-K and proxy statement are also available in print to any stockholder who requests them. Such requests should be sent to the Office of the Corporate Secretary, United States Steel Corporation, 600 Grant Street, Suite 1500,1844, Pittsburgh, Pennsylvania, 15219-2800 (telephone: 412-433-1121).
U. S. Steel does not incorporate into this document the contents of any website or the documents referred to in the immediately preceding paragraph.paragraphs.
Other Information
Information on net sales, depreciation, capital expenditures, earnings (loss) before interest and income taxes and assets by reportable segment and for Other Businesses and on net sales and assets by geographic area are set forth in Note 4 to the Consolidated Financial Statements.
For significant operating data for U. S. Steel for each of the last five years, see “Five-Year Operating Summary (Unaudited)” on pages F-59 and F-60.within this document.
Item 1A. RISK FACTORS
Strategic Risk Factors
Our Investments in New Technologies May Not Be Fully Successful
Execution of our strategy depends, in part, on the success of a number of investments we have made and plan to make in new technologies. All of our investments are expected to deliver an enhanced Best of BothSM business model that delivers cost and/or capability differentiation for our stakeholders. Our Best of Both strategy is centered around adding EAF capabilities, including through the acquisition of Big River Steel, constructing an endless casting and rolling line and marketing new advanced high strength steel XG3 products, which are completed at our PRO-TEC joint venture. Additionally, as with any significant construction project, we may be subject to changing market conditions and demand for our completed projects, delays and cost overruns, work stoppages, labor shortages, engineering issues, weather interferences, changes required by governmental authorities, delays or the inability to acquire required permits or licenses, the ability to finance the projects or disruption of existing operations, any of which could have an adverse impact on our operational and financial results. Furthermore, new product development or modification is costly, involves significant research, development, time and expense and may not necessarily result in the successful commercialization of any new products, or new technologies may not perform as intended or expected. Unsuccessful execution of these strategic projects or underperformance of any of these assets could adversely affect our business, results of operations and financial condition.
We may encounter difficulties integrating Big River Steel into our existing operations.
In January 2021, we closed on the acquisition of Big River Steel, which is a cornerstone of our Best of Both strategy. Growth and transformation, including through acquisitions, involve risk. We have devoted significant management attention and resources to integrating the business and operations of Big River Steel, but we may encounter difficulties during the integration process, including the following:
•the possibility that the full benefits anticipated to result from the Big River Steel acquisition may not be realized or may not be realized in the time period that we anticipate;
•higher than anticipated costs incurred in connection with the integration of the business and operations of Big River Steel;
•differences in operating technologies, cultures, and management philosophies that may delay successful integration;
•the ability to retain key employees;
•delays in the integration of management teams, strategies, operations, products, and services;
•the ability to create and implement consistent business standards, controls, processes, procedures and controls to those of our operations;
•challenges of integrating systems, technologies, networks, and other assets of Big River Steel in a manner that minimizes any adverse impact or disruptions to customers, suppliers, employees, and other constituencies; and
•unknown or underestimated liabilities and unforeseen increased expenses or delays associated with the integration beyond current estimates.
The successful integration of a new business also depends on our ability to manage the new business, realize forecasted synergies and full value from the combined business. Our business, results of operations, financial condition and cash flows could be materially adversely affected if we are unable to successfully integrate Big River Steel.
Benefits from our Best of Both stockholder value creation strategy and asset revitalization program may be limited or may not be fully realized.
U. S. Steel is pursuing a stockholder value creation strategy focused on delivering an enhanced Best of Both business model that delivers cost and/or capability differentiation for our customers. This includes investing in new assets and technologies to leverage the advantages of integrated and mini mill capabilities. This strategy builds on our asset revitalization program, launched in 2017, which covers investments in our existing assets, and involves investments beyond routine capital and maintenance spending. Asset revitalization projects have delivered, and are expected to deliver, both operational and commercial benefits, but such benefits may be limited to the assets that are revitalized. Business conditions, our ability to implement such initiatives, and factors beyond our control may limit the benefits associated with certain identified projects and limit the economic benefits of our stockholder value creation strategy or asset revitalization program. Our goal remains to deliver high-quality, value-added products on time every time and to collaborate with our customers to develop innovative solutions that address their most challenging needs.
We participate in joint ventures, which may not be successful.
We participate in a number of joint ventures and we may enter into additional joint ventures or other similar arrangements in the future. Our joint venture partners, as well as any future partners, may have interests that are different from ours which could result in conflicting views as to the conduct of the business of the joint venture. In the event that we have a disagreement with a joint venture partner as to the resolution of a particular issue, or as to the management or conduct of the business of the joint venture in general, we may not be able to resolve such disagreement in our favor or terminate such joint venture. In addition, our
joint venture partners may, as a result of financial or other difficulties or because of other reasons, be unable or unwilling to fulfill their obligations under the joint venture, such as contributing capital to expansion or maintenance projects or approving dividends or other distributions or payments to us. Any significant downturn or deterioration in the business, financial condition or results of operations of a joint venture could adversely affect our results of operations in a particular period or lead to circumstances where capital contributions or other outputs of cash to the joint venture are required. There can be no assurance that our joint ventures will be beneficial to us.
We may not fully realize the expected monetary benefits from our iron ore assets. A component of our strategy includes monetizing our excess iron ore assets.
Stelco Inc. holds an option (Option) to acquire an undivided 25 percent interest in a to-be-formed entity that will own the Company’s current iron ore mine located in Mt. Iron, Minnesota. There is a possibility that Stelco may not exercise its Option in the anticipated timeframe or at all. If the proposed joint venture with Stelco is not successful, fails to provide the benefits we expect, or is not created at all, we may in the future have more iron ore than we need to support the business. Additionally, the existence of the Option may deter future potential opportunities to monetize the iron ore assets.
Operational Risk Factors
The outbreak of COVID-19 has had, and could continue to have, an adverse impact on the Company’s results of operations, financial condition and cash flows.
The global pandemic resulting from the novel coronavirus designated as COVID-19 has had a significant impact on economies, businesses and individuals around the world. Efforts by governments around the world to contain the virus have involved, among other things, border closings and other significant travel restrictions; mandatory stay-at-home and work-from-home orders in numerous countries, including the United States; mandatory business closures; public gathering limitations; and prolonged quarantines. These efforts and other governmental, business and individual responses to the COVID-19 pandemic have led to significant disruptions to commerce, lower consumer demand for goods and services and general uncertainty regarding the near-term and long-term impact of the COVID-19 virus on the domestic and international economy and on public health. These developments and other consequences of the outbreak have and could continue to materially adversely impact the Company's results of operations, financial condition and cash flows.
The U.S. Department of Homeland Security guidance has identified U. S. Steel's business as a critical infrastructure industry, essential to the economic prosperity, security and continuity of the United States. Similarly, in Slovakia, U. S. Steel Košice was identified by the government as a strategic and critical company, essential to economic prosperity, and continues to operate.
The duration, severity, speed and scope of the COVID-19 pandemic remains highly uncertain and the extent to which COVID-19 will affect our operations depends on future developments, such as potential surges of the outbreak and the speed of the development, distribution and effectiveness of vaccine and treatment options, which cannot be predicted at this time. Although we have continued to operate, we experienced a significant reduction in demand at the on set of the pandemic. Since the second quarter, demand has continued to accelerate, especially in key markets like automotive, appliance and construction.
We also may experience disruptions to our operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the outbreak; and closures of businesses or manufacturing facilities that are critical to our business or our supply chain.
The COVID-19 pandemic could also adversely affect our liquidity and ability to access the capital markets. The Company’s credit ratings were downgraded earlier this year by three credit ratings agencies, all citing, among other things, the uncertainty in duration and impact of the COVID-19 outbreak on our business. Uncertainty regarding the duration of the COVID-19 pandemic may, for example, adversely impact our ability to raise additional capital, or require additional capital, or require additional reductions in capital expenditures that are otherwise needed, to support working capital or continuation of our Best of Both strategy. Additionally, government stimulus programs may not be available to the Company, its customers, or its suppliers, or may prove to be ineffective. Furthermore, in the event that the impact from the COVID-19 outbreak causes us to be unable to satisfy any of our financial covenants under the agreements governing our outstanding indebtedness, the availability of credit facilities may become limited, or we may be required to renegotiate such agreements on less favorable terms. If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could materially adversely affect our operating results.
COVID-19 could negatively affect our internal controls over financial reporting as a portion of our workforce is required to work from home and therefore new processes, procedures, and controls could be required to respond to changes in our business environment.
The Company may be susceptible to increased litigation related to, among other things, the financial impacts of the pandemic on its business, its ability to meet contractual obligations due to the pandemic, employment practices or policies adopted during the health crisis, or litigation related to individuals contracting COVID-19 as result of alleged exposures on Company premises.
In addition, the COVID-19 outbreak has significantly increased economic and demand uncertainty. The current outbreak and continued spread of COVID-19 has caused a global recession, which has had a further material adverse impact on our results of operations, financial condition and cash flows. The full extent to which the COVID-19 outbreak will affect our operations, and the steel industry generally, remains highly uncertain and will ultimately depend on future developments which cannot be predicted at this time, including, but not limited to, the duration, severity, speed and scope of the outbreak, the length of time required for demand to return and normal economic and operating conditions to resume. The impact of the COVID-19 outbreak may also have the effect of exacerbating many of the other risks described herein.
Our reduced operational footprint, unplanned equipment outages and other unforeseen disruptions may adversely impact our results of operations.
Over the past three years, U. S. Steel has adjusted its operating configuration in response to challenging market conditions, as a result ofincluding the COVID-19 pandemic, oil and gas industry disruption, global overcapacity and unfair trade practicesunfairly traded imports, by indefinitely, permanentlyidling and temporarily idlingrestarting production at certain facilities. Due to our reduced operational footprint, the Company may not be able to respond in an efficient manner when restarting certain of our temporarily idled facilities to fully realize the benefits from changing market conditions that are favorable to integrated steel producers.producers or most efficiently mitigate the negative impacts of such changes.
Our steel production depends on the operation of critical structures and pieces of equipment, such as blast furnaces, electric arc furnaces, steel shops, casters, hot strip mills and various structures and operations, including information technology systems, that support them. While we are implementing asset revitalization and a reliability centered maintenance initiative focusinginitiatives focused on proactive maintenance of key machinery and equipment at our production facilities, we may experience prolonged periods of reduced production and increased maintenance and repair costs due to equipment failures at our facilities or those of our key suppliers.
It is also possible that operations may be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, pandemics, terrorism, accidents, and severe weather conditions.conditions, and changes in U.S., European Union and other foreign tariffs, free trade agreements, trade regulations, laws, and policies. We are also exposed to similar risks involving major customers and suppliers such as force majeure events of raw materials suppliers that have occurred and may occur in the future. Availability of raw materials and delivery of products to customers could be affected by logistical disruptions, such as shortages of barges, ocean vessels, rail cars or trucks, or unavailability of rail lines or of the locks on the Great Lakes or other bodies of water. To the extent that lost production could not be compensated for at unaffected facilities and depending on the length of the outage, our sales and our unit production costs could be adversely affected.
U. S. Steel continues to incur certain costs when production capacity is idled, increased costs to resume production at idled facilities, or costs to idle facilities.
Our decisions concerning which facilities to operate and at what levels are made based upon our customers’ orders for products as well as the capabilities and cost performance of our locations. During periods of depressed market conditions, we may concentrate production operations at several plant locations and not operate others in response to customer demand, and as a result we will incur idle facility [and carrying] costs.
When we restart idled facilities, we incur certain costs to replenish raw material inventories, prepare the previously idled facilities for operation, perform the required repair and maintenance activities and prepare employees to return to work safely and resume production responsibilities. The amount of any such costs can be material, depending on a variety of factors, such as the period of time during which the facilities remained idle, necessary repairs and available employees, and is difficult to project.
U. S. Steel has been and continues to be adversely affected by worldwideunfairly traded imports and global overcapacity, and high levels of imports, which may negatively affect steel pricescause downward pricing pressure, lost sales and demand levels, reducingrevenue, market share, decreased production, investment, and profitability.
An increase inCurrently, global capacity and new or expandedsteel production capacity in the United States, Chinasignificantly exceeds global steel demand, which adversely affects U.S. and other countries in recent years has resulted in capacity significantly in excess of global demand, as well as in the Company's primary markets in North America and Europe.
Worldwidesteel prices. Global overcapacity continues to result in high levels of dumped and subsidized steel products inimports into the markets we serve. Domestic and international trade laws provide mechanisms to address the injury caused by such imports to domestic industries. WhileExcessive imports of steel products into the U.S. has resulted and may continue to result in some cases,downward pricing pressure and lost sales and revenue, which adversely impacts our business, results of operations, financial condition and cash flows. Additional planned capacity in the U.S. could increase this overcapacity and further negatively impact U.S. steel prices.
Though U. S. Steel iscurrently benefits from 54 U.S. antidumping and countervailing duty (AD/CVD) orders and 11 European Union (EU) AD/CVD orders, petitions for trade relief are not always successful in obtaining relief under U.S. and international trade laws, in other circumstances, relief has been denied.or effective. When received, such relief is generally subject to annual automatic or discretionary review,periodic reviews and challenges, which can result in rescissionrevocation of the AD/CVD order or reduction.reduction of the AD/CVD duties. There can be no assurance that any relief will be obtained or continued in the future or that such relief will adequately combat unfairly traded imports.
The current Section 232 national security tariffs and quotas on steel imports into the surge inU.S. also provide U. S. Steel and other domestic steel producers relief from imports. There is also a risk that international bodies such asLikewise, the World Trade Organization orEU’s retaliatory 25 percent tariffs on certain U.S. steel imports and safeguard measures on steel provide USSE and other judicial bodies inEuropean steel producers some degree of relief from imports. The scope
and duration of the United States orSection 232 tariffs and quotas, the outcome of outstanding product exclusion requests before the DOC and the EU may change their interpretations of their respective trade laws in ways that are unfavorable to U. S. Steel.retaliatory and safeguard relief is not known.
Faced with significant imports into the U.S. and overcapacity in various markets, we will continue to evaluate potential strategic and organizational opportunities, which may include exiting lines of business and the sale of certain assets, temporary shutdowns or closures of facilities.
We face risks relating to changes in U.S. and foreign tariffs, trade agreements, laws, and policies
Through a series of Presidential Proclamations pursuant to Section 232 of the Trade Expansion Act of 1962, U.S. imports of certain steel products are subject to a 25 percent tariff, except for imports from: (1) Argentina, Brazil, and 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. The Section 232 national security tariffs and quotas on steel imports currently provide U. S. Steel and other domestic steel producers critical relief from imports. With no scheduled end date, the scope and duration of the Section 232 relief is not known. Further, the U.S. government may negotiate alternatives to the Section 232 tariffs for certain countries. The DOC continues to administer its Section 232 product exclusion process. The Section 232 action on aluminum and steel imports, potential Section 232 action on other products, and recent and potential additional U.S. import tariffs imposed under Section 301 of the Trade Act of 1974 have resulted in the possibility of tariffs being applied to materials and/or items we purchase from subject countries or regions as part of our manufacturing process, and may result in additional, retaliatory action by foreign governments on U.S. exports of a range of products, including products produced by our customers. In February 2019, the European Commission imposed a definitive safeguard on global steel imports in the form of tariff rate quotas (TRQs; 25 percent tariffs on steel imports that exceed the quota) effective through June 2021. All of the above factors present a degree of uncertainty to our financial and operational performance, our customers, and overall economic conditions, all of which could impact steel demand and our performance.
The steel industry, as well as the industries of our customers and suppliers upon whom we are reliant, is highly cyclical, which may have an adverse effect on our results of operations.
Steel consumption is highly cyclical and generally follows economic and industrial conditions both worldwide and in regional markets. Price fluctuations are impacted by the timing, magnitude and duration of these cycles, and are difficult to predict. This volatility makes it difficult to balance the procurement of raw materials and energy with global steel prices, our steel production and customer product demand. U. S. Steel has implemented strategic initiatives to produce more stable and consistent results, even during periods of economic and market downturns, but this may not be enough to mitigate the effect that the volatility inherent in the steel industry has on our results of operations.
Additionally, our business is reliant on certain other industries that are cyclical in nature. We sell to the automotive, service center, converter, energy and appliance and construction-related industries. Some of these industries exhibit a great deal of sensitivity to general economic conditions and may also face meaningful fluctuations in demand based on a number of factors outside of our control, including regulatory factors, economic conditions, and raw material and energy costs. As a result, downturns or volatility in any of the markets we serve could adversely affect our financial position, results of operations and cash flows.
We face increased competition from alternative materials and risks concerning innovation, new technologies, products and increasing customer requirements.
As a result of increasingly stringent regulatory requirements, designers, engineers and industrial manufacturers, especially those in the automotive industry, are increasing their use of lighter weight and alternative materials, such as aluminum, composites, plastics, and carbon fiber. Use of such materials could reduce the demand for steel products, which may reduce our profitability and cash flow.
Additionally, technologies such as direct iron reduction, EAF production, oxygen-coal injection and experimental technologies such as molten oxide electrolysis and hydrogen flash smelting may be more cost effective than our current production methods. However, we may not have sufficient capital to invest in such technologies and may incur difficulties adapting and fully integrating these technologies into our existing operations. We may also encounter production restrictions, or not realize the cost benefit from such capital intensive technology adaptations to our current production processes. Customers, such as those in the automotive industry, are demanding stronger and lighter products. Tubular customers are increasingly requesting pipe producers to supply connections and other ancillary parts as well as inspection and other services. We may not be successful in meeting these technological challenges.
Limited availability, or volatility in prices of raw materials, scrap and energy may constrain operating levels and reduce profit margins.
U. S. Steel and other steel producers have periodically been faced with problems in obtaining sufficient raw materials and energy in a timely manner due to delays, defaults, severe weather conditions, or force majeure events, by suppliers, shortages or transportation problems (such
as shortages of barges, ore vessels, rail cars or trucks, or disruption of rail lines, waterways, or natural gas transmission lines), resulting in production curtailments. As a result, we may be exposed to risks concerning pricing and availability of raw materials and energy resources from third parties.parties as well as logistics constraints moving our own raw materials and scrap to our plants. USSE purchases substantially all of its iron ore and coking coal requirements from outside sources. USSE is also dependent upon availability of natural gas produced in Russia and transported through Ukraine. Any curtailments or escalated costs may further reduce profit margins.
Changes in the global economic environment may lead to declines in the production levels of our customers.
We sell to the automotive, service center, converter, energy and appliance and construction-related industries. Some of these industries are cyclical and exhibit a great deal of sensitivity to general economic conditions. Low demand from customers in these key industries may adversely impact our financial position, results of operations and cash flows.
Our Flat-Rolled and Tubular segments may be particularly impacted by unfavorable market conditions in the oil and gas industries. Declines in oil prices, and the correlating reduction in drilling activity, as well as high levels of inventory in the supply chain, may reduce demand for tubular products and could have adverse impacts on our results of operations and cash flows.
We may be adversely impacted by volatility in prices for raw materials, energy, and steel.
U. S. Steel has agreed, and may be faced with having agreedcontinue to agree, to purchase raw materials and energy at prices that arehave been, and may be, above the then currentfuture market priceprices or in greater volumes than required.required in the future. Additionally, any future decreases in iron ore, scrap, natural gas, electricity and oil prices may place downward pressure on steel prices. If steel prices decline, our profit margins on market-based indexed contracts and spot business willcould be reduced.
Our operations expose us to uncertainties and risksChanges in the countriesglobal economic environment and prolonged periods of slow economic growth could have an adverse effect on our industry and business, as well as those of our customers and suppliers.
Overall economic conditions in whichthe U.S. and globally, including Europe, such as the disruption caused by the COVID-19 pandemic, significantly impact our business. Periods of economic downturn or continued uncertainty could result in difficulty increasing or maintaining our level of sales or profitability and we operate, which may negatively affectexperience an adverse effect on our business, results of operations, financial condition and cash flows and liquidity.flows.
Our U.S. operations are subject to economic conditions, including credit and capital market conditions, and political factors in the United States,U.S., which if changed could negatively affect our results of operations, cash flows and liquidity. Political factors include, but are not limited to, taxation, inflation, increased regulation, limitations on exports of energy and raw materials, and trade remedies. Actions taken by the U.S. government could affect our results of operations, cash flows and liquidity.
USSE is subject to economic conditions and political factors associated with the EU, Slovakia and neighboring countries, and the euro currency. Changes in any of these economic conditions or political factors could negatively affect our results of operations, cash flows and liquidity. Political factors include, but are not limited to, taxation, nationalization, inflation, government instability, civil unrest, increased regulation and quotas, tariffs and other protectionist measures.
Our collective bargaining agreementsFlat-Rolled and Tubular segments may also be particularly impacted by unfavorable market conditions in the oil and gas industries. The oil and gas industry, which is one of our significant end markets, has been experiencing a significant amount of disruption and has been experiencing oversupply at a time of declining demand, resulting in a decline in profitability. Our Tubular operations support the oil and gas industry, and therefore the industry's decline has led to a significant decline in demand for our Tubular products. Continued low demand for Tubular products will make it difficult to fully utilize our new EAF which produces tubular rounds for our Fairfield, Alabama pipe mill (Fairfield EAF). Lower utilization rates will make it difficult to realize the $90/ton cost savings we anticipated for the seamless pipe from the Fairfield EAF.
Additionally, we are also exposed to risks associated with the USWbusiness success and creditworthiness of our suppliers and customers. If our customers or suppliers are negatively impacted by a slowdown in economic markets, we may limit certainface the reduction, delay or cancellation of customer orders, delays or interruptions of the supply of raw materials, and bankruptcy of customers or suppliers. The occurrence of any of these events may adversely affect our business, flexibility. These agreements expireresults of operations, financial condition and cash flows.
Shortages of skilled labor, increased labor costs, or our failure to attract and retain other highly qualified personnel in the future could disrupt our operations and adversely affect our financial results.
We depend on September 1, 2018,skilled labor for the manufacture of our products. Our continued success depends on the active participation of our key employees. Some of our facilities are located in areas where demand for skilled labor often exceeds supply. Shortages of some types of skilled labor, such as electricians and qualified maintenance technicians, could restrict our ability to maintain or increase production rates, lead to production inefficiencies and increase our labor costs. Our shift to the Best of Both strategy would also require a set of job skills that is different from our prior needs. The competitive nature of the labor markets in which creates a potentialwe operate, the cyclical nature of the steel industry and the resulting employment needs increase our risk of not being able to recruit, train and retain the employees we require at efficient costs and on reasonable terms, particularly when the economy expands, production rates are high or competition for such skilled labor disruption.increases. Many companies, including U. S. Steel, have had employee lay-offs as a result of reduced business activities in an industry downturn. The loss of our key people or our inability to attract new key employees could adversely affect our operations. Additionally, layoffs or other adverse actions could result in an adverse relationship with our workforce or third party labor providers. If we are unable to recruit, train and retain adequate numbers of qualified employees and third party labor providers on a timely basis or at a reasonable cost or on reasonable terms, our business and results of operations could be adversely affected.
Our master collective bargaining agreements2018 Labor Agreements with the USW contain provisions that may limit us from pursuing some North American transactions involving steel or steel-related assets withoutimpact certain business activities.
Our 2018 Labor Agreements with the consent of the USW contain provisions that grant the USW a limited right to bid on anythe Company’s sale of one or more facilitiesa facility (or sale of a controlling interest in an entity owning a facility) covered by the 20152018 Labor Agreements, excluding public equity offerings and/or the transfer of assets between U. S. Steel and its wholly owned subsidiaries. These agreements also
require us to make a minimum level of capital expenditures (subject to approval of the Board of Directors) to maintain the competitive status of our domestic facilities. These agreements may also restrictthe covered facilities, and place certain limited restrictions on our ability to operate ourreplace product produced at a covered facility with product produced at other than Company facilities at less than full capacity and replace the product which could have been produced in suchor affiliates or U.S. or Canadian facilities with foreign products (excludingemployee protections similar to the United Statesprotections found in the 2018 Labor Agreements when the Company is operating covered facilities below capacity. The provisions in the 2018 Labor Agreements, as well as current or Canada), and further require that the ratio of non-represented employees to USW represented employees at our domestic facilities not exceed one to four. These provisions may limit our ability to acquirefuture proposed legislation or sell steelregulations, could favorably or steel related assets at favorable prices, increase ourunfavorably impact certain business activities including pricing, operating costs, and reduce our margins, and otherwise adversely affectand/or our competitiveness in the marketplace. These master agreements expire on September 1, 2018 and to the extent that good faith negotiations for successor agreements would reach legal impasse after this date, there exists a potential risk of labor disruption at covered plants.
A failure of our information technology infrastructure and cybersecurity threats may adversely affect our business operations.
Increasingly sophisticated attacks against rapidly evolving computer technologies pose a risk to the security of our systems, networks and data. Despite efforts to protect confidential business information, personal data of employees and contractors, and the control systems of manufacturing plants, U. S. Steel systems and those of our third-party service providers have been and may be subject to cyber-attacks or system breaches. System breaches can lead to theft, unauthorized disclosure, modification andor destruction of proprietary business data, personally identifiable information (PII), or other sensitive information, and to defective products, production downtime and damage to production assets, with a resulting impact to our reputation, competitiveness and operations. Of special note is our risk when implementing new capabilities. As we implement new systems, many times both new and old systems run in parallel until all processesWe have successfully transferred to the new system and thorough testing has been performed.
Historically, U. S. Steel has experienced cybersecurity attacks including a high profile breach ofthat have resulted in unauthorized persons gaining access to our information technology systems and networks, and we could in which proprietary information was compromised. On May 19, 2014, the U.S. Departmentfuture experience similar attacks. To date, no cybersecurity attack has had a material impact on our financial condition, results of Justice unsealed an indictment against certain individuals in connection with cyber crimes committed againstoperations or liquidity.
While the Company and other entities. We cooperated with the U.S. government on this matter and have implemented enhancements and improvementscontinually works to safeguard our systems and mitigate potential risks, there can be no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches or mitigate all potential risks to our systems, networks and data. The potential consequences of a material cybersecurity attack include reputational damage, investigations and/or adverse proceedings with government regulators or enforcement agencies, litigation with third parties, disruption to our systems, unauthorized release of confidential, personally identifiable, or otherwise protected information, technology enterprise against future attacks. Somecorruption of these enhancements include planning for and taking initial steps to implement a risk management framework based on security standards written bydata, diminution in the National Institute of Standards and Technology. Other enhancements include implementing additional security monitoringvalue of our systems by advanced technologies. However, there is no assurance the Company'sinvestment in research, development and engineering, and increased cybersecurity protection and remediation efforts willcosts, which in turn could adversely affect our competitiveness, results of operations and financial condition. The amount of insurance coverage we maintain may be successful in safeguarding informationinadequate to cover claims or liabilities resulting from future attacks, which likely will increase in frequency and sophistication. Based on information known to date, the Company is currently unable to determine the materiality, if any, of these events.a cybersecurity attack.
We depend on third parties for transportation services, and increases in costs or the availability of transportation may adversely affect our business and operations.
Our business depends on the transportation of a large number of products, both domestically and internationally. We rely primarily on third parties for transportation of the products we manufacture as well as delivery of our raw materials. Any increase in the cost of the transportation of our raw materials or products, as a result of increases in fuel or labor costs, higher demand for logistics services, consolidation in the transportation industry or otherwise, may adversely affect our results of operations as we may not be able to pass such cost increases on to our customers.
If any of these providers were to fail to deliver raw materials to us in a timely manner, we may be unable to manufacture and deliver our products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with us, we may be unable to replace them at a reasonable cost.
In addition, such failure of a third-party transportation provider could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our financial position and results of operations.
Benefits from our stockholder value creation strategy and asset revitalization program may be limited or may not be fully realized.
U. S. Steel initiated a stockholder value creation strategy pursuant to which we focus on strengthening our balance sheet and cash flow generation. We continue to work on a series of initiatives that we believe will enable us to add value, right size the Company, and improve our performance across our core business processes, including commercial, supply chain, manufacturing, procurement, innovation, and operational and functional support. Additionally, in 2017 we implemented an asset revitalization program, which covers investments in our existing assets, and involves investments beyond routine capital and maintenance spending. These asset revitalization projects are expected to deliver both operational and commercial benefits, with most of the benefits coming from operational improvement. Business conditions, our ability to implement such initiatives, and factors beyond our control may limit the benefits associated with certain identified projects and limit the economic benefits of our stockholder value creation strategy or asset revitalization program.
We participate in joint ventures, which may not be successful.
We participate in a number of joint ventures and we may enter into additional joint ventures or other similar arrangements in the future. Our joint venture partners, as well as any future partners, may have interests that are different from ours which may result in conflicting views as to the conduct of the business of the joint venture. In the event that we have a disagreement with a joint venture partner as to the resolution of a particular issue, or as to the management or conduct of the business of the joint venture in general, we may not be able to resolve such disagreement in our favor. In addition, our joint venture partners may, as a result of financial or other difficulties or because of other reasons, be unable or unwilling to fulfill their obligations under the joint venture, such as contributing capital to expansion or maintenance projects or approving dividends or other distributions or payments to us. Any significant downturn or deterioration in the business, financial condition or results of operations of a joint venture could adversely affect our results of operations in a particular period. There can be no assurance that our joint ventures will be beneficial to us.
Financial Risk Factors
Our business requires substantial expenditures for debt service obligations, capital investments, operating leases and maintenance that we may be unable to fund.
While we have refinanced the near-term maturities of our long-term debt, weWe have approximately $1.2$5.1 billion of total debt maturing in 2020 and 2021 (see Note 1617 to the Consolidated Financial Statements), including $500 million of outstanding borrowings under our Fifth Amended and Restated Credit Agreement and $368 million of outstanding borrowings under our USSK Credit Agreement. After the closing of the Big River Steel purchase on January 15, 2021, additional indebtedness of approximately $1.9 billion will be included on our Consolidated Balance Sheet (See Note 28 to the Consolidated Financial Statements). If our cash flows and capital resources are insufficient to fund our debt service obligations, we may face substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, terminate strategic projects, or to dispose of material assets or operations or issue additional debt or equity. We may not be able to take such actions, if necessary, on commercially reasonable terms or at all. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results or operations.operations and may place us at a competitive disadvantage with competitors who may have less indebtedness and other obligations or greater access to financing.
Our ability to service or refinance our debt or fund investments and capital expenditures required to maintain or expand our business operations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We
may not be able to maintain a level of cash flows from operating activities sufficient to permit us to satisfy our liquidity needs. In addition, the limitationsavailability under our ThirdFifth Amended and Restated Credit Agreement such
asmay be reduced if we have insufficient collateral, or if we do not being able to meet thea customary fixed charge coverage ratio,test. Availability under the USSK Credit Agreement could be limited if USSK does not meet certain financial covenants. Likewise, availability under Big River Steel LLC's asset-based revolving credit facility (the "BRS ABL Facility") could be limited if Big River Steel LLC and its subsidiaries do not meet certain financial covenants. Furthermore, the agreements governing the BRS ABL Facility and other outstanding indebtedness of Big River Steel LLC and its subsidiaries limit their ability, subject to certain exceptions, to pay dividends or distributions or make other restricted payments, such that we may limitnot be able to access the cash generated by these recently acquired subsidiaries to fund our availabilityother expenditures. Our ability to draw upon this facility.meet such covenants or other restrictions can be affected by events beyond our control. If a default were to occur, the lenders could elect to declare all amounts then outstanding to be immediately due and payable and terminate all commitments to extend further credit. See the Liquidity section in "Item 7. Management's Discussion and Analysis"Analysis of Financial Condition and Results of Operations" and Note 17 to the Consolidated Financial Statements for further details.
We may not be able to generate sufficient cash to service all of our debt, and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control, such as the disruption caused by the COVID-19 pandemic and the disruption in the oil and gas industry. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our debt.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, terminate strategic projects or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our debt. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Credit Facility Agreement governing the Fifth Amended and Restated Credit Agreement, the documents governing the USSK Credit Facilities, the documents governing the Export-Import Credit Agreement and the indentures governing our existing senior unsecured notes and our 2025 Senior Secured Notes may restrict our ability to dispose of assets and may also restrict our ability to raise debt or equity capital to be used to repay other debt when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our debt on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations.
If we cannot make scheduled payments on our debt, we will be in default and holders of our senior unsecured notes and our 2025 Senior Secured Notes could declare all outstanding principal and interest to be due and payable, the lenders under the Fifth Amended and Restated Credit Agreement, the USSK Credit Facilities, the Export-Import Credit Agreement and the Export Credit Facility could terminate their commitments to loan money, accelerate full repayment of any or all amounts outstanding (which may result in the cross acceleration of certain of our other debt obligations) and the lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation. All of these events would materially and adversely affect our financial position and results of operations.
Based on the most recent four quarters as of December 31, 2020, we have not met the fixed charge negative covenant test under our Credit Facility Agreement, and accordingly, the amount available to the Company under this facility was reduced by $200 million. In addition, since the value of our inventory and trade accounts receivable less specified reserves calculated in accordance with the Credit Facility Agreement do not support the full amount of the facility at December 31, 2020, the amount available to the Company under this facility was further reduced by $351 million. As of December 31, 2020, the availability under the Credit Facility Agreement was $944 million.
Our business and execution of our strategic priorities require us to raise capital which could be difficult if we face depressed market conditions, lower earnings or credit rating downgrades by ratings agencies.
Executing on our strategic priorities will require us to raise additional capital, which we have sought and may seek through debt financing or the public or private sale of equity securities, or a combination of the foregoing. We cannot guarantee that we will be able to secure sources of financing at a particular time or on particular or favorable terms. Additionally, we may seek to raise funds through the divestiture or monetization of certain non-core assets. We cannot be assured that we will be able to find an attractive or acceptable partner for such transactions, or if we do, that we will be able to reach agreement on favorable or mutually satisfactory terms.
Ratings agencies could downgrade our ratings either due to factors specific to our business, a prolonged cyclical downturn in the steel industry, macroeconomic trends such as global or regional recessions and trends in credit and capital markets more generally. Our credit ratings were downgraded in 2020 by three credit ratings agencies, all citing among other things, the uncertainty in duration and impact of the COVID-19 outbreak on our business. Recently, Moody's withdrew Big River Steel's
corporate family rating given our acquisition of the remaining interest in Big River Steel, and S&P lowered Big River Steel's credit rating to be in line with our corporate rating. Ratings agencies also may lower, suspend or withdraw ratings on the outstanding securities of U. S. Steel or Big River Steel. For example, Moody's recently downgraded the rating of our 2025 Senior Secured Notes to reflect the addition of Big River Steel's secured debt in our consolidated capital structure, and S&P recently lowered its ratings on Big River Steel's senior secured debt. Any lowering, suspension or withdrawal of such ratings may have an adverse effect on the market prices of such securities.
Any decline in our operating results or downgrades in our credit ratings may make raising capital or entering into any business transaction more difficult, lead to reductions in the availability of credit or increased cost of credit, adversely affect the terms of future borrowings, may limit our ability to take advantage of potential business opportunities, and lead to reductions in the availability of credit.
We have significant retiree health care, retiree life insurance and pension plan costs, which may negatively affect our results of operations and cash flows.
We maintain retiree health care and life insurance and defined benefit pension plans covering many of our domestic employees and former employees upon their retirement. TheseSome of these benefit plans have significant liabilities that are not fully funded, whichand thus will require additional cash funding in future years. Minimum contributions to domestic qualified pension plans (other than contributions to the Steelworkers Pension Trust (SPT) described below) are regulated under the Employee Retirement Income Security Act of 1974 (ERISA) and the Pension Protection Act of 2006 (PPA).
The level of cash funding for our defined benefit pension plans in future years depends upon various factors, including voluntary contributions that we may make, future pension plan asset performance, actual interest rates under the law, and the impactsimpact of business acquisitions or divestitures, union negotiated benefit changes and future government regulations, many of which are not within our control. In addition, assets held by the trusts for our pension plan and our trust for retiree health care and life insurance benefits are subject to the risks, uncertainties and variability of the financial markets. Future funding requirements could also be materially affected by differences between expected and actual returns on plan assets, actuarial data and assumptions relating to plan participants, the discount rate used to measure the pension obligations and changes to regulatory funding requirements. See "Item 7. Management's Discussion and Analysis"Analysis of Financial Condition and Results of Operations" and Note 1718 to the Consolidated Financial Statements for a discussion of assumptions and further information associated with these benefit plans.
U. S. Steel contributes to a domestic multiemployer defined benefit pension plan, the SPT, for USW-represented employees formerly employed by National Steel and represented employees hired after May 2003. We have legal requirements for future funding of this plan should the SPT become significantly underfunded or we decide to withdraw from the plan. Either of these scenarios may negatively impact our future cash flows. The 20152018 Labor Agreements require aincreased the contribution rate of $2.65 per hour for most steelworker employees. Collectively bargained company contributions to the plan could increase further as a result of future changes agreed to by the Company and the USW.
ProductThe accounting treatment of equity method investments and other long-lived assets could result in future asset impairments, which would reduce our earnings.
We periodically test our equity method investments and other long-lived assets to determine whether their estimated fair value is less than their value recorded on our balance sheet. The results of this testing for potential impairment may be adversely affected by uncertain market conditions for the global steel industry and general economic conditions. If we determine that the fair value of any of these assets is less than the value recorded on our balance sheet, and, in the case of equity method investments the decline is other than temporary, we would likely incur a non-cash impairment loss that would negatively impact our results of operations. There can be no assurances that continued market dynamics or other factors may not result in future impairment charges.
We are subject to foreign currency risks, which may negatively impact our profitability and cash flows.
The financial condition and results of operations of USSE are reported in euros and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. The appreciation of the U.S. dollar against the euro negatively affects our Consolidated Results of Operations. International cash requirements have been and in the future may be funded by intercompany loans, which may create intercompany monetary assets and liabilities in currencies other than the functional currencies of the entities involved, which can have a non-cash impact on income when they are remeasured at the end of each period.
In addition, foreign producers, including foreign producers of subsidized or unfairly traded steel with foreign currency denominated costs may gain additional competitive advantages or target our home markets if the U.S. dollar or euro exchange rates strengthen relative to those producers' currencies. Volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported financial results and condition.
Financial regulatory frameworks introduced by U.S. and EU regulators may limit our financial flexibility or increase our costs.
We use swaps, forward contracts and similar agreements to mitigate our exposure to volatility, which entails a variety of risks. The Commodity Future Trading Commission’s Dodd Frank and the EU’s European Market Infrastructure Regulation and other government agencies' regulatory frameworks can limit the Company’s ability to hedge interest rate, foreign exchange (FX), or commodity pricing exposures, which could expose us to increased economic risk. These frameworks may introduce additional compliance costs or liquidity requirements. Some counterparties may cease hedging as a result of increased regulatory cost burdens, which in turn may reduce U. S. Steel’s ability to hedge its interest rate, FX, or commodity exposures.
We are a party to various legal proceedings, the resolution of which could negatively affect our profitability and cash flows in a particular period.
We are involved at any given time in various litigation matters, including administrative and regulatory proceedings, governmental investigations, environmental matters, and commercial disputes. Our profitability and cash flows in a particular period could be negatively affected by an adverse ruling or settlement in any legal proceeding or investigation. While we believe that we have taken appropriate actions to mitigate and reduce these risks, due to the nature of our operations, these risks will continue to exist and additional legal proceedings or investigations may arise from time to time.
Additionally, we may be subject to product liability claims that may have an adverse effect on our financial position, results of operations and cash flows.
Events such as well failures, line pipe leaks, blowouts, bursts, fires and product recalls could result in claims that our products or services were defective and caused death, personal injury, property damage or environmental pollution. The insurance we maintain may not be adequate, available to protect us in the event of a claim, or its coverage may be limited, canceled or otherwise terminated, or the amount of our insurance may be less than the related impact on our enterprise value after a loss.
Rating agencies We establish reserves based on our assessment of contingencies, including contingencies for claims asserted against us in connection with litigation, arbitrations and environmental issues. Adverse developments in litigation, arbitrations, environmental issues or other legal proceedings may downgradeaffect our credit ratings, which would make it more difficult forassessment and estimates of the loss contingency recorded as a reserve and require us to raise capital and would increasemake payments in excess of our financial costs.
Any downgrades in our credit ratings may make raising capital more difficult, may increase the cost and adversely affect the terms of future borrowings, may adversely affect the terms under which we purchase goods and services and may limit our ability to take advantage of potential business opportunities.
We are subject to foreign currency risks, which may negatively impact our profitability and cash flows.
The financial condition and results of operations of USSE are reported in euros and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. The appreciation of the U.S. dollar against the euro negatively affects our Consolidated Results of Operations.
In addition, international cash requirements have been and in the future may be funded by intercompany loans, creating intercompany monetary assets and liabilities in currencies other than the functional currencies of the entities involved, which can have a non-cash impact on income when they are remeasured at the end of each period.
Financial regulatory frameworks introduced by U.S. and EU regulators may limit our financial flexibility or increase our costs.
The Commodity Future Trading Commission’s Dodd Frank and the EU’s EMIR regulatory frameworks can limit the Company’s ability to hedge interest rate, foreign exchange (FX), or commodity pricing exposures, which could expose us to increased economic risk. These frameworks may introduce additional compliance costs or liquidity requirements.
Some counterparties may cease hedging as a result of increased regulatory cost burdens, which in turn may reduce U. S. Steel’s ability to hedge its interest rate, FX, or commodity exposures.
We may be subject to legal proceedings or investigations, the resolution ofreserves, which could negatively affect our profitabilityoperations, financial results and cash flows in a particular period.
We may be involved at any given time in various litigation matters, including administrativeflows. See "Item 3. Legal Proceedings" and regulatory proceedings, governmental investigations, environmental matters, and commercial disputes. Our profitability and cash flows in a particular period could be negatively affected by an adverse ruling in any legal proceeding or investigation that may be pending against us or filed against us in the future. While we believe that we have taken appropriate actions to mitigate and reduce these risks, dueNote 26 to the nature of our operations, these risks will continue to exist and additional legal proceedings or investigations may arise from time to time.Consolidated Financial Statements for further details.
RegulatoryRisk Factors
Compliance with existing and new environmental regulations, environmental permitting and approval requirements may result in delays or other adverse impacts on planned projects, our results of operations and cash flows.
Steel producers in the United States,U.S., along with their customers and suppliers, are subject to numerous federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations concern the generation, storage, transportation, disposal, emission or discharge of pollutants, contaminants and hazardous substances into the environment, the reporting of such matters, and the general protection of public health and safety, natural resources, wildlife and the environment. Steel producers in the EU are subject to similar laws. These laws and regulations continue to evolve and are becoming increasingly stringent. The ultimate impact of complying with such laws and regulations is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision. ComplianceAdditionally, compliance with environmentalcertain of these laws and regulations, such as the Clean Air Act,CAA and similar state and local requirements, governing GHG and sulfur dioxideair emissions, could result in substantially increased capital requirements and operating costs. In addition,costs and could change the integrated steel process involves a series of chemical reactions that create carbon dioxide. Accordingly,equipment or facilities we are subject to regulations adopted by the EPA, the EU and various state agencies regulating GHG emissions.operate. Compliance with current or future regulations could entail substantial costs for emission based systems and could have a negative impact on our results of operations and cash flows. Failure to comply with the requirements may result in administrative, civil and criminal penalties, revocation of permits to conduct business or construct certain facilities, substantial fines or sanctions, enforcement actions (including orders limiting our operations or requiring corrective measures), natural resource damages claims, cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws, regulations, codes and common law. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the release of hazardous substances.
ConstructionIn addition, the Company must obtain, maintain and comply with numerous permits, leases, approvals, consents and certificates from various governmental authorities in connection with the construction and operation of new production facilities andor modifications to existing facilitiesfacilities. In connection with such activities, the Company may requireneed to make significant capital and operating expenditures to detect, repair and/or control air emissions, to control water discharges or to perform certain corrective actions to meet the conditions of the permits issued pursuant to applicable environmental permitslaws and approvals from the appropriate regulatory agencies. regulations.
There can be no assurance that future approvals, licenses and permits will be granted or that we will be able to maintain and renew the approvals, licenses and permits we currently hold. Failure to do so could have a material adverse effect on our results of operations and cash flows. Furthermore, compliance with the environmental permitting and approval requirements may be costly and time consuming and could result in delays or other adverse impacts on planned projects, our results of operations and cash flows.
We have significant environmental remediation costs that may negatively affect our results of operations and cash flows.
Some of U. S. Steel's current and former facilities were in operation before 1900. Hazardous materials associated with those facilities may have been and may continue to be released at current or former operating sites or delivered to sites operated by third parties.
U. S. Steel is involved in numerous remediation projects at currently operating facilities, facilities that have been closed or sold to unrelated parties and other sites where material generated by U. S. Steel was deposited. In addition, there are numerous other former operating or disposal sites that could become the subject of remediation, which may negatively affect our results of operations and cash flows.
OurIncreasing pressure to reduce greenhouse gas (GHG) emissions from steelmaking operations are subject to complex regulatory and compliance frameworks.
Complex foreign and U.S. laws and regulations that apply to our international operations, including but not limited to U.S. laws such as the Foreign Corrupt Practices Act, regulations related to import-export controls, the Office of Foreign Assets Control sanctions program, antiboycott provisions, and changes in transportation and logistics regulations may increase our cost of doing business in international jurisdictions and expose the Company and its employees to elevated risk. The Company's subsidiaries and joint ventures face similar risks. Although we have implemented policies and processes designed to comply with these laws andnew regulations failure by our employees, contractors, or agents to
comply with these laws and regulations can result in possible administrative, civil, or criminal liability, as well as reputational harmstakeholder expectations could increase costs to the Company and its employees.
The IRS may disallow all or part of a worthless stock loss and bad debt deduction taken in 2013.
U. S. Steel made an election effective December 31, 2013 to liquidate for U.S. income tax purposes a foreign subsidiary that holds most of the Company’s international operations. The tax liquidation allowed the Company to claim a worthless stock loss and bad debt deduction in its 2013 U.S. income tax return, resulting in a net income tax benefit in 2013 of $419 million. The worthless stock loss and bad debt deduction are subject to audit and possible adjustment by the IRS, which could result in the reversal of all or part of the income tax benefit. In 2015, the IRS began its audit of the worthless stock loss and bad debt deduction taken in 2013. We expect resolution in amanufacture future period. While we believe we have adequate legal and factual support for the tax position taken, the IRS could rejectmaterials or reduce the amount of materials being manufactured.
Iron and steel producers around the income tax benefitworld are facing mounting pressure to reduce greenhouse gas emissions from operations. The majority of greenhouse gas emissions from the production of iron and steel are caused by the combustion of fossil fuels, the use of electrical energy, and the use of coal, lime, and iron ore as feedstock. The two main production processes are the integrated route of blast furnace ironmaking in combination with basic oxygen furnace steelmaking (BOF) and the alternative route of electric arc furnace steelmaking. Both routes generate greenhouse gas emissions with the latter process, involving the electric arc melting of a majority of steel scrap, generating less than half that, or less, of the traditional integrated steelmaking process. Federal, state and local governmental agencies within the United States may introduce regulatory changes in response to the potential impacts of climate change, including the introduction of carbon emissions limitations or trading mechanisms. Any such regulation regarding climate change and GHG emissions could impose significant costs on our operations and on the operations of our customers and suppliers, including increased energy, capital equipment, emissions controls, environmental monitoring and reporting and other costs in order to comply with current or future laws or regulations concerning climate change and GHG emissions. Any adopted future climate change and GHG regulations could negatively impact our ability, and that of our customers and suppliers, to compete with companies situated in areas not subject to or not complying with such limitations. Inconsistency of regulations may also change the attractiveness of the locations of some of the Company's assets and investments. In addition, changes in certain environmental regulations, including those that may impose output limitations or higher costs associated with climate change or greenhouse gas emissions, could substantially increase the cost of manufacturing and raw materials to us and other steel producers.
Additionally, the European Union has established aggressive CO2 reduction targets of 40% by 2030, against a 1990 baseline, and full carbon neutrality by 2050. As part of the European Green Deal the Commission proposed in September 2020 to raise the 2030 reduction target to at least 55% compared to 1990. The new target has still to be endorsed by the European Parliament. An emission trading system (ETS) was established to encourage compliance with set emissions reduction targets. These aggressive targets require drastic measures within the steel industry to comply. The price of CO2 emission allowances is currently at 33 euro per metric ton and forecasts call for potential price increase to 40 euro per metric ton. The transition to EAF technology, as well as incremental gains in energy reduction, use of renewable energy and continued asset and process improvements (including EAF steelmaking), are expected to reduce our GHG footprint. However, the development of breakthrough technologies is likely required to continue the path of low to no carbon footprint in the steel industry. Implementation of new technologies will most likely require significant amounts of capital and an abundant source of low-cost hydrogen and/or green power, most likely leading to an increase in the cost of future steelmaking. In addition, the cost of emission allowances is forecast to increase, along with the number of allowances decreasing in the next several years.
Reduced access to or increased cost of capital may occur as financial institutions and investors also increase expectations related to the worthless stock lossenvironmental, social and bad debt deduction. If this occurs, U. S. Steel would incur additional current tax expense, which could result in additional income tax payments.governance matters.
Changes to globalNew and changing data privacy laws and cross-border transfer requirements could adversely affecthave a negative impact on our business and operations.
Our business depends on the processing and transfer of data between our affiliated entities, to and from our business partners, and with third-party service providers, which may be subject to global data privacy laws and cross-border transfer restrictions. While U. S. Steel takes steps to comply with these legal requirements, the volatilityIn North America and Europe, new legislation and changes to the requirements or applicability of thoseexisting laws, as well as evolving standards and judicial and regulatory interpretations of such laws, may impact U. S. Steel’s ability to effectively process and transfer data both within the United States and across borders in support of our business operations and/or keep pace with specific requirements regarding safeguarding and handling personal information. While U. S. Steel takes steps to comply with these legal requirements, non-compliance could lead to possible administrative, civil, or criminal liability, as well as reputational harm to the Company and its employees. For example, the European Union’s General Data Protection Regulation (GDPR), which comeswent into effect in May 2018, createscreated a range of new compliance obligations for subject companies and increases financial penalties for non-compliance. The costs of compliance with privacy laws such as the GDPR and the potential for fines and penalties in the event of a breach of the GDPR may have an adverse effecta negative impact on our business and operations.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
The following tables listSee Item 1. Business, Facilities and Locations for listings of U. S. Steel’s main properties, their locations and their products and services:services.
|
| | | | |
North American Operations | | | | |
| | |
Property | | Location | | Products and Services |
Gary Works | | Gary, Indiana | | Slabs; Sheets; Tin mill; Strip mill plate |
Midwest Plant | | Portage, Indiana | | Sheets; Tin mill |
East Chicago Tin | | East Chicago, Indiana | | Sheets; Tin mill |
Great Lakes Works | | Ecorse and River Rouge, Michigan | | Slabs; Sheets |
Great Lakes Works EGL at Dearborn | | Dearborn, Michigan | | Galvanized sheets |
Mon Valley Works | | | | |
Irvin Plant | | West Mifflin, Pennsylvania | | Sheets |
Edgar Thomson Plant | | Braddock, Pennsylvania | | Slabs |
Fairless Plant | | Fairless Hills, Pennsylvania | | Galvanized sheets |
Clairton Plant | | Clairton, Pennsylvania | | Coke |
Granite City Works(a)
| | Granite City, Illinois | | Slabs; Sheets |
Southern Coatings | | | | |
Fairfield Sheet | | Fairfield, Alabama | | Galvanized Sheets |
Double G Coatings Company, L.P.(b)
| | Jackson, Mississippi | | Galvanized and Galvalume® sheets
|
USS-POSCO Industries(b)
| | Pittsburg, California | | Sheets; Tin mill |
PRO-TEC Coating Company(b)
| | Leipsic, Ohio | | Galvanized and high strength annealed sheets |
Fairfield Tubular Operations | | Fairfield, Alabama | | Seamless Tubular Pipe |
Worthington Specialty Processing(b)
| | Jackson, Canton and Taylor, Michigan | | Steel processing |
Feralloy Processing Company(b)
| | Portage, Indiana | | Steel processing |
Chrome Deposit Corporation(b)
| | Various | | Roll processing |
Acero Prime, S.R.L. de C.V.(b)
| | Monterrey, Ramos Arizpe, San Luis Potosi, and Toluca, Mexico | | Steel processing; warehousing; logistical services |
Lorain Tubular Operations | | Lorain, Ohio | | Seamless Tubular Pipe |
Lone Star Tubular | | Lone Star, Texas | | Welded Tubular Pipe |
Wheeling Machine Products | | Pine Bluff, Arkansas and Hughes Springs, Texas | | Tubular couplings |
Tubular Processing(c)
| | Houston, Texas | | Tubular processing |
Offshore Operations | | Houston, Texas | | Tubular threading, inspection, accessories and storage services |
Patriot Premium Threading Services(b)
| | Midland, Texas | | Tubular threading, accessories and premium connections |
Minntac Iron Ore Operations | | Mt. Iron, Minnesota | | Iron ore pellets |
Keetac Iron Ore Operations(d)
| | Keewatin, Minnesota | | Iron ore pellets |
| |
(a) | Hot end temporarily idled |
(c) Temporarily Idled
(d) Idled in 2015, restarted in the 1st quarter of 2017
|
| | | | |
North American Operations (Continued) | | |
| | |
Property | | Location | | Products and Services |
Hibbing Taconite Company(b)
| | Hibbing, Minnesota | | Iron ore pellets |
Transtar, LLC | | Alabama, Indiana, Michigan, Ohio, Pennsylvania, Texas | | Railroad operations
|
(b) Equity Investee
|
| | | | |
Other Operations |
| | |
Property | | Location | | Products and Services |
U. S. Steel Košice | | Košice, Slovakia | | Slabs; Sheets; Tin mill; Strip mill plate; Tubular; Coke; Radiators; Refractories |
U. S. Steel and its predecessors (including Lone Star) have owned their properties for many years with no material adverse title claims asserted. In the case of Great Lakes Works, Granite City Works, the Midwest Plant and Keetac iron ore operations, U. S. Steel or its subsidiaries are the beneficiaries of bankruptcy laws and orders providing that properties are held free and clear of past liens and liabilities. In addition, U. S. Steel or its predecessors obtained title insurance, local counsel opinions or similar protections when significant properties were initially acquired or since acquisition.
At the Midwest Plant in Indiana, U. S. Steel has a supply agreement for various utility services with a company that owns a cogeneration facility located on U. S. Steel property. The Midwest Plant agreement expires in 2028.
U. S. Steel leases its headquarters office space in Pittsburgh, Pennsylvania.
For property, plant and equipment additions, including capitalfinance leases, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, – Financial Condition, Cash FlowsLiquidity and Liquidity – Cash Flows”Capital Resources” and Note 1213 to the Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS
U. S. Steel is the subject of, or a party to, a number of threatened or pending legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment, certain of which are discussed in Note 25 to the Consolidated Financial Statements. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the U. S. Steel 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 to U. S. Steel.
General Litigation
On January 22, 2021 NLMK Pennsylvania, LLC and NLMK Indiana, LLC (NLMK) filed a Complaint in the Court of Common Pleas of Allegheny County, Pennsylvania against the Company. The Complaint alleges that the Company made misrepresentations to the U. S. Department of Commerce regarding NLMK’s requests to be excluded from tariffs assessed on steel slabs imported into the United States pursuant to the March 2018 Section 232 Presidential Order imposing tariffs. NLMK claims over $100 million in compensatory and other damages. The Company is reviewing the Complaint and intends to vigorously defend the matter.
On April 26, 2016,11, 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. The Company has since implemented substantial operational, process and notification improvements at Midwest. In January of 2018, The Surfrider Foundation and the City of Chicago initiated suits in the Northern District of Indiana alleging Clean Water Act (CWA) and permit violations at Midwest. On April 2, 2018, the U.S. EPA and the State of Indiana initiated a separate action against the Company filedand lodged a complaint with the U.S. International Trade Commission (USITC) to initiate an investigation under Section 337 of the Tariff Act of 1930 against Chinese steel producers and their distributors. All but seven of the producers did not respond and are considered to be in default. The complaint alleges three causes of action: 1) illegal conspiracy to fix prices and control output and export volumes; 2) the theft of trade secrets through industrial espionage; and 3) circumvention of duties by false designation of origin (FDO). In February 2017,Consent Decree negotiated between U. S. Steel voluntarily withdrew its trade secrets claim, but preservedand the rightrelevant governmental agencies consisting of all material terms to refileresolve the claim when additional information becomes available. On October 2, 2017,CWA and National Pollutant Discharge Elimination System (NPDES) violations at the Administrative Law judge (ALJ) assignedMidwest 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. The United States Department of Justice (DOJ) filed a revised Consent Decree and a motion with the court to enter the Consent Decree as final on November 20, 2019. Surfrider Foundation, City of Chicago and other non-governmental organizations filed objections to the case terminated the FDO claim.revised Consent Decree. The Company has elected not to pursue an appeal of that claim leaving the price fixing claim as the remaining claim. That claim is pending before the USITC. The remedy sought byDOJ and U. S. Steel made filings in that claim issupport of the barring of all Chinese carbon alloy steel fromrevised Consent Decree.
On November 30, 2018, the U.S. market.
U. S. Steel v. Minnesota Pollution Control Agency (MPCA) issued a new Water Discharge Permit for the Minntac Tailings Basin waters. The permit contains new sulfate limitations applicable to water in the Tailings Basin and Commissioner John Linc Stine: On February 21, 2017,groundwater flowing from U. S. Steel’s property. The MPCA also acted on the same date, denying the Company’s requests for variances from ground and surface water standards and request for a contested case hearing. U. S. Steel filed appeals with the Minnesota Court of Appeals challenging the actions taken by the MPCA. Separate appeals were filed by a Verified ComplaintMinnesota Native American Tribe (Fond du Lac Band) and Writ of Mandamus againsta nonprofit environmental group (Water Legacy). All cases were consolidated. On December 9, 2019, the MPCA for failureCourt issued a favorable ruling to act on U. S. Steel’s request for revisions to water quality standards which will affect the draft National Pollutant Discharge Elimination System (water) permit at Minntac. MPCA filed an Answer and Counterclaim and U. S. Steel, responded toremoving the Counterclaim. Three citizen groups,sulfate limitations for the Tailings Basin and groundwater. The opposing parties filed appeals with the Minnesota Center for Environmental Advocacy, Save Lake Superior AssociationSupreme Court on January 8, 2020 which were accepted by that Court. On February 10, 2021 the Minnesota Supreme Court reversed the Court of Appeals’ decision regarding sulfate limitations and Save Our Sky Blue Waters (collectively MCEA), then intervened in the lawsuit. All parties have filed cross-motions for summary judgment, which remained outstanding pending a court-ordered mediation. The parties have now settled all claims and counterclaims andremanded the case has been dismissed. U. S. Steel will now proceed throughfor further proceedings, including a determination on the Administrative regulatory process to address the outstanding water quality standards issues.
On August 9, 2017, the MPCA issued rulemaking proposals to replace the current sulfate standard with an equation-based standard. As part of the rulemaking process, an ALJ was appointed to preside over public hearings and comments. The Company and others challenged the standards and presented evidence that the standards were unsupported by science and that the MPCA failed to consider associated costs as part of the rulemaking process. On January 9, 2018, the ALJ rejected the MPCA’s proposals, concluding that the MPCA failed to comply with state law requirementsCompany’s requests for drafting and adopting a new standard, that portions of the rule were unsupported by the MPCA’s evidence and that the MPCA proposal was unconstitutional due to vagueness.
variances.
On October 2, 2017, an Amended Shareholder Class Action Complaint was filed in Federalthe United States District Court infor the Western District of Pennsylvania consolidating previously-filed actions. Separately, fourfive related shareholder derivative lawsuits were filed in PennsylvaniaState and Federal courts in Pittsburgh.Pittsburgh, Pennsylvania and the Delaware Court of Chancery. The underlying consolidated class action lawsuit alleges that U. S. Steel, certain current and former officers, an upper level manager of the Company and the financial Underwritersunderwriters who participated in the August 2016 secondary public offering of the Company's common stock (collectively, Defendants) violated federal securities laws in making false statements and/or failing to discover and disclose material information regarding the financial condition of the Company. The lawsuit claims that this conduct caused a
prospective class of plaintiffs to sustain damages during the period offrom January 27, 2016 andto April 25, 2017 as a result of the prospective class purchasing the Company's common stock at artificially inflated prices and/or suffering losses when the price of the common stock dropped. The derivative lawsuits generally make the same allegations against the same officers and also allege that certain current and former members of the Board of Directors failed to exercise appropriate control and oversight over the Company and were unjustly compensated. TheyThe plaintiffs seek to recover losses that were allegedly sustained. The class action Defendants moved to dismiss plaintiffs’ claims. On September 29, 2018 the Court ruled on those motions granting them in part and denying them in part. On March 18, 2019, the plaintiffs withdrew the claims against the Defendants related to the 2016 secondary offering. As a result, the underwriters are no longer parties to the case. The Company isand the individual defendants are vigorously defending these matters.
the remaining claims. On April 11, 2017, there wasDecember 31, 2019, the Court granted Plaintiffs’ motion to certify the proceeding as a process waste water release at our Midwest Plant (Midwest) in Portage, Indianaclass action. The Company's appeal of 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 Companydecision has been presented with cost reimbursements, lossdenied by the Third Circuit Court of use and penalty requests from the involved governmental agencies and intends to amicably resolve the matter with those agencies. Separately, the Company was placed on notice of potential citizens’ enforcement suits regarding the April 2017 incident and other historical alleged Clean Water Act and Permit violations at Midwest. In January of 2018, The Surfrider FoundationAppeals and the City of Chicago initiated suits in the Northern District of Indiana alleging such violations. The Company intends to defend against those actions.
class has been notified. Discovery is proceeding.
Asbestos Litigation
As of December 31, 2017, U. S. Steel was a defendant in approximately 820 active cases involving approximately 3,315 plaintiffs. The vast majority of these cases involve multiple defendants. As of December 31, 2016, U. S. Steel was a defendant in approximately 845 cases involving approximately 3,340 plaintiffs. About 2,500, or approximately 75 percent, of these plaintiff claims are currently pending in jurisdictions which permit filings with massive numbers of 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 activity with respectSee Note 26 to asbestos litigation:
|
| | | | | | | | |
| Period ended | | Opening
Number
of Claims | | Claims
Dismissed,
Settled
and Resolved | | New
Claims | | Closing
Number
of Claims |
| December 31, 2015 | | 3,455 | | 415 | | 275 | | 3,315 |
| December 31, 2016 | | 3,315 | | 225 | | 250 | | 3,340 |
| December 31, 2017 | | 3,340 | | 275 | | 250 | | 3,315 |
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;our Consolidated Financial Statements, Contingencies 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. 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, although the resolution of such matters could significantly impact results of operationsCommitments for a particular quarter.description of our asbestos litigation.
Environmental ProceedingsENVIRONMENTAL PROCEEDINGS
The following is a summary of the proceedings of U. S. Steel that were pending or contemplated as of December 31, 2017,2020, under federal and state environmental laws.laws, and which U. S. Steel reasonably believes may result in monetary sanctions of at least $1 million (the threshold chosen by U. S. Steel as permitted by Item 103 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended). Information about specific sites where U. S. Steel is or has been engaged in significant clean up or remediation activities is also summarized below. Except as described herein, it is not possible to accurately predict the ultimate outcome of these matters.
CERCLA Remediation Sites
Claims under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) have been raised with respect to the cleanup of various waste disposal and other sites. Under CERCLA, potentially responsible parties (PRPs) for a site include current owners and operators, past owners and operators at the time of disposal, persons who arranged for disposal of a hazardous substance at a site, and persons who transported a hazardous substance to a site. CERCLA imposes strict and joint and several liabilities. Because of various factors, including the ambiguity of the regulations, the difficulty of identifying the responsible parties for any particular site, the complexity
of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques, and the amount of damages and cleanup costs and the time period during which such costs may be incurred, we are unable to reasonably estimate U. S. Steel’s ultimate liabilities under CERCLA.
As of December 31, 2017,2020, U. S. Steel has received information requests or been identified as a PRP at a total of sevenfive CERCLA sites, twothree of which have liabilities that have not been resolved. Based on currently available information, which is in many cases preliminary and incomplete, management believes that U. S. Steel’s liability for CERCLA cleanup and remediation costs at the other fivetwo sites will be between $100,000 and $1 million and $5 million for fourone of the sites, and over $5 million for one site as described below.
Duluth Works
The former U. S. Steel Duluth Works site was placed on the National Priorities List under CERCLA in 1983 and on the State of Minnesota’s Superfund list in 1984. Liability for environmental remediation at the site is governed by a Response Order by Consent executed with the MPCA in 1985 and a Record of Decision signed by MPCA in 1989. U. S. Steel has submitted a feasibility study that includes remedial measurespartnered with the Great Lakes National Program Office (GLNPO) of U.S. EPA Region 5 to address contaminated sediments in the St. Louis River Estuary and several other Operable Units that could impact the Estuary if not addressed. An amendment to the Project Agreement between U. S. Steel and GLNPO was executed during the second quarter of 2018 to recognize the costs associated with implementing the proposed remedial plan at the site.
WhileRemediation contracts were issued by both USS and GLNPO for the first portion of the remedial work at the site during the fourth quarter of 2020. Work continues on completionrefinement of the remaining portions of the remedial design and educating the public and key stakeholders on the details of the plan, there has been no material change in the status of the project during the twelve months ended December 31, 2017.permitting. Additional study, investigation, design, oversight costs, and implementation of U. S. Steel's preferred remedial alternatives on the upland property and Estuary are currently estimated as of December 31, 20172020 at approximately $47$34 million.
RCRAResource Conservation Recovery Act (RCRA) and Other Remediation Sites
U. S. Steel may be liable for remediation costs 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. There are 19nine such sites where remediation is being sought involving amounts in excess of $100,000.$1 million. Based on currently available information, which is in many cases preliminary and incomplete, management believes that liability for cleanup and remediation costs in connection with 9 sites have potential costs between $100,000 and $1 million per site, 5four sites may involve remediation costs between $1 million and $5 million per site and 5five sites are estimated to or could have, costs for remediation, investigation, restoration or compensation in excess of $5 million per site.
For more information on the status of remediation activities at U. S. Steel’s significant sites, see the discussions related to each site below.
Gary Works
On October 23, 1998, the Environmental Protection Agency (EPA)U.S. EPA issued a final Administrative Order on Consent (Order) addressing Corrective Action for Solid Waste Management Units (SWMU) throughout Gary Works. This Order requires U. S. Steel to perform a Resource Conservation and Recovery Act (RCRA)RCRA Facility Investigation (RFI), a Corrective Measures Study (CMS) and Corrective Measure Implementation. WhileEvaluations are underway at six groundwater areas on the east side of the facility. An Interim Stabilization Measure work continues on several items, thereplan has been no material change in the statusapproved by U.S. EPA for one of the project duringsix areas and a contractor has initiated installation of the twelve months ended December 31, 2017.remedial system. Until the remaining Phase I work and Phase II field investigations are completed, it is not possible to assess what additional expenditures will be necessary for Corrective Action projects at Gary Works. In total, the accrued liability for Corrective Action projects is approximately $25 million as of December 31, 2017,2020, based on our current estimate of known remaining costs.
Geneva Works
At U. S. Steel’s former Geneva Works, liability for environmental remediation, including the closure of three hazardous waste impoundments and facility-wide corrective action, has been allocated between U. S. Steel and the current property owner pursuant to an agreement and a permit issued by the Utah Department of Environmental Quality (UDEQ). Having completed the investigation on a majority of the remaining areas identified in the permit, U. S. Steel has determined the most effective means to address the remaining impacted material is to manage those materials in a previously approved on-site Corrective Action Management Unit (CAMU). While preliminary approvalU. S. Steel awarded a contract for the implementation of the conceptual CAMU design has been granted by the UDEQ, there has been no material change in the status of the
project during the twelve months ended December 31, 2017.fourth quarter of 2018. Construction, waste stabilization and placement along with closure of the CAMU were substantially completed in the fourth quarter of 2020. U. S. Steel has an accrued liability of approximately $63$21 million as of December 31, 2017,2020, for our estimated share of the remaining costs of remediation.remediation at the site.
USS-POSCO Industries (UPI)
AIn February 2020, U. S. Steel purchased the remaining 50 percent interest in UPI, a former joint venture that is located in Pittsburg, California between subsidiaries of U. S. Steel and POSCO,POSCO. Prior to formation of the joint venture, UPI's facilities were previously owned and operated solely by U. S. Steel which retains primaryassumed responsibility for the existing environmental conditions. During 2016, U. S. Steel implemented its preferredcontinues to monitor the impacts of the remedial plan implemented in 2016 to address groundwater impacts from trichloroethylene at Solid Waste Management Unit (SWMU)SWMU 4. Evaluations continue for the three SWMUs known as the Northern Boundary Group and it is likely that corrective measures will be required, but it is not possible at this time to define a scope or estimate costs for what may be required by the California Department of Toxic Substances Control. As such, there has been no material change in the status of the project during the twelve months ended December 31, 2017.2020. As of December 31, 2017,2020, approximately $1 million has been accrued for ongoing environmental studies, investigations and remedy monitoring. Significant additional costs associated with this site are possible and are referenced in Note 2526 to the Consolidated Financial Statements, “ContingenciesContingencies and Commitments, - Environmental Matters, - Remediation Projects, - Projects with Ongoing Study and Scope Development.”
Fairfield Works
A consent decree was signed by U. S. Steel, the EPA and the U.S. Department of Justice and filed with the United States District Court for the Northern District of Alabama (United States of America v. USX Corporation) in December 1997. In accordance with the consent decree, U. S. Steel initiated a RCRA corrective action program at the Fairfield Works facility. The Alabama Department of Environmental Management (ADEM), with the approval of the EPA, assumed primary responsibility for regulation and oversight of the RCRA corrective action program at Fairfield Works. While work continues on different aspects of the program, there has been no material change in the status of the project during the twelve months ended December 31, 2017. In total, the accrued liability for remaining work under the Corrective Action Program, was approximately $325,000 at December 31, 2017. Significant additional costs associated with this site are possible and are referenced in See Note 255 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”for further details regarding U. S. Steel's purchase of UPI.
Fairless Plant
In April 1993, U. S. Steel entered into a consent order with2017, the EPA pursuantContra Costa Health Services Hazardous Materials Programs (County Health Services) conducted inspections of UPI’s facility, which resulted in the identification of several alleged environmental violations. Thereafter, UPI was able to RCRA, under which U. S. Steel would perform Interim Measures (IM), an RFI and CMS at our Fairless Plant. A Phase I RFI Final Report was submitted in September of 1997. With EPA’s agreement, in lieu of conducting subsequent phasesresolve many of the RFIissues to the satisfaction of County Health Services, but UPI also encountered some delays and disagreements pertaining to certain alleged violations. In 2018, County Health Services referred the matter to the Contra Costa District Attorney’s Office. In October 2019, UPI and the CMS, U. S. Steel has been working throughDistrict Attorney’s Office agreed to a tentative settlement whereby UPI would pay $2.4 million in civil penalties in installments over 24 months. The tentative settlement also calls for UPI to spend $1 million on environmental compliance at its facility (expenditures that benefit UPI). In addition, the Pennsylvania Departmenttentative settlement includes a $1 million suspended penalty that would be due if UPI were to fall out of Environmental Protection Act 2 Program to characterize and remediate facility parcels for redevelopment. While work continues on these items, there has been no material changecompliance during the compliance period. The parties are currently in the statusprocess of negotiating and documenting the details of the project during the twelve months ended December 31, 2017. As of December 31, 2017, the accrued liability to maintain the interim measures, and clear properties through the Act 2 process is approximately $49,000. Significant additional costs associated with this site are possible and are referenced in Note 25 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”settlement.
Lorain Tubular Operations
In September 2006, U. S. Steel and the Ohio Environmental Protection Agency (OEPA) commenced discussions about RCRA Corrective Action at Lorain Tubular Operations. A Phase I RFI on the identified SWMUs and Areas of Contamination was submitted in March 2012. While discussions continue with OEPA on the Phase II RFI report that addresses additional investigations of soil, site wide groundwater and the pipe mill lagoon, there has been no material change in the status of the project during the twelve months ended December 31, 2017. As of December 31, 2017, costs to complete additional projects are estimated to be approximately $108,000. Significant additional costs associated with this site are possible and are referenced in Note 25 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”
Joliet Works
The 50-acre parcel at the former Joliet Works is enrolled in the Illinois Environmental Protection Agency’s (IEPA) voluntary Site Remediation Program (the Program). The Program requires investigation and establishment of cleanup
objectives followed by submission/approval of a Remedial Action Plan to meet those objectives. The 50-acre parcel was divided into four (4) subareas with remedial activities completed in 2015 for three (3) of the subareas. While work continues to define the requirements for further investigation of the remaining subarea, there has been no material change in the status of the project during the twelve months ended December 31, 2017. U. S. Steel has an accrued liability of $294,000 as of December 31, 2017. Significant additional costs associated with this site are possible and are referenced in Note 25 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”
Cherryvale (KS) Zinc
In April 2003, U. S. Steel and Salomon Smith Barney Holdings, Inc. (SSB) entered into a Consent Order with the Kansas Department of Health & Environment (KDHE) concerning a former zinc smelting operation in Cherryvale, Kansas. Remediation of the site proper was essentially completed in 2007. The Consent Order was amended on May 3, 2013, to require investigation (but not remediation) of potential contamination beyond the boundary of the former zinc smelting operation. On November 22, 2016, KDHE approved a State Cooperative Final Agency Decision Statement that identified the remedy selected to address potential contamination beyond the boundary of the former zinc smelting site. Work continues on finalizing theThe Removal Action Design Plan. AsPlan was approved during the second quarter of 2018. The Waste Deposition Area design and the Interim Risk Management Plan (which includes institutional controls) were approved by KDHE during the fourth quarter of 2018. An amended consent order for remediation was signed in May 2019 and a remediation contract was executed in June 2019. Remediation work is now underway and is projected to continue through 2022. U. S. Steel has an accrued liability of approximately $7 million as of December 31, 2017, an accrual2020, for our estimated share of the cost of remediation.
Fairfield Works
A consent decree was signed by U. S. Steel, the U.S EPA and the U.S. Department of Justice and filed with the United States District Court for the Northern District of Alabama (United States of America v. USX Corporation) in December 1997. In accordance with the consent decree, U. S. Steel initiated a RCRA corrective action program at the Fairfield Works facility. The Alabama Department of Environmental Management, with the approval of the U.S. EPA, assumed primary responsibility for regulation and oversight of the RCRA corrective action program at Fairfield Works. While work continues on different aspects of the program, there has been no material change in the status of the project during the twelve months ended December 31, 2020. In total, the accrued liability for remaining work under the Corrective Action Program, was approximately $351,000 remains available for addressing these outstanding issues.$213,000 at December 31, 2020. Significant additional costs associated with this site are possible and are referenced in Note 2526 to the Consolidated Financial Statements “Contingencies and Commitments, - Environmental Matters, - Remediation Projects, - Projects with Ongoing Study and Scope Development.”
South Works
On August 29, 2017, U. S. Steel was notified by the U.S. Coast Guard of a sheen on the water in the North Vessel Slip at our former South Works in Chicago, Illinois. U. S. Steel has been working with the IEPA under their voluntary Site Remediation Program since 1993 to evaluate the condition of the property including the North Vessel Slip. The result of this cooperative effort has been the issuance of a series of “No Further Remediation” (NFR) notices to U. S. Steel including one specific to the North Vessel Slip. U. S. Steel has notified the IEPA of the potential changed condition and is working closely with the IEPA and the U. S. Coast Guard to determine the source of the sheen and options to address the issue. U. S. Steel has an accrued liability of $82,000 as of December 31, 2017.
Air Related Matters
Great Lakes Works
In June 2010, the U.S. EPA significantly lowered the primary National Ambient Air Quality Standards (NAAQS) for sulfur dioxide (SOSO2) from 140 parts per billion (ppb)ppb on a 24-hour basis to an hourly standard of 75 ppb. Based upon the 2009-2011 ambient air monitoring data, the U.S. EPA designated the area in which Great Lakes Works is located as nonattainment with the 2010 SO2 NAAQS.
As a result, pursuant to the CAA, the Michigan Department of Environmental Quality (MDEQ) mustEnvironment, Great Lakes and Energy (EGLE) was required to submit a State Implementation Plan (SIP)SIP to the U.S. EPA that demonstrates that the entire nonattainment area (and not just the monitor) willwould be in attainment by October 2018 by using conservative air dispersion modeling. To develop the SIP, U. S. Steel met with MDEQEGLE on multiple occasions and had offered reduction plans to MDEQEGLE but the parties could not agree to a plan. MDEQ,EGLE, instead promulgated Rule 430 which was solely directed at U. S. Steel. The Company challenged Rule 430 before the Michigan Court of Claims who by Order dated October 4, 2017, granted the Company’s motion for summary disposition voiding Rule 430 finding that it violated rule-making provisions of the Michigan Administrative Procedures Act and Michigan Constitution. Since Rule 430 has been invalidated and EGLE's SIP has not been approved, the U.S. EPA has indicated that it would promulgate a Federal Implementation Plan (FIP). pursuant to its obligations and authority under the CAA. Because development of the FIP is in the early stages, the impacts of the nonattainment designation to the Company are not estimable at this time.
On May 27, 2015, Great Lakes Works received a Violation Notice in which MDEQ alleged that U. S. Steel did not obtain a required permit to install a BOP vessel replacement that occurred in November 2014. U. S. Steel responded to MDEQ on June 17, 2015. While the resolution of the matter is uncertain at this time, it is not anticipated that the resolution will be material to U. S. Steel.
Granite City Works
In October 2015, Granite City Works received a Violation Notice from IEPAIllinois Environmental Protection Agency (IEPA) in which the IEPA alleges that U. S. Steel violated the emission limits for nitrogen oxides (NOx) and volatile organic compounds from the Basic Oxygen Furnace Electrostatic Precipitator Stack. In addition, the IEPA alleges that U. S. Steel exceeded its natural gas usage limit at its CoGeneration Boiler. U. S. Steel responded to the notice and is currently discussing resolution of the matter with IEPA.
On December 18, 2017, Granite City Works received a Violation Notice from IEPA in which the IEPA alleges that U. S. Steel violated certain air operating, maintenance and recordkeeping requirements related to a coke conveyance system, pickle line scrubbers and hydrochloric acid storage tanks. U. S. Steel is currently discussing resolution of the matter with IEPA.
Although discussions with IEPA regarding the foregoing alleged violations are ongoing and the resolution of these matters is uncertain at this time, it is not anticipated that the result of those discussions will be material to U. S. Steel.
Minnesota Ore Operations
On February 6, 2013, the U.S. EPA published a FIP that applies to taconite facilities in Minnesota. The FIP establishes and requires emission limits and the use of low NOx reduction technology on indurating furnaces as Best Available Retrofit Technology.Technology (BART). While U. S. Steel installed low NOx burners on three furnaces at Minntac and is currently obligated to install low NOx burners on the two other furnaces at Minntac pursuant to existing agreements and permits, the rule would require the installation of a low NOx burner on the one furnace at Keetac for which U. S. Steel did not have an otherwise existing obligation. U. S. Steel estimates expenditures associated with the installation of low NOx burners of as much as $25 million to $30 million. In 2013, U. S. Steel filed a petition for administrative reconsideration to the U.S. EPA and a petition for judicial review of the 2013 FIP and denial of the Minnesota State Implementation Plan (SIP)SIP to the Eighth Circuit of the 2013 FIP.Circuit. In April 2016, the U.S. EPA promulgated a revised FIP with the same substantive requirements for U. S. Steel. In June 2016, U. S. Steel filed a petition for administrative reconsideration of the 2016 FIP to the U.S. EPA and a petition for judicial review of the 2016 FIP before the Eighth Circuit Court of Appeals. While the proceedings regarding the petition for judicial review of the 2013 FIP remained stayed, oral arguments regarding the petition for judicial review of the 2016 FIP were heard by the Eighth Circuit Court of Appeals on November 15, 2017. Thus, both petitions for judicial review remain with the Eighth Circuit. On December 4, 2017, the U.S. EPA published a notification in the Federal Register in which the U.S. EPA denied U. S. Steel’s administrative petitions for reconsideration and stay of the 2013 FIP and 2016 FIP. On February 1, 2018, U. S. Steel filed a petition for judicial review of the U.S. EPA’s denial of the administrative petitions for reconsideration to the 8thEighth Circuit Court of Appeals. The U.S. EPA and U. S. Steel continuesreached a settlement regarding the five indurating lines at Minntac. Notice of a 30-day comment period of the settlement agreement was published in the September 11, 2019, Federal Register. The comment period expired on October 11, 2019. U. S. Steel will work with the U.S. EPA to defend its petitions while pursuing aaddress any comments. U. S. Steel and the U.S. EPA continue to negotiate resolution that would include an equitable revision to the FIP.for Keetac.
Mon Valley Works
On November 9, 2017, the U.S. EPA Region III and the Allegheny County Health Department (ACHD) jointly issued a Notice of Violation (NOV) regarding the Company’s Edgar Thomson facility in Braddock, PA. In addition, on November 20, 2017, ACHD issued a separate, but related NOV to the Company regarding the Edgar Thomson facility. In the NOVs, based upon their inspections and review of documents collected throughout the last two years, the agencies allege that the Company has violated the Clean Air ActCAA by exceeding the allowable visible emission standards from certain operations during isolated events. In addition, the agencies allege that the Company has violated certain maintenance, reporting, and recordkeeping requirements. U. S. Steel met with U.S. EPA Region III and ACHD on December 18, 2017,several times. ACHD, the U.S. EPA Region III and continuesU. S. Steel continue to negotiate a potential resolution of the matter.
On December 24, 2018, U. S. Steel's Clairton Plant experienced a fire, affecting portions of the facility involved in desulfurization of the coke oven gas generated during the coking process. With the desulfurization process out of operation as a result of the fire, U. S. Steel was not able to certify compliance with Clairton Plant’s Title V permit levels for sulfur emissions. U. S. Steel promptly notified ACHD, which has regulatory jurisdiction for the Title V permit, and updated the ACHD regularly on efforts to mitigate any potential environmental impacts until the desulfurization process was returned to normal operations. Of the approximately 2,400 hours between the date of the fire and April 4, 2019, when the Company resumed desulfurization, there were ten intermittent hours where average SO2 emissions exceeded the hourly NAAQS for SO2 at the Allegheny County regional air quality monitors located in Liberty and North Braddock boroughs which are near U. S. Steel's Mon Valley Works facilities. On February 13, 2019, PennEnvironment and Clean Air Council, both environmental, non-governmental organizations, sent U. S. Steel a 60-day notice of intent to sue letter pursuant to the CAA. The letter alleged Title V permit violations at the Clairton, Irvin, and Edgar Thomson facilities as a result of the December 24, 2018 Clairton Plant fire. The 60-day notice letter also alleged that the violations caused adverse public health and welfare impacts to the communities surrounding the Clairton, Irvin, and Edgar Thomson facilities. PennEnvironment and Clean Air Council subsequently filed a Complaint in Federal Court in the Western District of Pennsylvania on April 29, 2019 to which U. S. Steel has responded. On May 3, 2019, ACHD filed a motion to intervene in the lawsuit which was granted by the Court. On June 25, 2019, ACHD filed its Complaint in Intervention, seeking injunctive relief and civil penalties regarding the alleged permit violations following the December 24, 2018 fire. The parties are currently engaged in discovery.
On February 7, 2020, the Indiana Department of Environmental Management (IDEM) issued an Amended Notice of Violation and Proposed Agreed Order related to alleged NPDES permit water discharge violations at our Midwest Plant in Portage, Indiana during the period of November 2018 through December 2019 unrelated to the violations resolved in the Consent Decree. The Proposed Agreed Order seeks corrective actions, a civil penalty, and stipulated penalties for future violations. The parties continue to negotiate a Proposed Agreed Order.
Item 4. MINE SAFETY DISCLOSURE
The information concerning mine safety violations and other regulatory matters required by Section 150 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-K.10-K
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of U. S. Steel and their ages as of February 1, 2018,2021, are as follows:
|
| | | | | | | | | | |
| Name | Age | AgeTitle | | Title | | Executive Officer
Since
|
Kevin P. BradleyChristine S. Breves | 64 | 55 | | ExecutiveSenior Vice President & Chief Financial Officer | | July 27, 2017 |
Christine S. Breves | | 61 | | Senior Vice President, Manufacturing Support & Chief Supply Chain Officer | | April 27, 2017 |
| James E. Bruno | 55 | 52 | | Senior Vice President - Automotive Solutions (a)
| | December 1, 2014 |
Scott D. Buckiso | | 50 | | Senior Vice President - European Solutions and President - USSK(b) | December 1, 2014 |
| Scott D. Buckiso | 53 | Senior Vice President and Chief Manufacturing Officer North American Flat-Rolled | May 31, 2015 |
| David B. Burritt | 65 | 62 | | President & Chief Executive Officer | | September 1, 2013 |
Colleen M. Darragh | | 48 | | Vice President & Controller | | July 17, 2014 |
| Richard L. Fruehauf | 53 | 50 | | Deputy General Counsel - Corporate; Interim General Counsel | | November 7, 2017 |
Sara A. Greenstein | | 43 | | Senior Vice President - Consumer Solutions (a) Strategic Planning and Chief Strategy and Development Officer | | DecemberMarch 1, 20142019 |
Douglas R. MatthewsManpreet S. Grewal | 41 | 52Vice President & Controller | March 30, 2020 |
| Duane D. Holloway | 48 | Senior Vice President, - Industrial, Service CenterGeneral Counsel and Mining Solutions (a)
Chief Ethics & Compliance Officer | | July 2, 2012April 16, 2018 |
David J. RintoulKenneth E. Jaycox | 53 | 60 | | Senior Vice President - Tubular Business (c) and Chief Commercial Officer | | May 1, 2014September 28, 2020 |
Pipasu SoniA. Barry Melnkovic | 63 | 45 | | Senior Vice President - Financeand Chief Human Resources Officer | | FebruaryMarch 1, 20172018 |
(a) Automotive Solutions, Consumer Solutions,
Messrs. Buckiso, Burritt and Industrial, Service CenterBruno and Mining Solutions commercial entities are contained within the Flat-Rolled segment.
(b) European Solutions commercial entity is contained within the USSE segment.
(c) Tubular Business commercial entity is contained within the Tubular segment. David J. Rintoul has elected to retire on February 28, 2018. Douglas R. Matthews will assume responsibilities for the Company's Tubular Segment on an interim basis.
All of the executive officers mentioned aboveMs. Breves have held responsible management or professional positions with U. S. Steel or ourits subsidiaries for more than the past five years, with the exception of Mr. Bradley, Ms. Breves, Mr. Bruno, Mr. Burritt, Ms. Greenstein, Mr. Soni and Mr. Fruehauf.years. Prior to joining U. S. Steel in 2020 Mr. Bruno was with TRW Automotive,Jaycox served as Vice President, Transformation at Sysco Corporation where during his seven-year tenure, he progressed through a global leader in automotive safetyseries of executive responsibilities including transformation, sales development and one of the world's largest automotive suppliers, for 20 years, most recently serving as vice president – North American braking operationssupport, and global slip control portfolio.revenue management. Prior to joining U. S. Steel in 2020 Mr. BradleyGrewal served as senior vice president, business finance, controller, and chief financialaccounting officer at Terex Corporation, a U.S.-based global manufacturerCovanta since February 2017. Prior to Covanta, Mr. Grewal spent fourteen years at Johnson Controls Incorporated (formerly Tyco International) in increasingly responsible roles, including internal audit, accounting, controllership, and financial planning and analysis. Mr. Fruehauf joined U. S. Steel in September 2014 as assistant general counsel - commercial and progressed through roles of lifting and material processing products such as cranes, aerial work platforms, and mobile crushing and screening equipment usedincreasing responsibility in industries ranging from construction and miningthe legal department, before moving to utilities.lead Strategy in April 2018. Prior to joining U. S. Steel Ms. Brevesin 2018, Mr. Holloway served as executive vice president and general counsel at Ascena Retail Group Inc. During his time at Ascena, Mr. Holloway served as global chief procurement officerlegal, compliance, sustainability and diversity officer. Prior to his work at AlcoaAscena, Mr. Holloway served as vice president and deputy general counsel for CoreLogic Inc., where she served since 2004 with responsibility for strategic materials, indirect materialsthe leading global residential property information, analytics and services, non-smelter energy, transportation and capital. Ms. Greenstein joined U. S. Steel from Underwriters Laboratories, Inc. (UL) where she was employed for 12 years and most recently held the position of president, UL Supply Chain and Sustainability. Mr. Soni joined U. S. Steel in 2016. Previously he was with Pentair for six years, most recently serving as Vice President, Business Analysis and Planning from 2012 - 2015. Mr. Soni also held various roles in international and business unit finance, corporate development and controllership at Honeywell. Mr. Fruehauf joined the Company in 2014 as Assistant General Counsel, and was subsequently promoted to Associate General Counsel and Deputy General Counsel. He was named Interim General Counsel in November 2017.data-enabled solutions provider. Prior to joining U. S. Steel in 2017, Mr. FruehaufMelnkovic served as Senior Counselexecutive vice president and then Assistant General Counsel during his six years at Westinghouse Electric Company LLC. Throughout his career, he has also worked as an attorney at several law firmschief human capital officer, labor relations, diversity and other manufacturing companies, and as a national security analystlean enterprise solutions for several U.S. government agencies.National Railroad Passenger Corporation / Amtrak.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock Information
The principal market on which United States Steel Corporation (U. S. Steel) common stock is traded is the New York Stock Exchange.Exchange, where the common stock trades under trading symbol "X". U. S. Steel common stock is also traded on the Chicago Stock Exchange. Information concerningExchange under the high and low sales price for the common stock as reported in the consolidated transaction reporting system and the frequency and amount of dividends paid during the last two years is set forth in “Selected Quarterly Financial Data (Unaudited)” on page F-57.symbol "X".
As of February 15, 2018,8, 2021, there were 13,63211,605 registered holders of U. S. Steel common stock.
The Board of Directors currently intends to declare and pay dividends on shares of U. S. Steel common stock based on the financial condition and results of operations of U. S. Steel out of legally available funds and in accordance with the requirements set forth by applicable law. Quarterly dividends were declared by U. S. Steel in 20172020 and 20162019 in the amount of $0.01 per share and $0.05 per share.share, respectively.
ShareholderStockholder Return Performance
The graph below compares the yearly change in cumulative total shareholderstockholder return of our common stock with the cumulative total return of the Standard & Poor’s (S&P’s)&P) 500 Stock Index and the S&P 600 Steel Index.
Comparison of Cumulative Total Return
on $100 Invested in U.S.U. S. Steel Stock on December 31, 20122015
vs
S&P 500 and S&P 600 Steel Index
(a) U. S. Steel was removed from the S&P 500 Index effective July 1, 2014. Consequently, U. S. Steel is now part of the S&P 600 Steel Index instead of the S&P 500 Steel Index, which is a subset of the S&P 500. Therefore, current year results may not be comparable to prior years.
For information on securities authorized for issuance under our equity compensation plans, see "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."
RecentUnregistered Sales of UnregisteredEquity Securities
U. S. Steel had no sales of unregistered equity securities during the period covered by this report.
Item 6. SELECTED FINANCIAL DATA
Omitted at the Company's option.
|
| | | | | | | | | | | | | | | | | | | | |
Dollars in millions (except per share data)(a) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Statement of Operations Data: | | | | | | | | | | |
| Net sales | | $ | 12,250 |
| | $ | 10,261 |
| | $ | 11,574 |
| | $ | 17,507 |
| | $ | 17,424 |
|
| Earnings (loss) before interest and income taxes | | 608 |
| | (165 | ) | | (1,202 | ) | | 413 |
| | (1,900 | ) |
| Net earnings (loss) attributable to United States Steel Corporation | | 387 |
| | (440 | ) | | (1,642 | ) | | 102 |
| | (1,645 | ) |
| Per Common Share Data: | | | | | | | | | | |
Net earnings (loss) attributable to United States Steel Corporation(b) | | | | | | | | | | |
| – basic | | 2.21 |
| | (2.81 | ) | | $ | (11.24 | ) | | $ | 0.71 |
| | $ | (11.37 | ) |
| – diluted | | 2.19 |
| | (2.81 | ) | | (11.24 | ) | | 0.69 |
| | (11.37 | ) |
| Dividends per share declared and paid | | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
|
| Balance Sheet Data – December 31: | | | | | | | | | | |
Total assets (c) (d) | | $ | 9,862 |
| | $ | 9,160 |
| | $ | 9,167 |
| | $ | 11,975 |
| | $ | 12,679 |
|
| Capitalization: | | | | | | | | | | |
Debt (d) | | $ | 2,703 |
| | $ | 3,031 |
| | $ | 3,138 |
| | $ | 3,460 |
| | $ | 3,892 |
|
| United States Steel Corporation stockholders’ equity | | 3,320 |
| | 2,274 |
| | 2,436 |
| | 3,799 |
| | 3,375 |
|
| Total capitalization | | $ | 6,023 |
| | $ | 5,305 |
| | $ | 5,574 |
| | $ | 7,259 |
| | $ | 7,267 |
|
| |
(a) | For discussion of changes between the years, see Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." |
| |
(b) | See Note 8 to the Consolidated Financial Statements for the basis of calculating earnings per share. |
| |
(c) | 2014 and 2013 amounts have been adjusted to retroactively adopt Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet.
|
| |
(d) | 2015, 2014 and 2013 amounts have been adjusted to retroactively adopt Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes that appear elsewhere in this document. Please refer to Item 7 of our 2019 Form 10-K for further discussion and analysis of our 2018 financial condition and results of operations.
Overview
According to World Steel Association’s latest published statistics, U. S. Steel was the twenty-fourthtwenty-seventh largest steel producer in the world in 2016.2019. Also in 20162019 according to World Steel Association’s latest published statistics, U. S. Steel was the third largest steel producer in the United States. U. S. Steel has a broad and diverse mix of products and customers. We use iron ore, coal, coke, steel scrap, zinc, tin, and other metallic additions to produce a wide range of flat-rolled and tubular steel products, concentrating on value-added steel products for customers with demanding technical applications in the automotive,transportation, appliance, container, industrial machinery, construction and oil, gas, and petrochemical industries. In addition to our facilities in the United States, U. S. Steel has significant operations in Eastern Europe through U. S. Steel Košice (USSK), located in Slovakia.
We are proud to report the following highlights and accomplishments achieved in 2017:2020:
Implemented comprehensive•Set a safety program enhancements for employees and contractors, to help achieve our goalperformance record with a 2020 Days Away from Work rate of a safe return home every day
Outperformed0.07, which is eight times better than the industry average reported by the U.S. Bureau of Labor StatisticsStatistics.
•Articulating and AISI industry safety benchmarksexecuting on the transformative Best of BothSM strategy, including exercise of the option to acquire the remaining interest in both OSHA Recordable Days and Days Away From WorkBig River Steel. The acquisition closed on January 15, 2021.
Reported net earnings of $387
•Commissioned the new 1.6 million ton electric arc furnace (EAF) at Fairfield, Alabama in 2017October 2020 that is currently used to feed our 0.9 million ton rounds caster.
Finished 2017 with adjusted EBITDA of $1.087 billion and positive operating cash flow of $802 million
Strong year-end liquidity of approximately $3.350 billion, including $1.553 billion of cash, which supports our goal of maintaining a healthy balance sheet
Reduced total debt by $328 million in 2017 as compared to 2016
Successfully completed a $750 million debt offering, providing for future financial flexibility
Improved our cash conversion cycle by 13 days
Made a $75 million voluntary contribution to our defined benefit pension plan, further improving the funded status
| |
• | Launched a new proprietary tubular connection - USS-EAGLE SFHTM and sold our first order of USS-LIBERTY LDTM
|
Began•Completed construction of a newthe continuous galvanizing line at our PRO-TEC joint venture, to efficiently producewhich will provide superior finishing capabilities for our differentiated line of advanced high strength steelssteels.
Initiated
•Trialed 11 U. S. Steel grades of steel at Big River Steel, with its low carbon emissions intensity production process, in furtherance of our commitment to support our sustainability goals and those of our customers.
•Awarded a multi-year asset revitalization program that includes $1.5perfect "100" score by the Human Rights Campaign Corporate Equality Index for the second straight year.
•Positive operating cash flow of $138 million in 2020 and strong year-end liquidity of approximately $3.2 billion, including $2.0 billion of cash, to support the execution of our strategy.
•Achieved record low 24-day cash conversion cycle time, demonstrating intense focus on cash efficiency.
•Successfully raised approximately $1.7 billion in incremental capital including debt offerings and stock issuances.
•Received approximately $163 million and $94 million in net proceeds from the sale of a non-core real estate asset in Fairless, Pennsylvania and the Stelco option to purchase a 25 percent interest in our Minntac mine in Mt. Iron, Minnesota, respectively.
Our disciplined and balanced capital strategy has positioned our balance sheet to support investments in our Flat-Rolled assets
Continue to lead the U.S. steel industry's efforts to strengthen and enforce trade laws against unfairly traded imports
Our management team took several critical actions in recent years, including: idling facilities; right-sizing the organization; and exiting parts of the business where it is not possible to earn an economic profit. These were tough decisions and, despite the challenging economic circumstances, U. S. Steel ended 2017 as a more streamlined organization focused on generating economic profit across all business cycles.
business. We continue to take steps to improve and secure our long-term position as an industry leader by reducing our vulnerabilities during down cycles, accentuating our advantages in up cycles, and enabling the creation of value - and the related rewards - for all U. S. Steel stakeholders through business cycles.
We aim to achieve our vision by successfully executing on our world-competitive, Best of Both strategy. By bringing together the long-term. Thebest of the integrated steelmaking model with the best of the mini mill steelmaking model, we will transform our business to drive long-term cash flow through industry cycles. We aim to offer an unparalleled product platform to serve customers, achieve world-competitive positioning in strategic, high-margin end markets, and deliver high-quality, value-added products and innovative solutions that address our customers' most challenging steel needs. To become a Best of Bothcompany, we are enhancing our focus on improving the balance sheetoperational and strategically accessing the capital markets enables the Company to move forwardcommercial excellence and open avenues to future growthpromoting technological innovation, so we can establish a more competitive cost structure and investment.
We have taken these actions as part ofenhance our strategy to return to profitable growth and deliver sustainable value creationcapabilities … two key drivers for our stockholdersstrategy.
U. S. Steel's results in 2020 were significantly impacted by market challenges in each of the Company's three reportable segments: North American Flat-Rolled (Flat-Rolled), U. S. Steel Europe (USSE) and Tubular Products (Tubular). In Flat-Rolled, results improved in the second half of the year due to the resumption of more typical operations from consumers of steel in North America that had been completely or partially shut down due to the coronavirus (COVID-19) pandemic. As regions unevenly re-
opened from pandemic related temporary idlings, demand levels increased, though demand remains at below typical levels. While steel prices did increase toward the end of the year, continued low spot prices impacted operating results for most of the year. Flat-Rolled results were largely impacted by the reset of calendar year fixed contract prices, as market conditions improve.well as lost shipments due to customer operating restrictions and lower demand as a result of the COVID-19 pandemic. As a result of the sharp decline in North American steel demand, driving raw steel capacity utilization rates sharply lower to almost 50%, there was also significant spot price erosion that followed. USSE continued to experience margin compression due to modestly recovered but still weak performance of the manufacturing sector combined with continued high levels of imports and high raw materials costs. In Tubular, the continued disruption in the oil and gas industry, as well as pandemic-related impacts, reduced demand for oil and gas and severely impacted energy prices, creating significant reductions of drilling activity in the U.S. See Item 1. Business, Human Capital Management and Item 1. Business, Capital Structure and Liquidity for further details regarding our human and financial response to the COVID-19 pandemic, respectively.
Critical Accounting Estimates
Management’s discussion and analysis of U. S. Steel’s financial condition and results of operations is based upon U. S. Steel’s financial statements, which have been prepared in accordance with accounting standards generally accepted in the United States (U.S. GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amount of revenues and expenses during the year. Management regularly evaluates these estimates, including those related to employee benefits liabilities and assets held in trust relating to such liabilities; the carrying value of property, plant and equipment; intangible assets; valuation allowances for receivables, inventories and deferred income tax assets; liabilities for deferred income taxes,taxes; potential tax deficiencies,deficiencies; environmental obligations andobligations; potential litigation claims and settlements.settlements and put and call option assets and liabilities. Management’s estimates are based on historical experience, current business and market conditions, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from current expectations under different assumptions or conditions.
Management believes that the following are the more significant judgments and estimates used in the preparation of the financial statements.
Identifiable intangible assets - Intangible assets with indefinite lives are subject to at least annual impairment testing, which compares the fair value of the intangible assets with their carrying amounts. U. S. Steel has determined that certain of its acquired intangible assets have indefinite useful lives. These assets are reviewed for impairment annually in the third quarter and whenever events or circumstances indicate the carrying value may not be recoverable. U. S. Steel performed a quantitative impairment evaluation of its indefinite-lived intangible assets, which consist of its water rights, during the third quarter of 2017. Based on the results of the evaluation, U. S. Steel's indefinite-lived intangible assets were not impaired. Based on the results of the quantitative impairment evaluation performed during 2016, the water rights were not impaired. Prior to the fourth quarter of 2016, U. S. Steel had in process research and development patents that had indefinite useful lives. Based on the results of the impairment evaluation, the estimated fair value of the patents had decreased below their carrying value. As a result, an impairment charge of approximately $14 million was recorded in the third quarter of 2016. The research and development activities of the Company's acquired indefinite lived in-process research and development patents was completed during the fourth quarter of 2016 and the carrying amount of the patents is being amortized over the useful lives of the patents (approximately 10 years).
Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. During 2016, the permanent shutdown of certain Lorain, Lone Star and Bellville tubular assets was considered a triggering event for our welded and seamless tubular asset groups. U. S. Steel completed a review of certain of its identifiable intangible asset with finite lives, primarily customer relationships with a carrying value of $73 million at December 31, 2016, and determined the assets were not impaired. There were no triggering events that indicated the carrying value of the customer relationships may not be recoverable in 2017.
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. LIFO is the predominant method of inventory costing for inventories in the United States and FIFO is the predominant method used in Europe. The LIFO method of inventory costing was used on 59 percent and 75 percent of consolidated inventories at both December 31, 20172020 and 2016.2019, respectively. Since the LIFO inventory valuation methodology is an annual calculation, interim estimates of the annual LIFO valuation are required. We recognize the effects of the LIFO inventory valuation method on an interim basis by estimating the year end inventory amounts. The projections of annual LIFO inventory amounts are updated quarterly. Changes in U.S. GAAP rules or tax law, such as the elimination of the LIFO method of accounting for inventories, could negatively affect our profitability and cash flow.
Equity method investments – Investments in entities over which U. S. Steel has significant influence are accounted for using the equity method of accounting and are carried at U. S. Steel’s share of net assets plus loans, advances and our share of earnings less distributions. Differences in the basis of the investment and the underlying net asset value of the investee, if any, are amortized into earnings over the remaining useful life of the associated assets.
Income from investees includes U. S. Steel’s share of income from equity method investments, which is generally recorded a month in arrears, except for significant and unusual items which are recorded in the period of occurrence.arrears. Gains or losses from changes in ownership of unconsolidated investees are recognized in the period of change. Intercompany profits and losses on transactions with equity investees have been eliminated in consolidation subject to lower of cost or market inventory adjustments.
U. S. Steel evaluates impairment of its equity method investments whenever circumstances indicate that a decline in value below carrying value is other than temporary. Under these circumstances, we would adjust the investment down to its estimated fair value, which then becomes its new carrying value. During the fourth quarter
Financial Instruments – U. S. Steel's purchase of 2016, the Company completed a review of its49.9% equity method investmentsownership interest in Big River Steel on October 31, 2019 included certain call and determined there was an other than temporary impairment of its Apolo equity investment dueput options. U. S. Steel marked these options to fair value each reporting period using a Monte Carlo simulation which is considered a Level 3 valuation technique. Level 3 valuation techniques include inputs to the intentvaluation methodology that are considered unobservable and significant to sell its ownership interest at an amount less than the carryingfair value measurement. When the U. S. Steel call option was exercised, the options were legally extinguished and a contingent forward purchase commitment was recorded for the value of the investment. Accordingly, U. S. Steel recorded an impairment charge of $12 million, which reducedunsettled commitment to purchase the carrying valueremaining interest in Big River Steel. The contingent forward purchase commitment was removed with the close of the investmentBig River Steel purchase which occurred on January 15, 2021. See Note 5 and Note 20 to $18 million at December 31, 2016. U. S. Steel sold its ownership interest in this equity investment in 2017. During the fourth quarter of 2015, U. S. Steel completed a review of its equity method investments and determined there was an other than temporary impairment of an equity investee within a non-core operating segment of U. S. Steel. The other than temporary impairment resulted from a decision to cease the funding of the long-term development plans of the equity investment, due to our intent to sell the particular investment, thereby inhibiting sufficient recovery of the market value. Accordingly, U. S. Steel recorded an impairment charge of $18 million, which reduced the carrying amount of the equity investment to $3 million, in the fourth quarter of 2015. U. S. Steel's ownership interest in this investment was sold in 2017.Consolidated Financial Statements for further details.
Pensions and other benefitsOther Benefits – The recording of net periodic benefit costs for defined benefit pensions and other benefitsOther Benefits is based on, among other things, assumptions of the expected annual return on plan assets, discount rate, mortality, escalation or other changes in retiree health care costs and plan participation levels. Changes in the assumptions or differences between
actual and expected changes in the present value of liabilities or assets of U. S. Steel’s plans could cause net periodic benefit costs to increase or decrease materially from year to year as discussed below.
U. S. Steel’s investment strategy for its U.S. pension plan assets provides for a diversified mix of public equities, high quality bonds, public equities and selected smaller investments in private equities, investment trusts and partnerships,private credit, timber and mineral interests. For its U.S. pension plan, U. S. Steel has a target allocation for plan assets of 5545 percent in equities (inclusive of private equitycorporate bonds, government bonds and investment trusts).mortgage and asset-backed securities. The balance is primarily invested in corporate bonds, Treasury bondsequity securities, timber, private equity and government-backed mortgages.real estate partnerships. U. S. Steel believes that returns on equities over the long term will be higher than returns from fixed-income securities as actual historical returns from U. S. Steel’s trusts have shown. Returns on bonds tend to offset some of the short-term volatility of stocks. Both equity and fixed-income investments are made across a broad range of industries and companies (both domestic and foreign) to provide protection against the impact of volatility in any single industry as well as company specific developments. U. S. Steel will use a 6.856.90 percent assumed rate of return on assets for the development of net periodic cost for the main defined benefit pension plan in 2018.2021. The 20182021 assumed rate of return is lower than the rate of return used for 2017 domestic expense and was determined by taking into account the intended asset mix and some moderation of the historical premiums that fixed-income and equity investments have yielded above government bonds. Actual returns since the inception of the plans have exceeded this 6.85the 6.90 percent rate and while recent annual returns have been volatile, it is U. S. Steel’s expectation that rates will achieve this level in future periods.
The UPI investment strategy for its pension plan is to minimize the volatility of the value of pension assets relative to obligations and to ensure assets are sufficient to pay plan benefits. To achieve this strategy, UPI has a liability driven allocation of 60 percent in fixed income with the balance primarily invested in return seeking U.S. and global equity. UPI will use a 5.35 percent assumed rate of return on assets for the development of net periodic cost for the UPI defined benefit pension plan in 2021.
For its other benefitsOther Benefits plan assets, U. S. Steel employs a liability driven investment strategy. The plan assets are allocated to match the plan cash flows with maturing investments. To achieve this strategy, U. S. Steel has a target allocation for plan assets of 90 percent in high quality domestic bonds with thebonds. The balance is primarily invested in equity securities.securities, timber, private equity, private credit and real estate partnerships. U. S. Steel will use a 4.25 percent assumed rate of return on assets for the development of net periodic cost for its other benefitsOther Benefits plans. The 20182021 assumed rate of return has been conservatively set, taking into accountincludes consideration of the intended asset mix.
The expected long-term rate of return on plan assets is applied to the market value of assets as of the beginning of the period less expected benefit payments and considering any planned contributions.
To determine the discount rate used to measure our pension and other benefitOther Benefit obligations in 2016 and prior years, the discount rate for our U.S. plans was determined by utilizing several AAA and AA corporate bond indices as an indication of interest rate movements and levels. In 2017, we refined our discount rate determination process for our U.S. plans by usingutilize a bond matching approach to select specific bonds that would satisfy our projected benefit payments. At December 31, 2017,2020, the weighted average discount rate used for our pension and other benefitOther Benefit obligations was determined to be 4.002.72 percent and 4.032.80 percent, respectively, compared to the weighted average discount rate used of 4.003.35 percent and 4.003.43 percent, respectively,
at December 31, 2016.2019. The discount rate reflects the current rate at which we estimate the pension and other benefitsOther Benefits liabilities could be effectively settled at the measurement date.
At December 31, 2017, due to recent experience study on plan retirees, the Company updated the mortality assumptions used to calculate its main U.S. defined benefit pension and other post-employment benefit liabilities. As a result of this change in mortality assumptions, our projected benefit obligations have increased by $194 million and $42 million for pension and other benefits, respectively. However, this increase was more than offset by strong asset returns and a voluntary contribution of $75 million to our main domestic pension plan in 2017. As a result, the funded status of our pension and other benefit plans improved by $357 million and $111 million, respectively.
U. S. Steel reviews its actual historical rate experience and expectations of future health care cost trends to determine the escalation of per capita health care costs under U. S. Steel’s benefit plans. Approximately three quarters of our costs for the domestic United Steelworkers (USW) participants’ retiree health benefits in the Company’s main domestic benefit plan are limited to a per capita dollar maximum calculation based on 2006 base year actual costs incurred under the main U. S. Steel benefit plan for USW participants (cost cap). The full effect of the cost cap is expected to be realized around 2024.2028. After 2024,2028, the Company’s costs for a majority of USW retirees and their dependents are expected to remain fixed and as a result, the cost impact of health care escalation for the Company is projected to be limited for this group (See Note 1718 to the Consolidated Financial Statements). For measurement of its domestic retiree medical plans where health care cost escalation is applicable, U. S. Steel has assumed an initial escalation rate of 7.06.50 percent for 2018.2021. This rate is assumed to decrease gradually to an ultimate rate of 5.04.50 percent in 20222029 and remain at that level thereafter.
Net periodic pension benefit cost, including multiemployer plans, is expected to total approximately $135$87 million in 20182021 compared to $109$145 million in 2017.2020. Excluding the settlement termination and curtailmentspecial termination losses totaling $7$11 million in 2017,2020, the increasedecrease in expected expensenet periodic pension benefit cost in 20182021 is primarily due to lower expected return on assets and updates to the mortality assumption,2020 asset performance, partially offset by the impact of above expected asset returns for 2017. Totaldecrease in discount rates. Net periodic other benefits costsbenefit income in 2018 are2021 is expected to be approximately $60$(72) million, compared to $78$(23) million in 2017.2020. The decreaseexpected improvement in expense in 2018the 2021 net periodic other benefit income is primarily a resultdue to the expiration of the higher expected return on assets assumption.prior service cost bases and projected decreases in future healthcare costs.
The tables below project the projected incremental effect of a hypothetical one percentage point change in the significant assumptions used in determining the funded status and net periodic benefit cost for pension and other benefits calculations is providedbenefits:
| | | | | | | | | | | | | | |
| | At December 31, 2020 |
| | Hypothetical Rate Change |
| (In millions) | | 1% | | (1)% |
| Discount rates and interest rates | | | | |
| Incremental change in: | | | | |
| Pension and other benefits obligations, increase/(decrease) | | $ | (719) | | | $ | 861 | |
| Fixed income assets, (increase)/decrease | | 481 | | | (582) | |
| Net impact on funded status, increase/(decrease) | | $ | 238 | | | $ | (279) | |
The fixed income asset sensitivity shown above excludes other fixed income return components (e.g. changes in credit spreads, bond coupon and active management excess returns), and growth asset returns. Fixed income sensitivity reflects the following table:asset allocation and investment policy effective December 31, 2020. Other factors that impact net funded status (e.g., contributions) are not reflected.
Discount rates and the expected long-term return on assets have a material impact on net periodic pension and other benefit costs. The table below estimates the impact to net periodic pension costs of a hypothetical one percentage point change in rates: |
| | | | | | | | |
| | | Hypothetical Rate Increase (Decrease) |
| (In millions) | | 1% | | (1)% |
| Expected return on plan assets | | | | |
| Incremental (decrease) increase in: | | | | |
| Net periodic pension costs for 2018 | | $ | (72 | ) | | $ | 72 |
|
| Discount rate | | | | |
| Incremental (decrease) increase in: | | | | |
| Net periodic pension & other benefits costs for 2018 | | $ | (8 | ) | | $ | 6 |
|
| Pension & other benefits obligations at December 31, 2017 | | $ | (743 | ) | | $ | 885 |
|
| Health care cost escalation trend rates | | | | |
| Incremental increase (decrease) in: | | | | |
| Other post-employment benefit obligations | | $ | 99 |
| | $ | (85 | ) |
| Service and interest costs components for 2018 | | $ | 5 |
| | $ | (4 | ) |
| | | | | | | | | | | | | | |
| | Hypothetical Rate
Increase (Decrease) |
| (In millions) | | 1% | | (1)% |
| Expected return on plan assets | | | | |
| Incremental (decrease) increase in: | | | | |
| Net periodic pension and other benefits costs for 2020 | | $ | (71) | | | $ | 71 | |
| Discount rates | | | | |
| Incremental (decrease) increase in: | | | | |
| Net periodic pension & other benefits costs for 2020 | | $ | (16) | | | $ | 14 | |
Changes in the assumptions for expected annual return on plan assets and the discount rate used for accounting purposes do not impact the funding calculations used to derive minimum funding requirements for the pension plan. However, the discount rate required for minimum funding purposes is also based on corporate bond related indices and as such, the same general sensitivity concepts as above can be applied to increases or decreases to the funding obligations of the plans assuming the same hypothetical rate changes. (See Note 1718 to the Consolidated Financial Statements for a discussion regarding legislation enacted in November of 2015 that impacts the discount rate used for funding purposes.) For further cash flow discussion see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, – Financial Condition, Cash FlowsLiquidity and Liquidity – Liquidity.Capital Resources.”
Long-lived assets – U. S. Steel evaluates long-lived assets, primarily property, plant and equipment for impairment whenever changes in circumstances indicate that the carrying amounts of those productive assets exceed their recoverable amount as determined by the asset group's projected undiscounted cash flows. We evaluate the impairment of long-lived assets at the asset group level. Our primary asset groups are Flat-Rolled, welded tubular, seamless tubular and U. S. Steel Europe (USSE). During 2017, there were no triggering events
For the period ended March 31, 2020, the steep decline in oil prices that required long-lived assets to be evaluated for impairment. During 2016, the permanent shutdown of certain Lorain, Lone Starresulted from market oversupply and Bellville tubular assetsdeclining demand was considered a triggering event for ourthe welded tubular and seamless tubular asset groups. A quantitative analysis was completed for both asset groups and a $263 million impairment, consisting of an impairment of $196 million for property, plant and equipment and $67 million for intangible assets was recorded for the welded tubular asset group while no impairment was indicated for the seamless tubular asset group. There were no other triggering events that required an impairment evaluation of our long-lived asset groups during the year-ended December 31, 2020.
During 2019, steel market challenges in the U.S. and Europe, the idling of certain Flat-Rolled facilities and recent losses in the welded tubular asset group were considered triggering events for the Flat-Rolled, USSE and welded tubular asset groups. U. S. Steel completed a quantitative analysis of its long-lived assets for these asset groups within the Tubular segment, and determined that the remaining assets were not impaired. The percentage excess of estimated future cash flows over the net assets was greater than 30 percent for our welded tubular asset group had a carrying value of $410 million at December 31, 2016 and the recoverable amount exceeded this carrying value by approximately $93 million, or 23 percent. The seamless tubular asset group had a carrying value of $210 million at December 31, 2016 and the recoverable amount exceeded this carrying value by $220 million, or 106 percent.group. The key assumptionassumptions used to estimate the recoverable amounts for the welded tubular asset group were estimates of future commercial prices, commercial program management and efficiency improvements over the 12-year remaining useful life of the primary welded tubular assets. The percentage excess of estimated future cash flows over the net assets was greater than 75 percent for both the weldedFlat-Rolled and USSE asset groups. There were no triggering events for the seamless tubular asset groups was the forecasted price of oil over the 11-year average remaining useful lives of thegroup that required long-lived assets within the asset groups. Management will continue to monitor market and economic conditionsbe evaluated for triggering events that may warrant further review of long-lived assets.impairment.
Taxes –-U. S. Steel records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to 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 a deferred tax asset will not be realized. Each quarter U. S. Steel analyzes the likelihood that our deferred tax assets will be realized.
At December 31, 2015, it was determined that a valuation allowance against our entire net domestic deferred tax asset was required. As a result, U. S. Steel recorded a non-cash charge to tax expense. This determination, which is evaluated each quarter, was based upon the following forms of negative evidence concerning U. S. Steel's ability to use some or all of its domestic deferred tax assets:
U. S. Steel's domestic operations had generated significant losses in recent years and there was uncertainty regarding the Company's ability to generate domestic income in the near term,
some of our domestic deferred tax assets were carryforwards, which have expiration dates, and
the global steel industry was experiencing global overcapacity, which was driving adverse economic conditions,
including depressed selling prices for steel products and increased foreign steel imports into the U.S.
Most positive evidence can be categorized into one of the four sources of taxable income sequentially. These are (from least to most subjective):
taxable income in prior carryback years, if carryback is permitted
future reversal of existing taxable temporary differences
tax planning strategies, and
future taxable income exclusive of reversing temporary differences and carryforwards
U. S. Steel utilized all available carrybacks, and therefore, our analysis at December 31, 2015 focused on the other sources of taxable income. Our projection of the reversal of our existing temporary differences generated significant taxable income. This source of taxable income, however, was not sufficient to project full utilization of U. S. Steel’s domestic deferred tax assets. To assess the realizability of the remaining domestic deferred tax assets, U. S. Steel analyzed its prudent and feasible tax planning strategies.
At December 31, 2015, after weighing all the positive and negative evidence, U. S. Steel determined that it was more likely than not that the net domestic deferred tax asset (excluding a deferred tax liability with an indefinite life) may not be realized. As a result, U. S. Steel recorded a valuation allowance of $804 million.
At December 31, 2016, the valuation allowance was increased by $305 million due to an increase in the net domestic deferred tax asset.
At December 31, 2017,2020, after weighing all the positive and negative evidence, U. S. Steel determined that it was still more likely than not that the net domestic deferred tax asset (excluding a portion of a deferred tax liability with an indefinite life) may not be realized. As a result, U. S. Steel recorded a $229 million non-cash charge to tax expense. In the future, if we determine that it is more likely than not that we will be able to realize all or a portion of our deferred tax assets, the valuation allowance will be reduced, and we will record a benefit to earnings. See Note 11 to the Consolidated Financial Statements for further details.
At December 31, 2019, after weighing all the positive and negative evidence, U. S. Steel determined that it was more likely than not that the net domestic deferred tax asset related to refundable alternative minimum tax (AMT) credits and(excluding a portion of a deferred tax liability related to an asset with an indefinite life)life, as well as a deferred tax asset related to refundable AMT credits) may not be realized. The valuation allowance was decreased by $505 million due to the reduction in the corporate income tax rate pursuant to the Tax Cut and Jobs Act of 2017 (the 2017 Act) and current year activity.As a result, U. S. Steel will continuerecorded a $334 million non-cash charge to monitor the realizability of its deferred tax assets on a quarterly basis. In the future, if we determine that realization isexpense.
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.
At the end of both 20172020 and 2016,2019, U. S. Steel did not have any undistributed foreign earnings and profits for which U.S. deferred taxes have not been provided.
U. S. Steel records liabilities for uncertain tax positions. These liabilities are based on management’s judgment of the risk of loss for items that have been or may be challenged by taxing authorities. If U. S. Steel determines that tax-related items would not be considered uncertain tax positions or that items previously not considered to be potential uncertain tax positions could be considered potential uncertain tax positions (as a result of an audit, court case, tax ruling or other authoritative tax position), an adjustment to the liability would be recorded through income in the period such determination was made.
Environmental remediation– U. S. Steel has been identified as a potentially responsible party (PRP) at sevenfive sites under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) as of December 31, 2017.2020. Of these, there are twothree 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 19nine additional sites where U. S. Steel may be liable for remediation costs in excess of $100,000$1 million 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 determinable. As environmental remediation matters proceed toward ultimate resolution or as remediation obligations arise, charges in excess of those previously accrued may be required.
Consistent with the prior year, U. S. Steel's accrual for environmental liabilities for U.S. and international facilities as of December 31, 20172020 and 2019 was $179 million.$146 million and $186 million, respectively. These amounts exclude liabilities related to asset retirement obligations, disclosed in Note 1819 to the Consolidated Financial Statements.
U. S. Steel is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the Consolidated Financial Statements.
For discussion of relevant environmental items, see “Part I. Item 3. Legal Proceedings—Environmental Proceedings.”
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Segments
U. S. Steel has three reportable segments: North American Flat-Rolled Products (Flat-Rolled), USSEU. S. Steel Europe (USSE) and Tubular Products (Tubular). The results of our 49.9% ownership interest in Big River Steel and our railroad and real estate businesses that do not constitute reportable segments are combined and disclosed in the Other Businesses category. Beginning in 2021, we will report the results of Big River Steel in a separate “Mini Mill” segment.
The Flat-Rolled segment includes the operating results of U. S. Steel’s integrated steel plants and equity investees in North America (except for Big River Steel, which is included in Other Businesses) involved in the production of slabs, strip mill plates, sheets and tin mill products, as well as all iron ore and coke production facilities in the United States. These operations primarily serve North American customers in the service center, conversion, transportation (including automotive), construction, container, and appliance and electrical markets. Additionally, the Flat-Rolled segment consists of the following three commercial entities to specifically address our customers and service their needs: (1) automotive solutions, (2) consumer solutions, and (3) industrial, service center and mining solutions.
Flat-Rolled has historically supplied steel rounds and hot-rolled bands to Tubular. In the third quarter of 2015, the blast furnace and associated steelmaking operations, along with most of the flat-rolled finishing operations at Fairfield Works were shutdown. Therefore, Flat-Rolled is currently not supplying rounds to Tubular, and will not in the future.
The USSE segment includes the operating results of U. S. Steel Košice (USSK), U. S. Steel’s integrated steel plant and coke production facilities in Slovakia, and its subsidiaries. USSE conducts its business mainly in Central and Western Europe and primarily serves customers in the Eastern European construction, service center, conversion, container, transportation (including automotive), construction, container appliance, and electrical, service center, conversion and oil, gas and petrochemical markets. USSE produces and sells slabs, sheet, strip mill plate, sheet, tin mill products and spiral welded pipe, as well as heating radiators and refractory ceramic materials.
The Tubular segment includes the operating results of U. S. Steel’s tubular production facilities and an equity investee in the United States, and equity investees in the United States and Brazil. Our ownership interest in the equity investment in Brazil was sold in December of 2017.States. These operations produce and sell seamless and electric resistance welded (ERW) steel casing and tubing (commonly
(commonly known as oil country tubular goods or OCTG), standard and line pipe and mechanical tubing and primarily serve customers in the oil, gas and petrochemical markets. In March 2017, U. S. Steel made the strategic decision to permanently shutdown the Lorain No. 6 Quench & Temper Mill and relocate the equipment. During the fourth quarter of 2016, certain of our tubular assets within the Tubular segment were permanently shut down, including Pipe Mill #1 at our Lone Star facility, Pipe Mill #4 at our Lorain facility and our Bellville facility, as a result of the challenging market conditions for tubular products. Additionally, we sold the assets at our McKeesport tubular operations in 2016.
For further information, see Note 4 to the Consolidated Financial Statements.
Net Sales
Net Sales by Segment
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, excluding intersegment sales) | | 2020 | | 2019 | | 2018 |
| Flat-Rolled | | $ | 7,071 | | | $ | 9,279 | | | $ | 9,681 | |
| USSE | | 1,967 | | | 2,417 | | | 3,205 | |
| Tubular | | 639 | | | 1,188 | | | 1,231 | |
| Total sales from reportable segments | | 9,677 | | | 12,884 | | | 14,117 | |
| Other Businesses | | 64 | | | 53 | | | 61 | |
| Net sales | | $ | 9,741 | | | $ | 12,937 | | | $ | 14,178 | |
|
| | | | | | | | | | | | |
| (Dollars in millions, excluding intersegment sales) | | 2017 | | 2016 | | 2015 |
| Flat-Rolled | | $ | 8,297 |
| | $ | 7,507 |
| | $ | 8,293 |
|
| USSE | | 2,949 |
| | 2,243 |
| | 2,323 |
|
| Tubular | | 944 |
| | 449 |
| | 898 |
|
| Total sales from reportable segments | | 12,190 |
| | 10,199 |
| | 11,514 |
|
| Other Businesses | | 60 |
| | 62 |
| | 60 |
|
| Net sales | | $ | 12,250 |
| | $ | 10,261 |
| | $ | 11,574 |
|
Management’s analysis of the percentage change in net sales for U. S. Steel’s reportable business segments is set forth in the following tables:
Year Ended December 31, 20172020 versus Year December 31, 20162019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Steel Products(a) | | | | |
| Volume | | Price | | Mix | | FX(b) | | Other(c) | | Net
Change |
| Flat-Rolled | | (16) | % | | (7) | % | | 3 | % | | — | % | | (4) | % | | (24) | % |
| USSE | | (15) | % | | (6) | % | | 1 | % | | 1 | % | | — | % | | (19) | % |
| Tubular | | (39) | % | | (7) | % | | — | % | | — | % | | — | % | | (46) | % |
(a)Excludes intersegment sales |
| | | | | | | | | | | | | | | | | | |
| | | Steel Products(a) | | | | |
| Volume | | Price | | Mix | | FX(b) | | Coke, Pellets & Other(c) | | Net
Change |
| Flat-Rolled | | (3 | )% | | 26 | % | | (16 | )% | | — | % | | 4 | % | | 11 | % |
| USSE | | 2 | % | | 26 | % | | — | % | | 2 | % | | 1 | % | | 31 | % |
| Tubular | | 74 | % | | 13 | % | | 17 | % | | — | % | | 6 | % | | 110 | % |
| |
(a) | Excludes intersegment sales |
| |
(b) | Foreign currency translation effects |
| |
(c) | Includes sales of scrap inventory |
(b)Foreign currency translation effects
The increase in(c)Primarily sales of raw materials and coke making by-products
Net sales for the twelve months ended December 31, 2020 compared to the same period in 2019 were $9,741 million and $12,937 million, respectively.
•For the Flat-Rolled segment primarily reflected higher average realized prices (increase of $60 per net ton) as a result of improved market conditions, notably for hot-rolled products, thatthe decrease in sales resulted in spot price increases in 2017 as well as price increases for both market-based and firm priced contracts from 2016 to 2017, and sales also increased due to a favorable impact from higher third-party pellet sales. These increases were partially offset by a lower value product mix and decreased shipments (decrease of 207 thousand1,989 million tons) across most products, a result of the COVID-19 pandemic induced shutdowns that began late in the first quarter of 2020. Lower average realized prices of $35 per net tons).ton for 2020 were also a result of the pandemic onset in March.
The increase in sales for•For the USSE segment was primarily due to higher average realized euro-based prices (increase of €115 per net ton) as a result of lower imports and increased shipments (increase of 89 thousand net tons).
The increase in sales from 2016 to 2017 for the Tubular segment primarily reflected increased shipments (increase of 288 thousand net tons), a favorable impact on product mix as a result of increased shipments of seamless tubular products, and higher average realized prices (increase of $182 per net ton) as a result of improved market conditions.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
|
| | | | | | | | | | | | | | | | | | |
| | | Steel Products(a) | | | | |
| Volume | | Price | | Mix | | FX(b) | | Coke, Pellets & Other(c) | | Net
Change |
| Flat-Rolled | | (4 | )% | | (3 | )% | | — | % | | — | % | | (2 | )% | | (9 | )% |
| USSE | | 3 | % | | (5 | )% | | (1 | )% | | — | % | | — | % | | (3 | )% |
| Tubular | | (27 | )% | | (24 | )% | | 2 | % | | — | % | | (1 | )% | | (50 | )% |
| |
(a) | Excludes intersegment sales |
| |
(b) | Foreign currency translation effects |
| |
(c) | Includes sales of scrap inventory |
The decrease in sales for the Flat-Rolled segment primarily reflected lowerresulted from decreased shipments (decrease of 501549 thousand net tons, which includes the reduction in shipments due to the permanent shutdown of Fairfield Flat-Rolled Operations, as well as operational issuestons) across our Flat-Rolled facilities)most products and lower average realized prices (decrease of $29$26 per net ton) as a result of market conditions, including high import levels, which have served to reduce shipment volumes and depress both spot and contract prices. Inacross all products.
•For the second half of 2016 we experienced unplanned outages at several of our steelmaking and finishing facilities and our operating configuration in 2016 extendedTubular segment the time it took to recover volumes from unplanned outages.
The decrease in sales for the USSE segment was primarily due to lower average realized euro-based prices (decrease of €28 per net ton), partially offset by an increase in shipments (increase of 139 thousand net tons).
The decrease in salesresulted from 2015 to 2016 for the Tubular segment primarily reflected lowerdecreased shipments (decrease of 193305 thousand net tons) andacross all products, lower average realized prices (decrease of $393$179 per net ton) as a result of reduced drilling activity caused by low crude oil pricesacross all products and continued high import levels.levels of energy tubular imports.
Operating Expenses
Union profit-sharing costs
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in millions) | | 2020 | | 2019 |
| Allocated to segment results | | $ | — | | | $ | 12 | |
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Dollars in millions) | | 2017 | | 2016 | | 2015 |
| Allocated to segment results | | $ | 35 |
| | $ | 3 |
| | $ | — |
|
Effective January 1, 2016, profit-basedProfit-based amounts per the 2015 Labor Agreements are calculated and paid on a quarterly basis as a percentage of consolidated earnings (loss) before interest and income taxes based on 7.5 percent of profit between $10 and $50 per ton and 15 percent of profit above $50 per ton (10 percent of profit above $50 per ton in prior periods).ton.
The amounts above represent profit-sharing amounts paid to active USW-represented employees and are included in cost of sales on the Consolidated Statement of Operations.
PensionNet periodic 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 Consolidated Statements of Operations.
Defined benefit and multiemployer pension plan costs included in cost of sales totaled $109$127 million in 2017, $1062020 and $121 million in 20162019.
Other benefit service cost included in cost of sales totaled $12 million in 2020 and $291 million during 2015. Plan costs in 2017, 2016 and 2015 included $7 million, $13 million and $35 million of settlement and curtailment costs, respectively. Excluding these costs, the $9 million increase from 2016 to 2017 is primarily due to lower expected return on assets, updates to the mortality assumption and unfavorable retirement experience. U. S. Steel calculates its market-related value of assets such that investment gains or losses as compared to expected returns are recognized over a three-year period. To the extent that deferred gains and losses on plan assets are not yet reflected in this calculated value, the amounts do not impact expected asset returns or the net actuarial gains or losses subject to amortization within the net periodic pension expense calculation. (See Note 17 to the Consolidated Financial Statements.)2019.
In November 2015, pension stabilization legislation further extended a revised interest rate formula to be used to measure defined benefit pension obligations for calculating minimum annual contributions. The new interest rate formula results in higher interest rates for minimum funding calculations as compared to prior law over the next few years, which will improve the funded status of our main defined benefit pension plan and reduce minimum required contributions. In 2017, the Company made a voluntary contribution of $75 million to the U. S. Steel Retirement Plan Trust, which is the funding vehicle for the Company's main defined benefit pension plan. Historically, U. S. Steel has made voluntary contributions to our main U.S. defined benefit plan, including a voluntary stock contribution of $100 million in 2016. U. S. Steel will monitor the status of the plan to determine when voluntary contributions may be prudent to mitigate potentially larger mandatory contributions in later years.
Costs related to defined contribution plans totaled $42 million during 2017, 2016 and 2015.
Other benefits (income), which are included in earnings (loss) before interest and income taxes, totaled $78$22 million in 2017, $(5)2020 and $48 million in 2016 and $(40) million in 2015.2019. The $83 million increase in expensedecrease from 2016 to 2017 is2019 primarily due to lower return on assets assumptions as a resultresulted from the temporary suspension of actions taken in 2016 to de-risk the OPEB plan. For additional information on pensions and other benefits, see Note 17 to the Consolidated Financial Statements.Company's contributions for salaried defined contribution plans that occurred within 2020.
Selling, general and administrative expenses
Selling, general and administrative expenses were $375$274 million in 2017, $2552020 and $289 million in 2016 and $415 million in 2015.2019. The increasedecrease from 20162019 to 20172020 is primarily related to higher pension and other benefit costs, as discussed above. The decrease from 2015 to 2016 is primarily related to lower pension costs, primarily due to the freezingsuspension of benefit accrualsthe Company's defined contribution plans for non-represented participants effective December 31, 2015 and the natural maturationa portion of our pension plans, offset by better asset performance, as well as impacts from Company-wide headcount reductions.2020.
Operating configuration adjustments
Over the past three years, the Company has adjusted its operating configuration in response to challengingchanging market conditions including global overcapacity, unfair trade practices and increases in domestic demand as a result of global overcapacity and unfair trade practicestariffs on imports by indefinitely and temporarily idling and then re-starting production at certain of its facilities.
As of December 31, 2017, the following facilities are temporarily idled:
Temporarily Idled:
Tubular Processing (idled in April 2015)
Granite City Works - Steelmaking Operations (idled in December 2015)
The carrying value of the long-lived assets associated with the temporarily idled facilities listed above total approximately $160 million.
Other Strategic Decisions
In March 2017, U. S. Steel made the strategic decision to permanently shutdown the Lorain No. 6 Quench & Temper Mill and relocate the equipment.
In December 2016, U. S. Steel made the strategic decision to permanently shutdown the Lorain #4 and Lone Star #1 pipe mills and the Bellville Tubular Operations after considering a number of factors, including challenging market conditions for tubular products, reduced rig counts, and high levels of unfairly traded imports.
U. S. Steel will continue to evaluate potential strategic and organizational opportunities, which may include the acquisition, divestiture or consolidation of assets. Given recent market conditions, the cyclicality of our industry, and the continued challenges faced by the Company, we are focused on strategically maintaining and spending cash (including capital investments under our asset revitalization program),adjust its operating configuration in order to investmaximize its strategy of combining the Best of Both leading integrated and mini mill technology.
In October 2020 U. S. Steel started its newly constructed, technologically advanced EAF steelmaking facility at its Fairfield, Alabama, operations.
In 2020, we took actions to adjust our footprint by temporarily idling certain operations for an indefinite period to better align production with customer demand and respond to the impacts from the COVID-19 pandemic. The operations that remained idle as of December 31, 2020 included:
•Blast Furnace A at Granite City Works
•Lone Star Tubular Operations
•Lorain Tubular Operations
•Wheeling Machine Products coupling production facility at Hughes Springs, Texas
As of December 31, 2020 the approximate carrying value of the idled fixed assets for facilities noted above was: Granite City Works Blast Furnace A, $65 million; Lone Star Tubular Operations, $5 million; and Lorain Tubular Operations, $70 million.
In December 2019, U. S. Steel announced that it would indefinitely idle a significant portion of Great Lakes Works. The Company began idling the iron and steelmaking facilities in areas consistent with our long-term strategy, and are considering various possibilities, including exiting lines of businessMarch 2020 and the salehot strip mill rolling facility in June 2020. The carrying value of certain assets,the Great Lakes Works facilities that we believe would ultimately result in a stronger balance sheet and greater stockholder value. Thewere indefinitely idled was approximately $330 million as of December 31, 2020.
In December 2019, the Company will pursue opportunities based oncompleted the indefinite idling of its long-term strategy, and what the Board of Directors determinesEast Chicago Tin (ECT) operations within its Flat-Rolled segment. ECT was indefinitely idled primarily due to beincreased tin import levels in the best interestsU.S. Additionally, U. S. Steel indefinitely idled its finishing facility in Dearborn, Michigan (which operates an electrolytic galvanizing line), during the fourth quarter of the Company's stockholders at the time.
Better operating performance in our Flat-Rolled segment, coupled with relatively stable market conditions during 2017, have resulted in improved segment results in recent quarters. As we continue with the implementation2019. The carrying value of our asset revitalization program, described below, and increase investment in ourthese 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
As partwas approximately $15 million as of our long-term strategy, the Board of Directors has approved a $2 billion multi-year asset revitalization program focused on our Flat-Rolled segment. The program is structured over four years, and involves capital investments totaling approximately $1.5 billion. Management evaluated performance in the key industries we serve, and developed projects across multiple Flat-Rolled segment assets with a focus on continuous improvement in safety, quality, delivery and cost. The Company views this program as essential to improving predictability and our ability to compete effectively in the industry. As we revitalize our assets, we expect to increase profitability, productivity, and operational stability, and reduce volatility.
The asset revitalization program includes projects to address short-term operational and maintenance enhancements as well as larger initiatives. The projects vary in scope and cost. The investments specifically address issues that are critical to delivering quality products to our customers in a timely manner.
The identified projects and schedule may change to address our customers’ needs, current and future economic operating conditions, and risks identified in the production cycle. Through the multi-year asset revitalization program, we expect to make total capital investments of $1.5 billion, which consist of capital investments in our iron making facilities, steel making facilities, hot rolling facilities, and finishing facilities. The Company plans to fund the program through cash generated from operations and cash on hand.
Our total capital expenditures for 2017 were $505 million, which includes $249 million for the Company’s asset revitalization program.December 31, 2020.
Depreciation, depletion and amortization
Depreciation, depletion and amortization expenses were $501$643 million in 2017, $5072020 and $616 million in 2016 and $547 million2019. The increases from 2019 to 2020 are primarily due to increased capital spending in 2015. Depreciation expense in 2017 was consistent with 2016 depreciation expense. The decrease from 2015 to 2016 is primarily related to the write-off of assets as a result of the permanent shutdown of the Fairfield Flat-Rolled Operations in 2015.recent years.
Earnings from investees
EarningsLoss from investees was $44$117 million in 2017, $982020 versus earnings from investees of $79 million in 2016 and $38 million in 2015.2019. The decrease from 20162019 to 20172020 is primarily due to decreased earningsequity losses from our joint venture finishing and mining affiliates. The increase from 2015 to 2016 is primarily due to increased earnings from our joint venture mining affiliates, partially offset by a $12 million impairment charge for an equity investee.investment in Big River Steel.
Restructuring and Other Charges
During 2017, U. S. Steel2020, the Company recorded net restructuring and other charges of approximately $31$138 million, which consists of charges of $37$66 million primarily related tofor the permanent shutdownindefinite idling of a significant portion of Great Lakes Works, and relocationour Keetac mining operations which was restarted in the fourth quarter, $25 million for the indefinite idling of the No. 6 Quench & Temper Mill at Lorain Tubular Operations and a favorable adjustment of $6 million primarily associated with a change in estimate for previously recorded costs for environmental obligations and Company-wide headcount reductions. Cash payments were made related to severance and exit costs of $32 million.
During 2016, U. S. Steel recorded net restructuring charges of approximately $122 million, which consists of: (1) charges of $124 million related to the permanent shutdown of the Lorain #4, Lone Star #1Tubular Operations, and Bellville pipe mills within our Tubular segment; (2) charges of $24$15 million and $32 million for employee benefit costs related to Company-wide headcount reductions including within our Flat-Rolled, Tubular and USSE segments; and (3)headcount reductions under a favorable adjustment of $26 million primarily associated with a change in estimate for previously recorded costs for Company-wide headcount reductions. Cash payments were made related to severance and exit costs of $79 million.voluntary early retirement program (VERP) offered at USSK, respectively.
Charges for restructuring and ongoing cost reduction initiatives are recorded in the period U. S. Steel commits to a restructuring or cost reduction plan, or executes specific actions contemplated by the plan and all criteria for liability recognition have been met. Charges related to the restructuring and cost reductions are reported in restructuring and other charges in the Consolidated Statements of Operations.
The Company has realized actual cash savings of approximately $300 million related to restructuring efforts through December 31, 2017.
Gain and loss associated with U. S. Steel Canada Inc.
USSC, an indirect wholly owned subsidiary of U. S. Steel, applied for relief from its creditors pursuant to CCAA in September of 2014. Subsequent to the CCAA filing, U. S. Steel's management continued to assess the recoverability of the Company's retained interest in USSC. During 2015, management's estimate of the recoverable retained interest was updated as a result of economic conditions impacting the steel industry in North America such as lower prices, elevated levels of imports, the strength of the U.S. dollar and depressed steel company valuations as well as the uncertainty of the ultimate outcome of USSC’s CCAA filing. As a result, a pre-tax charge was recognized during the fourth quarter of 2015, bringing the total charge to $392 million for the fiscal year ended December 31, 2015.
On June 30, 2017, U. S. Steel completed the restructuring and disposition of USSC through a sale and transfer of all of the issued and outstanding shares in USSC to an affiliate of Bedrock. In accordance with the Second Amended and Restated Plan of Compromise, Arrangement and Reorganization, approved by the Ontario Superior Court of Justice on June 9, 2017, U. S. Steel received approximately $127 million in satisfaction of its secured claims, including interest, which resulted in a gain of $72 million on the Company's retained interest in USSC. U. S. Steel also agreed to the discharge and cancellation of its unsecured claims for nominal consideration. The terms of the settlement also included mutual releases among key stakeholders, including a release of all claims against the Company regarding environmental, pension and other liabilities.
Earnings (loss)(Loss) earnings before interest and income taxes by Segment (a)
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in Millions) | | 2020 | | 2019 |
| Flat-Rolled | | $ | (596) | | | $ | 196 | |
| USSE | | 9 | | | (57) | |
| Tubular | | (179) | | | (67) | |
| Total earnings (loss) from reportable segments | | (766) | | | 72 | |
| Other Businesses | | $ | (39) | | | 23 | |
| Segment earnings (loss) before interest and income taxes | | (805) | | | 95 | |
| Other items not allocated to segments: | | | | |
| Asset impairment charges | | (263) | | | — | |
Restructuring and other charges (b) | | (138) | | | (275) | |
| Tubular inventory impairment | | (24) | | | — | |
| Big River Steel debt extinguishment charges | | (18) | | | — | |
| Big River Steel transaction and other related costs | | (3) | | | — | |
| Fairless property sale | | 145 | | | — | |
| Gain on previously held investment in UPI | | 25 | | | — | |
| December 24, 2018 Clairton coke making facility fire | | 6 | | | (50) | |
| Total (loss) earnings before interest and income taxes | | $ | (1,075) | | | $ | (230) | |
(a) See Note 4 to the Consolidated Financial Statements for reconciliations and other disclosures required by Accounting Standards Codification Topic 280. |
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Dollars in Millions) | | 2017 | | 2016 | | 2015 |
| Flat-Rolled | | $ | 380 |
| | $ | (3 | ) | | $ | (237 | ) |
| USSE | | 327 |
| | 185 |
| | 81 |
|
| Tubular | | (99 | ) | | (304 | ) | | (179 | ) |
| Total earnings (loss) from reportable segments | | 608 |
| | (122 | ) | | (335 | ) |
| Other Businesses | | 44 |
| | 63 |
| | 33 |
|
| Segment earnings (loss) before interest and income taxes | | 652 |
| | (59 | ) | | (302 | ) |
| Items not allocated to segments: | | | | | | |
Post-employment benefit (expense) income (b) | | (66 | ) | | 62 |
| | (43 | ) |
| Other items not allocated to segments: | | | | | | |
Loss on shutdown of certain tubular pipe mill assets (c) | | (35 | ) | | (126 | ) | | — |
|
| Gain (loss) associated with U. S. Steel Canada Inc. (Note 5) | | 72 |
| | — |
| | (392 | ) |
Loss on shutdown of Fairfield Flat-Rolled Operations (c) (d) | | — |
| | — |
| | (91 | ) |
Loss on shutdown of coke production facilities (c) | | — |
| | — |
| | (153 | ) |
Restructuring and other charges (c) | | — |
| | 2 |
| | (78 | ) |
| Granite City Works temporary idling charges | | (17 | ) | | (18 | ) | | (99 | ) |
| Post-employment benefit actuarial adjustment | | — |
| | — |
| | (26 | ) |
| Gain (loss) on equity investee transactions (Note 11) | | 2 |
| | (12 | ) | | (18 | ) |
| Impairment of intangible assets (Note 13) | | — |
| | (14 | ) | | — |
|
| Total earnings (loss) before interest and income taxes | | $ | 608 |
| | $ | (165 | ) | | $ | (1,202 | ) |
| |
(a) | See Note 4 to the Consolidated Financial Statements for reconciliations and other disclosures required by Accounting Standards Codification Topic 280. |
| |
(b) | Consists of the net periodic benefit cost elements, other than service cost and amortization of prior service cost for active employees, associated with our defined pension, retiree health care and life insurance benefit plans. |
| |
(c) | Included in Restructuring and other charges on the Consolidated Statements of Operations. See Note 24(b) Included in restructuring and other charges on the Consolidated Statements of Operations. See Note 25 to the Consolidated Financial Statements. |
| |
(d) | Fairfield Flat-Rolled Operations includes the blast furnace and associated steelmaking operations, along with most of the flat-rolled finishing operations at Fairfield Works. The #5 coating line continues to operate. |
Gross Margin by Segment
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 |
| Flat-Rolled | | 1 | % | | 8 | % |
| USSE | | 7 | % | | 3 | % |
| Tubular | | (20) | % | | (1) | % |
|
| | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Flat-Rolled | | 11 | % | | 6 | % | | 2 | % |
| USSE | | 15 | % | | 14 | % | | 9 | % |
| Tubular | | (2 | )% | | (43 | )% | | (6 | )% |
Segment results for Flat-Rolled
(Excludes the results of USSC beginning September 16, 2014)
|
| | | |
| Average Realized Price Per Ton | | Segment Earnings (Loss) before Interest and Income Taxes |
The Flat-Rolled segment had earnings of $380 million for the year ended December 31, 2017 compared to a loss of $3 million for the year ended December 31, 2016. The increase in Flat-Rolled results for 2017 compared to 2016 resulted from higher average realized prices (approximately $695 million) as a result of improved market conditions, a favorable impact related to our change in accounting method for property, plant and equipment (approximately $150 million), higher results from our mining operations (approximately $80 million) including benefits from the restart of our Keetac facility to support third-party pellet sales, and increased shipments to our Tubular segment (approximately $50 million). These changes were partially offset by increased maintenance and asset revitalization spending and other operating costs (approximately $330 million) and higher raw materials costs, primarily scrap and coal (approximately $275 million).
The Flat-Rolled segment had a loss of $3$596 million for the year ended December 31, 20162020 compared to a lossearnings of $237$196 million for the year ended December 31, 2015.2019. The increasedecrease in Flat-Rolled results for 20162020 compared to 20152019 was primarily due to lower raw materials costs (approximately $275 million), reduced losses in 2016 after the shutdown of the blast furnace and associated steel making assets and most of the finishing operations at Fairfield Works in the third quarter of 2015 (approximately $145 million), decreased spending for repairs and maintenance and other operating costs (approximately $145 million), reduced costs associated with lower operating rates at our mining operations (approximately $70 million) and lower energy costs, primarily natural gas costs (approximately $55 million). These changes were partially offset by to:
•lower average realized prices (approximately $390$565 million) as a result of market conditions and higher levels of imports and higher
•decreased shipments, including substrate to our Tubular segment (approximately $310 million)
•decreased mining sales (approximately $140 million)
•increased other costs for profit based payments (approximately $75$30 million).,
these changes were partially offset by:
•lower energy costs (approximately $100 million)
•lower raw material costs (approximately $95 million)
•decreased operating costs (approximately $60 million)
Gross margin for 20172020 as compared to 2016 increased2019 decreased primarily as a result of higherlower sales volume and average realized prices due to improved contract and spot market prices, in addition to the favorable impact on costprices.
Segment results for USSE
The USSE segment had earnings of $327$9 million for the year ended December 31, 20172020 compared to earningsloss of $185$57 million for the year ended December 31, 2016.2019. The increase in USSE results in 20172020 compared to 20162019 was primarily due to higher average realized euro-based pricesto:
•lower raw material costs (approximately $600$110 million), the strengthening of the euro versus the U.S. dollar in 2017 as compared to the prior year
•decreased operating costs (approximately $15$75 million) and increased shipments
•lower energy costs (approximately $20 million)
•favorable currency impacts (approximately $10 million). These
•lower other costs (approximately $10 million)
these changes were partially offset by higher raw materials costs, primarily coal and iron ore (approximately $475 million).by:
The USSE segment had earnings of $185 million for the year ended December 31, 2016 compared to earnings of $81 million for the year ended December 31, 2015. The increase in USSE results in 2016 compared to 2015 was primarily due to lower raw materials costs (approximately $145 million), reduced costs due to operating efficiencies (approximately $60 million) and decreased energy costs (approximately $20 million). These changes were partially offset by •lower average realized euro-based prices (approximately $130$160 million), as selling prices reached a 5-year low in early 2016.
Gross margin for 2017increased from 2020 as compared to 2016 increased2019 primarily due to higher average realized euro-based prices, partially offset by higher raw materials costs. Gross margin for 2016 as compared to 2015 increased primarily due toa result of lower raw materialsoperating costs and operating efficiencies.raw material prices.
Segment results for Tubular
The Tubular segment had a loss of $99 million for the year ended December 31, 2017 compared to a loss of $304 million for the year ended December 31, 2016. The increase in Tubular results in 2017 as compared to 2016 was primarily due to higher average realized prices and shipment volumes as a result of improving market conditions (approximately $105 million), decreased labor and other operating costs (approximately $95 million), favorable impacts from changes to our operating footprint (approximately $35 million) and favorable lower of cost or market (LCM) adjustments (approximately $30 million). These changes were partially offset by higher substrate costs (approximately $60 million).
The Tubular segment had a loss of $304 million for the year ended December 31, 2016 compared to a loss of $179 million for the year ended December 31, 2015.2020 compared to a loss of $67 million for the year ended December 31, 2019. The decrease in Tubular results in 20162020 as compared to 20152019 was primarily due to to:
•lower average realized prices (approximately $135$80 million),
•decreased shipment volumesshipments, including volume inefficiencies (approximately $25$70 million) as a result of high import levels, lower
•increased operating costs (approximately $5 million)
•higher energy pricing and a continued decline in drilling activity and lower of cost or market (LCM) adjustments for obsolete inventory related to the prolonged downturn in the energy marketscosts (approximately $45$5 million). These,
these changes were partially offset by by:
•lower raw material cost (approximately $25 million)
•decreased repairs and maintenance and other operating costs (approximately $45$25 million) and lower raw materials costs (approximately $30 million).
Gross margin for 20172020 as compared to 2016 increased2019 decreased primarily due to increasedlower sales volume and average realized prices and shipment volumes and operating efficiencies. Gross margin for 2016 as compared to 2015 decreased as a result of production cost inefficiencies driven by the decrease in shipments.prices.
Results for Other Businesses
Other Businesses had a loss of $39 million for the year ended December 31, 2020 compared to earnings of $44 million, $63 million and $33$23 million for 2017, 2016 and 2015, respectively.the year ended December 31, 2019. The decrease in earnings primarily resulted from recording our share of losses from our equity investment in Big River Steel.
Items not allocated to segments:
The increase in post-employment benefit expense in 2017 as compared to 2016 resulted from lower return on asset assumptions as a result of actions taken in 2016 to de-risk the OPEB plan. The decrease in expense in 2016 as compared to 2015 resulted from lower pension expenses as a result of the freezing of benefit accruals for non-represented participants effective December 31, 2015.
•We recorded a $35asset impairment chargesof $263 million loss onfor the shutdown of certain tubular assets in 2017 as a result of the permanent shutdown and relocation of the No. 6 Quench & Temper Mill at Lorain Tubular Operations. We recorded a loss on shutdown of certain tubular pipe mill assets of $126 million in 2016 as a result of the permanent closure of the Lorain #4 and Lone Star #1 pipe mills and the Bellville Tubular Operations.
We recognized a $72 million gain associated with U. S. Steel Canada Inc. (USSC) as a result of the restructuring and disposition of USSC on June 30, 2017. We recorded a $392 million loss associated with U. S. Steel Canada Inc.in 2015 as a result of a change in our assessment of the recoverability of the Company's retained interest in USSC and other charges.
We recorded $17 million, $18 million and $99 million of Granite City Works temporary idling charges during 2017, 2016 and 2015, respectively.
We recognized a gain on equity investee transactions of $2 million in 2017 primarily as a result of a gain on sale of our 15% ownership interest in Tilden Mining Company, L.C., partially offset by a loss on sale of our 50% ownership interest in Apolo Tubulars, S.A. In 2016, the Company determined there was an other than temporary impairment of its Apolo equity investment due to the intent to sell its ownership interest at an amount less than the carrying value of the investment. Accordingly, an impairment charge of $12 million was recorded in 2016. The Company sold its ownership interest in this equity investment in 2017. During 2015, U. S. Steel determined there was an other than temporary impairment of an equity investeeproperty, plant and equipment and intangible asset within a non-core operating segment of U. S. Steel, due to our intent to sell the particular investment, thereby inhibiting sufficient recovery of the market value. As a result, an impairment charge of $18 million was recorded in 2015 and during the first quarter of 2017, this investment was sold.welded tubular asset group.
We recorded a net favorable adjustment of $2 million in restructuring and other charges in 2016 primarily due to changes in estimates associated with supplemental unemployment and severance cost accruals with respect to our actions to adjust our operating configuration, streamline our operational processes, and reduce costs. •We recorded restructuring and other charges of $78$138 million during 2015 asfor the indefinite idling of a resultsignificant portion of further actions to adjustGreat Lakes Works and our operational footprint.
We recorded an impairment charge of $14 million on our indefinite lived intangible assetsKeetac mining operations, Lorain Tubular Operations, Lone Star Tubular Operations and for employee benefit costs related to certainCompany-wide headcount reductions and a VERP offered at USSK.
•We recorded a $91tubular inventory impairment charge of $24 million loss on shutdownfor write-downs to inventory related to the indefinite idlings at Lone Star Tubular Operations and Lorain Tubular Operations.
•Big River Steel debt extinguishmentcharges of Fairfield Flat-Rolled Operations during 2015 as a result$18 million were recognized in (Loss) earnings from investees for the refinancing of debt at Big River Steel.
•We recorded Big River Steel transaction and other related costs of $3 million related to the permanent closure of those operations.Big River Steel acquisition.
•We recorded a $153Fairless property sale gain of $145 million loss on shutdown of coke production facilities during 2015 as a result of the permanent closuresale of our Gary Works and Granite City Works coke facilities.non-core real estate asset, the Keystone Industrial Port Complex, in Fairless Hills, Pennsylvania.
•We recorded a $26$25 million post-employment benefit actuarial adjustmentgain on previously held investment in 2015 relatedUPI as described in Note 5 to workers' compensation and black lung benefit obligations.the Consolidated Financial Statements.
•We had recoveries of $6 million for costs associated with the December 24, 2018 Clairton coke making facility fire.
Net Interest and Other Financial Costs
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in millions) | | 2020 | | 2019 |
| Interest income | | $ | (7) | | | $ | (17) | |
| Interest expense | | 280 | | | 142 | |
| Net periodic benefit (income) cost (other than service cost) | | (25) | | | 91 | |
| Other financial (gains) costs | | (16) | | | 6 | |
| Net interest and other financial costs | | $ | 232 | | | $ | 222 | |
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Dollars in millions) | | 2017 | | 2016 | | 2015 |
| Interest income | | $ | (17 | ) | | $ | (5 | ) | | $ | (3 | ) |
| Interest expense | | 226 |
| | 230 |
| | 214 |
|
| Loss on debt extinguishment | | 54 |
| | 22 |
| | 36 |
|
| Other financial costs | | 44 |
| | 4 |
| | 10 |
|
| Net interest and other financial costs | | $ | 307 |
| | $ | 251 |
| | $ | 257 |
|
During 2017, U. S. Steel issued $750 million of 6.875% Senior Notes due August 2025 (2025 Senior Notes) and redeemed $161 million of 7.00% Senior Notes due 2018, $200 million of 6.875% Senior Notes due 2021, and $400 million of 7.50% Senior Notes due 2022 for an aggregate redemption cost of approximately $808 million, which included $761 million for the remaining principal balances, $21 million in accrued and unpaid interest and $26 million in redemption premiums which have been reflected within the loss on debt extinguishment line in the table above. Additionally, U. S. Steel redeemed $200 million of its 8.375% Senior Secured Notes due 2021 for an aggregate redemption cost of approximately $227 million, which included $200 million for the remaining principal balance, $8 million in accrued and unpaid interest and $19 million in redemption premiums which have been reflected within the loss on debt extinguishment line in the table above. For further information see Note 16 to the Consolidated Financial Statements.
During 2016, U. S. Steel issued $980 million of 8.375% Senior Secured Notes due July 2021 (2021 Senior Secured Notes) and repurchased several tranches of its outstanding senior notes through various tender offers, redemptions and open market purchases, including the redemption of the remaining 6.05% Senior Notes due 2017 for an aggregate principal amount of approximately $444 million plus a total make whole premium of approximately $22 million, which has been reflected within the loss on debt extinguishment line in the table above. During 2015, U. S. Steel incurred a $36 million charge related to the retirement of the 2.75% Senior Convertible Notes due 2019, which has also been reflected within the loss on debt extinguishment line in the table above.
The increase in netNet interest and other financial costs increased in 2020 as compared to 2019 from 2016increased interest expense due to 2017 isa higher level of debt partially offset by lower net periodic benefit cost (as discussed below). For additional information on U. S. Steel indebtedness see Note 17 to the Consolidated Financial Statements
The net periodic benefit (income) cost (other than service cost) components of pension and other benefit costs are reflected in the table above, and decreased in 2020 as compared to 2019 primarily due to an increasebetter than expected 2019 asset performance, lower amortization of prior service costs, lower future healthcare costs, and reduced participation in loss on debt extinguishment (as described above) and decreased foreign currency gains, partially offset by an increase in interest income as a result of increased cash balances and interest rates in 2017 as compared to 2016.our retiree health plans.
The increase in net interest and other financial costs from 2015 to 2016 is primarily due to a decrease in loss on debt extinguishment (as described above) and decreased other financing costs, partially offset by increased interest expense associated with the 2021 Senior Secured Notes.
For additional information on U. S. Steel’s foreign currency exchange activity see Note 1516 to the Consolidated Financial Statements and Item 7A. "Quantitative and Qualitative Disclosures about Market Risk – Foreign Currency Exchange Rate Risk.”
Income Taxes
The Tax Cut and Jobs Act of 2017 (the 2017 Act) was signed by the President on December 22, 2017 and most of the provisions are effective for tax years beginning January 1, 2018. The corporate rate reduction to 21% provided a small benefit to the Company in the fourth quarter of 2017 and should provide a material benefit in future years, once the Company has fully utilized its domestic net operating losses (NOLs). The limitation of NOLs to 80% of taxable income and the change to an unlimited carryforward period for NOLs generated in years after December 31, 2017 will not impact the Company’s current NOLs, which were generated in 2013, 2015, and 2016. As the Company’s NOLs still have a carryforward period of 20 years from the year they were generated, the 2017 Act had no impact on the valuation allowance for those NOLs. The repeal of the corporate Alternative Minimum Tax (AMT), with AMT credits refundable beginning with the filing of the 2018 return through the 2021 return, caused the release of the valuation allowance associated with the Company’s AMT credits in the fourth quarter of 2017.
The one-time transition tax (imposed as part of the change to a territorial system) had an immaterial impact to the Company’s effective tax rate (ETR) in the fourth quarter of 2017 and will have an immaterial impact to cash taxes paid, as the Company had minimal unrepatriated foreign earnings. The allowance of a 100% deduction for dividends from
foreign corporations, the Basis Erosion Anti-Avoidance Tax (BEAT) and the Global Intangible Low-Taxed Income (GILTI) tax should not have a material impact on the Company’s ETR in future years, based on our current structure. The Company has elected to record taxes associated with any GILTI inclusions in the period any such amounts are determined. The Company does not currently assert indefinite reinvestment and does not plan to change that position. Some of the other changes to the taxation of foreign earnings may impact the Company’s ability to fully utilize foreign tax credits (FTCs) generated in future years, thereby impacting the ETR.
The new limitation on the deductibility of interest should not adversely affect the Company in the near term. The deduction for full expensing for assets acquired and placed in service after September 27, 2017 should not provide any benefit in the near term because of the Company’s NOL position.
The income tax benefit for the year ended December 31, 20172020 was $86$142 million compared to an income tax provisionexpense of $24$178 million in 20162019. In general, the amount of tax expense or benefit from continuing operations is determined without regard to the tax effect of other categories of income or loss, such as other comprehensive income. However, an exception to this rule applies when there is a loss from continuing operations and $183 million in 2015. Included inincome from other categories. In 2020, the 2017 tax benefit isincludes a benefit of $10$138 million related to the corporate rate reduction provided by the 2017 Act, as well as a benefit of $71 million related to the reversal of the valuation allowance recorded against the remaining balance of the Company’s AMT credits, which became fully refundable pursuant to the 2017 Act. Also included in the 2017this accounting exception. The tax benefit is a benefitin 2020 also includes expense of $48$13 million related to the Company’s election to claim a refund of AMT credits pursuant to a provision in the Protecting Americans from Tax Hikes Act (PATH Act).
Included in the 2016 tax provision is a benefit of $18 million related to the Company's election to claim a refund of AMT credits pursuant to a provision in the PATH Act. The 2016 provision also reflects a write-off of certain deferred tax assets and liabilities related to branch operations pursuant to new regulations. However, the write-off does not impact the total provision because of the valuation allowance on the net domestic deferred tax asset. Included in the 2015 tax provision is a net tax benefit of $31 million relating to adjustmentsfor an updated estimate to tax reserves related to an unrecognized tax benefit. Due to the conclusion of certain audits.
The netfull valuation allowance on our domestic deferred tax asset was $53 million atassets, the tax benefit in 2020 does not reflect any additional tax benefit for domestic pretax losses. In 2019, the tax provision reflects a benefit for percentage depletion in excess of cost depletion from iron ore that we produce and consume or sell.
The Company regularly evaluates the need for a valuation allowance for its deferred income tax benefits by assessing whether it is more likely than not it will realize these benefits in future periods. In assessing the need for a valuation allowance, the Company considers all available evidence, both positive and negative, related to the likelihood of realization of its deferred income tax benefits, and based on the weight of that evidence, determines whether a valuation allowance is required.
During the fourth quarter of 2020, management reviewed the Company’s current and forecasted operating results, current economic market conditions impacting the steel industry, and tax planning strategies. As of December 31, 2017, net of an established2020, the Company concluded that it is more likely than not the Company will be able to realize its foreign deferred income tax benefits in future periods. Management will continue to assess the need for a valuation allowance and given the cyclical nature of $604 million, compared tothe steel industry, the continued high level of steel imports, and future demand for steel and steel related products, may reach a net domestic deferred tax liabilitydifferent conclusion in future periods. As of $28 million at December 31, 2016, net of an established valuation allowance of $1,109 million.
At December 31, 2017,2020, the Company’s net foreign deferred tax liability was $3 million, net of an established valuation allowance of $4 million. At December 31, 2016, the net foreign deferred tax asset was $6 million, net of an established valuation allowance of $4assets were $18 million.
For further information on income taxes see Note 1011 to the Consolidated Financial Statements.
Net earnings/(loss) attributable to U. S. Steel
Net earningsloss attributable to U. S. Steel in 20172020 was $387$1,165 million compared to a net loss of $(440)$630 million in 2016 and a net loss of $(1,642) million in 2015, respectively.2019. The changes primarily reflected the factors discussed above.
Financial Condition, Cash Flows and Liquidity
Accounts receivable increased by $131 million from year-end 2016 primarily due to higher average realized prices, as well as increased shipment volumes in our Flat-Rolled and Tubular segments in the fourth quarter of 2017 compared to the fourth quarter of 2016.LIQUIDITY AND CAPITAL RESOURCES
Inventories increased by $165 million from December 31, 2016 primarily as a result of increased operating levels and higher raw materials prices across all of our segments.
Other current assets increased by $65 million from December 31, 2016 primarily due to purchases of emission allowances by our USSE segment.
Accounts payable and other accrued liabilities increased by $502 million from year-end 2016 primarily as a result of increased operating levels and higher raw materials prices across all of our segments.
Payroll and benefits payable decreased by $53 million from year-end 2016 primarily due to incentive payments related to 2016 financial performance that we paid in March 2017.
Short-term debt and current maturities of long-term debt decreased by $47 million from year-end 2016 primarily due to the repayment of environmental bonds.
Long-term debt decreased by $281 million from year-end 2016 primarily due to the redemption of $200 million of our 8.375% Senior Secured Notes due 2021 in December 2017. Also contributing to the decrease from year-end 2016 was the repayment of the Recovery Zone Bonds, for which an "Extraordinary Mandatory Redemption" was triggered under the applicable indenture as a result of the permanent shutdown of the No. 6 Quench & Temper Mill at Lorain Tubular Operations during the first quarter of 2017 and decision to relocate the equipment.
Employee benefits decreased by $457 million from year-end 2016 primarily due to a strong return on plan assets and the voluntary contribution of $75 million to the U. S. Steel Retirement Plan during 2017 partially offset by the natural maturation of our pension plans and an improved mortality assumption.
Cash Flows
Net cash provided by operating activities was $802$138 million in 20172020 compared to $731$682 million in 2016 and $360 million2019. The decrease in 2015. The increase in 20172020 compared to 2016 is2019 was primarily due to stronger financialdecreased operating results, partially offset by changes in working capital period over period. The increase in 2016 compared to 2015 is primarily due to stronger financial results partially offset by changes in working capital period over period.capital. 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 keycash conversion cycle decreased 13 days in the fourth quarter of 2020 from the fourth quarter of 2019 as shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash Conversion Cycle | 2020 | | | 2019 |
| $ millions | | Days | | | $ millions | | Days |
Accounts receivable, net (a) | $ | 994 | | | 38 | | | $ | 1,177 | | | 42 |
| | | | | | | | |
+ Inventories (b) | $ | 1,402 | | | 54 | | | $ | 1,785 | | | 64 |
| | | | | | | | |
- Accounts Payable and Other Accrued Liabilities (c) | $ | 1,861 | | | 68 | | | $ | 1,970 | | | 69 |
| | | | | | | | |
| | | | | | | | |
= Cash Conversion Cycle (d) | | | 24 | | | | | 37 |
(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 components include accounts receivable and inventory.management efficiency. The accounts receivable and inventory turnover ratios for the years ended December 31, 2017 and 2016 arecash conversion cycle should not be considered in isolation or as follows:an alternative to other GAAP metrics as an indicator of performance.
|
| | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 |
| Accounts Receivable Turnover | | 9.3 |
| | 8.8 |
|
| Inventory Turnover | | 6.6 |
| | 5.3 |
|
The increase in the accounts receivable turnover approximates two days for 2017 as compared to 2016 and is primarily due to increased sales as a result of increased shipments in our Tubular and USSE segments as well as higher average realized prices across all of our segments in 2017 as compared to 2016. The increase in the inventory turnover approximates 14 days for 2017 as compared to 2016 and is primarily due to an increase in cost of goods sold mainly attributable to higher raw materials costs across all of our segments.
The last-in, first-out (LIFO) inventory method is the predominant method of inventory costing in the United States. At December 31, 20172020 and 2016,2019, the LIFO method accounted for 59 percent and 75 percent of total inventory values.values, respectively. In the U.S., management monitors the 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 December 31, 20172020 and 2016,2019, the replacement cost of the inventory was higher by approximately $802$848 million and $489$735 million, respectively.
Our cash conversion cycle improved 13 days in the fourth quarter of 2017 from the fourth quarter of 2016 as shown below:
|
| | | | | | | | | | | | |
Cash Conversion Cycle
| 2017 | | | 2016 |
| | $ millions | | Days | | | $ millions | | Days |
Accounts receivable, net (a) | $ | 1,379 |
| | 43 | | | $ | 1,248 |
| | 42 |
| | | | | | | | | |
+ Inventories (b) | $ | 1,738 |
| | 58 | | | $ | 1,573 |
| | 63 |
| | | | | | | | | |
- Accounts Payable and Other Accrued Liabilities (c) | $ | 2,163 |
| | 71 | | | $ | 1,665 |
| | 62 |
| | | | | | | | | |
| | | | | | | | | |
= Cash Conversion Cycle (d) | | | 30 | | | | | 43 |
(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.
Net cash provided by operating activities for 2017, 20162020 and 20152019 reflects employee benefits payments as shown in the following table.
Employee Benefits Payments for Employees
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in millions) | | 2020 | | 2019 |
| Other employee benefits payments not funded by trusts | | $ | 46 | | | $ | 45 | |
| Payments to a multiemployer pension plan | | 76 | | | 77 | |
| Pension related payments not funded by trusts | | 7 | | | 8 | |
| Reductions in cash flows from operating activities | | $ | 129 | | | $ | 130 | |
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Dollars in millions) | | 2017 | | 2016 | | 2015 |
Voluntary contributions to main defined benefit pension plan (b) | | $ | 75 |
| | $ | 13 |
| (a) | $ | — |
|
| Other employee benefits payments not funded by trusts | | 59 |
| | 61 |
| | 75 |
|
| Contributions to trusts for retiree health care and life insurance | | — |
| | — |
| | 10 |
|
| Payments to a multiemployer pension plan | | 59 |
| | 63 |
| | 66 |
|
| Pension related payments not funded by trusts | | 13 |
| | 26 |
| | 38 |
|
| Reductions in cash flows from operating activities | | $ | 206 |
| | $ | 163 |
| | $ | 189 |
|
(a) Represents a contribution related to the payment of Pension Benefit Guarantee Corporation (PBGC) fees.
(b) In 2016, we also made a voluntary contributionCapital expenditures in Company stock valued at approximately $100 million.
Capital expenditures in 20172020 were $505 million$0.725 billion compared to $306 million$1.252 billion in 2016 and $500 million in 2015.2019.
2017
2020 Capital Spending
Flat-rolledTotal capital expenditures for 2020 were $725 million. Flat-Rolled capital expenditures were $388$484 million and included spending for the Mon Valley Works blast furnace stove rebuild,Endless Casting and Rolling, Gary Works blast furnace reline and skip incline replacement, Edgar Thomson Basic Oxygen Process (BOP) R vessel hood replacement, Midwest Plant galvanneal furnace upgrade, Great Lakes Works BOP truss off gas main replacement,Hot Strip Mill upgrades, Gary #4 Blast Furnace, Gary Chrome Treatment, Mining Equipment, and various other infrastructure, environmental and strategic projects. Tubular capital expenditures of $28 million related to Lone Star pipe mill finishing, Offshore Operations premium thread line and Lorain primary electric utility supply, as well as various other strategic capital projects. USSE capital expenditures of $83$79 million consisted of spending for a boiler house upgrade, picklecompletion of the BAT program, BF 2 Stove, long-lead time manufacturing for the new Dynamo line, upgrades, coke battery through-wall replacementand various other infrastructure and environmental projects. Tubular capital expenditures were $159 million and included spending for the Fairfield Electric Arc Furnace (EAF), and various other infrastructure and environmental projects.
2016 Capital Spending
Flat-rolled capital expenditures were $111 million and included spending for the Gary Works No. 1 Caster upgrade and certain other blast furnace upgrades, the Great Lakes Works Pickle Line Tank replacement, Continuous Galvanized Line (CGL) Strip Cleaning and Roller Coater, and various other infrastructure, environmental and strategic projects. Tubular capital expenditures of $88 million related to the delayed electric arc furnace (EAF) and coupling facilities projects as well as various other infrastructure and strategic capital projects. USSE capital expenditures of $83 million consisted of spending for a boiler house upgrade, pickle line upgrades and various other infrastructure and environmental projects.
2015 Capital Spending
Flat-Rolled capital expenditures were $280 million and included spending for the Granite City Works No. 1 Caster replacement, the ongoing implementation of an enterprise resource planning (ERP) system, No. 1 Caster upgrade at Gary Works, pickle line replacement at Great Lakes Works, blast furnace maintenance at Granite City Works, and various other infrastructure, environmental and strategic projects. Tubular capital expenditures of $102 million related to the EAF and coupling facilities as well as various other infrastructure and strategic capital projects. USSE capital expenditures of $110 million consisted of spending for infrastructure and environmental projects.
Capital expenditures for 20182021 are expected to total approximately $850$675 million and remain focused largely on strategic, infrastructure and environmental projects, as well as asset revitalization ofcontinued reinvestment in our equipment to improve our operating reliability and efficiency, and product quality and cost by focusing on investments in our North American Flat-Rolled segment.
U. S. Steel’s contractcontractual commitments to acquire property, plant and equipment at December 31, 2017,2020, totaled $397$583 million.
In 2017, U. S. Steel received approximately $11 million for the sale of its 50% ownership interest in Apolo Tubulars, S.A. in December 2017.
In 2017, U. S. Steel received approximately $105 million for the sale of its 15% ownership in Tilden Mining Company L.C. in September 2017.
In 2017, U. S. Steel received approximately $127 million in satisfaction of its secured and unsecured claims, including interest, as a result of the restructuring and disposition of USSC on June 30, 2017.
Acquisitions in 2015 reflects the purchase of the 50 percent joint venture interest in Double Eagle Steel Coating Company not already owned by U. S. Steel.
Restricted cash in 2015 reflects the use of restricted cash for qualified environmental capital projects. These proceeds are restricted for environmental capital projects at Gary Works, our Clairton Plant and Granite City Works and become unrestricted as capital expenditures for these projects are made. At December 31, 2017, December 31, 2016 and December 31, 2015, there was no restricted cash related to these projects.
Issuance of long-term debt, net of financing costs, totaled $737 million in 2017. In 2017, U. S. Steel issued $750 million of 6.875% Senior Notes due August 15, 2025. U. S. Steel received net proceeds from the offering of approximately $737 million after fees of approximately $13 million related to the underwriting and third party expenses. In 2016, U. S. Steel issued $980 million of its 8.375% Senior Secured Notes due July 1, 2021. U. S. Steel received net proceeds from the offering of approximately $958 million after fees of approximately $22 million related to underwriting and third party expenses. For further information see Note 16 to the Consolidated Financial Statements.
Repayment of long-term debt totaled $1,104 million in 2017. In 2017, U. S. Steel redeemed the entire aggregate principal amount of $70 million of the Lorain County Port Authority Recovery Zone Facility Revenue Bonds. Additionally, U. S. Steel redeemed $161 million of 7.00% Senior Notes due 2018, $200 million of 6.875% Senior Notes due 2021, and $400 million of 7.50% Senior Notes due 2022 for a total aggregate redemption cost of approximately $808 million. Also during 2017, U. S. Steel redeemed $200 million of 8.375% Senior Secured Notes due 2021 for an aggregate redemption cost of approximately $227 million. Repayment of long-term debt in 2016 reflects the repurchase of approximately $6 million of U. S. Steel's 6.05% Senior Notes due 2017 through open market purchases and the redemption of the remaining aggregate principal amount of approximately $444 million. Also during 2016, U. S. Steel repurchased portions of its outstanding senior notes which included the 7.00% Senior Notes due 2018, 7.375% Senior Notes due 2020, and the 6.875% Senior Notes due 2021 for a total aggregate principal value of approximately $582 million through a series of tender offers and open market purchases. Repayment of long-term debt in 2015 reflects the retirement of the $316 million principal amount of the 2019 Senior Convertible Notes along with scheduled repayments of certain environmental revenue bonds. For further information see Note 16 to the Consolidated Financial Statements.
For all four quarters in 2017, 2016 and 2015, dividends paid per share of U. S. Steel common stock was $0.05.
Liquidity
The following table summarizes U. S. Steel’s liquidity as of December 31, 2017:2020:
| | | | | |
| (Dollars in millions) | |
| Cash and cash equivalents | $ | 1,985 | |
| Amount available under $2.0 Billion Credit Facility | 944 | |
| Amounts available under USSK credit facilities | 224 | |
| Total estimated liquidity | $ | 3,153 | |
|
| | | |
| (Dollars in millions) | |
| Cash and cash equivalents | $ | 1,553 |
|
| Amount available under $1.5 Billion Credit Facility | 1,500 |
|
| Amounts available under USSK credit facilities | 297 |
|
| Total estimated liquidity | $ | 3,350 |
|
Net cash provided by financing activities was $1.581 billion for the twelve months ended December 31, 2020 compared to the same period in 2019 as the Company bolstered its liquidity and financial flexibility through the receipt of net proceeds of $977 million from the issuance of the 2025 Senior Secured Notes, $240 million from borrowings on the Export-Import Credit Agreement and $410 million from the offering of 50,000,000 shares of common stock.
As of December 31, 2017, $3652020, $271 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.
U. S. Steel maintains a $1.5 billion asset-backed revolvingCertain of our credit facility. As of December 31, 2017, there were no amounts drawn onfacilities, including the $1.5 billion credit facility (Third Amended and Restated Credit 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 Third Amended and Restated CreditFacility Agreement, is less than the greater of 10% of the total aggregate commitments and $150 million. Based on the four quarters as of December 31, 2017, we 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.
At December 31, 2017, USSK had no borrowings under its €200 million (approximately $240 million) unsecured revolving credit facility (the USSK Credit Agreement). The USSK Credit Agreement contains certain USSK financial covenants as well as other customary terms and conditions. At December 31, 2017, USSK had full availability under the USSK Credit Agreement. Currently, the USSK Credit Agreement, expires in July 2020. The USSKthe Export-Import Credit Agreement, permits one additional one-year extension to the final maturity date at the mutual consent of USSK and its lenders. On January 22, 2018 USSK’s lenders confirmed the second maturity extension request to July 2021 under the USSK Credit Agreement.
At December 31, 2017, USSK had no borrowings under its €40 million and €10 million unsecured credit facilities (collectively approximately $60 million) and the aggregate availabilityExport Credit Agreement, contain standard terms and conditions including customary material adverse change clauses. If a material adverse change was approximately $57 million due to approximately $3 million of customsoccur, our ability to fund future operating and other guarantees outstanding. The €40 million facility expires in December 2018. On October 27, 2017, USSK entered into an amendment to its €10 million unsecured credit agreement to extend the agreement's final maturity date from December 2017 to December 2018. The agreement also permits one additional one-year extension to the final maturity date at the mutual consent of USSK and its lender.capital requirements could be negatively impacted.
In August of 2017, U. S. Steel issued $750 million of 6.875% Senior Notes due August 15, 2025 (2025 Senior Notes). U. S. Steel received net proceeds from the offering of approximately $737 million after fees of approximately $13 million related to the underwriting and third party expenses. The net proceeds from the issuance of the 2025 Senior Notes, together with cash on hand, were used to repurchase portions of our outstanding senior notes (see Note 16 to the Consolidated Financial Statements, “Debt” for further details). Interest on the notes is payable semi-annually in arrears on February 15th and August 15th of each year, commencing on February 15, 2018.
For the twelve months ended December 31, 2017, the Non-Guarantor Subsidiaries (as defined in the Indenture governing the 2021 Senior Secured Notes), which consist principally of our tubular subsidiaries and our foreign subsidiaries, including USSK, represented approximately 40% of our net sales, 51% of our operating income and 45% of our adjusted EBITDA on a consolidated basis. As of December 31, 2017, the Non-Guarantor Subsidiaries represented 42% of our total assets and had $1.3 billion of total liabilities on a consolidated basis, including trade
payables but excluding intercompany liabilities, all of which would be structurally senior to the 2021 Senior Secured Notes.
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.
On March 10, 2017, See Note 17 to the Consolidated Financial Statements for further details regarding U. S. Steel announced the permanent shutdown of the No. 6 Quench & Temper Mill at Lorain Tubular Operations in Lorain, Ohio. Under the terms of the Trust Indenture dated as of December 1, 2010, between the Lorain County Port Authority and The Bank of New York Mellon Trust Company, N.A., as Trustee (the Indenture), this action and our decision to relocate the Lorain No. 6 Quench & Temper equipment triggered an Extraordinary Mandatory Redemption of the Recovery Zone Bonds and accordingly required U. S. Steel to redeem the Recovery Zone Bonds and repay in full the principal amount plus accrued interest. In accordance with the terms of the Indenture, U. S. Steel paid in full all amounts due under the Indenture, comprised of $70 million principal and accrued interest of approximately $2 million, on April 27, 2017.Steel's debt.
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 $158$222 million of liquidity sources for financial assurance purposes as of December 31, 2017.2020. Increases in certain of these commitments which use collateral are reflected inwithin cash, cash equivalents and restricted cash on the Consolidated Statement of Cash Flows.
As of December 31, 2020, Stelco had made installment payments totaling $100 million under the Option Agreement which are recorded in noncontrolling interest net of transaction fees in the Consolidated Balance Sheet. See Note 20 to the Consolidated Financial Statements for further details.
We finished 2020 with $1.985 billion of cash and cash equivalents and $3.153 billion of total liquidity. On January 15, 2021 we closed on the purchase of the remaining equity in Big River Steel for approximately $723 million in cash and the assumption of liabilities of approximately $50 million. 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 our liquidity will be adequate to fund our requirements based on our current assumptions with respect to our results of operations and financial condition, including the continued impact of the COVID-19 pandemic and the ongoing disruption in the oil and gas industry.
The following credit facility activity has occurred in January and early February of 2021:
•On January 15, 2021, a payment of €50 million (approximately $61 million) was made under the USSK Credit Agreement.
•On January 22, 2021, our Big River Steel subsidiary borrowed $50 million under its credit facility.
•On January 29, 2021, a payment of $100 million was made under the Credit Facility Agreement.
•On February 10, 2021, notice was given that we intend to make an additional payment on February 16, 2021 of $250 million under the Credit Facility Agreement.
See Note 17 to the Consolidated Financial Statements for a description of U. S. Steel debt as of December 31, 2020, including the terms and descriptions of our outstanding Senior Secured Notes and Senior Notes.
After the closing of the Big River Steel purchase on January 15, 2021, additional indebtedness of approximately $1.9 billion (excluding any potential step-up to fair value) became the financial obligation of the Company and will be included on our Consolidated Balance Sheet in future periods. Below is a summary:
•6.625% Senior Secured Notes in the aggregate principal amount of $900 million that mature on January 31, 2029 that pay interest semi-annually on January 31 and July 31 of each year;
•4.50% Arkansas Development Finance Authority Bonds in the amount of $487 million that have a final maturity of September 1, 2049 that pay interest semi-annually on each March 1 and September 1;
•4.75% Arkansas Development Finance Authority Bonds Tax Exempt Series 2020 (Green Bonds) in the amount of $265 million that have a final maturity on September 1, 2049 and pay interest semi-annually on March 1 and September 1 each year;
•Other long-term indebtedness that includes a building mortgage and finance leases that total approximately $200 million.
We expect that our estimated liquidity requirements will consist primarily of our 2021 planned strategic and sustaining capital expenditures, interest expense, and operating costs and employee benefits for our operations after taking into account the footprint actions and cost reductions at our plants and headquarters described above. Our available liquidity at December 31, 2020 consists principally of our cash and cash equivalents and available borrowings under the Credit Facility Agreement and the USSK Credit Facilities. Management continues to evaluate market conditions in our industry and our global liquidity position, and may consider additional actions to further strengthen our balance sheet and optimize liquidity, which may include drawing on available capacity under the Credit Facility Agreement and/or the USSK Credit Facilities, or reducing outstanding borrowings under those facilities from time to time if deemed appropriate by management.
In October 2020, the Company entered into a supply chain finance (SCF) agreement with a third party administrator with an initial term of one year to allow participating suppliers, at their sole discretion, to make offers to sell payment obligations of the
Company prior to their scheduled due dates at a discounted price to a participating financial institution. The third party administrator entered into a separate one year agreement with the Export Import Bank of the United States (Ex-Im Guarantee) that guarantees 95 percent of the supplier payment obligations sold for up to $200 million. No guarantees are provided by the Company or any of its subsidiaries under the SCF program. The Company’s goal is to capture overall supplier savings and improve working capital efficiency and the agreements facilitate the suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. The Company has no economic interest in the sale of the suppliers’ receivables and no direct financial relationship with the financial institution concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under the arrangements. The underlying costs from suppliers that elected to participate in the SCF program are generally recorded in cost of sales in the Company’s Consolidated Statement of Operations. Amounts due to suppliers who participate in the SCF program are reflected in accounts payable and accrued expenses on the Company’s Consolidated Balance Sheet and payments on the obligations by our suppliers are included in cash used in operating activities in the Consolidated Statement of Cash Flows. As of December 31, 2020, accounts payable and accrued expenses included approximately $34 million of outstanding payment obligations which suppliers elected to sell to participating financial institutions. Access to supply chain financing could be curtailed in the future if the terms of the Ex-Im Guarantee are modified or if our credit ratings are downgraded. If access to supply chain financing is curtailed, working capital could be negatively impacted which may necessitate further long-term borrowings.
At December 31, 2017,2020, in the event of a change in control of U. S. Steel: (a) debt obligations totaling $2,312$4,317 million as of December 31, 2017 (including the Senior Notes and 2021 Senior Secured Notes)2020 may be declared due and payable; (b) the Third Amended and Restated Credit Facility Agreement and USSK’s €200 million revolvingthe USSK credit agreementfacilities 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 $26 million or provide a cash collateralized letter of credit to secure the remaining obligation.payable.
The maximum guarantees of the indebtedness of unconsolidated entities of U. S. Steel totaled $4$7 million at December 31, 2017.2020. 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.
The following table summarizes U. S. Steel’s contractual obligations at December 31, 2017,2020, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | | | | | | | |
| | | | | | Payments Due by Period | |
| Contractual Obligations | | Total | | 2021 | | 2022
through
2023 | | 2024 through
2025 | | Beyond
2025 | |
Debt (including interest) and finance leases(a) | | $ | 7,564 | | | $ | 524 | | | $ | 1,047 | | | $ | 2,913 | | | $ | 3,080 | | |
Operating leases(b) | | 265 | | | 73 | | | 96 | | | 57 | | | 39 | | |
Contractual purchase commitments(c) | | 5,781 | | | 3,415 | | | 1,351 | | | 313 | | | 702 | | |
Capital commitments(d) | | 583 | | | 442 | | | 141 | | | — | | | — | | |
Environmental commitments(d) | | 146 | | | 43 | | | — | | | — | | | 103 | | (e) |
Steelworkers Pension Trust(f) | | 381 | |
| 73 | | | 151 | |
| 157 | |
| — | |
|
Pensions(g) | | — | | | — | | | — | | | — | | | — | | |
Other benefits(h) | | 219 | |
| 47 | | | 89 | | | 83 | | | — | |
|
| Total contractual obligations | | $ | 14,939 | | | $ | 4,617 | | | $ | 2,875 | | | $ | 3,523 | | | $ | 3,924 | | |
(a)See Note 17 to the Consolidated Financial Statements.
(b)See Note 24 to the Consolidated Financial Statements. Amounts exclude subleases.
(c)Reflects estimated contractual purchase commitments under purchase orders and “take or pay” arrangements. “Take or pay” arrangements are primarily for purchases of gases and certain energy and utility services. Additionally, includes coke and steam purchase commitments related to a coke supply agreement with Gateway Energy & Coke Company LLC (See Note 26 to the Consolidated Financial Statements).
(d)See Note 26 to the Consolidated Financial Statements.
(e)Timing of potential cash flows is not reasonably determinable.
(f)While it is difficult to make a prediction of cash requirements beyond the term of the 2018 Labor Agreements with the USW, which expire on September 1, 2022, projected amounts shown through 2025 assume the contribution rate per hour included in the 2018 Labor Agreements.
(g)Projections are estimates of the minimum required contributions to the main domestic defined benefit pension plan which have been estimated assuming future asset performance consistent with our expected long-term earnings rate assumption, no voluntary contributions during the periods, and that the current low interest rate environment persists. Projections include the impacts of the November 2015 pension stabilization legislation, which further extended a revised interest rate formula to be used in calculating minimum required annual contributions. The legislation also increased the contribution rate of future Pension Benefit Guarantee Corporation (PBGC) premiums. Under these assumptions, there are no minimum required contributions to be paid.
(h)The amounts reflect corporate cash outlays for expected benefit payments to be paid by the Company. (See Note 18 to the Consolidated Financial Statements). The accuracy of this forecast of future cash flows depends on future medical health care escalation rates and restrictions related to our trusts for retiree healthcare and life insurance (VEBA) that impact the timing of the use of trust assets. Projected amounts have been reduced to reflect withdrawals from the USW VEBA trust available under its agreements with the USW. Due to these factors, it is not possible to reliably estimate cash requirements beyond five years and actual amounts experienced may differ significantly from those shown.
|
| | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | | | | | | | |
| | | | | | | Payments Due by Period | |
| Contractual Obligations | | Total | | 2018 | | 2019
through
2020 | | 2021 through
2022 | | Beyond
2022 | |
Long-term debt (including interest) and capital leases(a) | | $ | 4,199 |
| | $ | 211 |
| | $ | 879 |
| | $ | 1,021 |
| | $ | 2,088 |
| |
Operating leases(b) | | 271 |
| | 67 |
| | 84 |
| | 50 |
| | 70 |
| |
Contractual purchase commitments(c) | | 5,058 |
| | 2,465 |
| | 733 |
| | 601 |
| | 1,259 |
| |
Capital commitments(d) | | 397 |
| | 225 |
| | 172 |
| | — |
| | — |
| |
Environmental commitments(d) | | 179 |
| | 29 |
| | — |
| | — |
| | 150 |
| (e) |
| Steelworkers Pension Trust | | 290 |
| (f) | 54 |
| (f) | 115 |
| (f) | 121 |
| (f) | — |
| (f) |
Pensions(g) | | — |
| | — |
| | — |
| | — |
| | — |
| |
| Other benefits | | 279 |
| (h) | 57 |
| | 113 |
| | 109 |
| | — |
| (h) |
| Unrecognized tax positions | | 42 |
| | — |
| | — |
| | — |
| | 42 |
| (e) |
| Total contractual obligations | | $ | 10,715 |
| | $ | 3,108 |
| | $ | 2,096 |
| | $ | 1,902 |
| | $ | 3,609 |
| |
| |
(a) | See Note 16 to the Consolidated Financial Statements. |
| |
(b) | See Note 23 to the Consolidated Financial Statements. Amounts exclude subleases. |
| |
(c) | Reflects contractual purchase commitments under purchase orders and “take or pay” arrangements. “Take or pay” arrangements are primarily for purchases of gases and certain energy and utility services. Additionally, includes coke and steam purchase commitments related to a coke supply agreement with Gateway Energy & Coke Company LLC (See Note 25 to the Consolidated Financial Statements). |
| |
(d) | See Note 25 to the Consolidated Financial Statements. |
| |
(e) | Timing of potential cash flows is not reasonably determinable. |
| |
(f) | While it is difficult to make a prediction of cash requirements beyond the term of the 2015 Labor Agreements, which expire on September 1, 2018, projected amounts shown through 2022 assume that the current $2.65 contribution rate per hour will apply. |
| |
(g) | Projections are estimates of the minimum required contributions to the main domestic defined benefit pension plan which have been estimated assuming future asset performance consistent with our expected long-term earnings rate assumption, no voluntary contributions during the periods, and that the current low interest rate environment persists. Projections include the impacts of the November 2015 pension stabilization legislation, which further extended a revised interest rate formula to be used in calculating minimum required annual contributions. The legislation also increased the contribution rate of future PBGC premiums. Under these assumptions, there are no minimum required contributions to be paid. |
| |
(h) | The amounts reflect corporate cash outlays for expected benefit payments to be paid by the Company. Under the 2015 Labor Agreement, previously required contributions to the USW VEBA trust have been eliminated (See Note 17 to the Consolidated Financial Statements). The accuracy of this forecast of future cash flows depends on future medical health care escalation rates and restrictions related to our trusts for retiree healthcare and life insurance that impact the timing of the use of trust assets. Projected amounts have been reduced to reflect withdrawals from the USW VEBA trust available under its agreements with the USW. Due to these factors, it is not possible to reliably estimate cash requirements beyond five years and actual amounts experienced may differ significantly from those shown. |
Contingent lease payments have been excluded from the above table. Contingent lease payments relate to operating lease agreements that include a floating rental charge, which is associated to a variable component. Future contingent lease payments are not determinable to any degree of certainty. U. S. Steel’s annual incurred contingent lease expense is disclosed in Note 2324 to the Consolidated Financial Statements. Additionally, recorded liabilities related to deferred income taxes and other liabilities that may have an impact on liquidity and cash flow in future periods, disclosed in Note 1011 to the Consolidated Financial Statements, are excluded from the above table.
U. S. Steel made a voluntary contribution to our main U.S. defined benefit plan of $75 million in 2017. U. S. Steel will monitor the funded status of the pension plan to determine when voluntary contributions may be prudent in order to mitigate potentially larger mandatory contributions in later years. The funded status of U. S. Steel’s pension plans is disclosed in Note 1718 to the Consolidated Financial Statements.
The following table summarizes U. S. Steel’s commercial commitments at December 31, 2017,2020, and the effect such commitments could have on our liquidity and cash flows in future periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | | | | | | | |
| | | | Scheduled Reductions by Period | |
| Commercial Commitments | | Total | | 2021 | | 2022
through
2023 | | 2024
through
2025 | | Beyond
2025 | |
Standby letters of credit(a) | | $ | 64 | | | $ | 46 | | | $ | 8 | | | $ | — | | | $ | 10 | | (b) |
Surety bonds(a) | | 104 | | | — | | | — | | | — | | | 104 | | (b) |
Funded Trusts(a) | | 54 | | | — | | | — | | | — | | | 54 | | (b) |
| Total commercial commitments | | $ | 222 | | | $ | 46 | | | $ | 8 | | | $ | — | | | $ | 168 | | |
(a)Reflects a commitment or guarantee for which future cash outflow is not considered likely. |
| | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | | | | | | | |
| | | | | Scheduled Reductions by Period | |
| Commercial Commitments | | Total | | 2018 | | 2019
through
2020 | | 2021
through
2022 | | Beyond
2022 | |
Standby letters of credit(a) | | $ | 59 |
| | $ | 48 |
| | $ | 1 |
| |
|
| | $ | 10 |
| (b) |
Surety bonds(a) | | 67 |
| | — |
| | — |
| | — |
| | 67 |
| (b) |
Funded Trusts(a) | | 32 |
| | — |
| | — |
| | — |
| | 32 |
| (b) |
| Total commercial commitments | | $ | 158 |
| | $ | 48 |
| | $ | 1 |
| | $ | — |
| | $ | 109 |
| |
| |
(a) | Reflects a commitment or guarantee for which future cash outflow is not considered likely. |
| |
(b) | Timing of potential cash outflows is not determinable. |
Our major cash requirements in 20182021 are expected to be for capital expenditures, including asset revitalization,strategic priorities, employee benefits and operating costs, which includes purchases of raw materials. We ended 20172020 with $1.553 billion$1,985 million of cash and cash equivalents and $3.350 billion$3,153 million 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,buybacks, dividends, contributions to employee benefit plans, and any amounts that may ultimately be paid in connection with contingencies, are expected to be funded by a combination of internally generated funds (including asset sales), proceeds from the sale of stock, borrowings, refinancings and other external financing sources.
Other Relevant Matters
Apolo Tubulars S.A.
Apolo Tubulars S.A. (Apolo) (formerly an unconsolidated Brazilian joint venture of which the Company owned 50%) was the subject of a search of its premises by Brazilian federal authorities on May 24, 2016. Apolo's CEO was among those subsequently indicted by the Brazilian federal prosecutor on June 27, 2016 for corruption, money laundering and organized crime in connection with alleged payments to government officials in exchange for contracts with Petróleo Brasileiro S.A. (commonly known as “Petrobras”), Brazil’s state-run energy company. In March 2017, Apolo's CEO was acquitted of all charges due to a lack of evidence as to him personally, although the court did find that there was a misuse of certain Apolo funds by others not employed by Apolo. The prosecution has appealed that acquittal. While there can be no assurance that a successful appeal by the prosecution would not have an adverse effect on Apolo, it would not have a material impact on the Company as a whole. The prosecutor has not alleged any violations of law by, or initiated any investigation of, the Company or any of its employees. The Company sold all of its interest in Apolo in December 2017.
Off-Balance Sheet Arrangements
U. S. Steel has invested in several joint ventures that are reported as equity investments. Several of these investments involved a transfer of assets in exchange for an equity interest. U. S. Steel has supply arrangements with several of these joint ventures. In some cases, a portion of the labor force used by the investees is provided by U. S. Steel, the cost of which is reimbursed; however, failing reimbursement, U. S. Steel is ultimately responsible for the cost of these employees. The terms of these arrangements were a result of negotiations in arms-length transactions with the other joint venture participants, who are not affiliates of U. S. Steel.
U. S. Steel’s other off-balance sheet arrangements include guarantees, indemnifications, unconditional purchase obligations, surety bonds, trusts and letters of credit disclosed in Note 25 to the Consolidated Financial Statements as well as operating leases disclosed in Note 2326 to the Consolidated Financial Statements.
Derivative Instruments
See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for discussion of derivative instruments and associated market risk for U. S. Steel.
Change in Accounting EstimateCapitalization and Depreciation Method
During 2017, U. S. Steel completed a reviewWhen property, plant, and equipment are disposed of by sale, retirement, or abandonment, the gross value of the property, plant and equipment and corresponding accumulated depreciation are removed from the Company’s financial accounting records. Due to the application of the unitary method of depreciation, any gain or loss resulting from an asset disposal by sale will now be immediately recognized as a gain or loss on the disposal of assets line in our consolidated statement of operations. Assets that are retired or abandoned will be reflected as an immediate charge to depreciation expense for any remaining book value in our consolidated statement of operations. Gains (losses) on disposals of assets for the year ended December 31, 2017 were immaterial.
For the year ended December 31, 2017, the effect of the change was an increase in both income from continuing operations and net earnings of $344 million (which consists of a $381 million decrease in cost of sales due to the capitalization of maintenance and outage spending that would have been previously expensed, partially offset by increased depreciation expense of $37 million, as a result of the impact of unitary depreciation on the existing net book value of fixed assets, as noted below, and the capitalization of maintenance and outage spending) and an increase in diluted earnings per share of $1.95. The tax effect of this change was immaterial to the consolidated financial statements.
Due to the application of the unitary method of depreciation and resultant change in our capitalization policy, spending associated with major maintenance and outage work, that had previously been expensed, will now be capitalized if it extends the useful life of the related asset. Based upon our average spending in years prior to 2017, we had estimated the impact on 2017 results to be a reduction of approximately $175 million in cost of sales on the Consolidated Statement of Operations. Additionally, due to the increased spending related to maintenance under our asset revitalization program, we capitalized $206 million of incremental expenditures.
Environmental Matters
U. S. Steel’s environmental expenditures were as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | | |
| | 2020 | | 2019 | | 2018 |
| North America: | | | | | | |
| Capital | | $ | 36 | | | $ | 96 | | | $ | 105 | |
| Compliance | | | | | | |
| Operating & maintenance | | 188 | | | 213 | | | 198 | |
Remediation(a) | | 37 | | | 22 | | | 6 | |
| Total North America | | $ | 261 | | | $ | 331 | | | $ | 309 | |
| USSE: | | | | | | |
| Capital | | $ | 6 | | | $ | 27 | | | $ | 20 | |
| Compliance | | | | | | |
| Operating & maintenance | | 6 | | | 10 | | | 12 | |
Remediation(a) | | 5 | | | 8 | | | 9 | |
| Total USSE | | $ | 17 | | | $ | 45 | | | $ | 41 | |
| Total U. S. Steel | | $ | 278 | | | $ | 376 | | | $ | 350 | |
|
| | | | | | | | | | | | |
| (Dollars in millions) | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| North America: | | | | | | |
| Capital | | $ | 6 |
| | $ | 5 |
| | $ | 16 |
|
| Compliance | | | | | | |
| Operating & maintenance | | 176 |
| | 167 |
| | 226 |
|
Remediation(a) | | 9 |
| | 17 |
| | 12 |
|
| Total North America | | $ | 191 |
| | $ | 189 |
| | $ | 254 |
|
| USSE: | | | | | | |
| Capital | | $ | 46 |
| | $ | 26 |
| | $ | 80 |
|
| Compliance | | | | | | |
| Operating & maintenance | | 11 |
| | 11 |
| | 12 |
|
Remediation(a) | | 7 |
| | 6 |
| | 8 |
|
| Total USSE | | $ | 64 |
| | $ | 43 |
| | $ | 100 |
|
| Total U. S. Steel | | $ | 255 |
| | $ | 232 |
| | $ | 354 |
|
| |
(a) | These amounts include spending charged against remediation reserves, net of recoveries where permissible, but do not include non-cash provisions recorded for environmental remediation. |
U. S. Steel’s environmental capital expenditures accounted for 106 percent of total capital expenditures in 2017,2020 and 10 percent in 20162019 and 1912 percent in 2015.2018.
Environmental compliance expenditures represented two2 percent of U. S. Steel's total costs and expenses in 2017, 20162020, 2019 and 2015.2018. Remediation spending during 20152018 through 20172020 was mainly related to remediation activities at former and present operating locations.
RCRA establishes standards for the management of solid and hazardous wastes. Besides affecting current waste disposal practices, RCRA also addresses the environmental impacts of certain past waste disposal operations, the recycling of wastes and the regulation of storage tanks.
For discussion of other relevant environmental items see “Part I, Item 3. Legal Proceedings – Environmental Proceedings.”
The following table shows activity with respect to environmental remediation liabilities for the years ended December 31, 20172020 and December 31, 2016.2019. These amounts exclude liabilities related to asset retirement obligations accounted for in accordance with ASC Topic 410. See Note 1819 to the Consolidated Financial Statements.
| | | | | | | | | | | | | | |
| (Dollars in millions) | | 2020 | | 2019 |
| Beginning Balance | | $ | 186 | | | $ | 187 | |
| Plus: Additions | | 7 | | | 20 | |
| | | | |
| Less: Obligations settled | | (47) | | | (21) | |
| Ending Balance | | $ | 146 | | | $ | 186 | |
|
| | | | | | | | |
| (Dollars in millions) | | 2017 | | 2016 |
| Beginning Balance | | $ | 179 |
| | $ | 197 |
|
| Plus: Additions | | 8 |
| | 1 |
|
| Adjustments for changes in estimates | | — |
| | (7 | ) |
| Less: Obligations settled | | (8 | ) | | (12 | ) |
| Ending Balance | | $ | 179 |
| | $ | 179 |
|
New or expanded environmental requirements, which could increase U. S. Steel’s environmental costs, may arise in the future. U. S. Steel intends to comply with all legal requirements regarding the environment, but since many of them are not fixed or presently determinable (even under existing legislation) and may be affected by future legislation, it is not possible to predict accurately the ultimate cost of compliance, including remediation costs which may be incurred and penalties which may be imposed. However, based on presently available information and existing laws and regulations as currently implemented, U. S. Steel does not anticipate that environmental compliance and remediation expenditures (including operating and maintenance) will materially increase in 2018. U. S. Steel’s environmental capital expenditures are expected to be approximately $60$66 million in 2018, $452021, $7 million of which is related to projects at USSE.
U. S. Steel's environmental expenditures for 20182021 for operating and maintenance and for remediation projects are expected to be approximately $175$203 million and $40$52 million, respectively, of which approximately $15$10 million and $5$6 million for operating and maintenance and remediation, respectively, is related to USSE. Although, the outcome of pending environmental matters are not estimable at this time, it is reasonably possible that U. S. Steel's environmental capital and operating and maintenance expenditures could materially increase as a result of the future resolution of these matters. Predictions of future environmental expenditures beyond 20182021 can only be broad-based estimates, which have varied, and will continue to vary, due to the ongoing evolution of specific regulatory requirements, the possible imposition of more stringent requirements and the availability of new technologies to remediate sites, among other factors.
Outlook for 2018
If market conditions remain at their January 24, 2018 levels, we expect 2018 net earnings of approximately $685 million, or $3.88 per diluted share, and EBITDA of approximately $1.5 billion.
We believe market conditions, which include spot prices, raw material costs, customer demand, import volumes, supply chain inventories, rig counts and energy prices, will change, and as changes occur during the balance of 2018, we expect these changes to be reflected in our net earnings and EBITDA.
Please refer to the table below for the reconciliation of the Outlook net earnings to EBITDA.
|
| | | | |
| UNITED STATES STEEL CORPORATION |
| RECONCILIATION OF ANNUAL EBITDA OUTLOOK |
| | | |
| | | Year Ended |
| | | Dec. 31 |
| (Dollars in millions) | 2018 |
| Reconciliation to Projected Annual EBITDA Included in Outlook | |
| | Projected net earnings attributable to United States Steel Corporation included in Outlook | $ | 685 |
|
| | Estimated income tax expense | 50 |
|
| | Estimated net interest and other financial costs | 270 |
|
| | Estimated depreciation, depletion and amortization | 495 |
|
| | Projected annual EBITDA included in Outlook | $ | 1,500 |
|
EBITDA is a non-GAAP measure that we believe, considered along with the net earnings (loss), is a relevant indicator of trends relating to cash generating activity and provides management and investors with additional information for comparison of our operating results to the operating results of other companies.
The outlook for 2018 is based on market conditions as of January 24, 2018 and may change based on prevailing economic and competitive conditions and other risks and uncertainties referred to in the Forward-Looking Statements section and in "Item 1A. Risk Factors." These factors could significantly affect our shipments and average realized prices and our outlook may change as a result of these and other factors.
Accounting Standards
See NoteNotes 2 and 3 to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
U. S. Steel is exposed to certain risks related to its ongoing business operations, including financial, market, political, and economic risks. The following discussion provides information regarding U. S. Steel’s exposure to the risks of changing foreign currency exchange rates, commodity prices and interest rates.
U. S. Steel may enter into derivative financial instrument transactions in order to manage or reduce these market risks. The use of derivative instruments is subject to our corporate governance policies. These instruments are used solely to mitigate market exposure and are not used for trading or speculative purposes.
U. S. Steel may elect to use hedge accounting for certain commodity or currency transactions. For those transactions, the impact of the effective portion of the hedging instrument will be recognized in other comprehensive income until the transaction is settled. Once the transaction is settled, the effect of the hedged item will be recognized in income. For further information regarding derivative instruments see Notes 1 and 1516 to the Consolidated Financial Statements.
Foreign Currency Exchange Rate Risk
U. S. Steel, through USSE, is subject to the risk of price fluctuations due to the effects of exchange rates on revenues and operating costs, firm commitments for capital expenditures and existing assets or liabilities denominated in currencies other than the U.S. dollar, particularly the euro. U. S. Steel historically has made limited use of forward currency contracts to manage exposure to certain currency price fluctuations. U. S. Steel has not elected to usecash flow hedge accounting for these contracts.euro foreign exchange forwards prospectively effective July 1, 2019. Foreign currency derivative instruments have beenentered into prior to July 1, 2019 were marked-to-market and the resulting gains or losses recognized in the current period in net interest and other financial costs. At December 31, 2017 and December 31, 2016,costs until those contracts matured in July 2020. U. S. Steel had no open euro forward sales contracts for U.S. dollars (total notional valuethat were subject to mark-to-market accounting as of approximately $273 million and $176 million, respectively). A 10 percent increase in the December 31, 20172020. As of December 31, 2019 U. S. Steel had approximately $153 million euro forward rates would result in a $28 million chargesales contracts for U.S. dollars that were subject to income.mark-to-market accounting.
The fair value of our derivatives is determined using Level 2 inputs, which are defined as “significant other observable” inputs. The inputs used include quotes from counterparties that are corroborated with market sources.
Volatility in the foreign currency markets could have significant implications for U. S. Steel as a result of foreign currency transaction effects. Future foreign currency impacts will depend upon changes in currencies and the extent to which we engage in derivatives transactions. For additional information on U. S. Steel’s foreign currency exchange activity, see Note 1516 to the Consolidated Financial Statements.
Commodity Price Risk and Related Risks
In the normal course of our business, U. S. Steel is exposed to market risk or price fluctuations related to the purchase, production or sale of steel products. U. S. Steel is also exposed to price risk related to the purchase, production or sale of coal, coke, natural gas, steel scrap, iron ore and pellets, and zinc, tin and other nonferrous metals used as raw materials. U. S. Steel is also subject to market price risk for the purchase of a portion of its electricity at certain facilities. See Note 1516 to the Consolidated Financial Statements for further details on U. S. Steel’s derivatives.
U. S. Steel’s market risk strategy has generally been to obtain competitive prices for our products and services and allow operating results to reflect market price movements dictated by supply and demand; however, from time to time U. S. Steel has made forward physical purchases to manage exposure to price risk related to the purchases of natural gas and certain non-ferrous metals used in the production process.
As of December 31, 2020, U. S. Steel held commoditydid not have forward buy contracts for natural gas forward buys placed for 2018or any of the other significant raw materials that qualified for the normal purchases and normal sales exemption with a total notional valueit uses in its production process.
Interest Rate Risk
U. S. Steel is subject to the effects of interest rate fluctuations on the fair value of certain of our non-derivative financial instruments. A sensitivity analysis of the projected incremental effect of a hypothetical 10 percent increase/decrease in year-end 20172020 and 20162019 interest rates on the fair value of U. S. Steel’s non-derivative financial instruments is provided in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2020 | | 2019 |
Non-Derivative Financial Instruments(a) | | Fair Value(b) | | Change in
Fair Value(c) | | Fair Value(b) | | Change in
Fair Value(c) |
| Financial liabilities: | | | | | | | | |
Debt(d)(e) | | $ | 5,323 | | | $ | 141 | | | $ | 3,576 | | | $ | 138 | |
(a)Fair values of cash and cash equivalents, current accounts and notes receivable, accounts payable, bank checks outstanding and accrued interest approximate carrying value and are relatively insensitive to changes in interest rates due to the short-term maturity of the instruments. Accordingly, these instruments are excluded from the table. |
| | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2017 | | 2016 |
Non-Derivative Financial Instruments(a) | | Fair Value(b) | | Change in
Fair Value(c) | | Fair Value(b) | | Change in
Fair Value(c) |
| Financial liabilities: | | | | | | | | |
Debt(d)(e) | | $ | 2,851 |
| | $ | 93 |
| | $ | 3,139 |
| | $ | 101 |
|
| |
(a) | Fair values of cash and cash equivalents, current accounts and notes receivable, accounts payable, bank checks outstanding and accrued interest approximate carrying value and are relatively insensitive to changes in interest rates due to the short-term maturity of the instruments. Accordingly, these instruments are excluded from the table. |
| |
(b) | See Note 19 to the Consolidated Financial Statements for carrying value of instruments. |
| |
(c) | Reflects, by class of financial instrument, the estimated incremental effect of a hypothetical 10 percent change in interest rates at December 31, 2017 and 2016, on the fair value of U. S. Steel’s non-derivative financial instruments. For financial liabilities, this assumes a 10 percent decrease in the weighted average yield to maturity of U. S. Steel’s long-term debt at December 31, 2017 and December 31, 2016. |
| |
(d) | Excludes capital lease obligations. |
| |
(e) | 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. |
(c)Reflects, by class of financial instrument, the estimated incremental effect of a hypothetical 10 percent change in interest rates at December 31, 2020 and 2019, on the fair value of U. S. Steel’s non-derivative financial instruments. For financial liabilities, this assumes a 10 percent decrease in the weighted average yield to maturity of U. S. Steel’s long-term debt at December 31, 2020 and December 31, 2019.
(d)Excludes finance lease obligations.
(e)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.
U. S. Steel’s sensitivity to interest rate declines and corresponding increases in the fair value of our debt portfolio would unfavorably affect our results and cash flows only to the extent that we elected to repurchase or otherwise retire all or a portion of our fixed-rate debt portfolio at prices above carrying value.
Other Risks
U. S. Steel's purchase of a 49.9% equity ownership interest in Big River Steel on October 31, 2019 included certain call and put options. In 2020, U. S. Steel marked these options to fair value each reporting period using a Monte Carlo simulation which is considered a Level 3 valuation technique. Level 3 valuation techniques include inputs to the valuation methodology that are considered unobservable and significant to the fair value measurement. The simulation relied on assumptions that included Big River Steel's future equity value, volatility, the risk free interest rate and U. S. Steel's credit spread. A significant factor in determining equity value was the discounted forecasted cash flows of Big River Steel. Forecasted cash flows are primarily impacted by the forecasted market price of steel and metallic inputs as well as the expected timing of significant capital expenditures. An updated forecast indicated an increase in the equity value which led to a favorable mark-to-market adjustment impact during 2020. Changes in the key assumptions can cause significant fluctuations in the value of the puts and calls that were recorded in net interest and other financial costs in our Consolidated Statement of Operations.
When the U. S. Steel Call Option was exercised on December 8, 2020, the options were legally extinguished and U. S. Steel recorded a contingent forward for the unsettled commitment to purchase the remaining interest in Big River Steel. As this is a contingent forward contract to purchase a business, it is no longer considered a derivative subject to ASC 815, Derivative Instruments and Hedging Activities, and is not subject to subsequent fair value adjustments. The value of the contingent forward purchase commitment asset of $11 million was determined by subtracting the fixed U. S. Steel Call Option strike price from the estimated equity value of the 50.1% interest in Big River Steel as of December 8, 2020. The fair value of the remaining equity in Big River Steel was calculated using a financial model which is also considered a Level 3 valuation technique. The model utilized a weighted average of the income and market approach. The significant inputs under the income approach were the updated forecast, weighted average cost of capital of 11.0% and long-term revenue growth rate of 2.0%. The market approach was primarily impacted by the EBITDA multiple of 8.5.
The net change in fair value of the options and recognition of the contingent forward purchase commitment during 2020 resulted in a $39 million decrease to net interest and other financial costs. See Note 5 and Note 20 to the Consolidated Financial Statements for further details.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in our Consolidated Financial Statement contained in this Annual Report on Form 10-K. Specific financial statements can be found at the page listed below:
MANAGEMENT’S REPORT TO STOCKHOLDERS
February 21, 201812, 2021
To the Stockholders of United States Steel Corporation:
Financial Statements and Practices
The accompanying consolidated financial statements of United States Steel Corporation are the responsibility of and have been prepared by United States Steel Corporation in conformity with accounting principles generally accepted in the United States of America. They necessarily include some amounts that are based on our best judgments and estimates. United States Steel Corporation’s financial information displayed in other sections of this report is consistent with these financial statements.
United States Steel Corporation seeks to assure the objectivity and integrity of its financial records by careful selection of its managers, by organizational arrangements that provide an appropriate division of responsibility and by communication programs aimed at assuring that its policies, procedures and methods are understood throughout the organization.
United States Steel Corporation has a comprehensive, formalized system of internal controls designed to provide reasonable assurance that assets are safeguarded, that financial records are reliable and that information required to be disclosed in reports filed with or submitted to the Securities and Exchange Commission is recorded, processed, summarized and reported within the required time limits. Appropriate management monitors the system for compliance and evaluates it for effectiveness, and the auditors independently measureindependent registered public accounting firm measures its effectiveness and recommendrecommends possible improvements thereto.
The Board of Directors exercises its oversight role in the area of financial reporting and internal control over financial reporting through its Audit Committee. This committee, composed solely of independent directors, regularly meets (jointly and separately) with the independent registered public accounting firm, management, internal audit and other executives to monitor the proper discharge by each of their responsibilities relative to internal control over financial reporting and United States Steel Corporation’s financial statements.
Internal Control Over Financial Reporting
United States Steel Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of United States Steel Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, United States Steel Corporation conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. On February 29, 2020, the Company acquired the remaining 50% ownership interest in USS-POSCO Industries. As the acquisition occurred in February 2020, the scope of the Company's assessment of the design and operating effectiveness of U. S. Steel’s internal control over financial reporting for the year ended December 31, 2020 excluded this acquired business. The total assets and total revenues excluded from our assessment represented approximately 2% and 6%, respectively, of U. S. Steel's consolidated total assets and total revenue as of and for the year ended December 31, 2020. This exclusion is in accordance with the SEC's staff guidance that an assessment of a recently acquired business may be omitted from the scope of the Company's evaluation of the effectiveness of its internal controls in the year of acquisition. This acquired business will be included in management’s assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2021.
Based on this evaluation, United States Steel Corporation’s management concluded that United States Steel Corporation’s internal control over financial reporting was effective as of December 31, 2017.2020.
The effectiveness of United States Steel Corporation’s internal control over financial reporting as of December 31, 20172020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
|
| | | | | | | |
/S/S/ DAVID B. BURRITT | | /S/ KEVIN P. BRADLEY S/ CHRISTINE S. BREVES |
| David B. Burritt | | Kevin P. BradleyChristine S. Breves |
President and
Chief Executive Officer
| | ExecutiveSenior Vice President and
Chief Financial Officer
|
|
| | | | | | | |
/S/ COLLEEN M. DARRAGH S/ MANPREET S. GREWAL | | |
Colleen M. DarraghManpreet S. Grewal | | |
Vice President and& Controller | | |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of United States Steel Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of United States Steel Corporationand its subsidiaries (the “Company”) as of December 31, 20172020 and 2016,2019 and the related consolidated statements of operations, comprehensive (loss) income, (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 13 to the consolidated financial statements, the Company changed the manner in which it accounts for property, plant, and equipmentleases in 2017.2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report to Stockholders on Internal Control Over Financial Reporting appearing under Item 9A.Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report to Stockholders on Internal Control over Financial Reporting, management has excluded USS-POSCO Industries (“UPI”) from its assessment of internal control over financial reporting as of December 31, 2020 because it was acquired by the Company in a purchase business combination during 2020. We have also excluded UPI from our audit of internal control over financial reporting. UPI is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 2% and 6%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2020.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair Value of Contingent Forward Commitment
As described in Note 20 to the consolidated financial statements, in October 2019, a wholly owned subsidiary of U. S. Steel purchased a 49.9% ownership interest in Big River Steel. The transaction included a call option (U. S. Steel Call Option) to acquire the remaining 50.1% within the next four years at an agreed-upon price formula. When the U. S. Steel Call Option was exercised on December 8, 2020, U. S. Steel recorded a contingent forward of $11 million for the unsettled commitment to purchase the remaining interest in Big River Steel. The value of the contingent forward asset was determined by subtracting the fixed U. S. Steel Call Option strike price from the estimated equity value of the 50.1% interest in Big River Steel as of December 8, 2020. The fair value of the remaining 50.1% equity interest in Big River Steel was calculated using a financial model which is considered a Level 3 valuation technique. The model utilized a weighted average of the income and market approach. The significant inputs under the income approach were the discounted forecasted cash flows which are primarily impacted by forecasted market price of steel and metallic inputs, the weighted average cost of capital, and the long-term growth rate. The market approach was primarily impacted by the EBITDA multiple.
The principal considerations for our determination that performing procedures relating to the fair value of the contingent forward commitment is a critical audit matter are the significant judgment by management when determining the fair value of the contingent forward commitment; this in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the fair value of the contingent forward commitment, including the significant assumptions related to the forecasted market price of steel and metallic inputs, the weighted average cost of capital, the long-term growth rate, and the EBITDA multiple. Also, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the fair value of the contingent forward commitment, including controls over the methods, data and significant assumptions used by management. The procedures also included, among others, (i) testing management’s process for determining the fair value estimate; (ii) evaluating the appropriateness of the income and market approaches; (iii) testing the data used by management; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the forecasted market price of steel and metallic inputs, the weighted average cost of capital, the long-term growth rate, and the EBITDA multiple. Evaluating management’s significant assumptions related to the forecasted market price of steel and metallic inputs involved considering the consistency with external market and industry data and evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s income and market approaches and significant assumptions related to the long-term growth rate, the weighted average cost of capital, and the EBITDA multiple.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 21, 201812, 2021
We have served as the Company’s auditor since 1903.
UNITED STATES STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in millions, except per share amounts) | | 2020 | | 2019 | | 2018 |
| Net sales: | | | | | | |
| Net sales | | $ | 8,765 | | | $ | 11,506 | | | $ | 12,758 | |
Net sales to related parties (Note 23) | | 976 | | | 1,431 | | | 1,420 | |
| Total (Note 6) | | 9,741 | | | 12,937 | | | 14,178 | |
| Operating expenses (income): | | | | | | |
| Cost of sales (excludes items shown below) | | 9,558 | | | 12,082 | | | 12,305 | |
| Selling, general and administrative expenses | | 274 | | | 289 | | | 336 | |
| Depreciation, depletion and amortization (Notes 13 and 14) | | 643 | | | 616 | | | 521 | |
| Loss (earnings) from investees (Note 12) | | 117 | | | (79) | | | (61) | |
| Asset impairment charges (Note 1) | | 263 | | | 0 | | | 0 | |
| Gain on equity investee transactions (Note 12) | | (31) | | | 0 | | | (38) | |
| Restructuring and other charges (Note 25) | | 138 | | | 275 | | | 0 | |
| Net gain on sale of assets | | (149) | | | (1) | | | (6) | |
| Other loss (income), net | | 3 | | | (15) | | | (3) | |
| Total | | 10,816 | | | 13,167 | | | 13,054 | |
| (Loss) earnings before interest and income taxes | | (1,075) | | | (230) | | | 1,124 | |
| Interest expense | | 280 | | | 142 | | | 168 | |
| Interest income | | (7) | | | (17) | | | (23) | |
| Loss on debt extinguishment (Note 7) | | 0 | | | 0 | | | 98 | |
| Other financial (gains) costs | | (16) | | | 6 | | | 0 | |
| Net periodic benefit (income) cost (other than service cost) | | (25) | | | 91 | | | 69 | |
| Net interest and other financial costs (Note 7) | | 232 | | | 222 | | | 312 | |
| (Loss) earnings before income taxes | | (1,307) | | | (452) | | | 812 | |
| Income tax (benefit) provision (Note 11) | | (142) | | | 178 | | | (303) | |
| Net (loss) earnings | | (1,165) | | | (630) | | | 1,115 | |
| Less: Net earnings attributable to noncontrolling interests | | 0 | | | 0 | | | 0 | |
| (Loss) earnings attributable to United States Steel Corporation | | $ | (1,165) | | | $ | (630) | | | $ | 1,115 | |
| (Loss) earnings per common share (Note 8) | | | | | | |
| (Loss) earnings per share attributable to United States Steel Corporation stockholders: | | | | | | |
| — Basic | | $ | (5.92) | | | $ | (3.67) | | | $ | 6.31 | |
| — Diluted | | $ | (5.92) | | | $ | (3.67) | | | $ | 6.25 | |
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Dollars in millions, except per share amounts) | | 2017 | | 2016 | | 2015 |
| Net sales: | | | | | | |
| Net sales | | $ | 11,046 |
| | $ | 9,045 |
| | $ | 10,111 |
|
Net sales to related parties (Note 22) | | 1,204 |
| | 1,216 |
| | 1,463 |
|
| Total | | 12,250 |
| | 10,261 |
| | 11,574 |
|
| Operating expenses (income): | | | | | | |
| Cost of sales (excludes items shown below) | | 10,864 |
| | 9,623 |
| | 11,141 |
|
| Selling, general and administrative expenses | | 375 |
| | 255 |
| | 415 |
|
| Depreciation, depletion and amortization (Notes 12 and 13) | | 501 |
| | 507 |
| | 547 |
|
| Earnings from investees (Note 11) | | (44 | ) | | (98 | ) | | (38 | ) |
| (Gain) loss associated with U. S. Steel Canada Inc. (Note 5) | | (72 | ) | | — |
| | 392 |
|
| Restructuring and other charges (Note 24) | | 31 |
| | 122 |
| | 322 |
|
| Impairment of intangible assets (Note 13) | | — |
| | 14 |
| | — |
|
| Net (gain) loss on disposals of assets | | (5 | ) | | 5 |
| | (2 | ) |
| Other income, net | | (8 | ) | | (2 | ) | | (1 | ) |
| Total | | 11,642 |
| | 10,426 |
| | 12,776 |
|
| Earnings (loss) before interest and income taxes | | 608 |
| | (165 | ) | | (1,202 | ) |
| Interest expense (Note 7) | | 226 |
| | 230 |
| | 214 |
|
| Interest income | | (17 | ) | | (5 | ) | | (3 | ) |
| Loss on debt extinguishment (Note 7) | | 54 |
| | 22 |
| | 36 |
|
| Other financial costs (Note 7) | | 44 |
| | 4 |
| | 10 |
|
| Net interest and other financial costs | | 307 |
| | 251 |
| | 257 |
|
| Earnings (loss) before income taxes | | 301 |
| | (416 | ) | | (1,459 | ) |
| Income tax (benefit) provision (Note 10) | | (86 | ) | | 24 |
| | 183 |
|
| Net earnings (loss) | | 387 |
| | (440 | ) | | (1,642 | ) |
| Less: Net earnings attributable to noncontrolling interests | | — |
| | — |
| | — |
|
| Earnings (loss) attributable to United States Steel Corporation | | $ | 387 |
| | $ | (440 | ) | | $ | (1,642 | ) |
| Earnings (loss) per common share (Note 8) | | | | | | |
| Earnings (loss) per share attributable to United States Steel Corporation stockholders: | | | | | | |
| — Basic | | $ | 2.21 |
| | $ | (2.81 | ) | | $ | (11.24 | ) |
| — Diluted | | $ | 2.19 |
| | $ | (2.81 | ) | | $ | (11.24 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
UNITED STATES STEEL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 |
| Net (loss) earnings | | $ | (1,165) | | | $ | (630) | | | $ | 1,115 | |
| Other comprehensive income (loss), net of tax: | | | | | | |
Changes in foreign currency translation adjustments (a) | | 68 | | | (22) | | | (60) | |
Changes in pension and other employee benefit accounts (a) | | 385 | | | 573 | | | (107) | |
Changes in derivative financial instruments (a) | | (22) | | | (3) | | | (14) | |
| Total other comprehensive income (loss), net of tax | | 431 | | | 548 | | | (181) | |
| Comprehensive (loss) income including noncontrolling interest | | (734) | | | (82) | | | 934 | |
| Comprehensive (loss) income attributable to noncontrolling interest | | 0 | | | 0 | | | 0 | |
| Comprehensive (loss) income attributable to United States Steel Corporation | | $ | (734) | | | $ | (82) | | | $ | 934 | |
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Dollars in millions) | | 2017 | | 2016 | | 2015 |
| Net earnings (loss) | | $ | 387 |
| | $ | (440 | ) | | $ | (1,642 | ) |
| Other comprehensive income (loss), net of tax: | | | | | | |
Changes in foreign currency translation adjustments (a) | | 189 |
| | (38 | ) | | (104 | ) |
Changes in pension and other employee benefit accounts (a) | | 462 |
| | (292 | ) | | 373 |
|
Other (a) | | 1 |
| | 2 |
| | 3 |
|
| Total other comprehensive income (loss), net of tax | | 652 |
| | (328 | ) | | 272 |
|
| Comprehensive income (loss) including noncontrolling interest | | 1,039 |
| | (768 | ) | | (1,370 | ) |
| Comprehensive income attributable to noncontrolling interest | | — |
| | — |
| | — |
|
| Comprehensive income (loss) attributable to United States Steel Corporation | | $ | 1,039 |
| | $ | (768 | ) | | $ | (1,370 | ) |
(a) Related income tax benefit (provision): |
| | | | | | | | | | | | |
Foreign currency translation adjustments(b) | | $ | — |
| | $ | — |
| | $ | 82 |
|
Pension and other benefits adjustments(b) | | — |
| | — |
| | (228 | ) |
Other adjustments(b) | | — |
| | — |
| | (2 | ) |
| | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments (b) | | $ | (16) | | | $ | 6 | | | $ | 0 | |
Pension and other benefits adjustments (b) | | (123) | | | (191) | | | 0 | |
Derivative adjustments (b) | | 4 | | | 1 | | | 0 | |
(b) Amounts for 2017 and 20162018 do not reflect a tax benefit as a result of a full valuation allowance on our domestic deferred tax assets.
The accompanying notes are an integral part of these Consolidated Financial Statements.
UNITED STATES STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | December 31, |
| (Dollars in millions) | | 2020 | | 2019 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents (Note 9) | | $ | 1,985 | | | $ | 749 | |
| Receivables, less allowance of $34 and $28 | | 914 | | | 956 | |
| Receivables from related parties (Note 23) | | 80 | | | 221 | |
| Inventories (Note 10) | | 1,402 | | | 1,785 | |
| Other current assets | | 51 | | | 102 | |
| Total current assets | | 4,432 | | | 3,813 | |
| Long-term restricted cash (Note 9) | | 130 | | | 188 | |
| Investments and long-term receivables, less allowance of $5 in both periods (Note 12) | | 1,177 | | | 1,466 | |
| Operating lease assets (Note 24) | | 214 | | | 230 | |
| Property, plant and equipment, net (Note 13) | | 5,444 | | | 5,447 | |
| Intangibles, net (Note 14) | | 129 | | | 150 | |
| Deferred income tax benefits (Note 11) | | 22 | | | 19 | |
| Other noncurrent assets | | 511 | | | 295 | |
| Total assets | | $ | 12,059 | | | $ | 11,608 | |
| Liabilities | | | | |
| Current liabilities: | | | | |
| Accounts payable and other accrued liabilities | | $ | 1,779 | | | $ | 1,970 | |
| Accounts payable to related parties (Note 23) | | 105 | | | 84 | |
| Payroll and benefits payable | | 308 | | | 336 | |
| Accrued taxes | | 154 | | | 116 | |
| Accrued interest | | 59 | | | 45 | |
| Current operating lease liabilities (Note 24) | | 59 | | | 60 | |
| Short-term debt and current maturities of long-term debt (Note 17) | | 192 | | | 14 | |
| Total current liabilities | | 2,656 | | | 2,625 | |
| Noncurrent operating lease liabilities (Note 24) | | 163 | | | 177 | |
| Long-term debt, less unamortized discount and debt issuance costs (Note 17) | | 4,695 | | | 3,627 | |
| Employee benefits (Note 18) | | 322 | | | 532 | |
| Deferred income tax liabilities (Note 11) | | 11 | | | 4 | |
| Deferred credits and other noncurrent liabilities | | 333 | | | 550 | |
| Total liabilities | | 8,180 | | | 7,515 | |
| Contingencies and commitments (Note 26) | | 0 | | 0 |
| Stockholders’ Equity | | | | |
| Common stock issued — 229,105,589 and 178,555,206 shares issued (par value $1 per share, authorized 400,000,000 shares) (Note 8) | | 229 | | | 179 | |
| Treasury stock, at cost (8,673,131 shares and 8,509,337 shares) | | (175) | | | (173) | |
| Additional paid-in capital | | 4,402 | | | 4,020 | |
| (Accumulated deficit) retained earnings | | (623) | | | 544 | |
| Accumulated other comprehensive loss (Note 21) | | (47) | | | (478) | |
| Total United States Steel Corporation stockholders’ equity | | 3,786 | | | 4,092 | |
| Noncontrolling interests | | 93 | | | 1 | |
| Total liabilities and stockholders’ equity | | $ | 12,059 | | | $ | 11,608 | |
|
| | | | | | | | |
| | | December 31, |
| (Dollars in millions) | | 2017 | | 2016 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 1,553 |
| | $ | 1,515 |
|
| Receivables, less allowance of $28 and $25 | | 1,173 |
| | 976 |
|
| Receivables from related parties, less allowance of $0 and $265 (Note 22) | | 206 |
| | 272 |
|
| Inventories (Note 9) | | 1,738 |
| | 1,573 |
|
| Other current assets | | 85 |
| | 20 |
|
| Total current assets | | 4,755 |
| | 4,356 |
|
| Investments and long-term receivables, less allowance of $11 and $10 (Note 11) | | 480 |
| | 528 |
|
| Long-term receivables from related parties, less allowance of $0 and $1,627 (Notes 5 and 22) | | — |
| | — |
|
| Property, plant and equipment, net (Note 12) | | 4,280 |
| | 3,979 |
|
| Intangibles — net (Note 13) | | 167 |
| | 175 |
|
| Deferred income tax benefits (Note 10) | | 56 |
| | 6 |
|
| Other noncurrent assets | | 124 |
| | 116 |
|
| Total assets | | $ | 9,862 |
| | $ | 9,160 |
|
| Liabilities | | | | |
| Current liabilities: | | | | |
| Accounts payable and other accrued liabilities | | $ | 2,096 |
| | $ | 1,602 |
|
| Accounts payable to related parties (Note 22) | | 74 |
| | 66 |
|
| Payroll and benefits payable | | 347 |
| | 400 |
|
| Accrued taxes | | 132 |
| | 128 |
|
| Accrued interest | | 69 |
| | 85 |
|
| Short-term debt and current maturities of long-term debt (Note 16) | | 3 |
| | 50 |
|
| Total current liabilities | | 2,721 |
| | 2,331 |
|
| Long-term debt, less unamortized discount and debt issuance costs (Note 16) | | 2,700 |
| | 2,981 |
|
| Employee benefits (Note 17) | | 759 |
| | 1,216 |
|
| Deferred income tax liabilities (Note 10) | | 6 |
| | 28 |
|
| Deferred credits and other noncurrent liabilities | | 355 |
| | 329 |
|
| Total liabilities | | 6,541 |
| | 6,885 |
|
| Contingencies and commitments (Note 25) | |
| |
|
| Stockholders’ Equity | | | | |
| Common stock issued — 176,424,554 shares issued (par value $1 per share, authorized 400,000,000 shares) (Notes 8 and 26) | | 176 |
| | 176 |
|
| Treasury stock, at cost (1,203,344 shares and 2,614,378 shares) | | (76 | ) | | (182 | ) |
| Additional paid-in capital | | 3,932 |
| | 4,027 |
|
| Retained earnings (accumulated deficit) | | 133 |
| | (250 | ) |
| Accumulated other comprehensive loss (Note 20) | | (845 | ) | | (1,497 | ) |
| Total United States Steel Corporation stockholders’ equity | | 3,320 |
| | 2,274 |
|
| Noncontrolling interests | | 1 |
| | 1 |
|
| Total liabilities and stockholders’ equity | | $ | 9,862 |
| | $ | 9,160 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
UNITED STATES STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Dollars in millions) | | 2017 | | 2016 | | 2015 |
| Increase (decrease) in cash and cash equivalents | | | | | | |
| Operating activities: | | | | | | |
| Net earnings (loss) | | $ | 387 |
| | $ | (440 | ) | | $ | (1,642 | ) |
| Adjustments to reconcile net cash provided by operating activities: | | | | | | |
| Depreciation, depletion and amortization (Notes 12 and 13) | | 501 |
| | 507 |
| | 547 |
|
| Impairment of intangible assets (Note 13) | | — |
| | 14 |
| | — |
|
| (Gain) loss associated with U. S. Steel Canada Inc. (Note 5) | | (72 | ) | | — |
| 392 |
| 392 |
|
| Restructuring and other charges (Note 24) | | 31 |
| | 122 |
| | 322 |
|
Loss on debt extinguishment (Note 16)
| | 54 |
| | 22 |
| | 36 |
|
| Provision for doubtful accounts | | 1 |
| | — |
| | (15 | ) |
| Pensions and other post-employment benefits | | (16 | ) | | (62 | ) | | 50 |
|
| Deferred income taxes (Note 10) | | (72 | ) | | 9 |
| | 213 |
|
| Net (gain) loss on disposal of assets | | (5 | ) | | 5 |
| | (2 | ) |
| Equity investees earnings, net of distributions received | | (32 | ) | | (89 | ) | | (28 | ) |
| Changes in: | | | | | | |
| Current receivables | | (36 | ) | | (182 | ) | | 792 |
|
| Inventories | | (117 | ) | | 491 |
| | 391 |
|
| Current accounts payable and accrued expenses | | 173 |
| | 287 |
| | (632 | ) |
| Income taxes receivable/payable | | (52 | ) | | 10 |
| | 6 |
|
| Bank checks outstanding | | (2 | ) | | — |
| | — |
|
| All other, net | | 59 |
| | 37 |
| | (70 | ) |
| Net cash provided by operating activities | | 802 |
| | 731 |
| | 360 |
|
| Investing activities: | | | | | | |
| Capital expenditures | | (505 | ) | | (306 | ) | | (500 | ) |
| Acquisitions | | — |
| | — |
| | (25 | ) |
| Disposal of assets | | 5 |
| | 12 |
| | 4 |
|
| Change in restricted cash, net | | (3 | ) | | (3 | ) | | 13 |
|
| Proceeds from sale of ownership interests in equity investees | | 116 |
| | — |
| | — |
|
| Investments, net | | (2 | ) | | (21 | ) | | (2 | ) |
| Net cash used in investing activities | | (389 | ) | | (318 | ) | | (510 | ) |
| Financing activities: | | | | | | |
| Issuance of long-term debt, net of financing costs (Note 16) | | 737 |
| | 958 |
| | — |
|
| Repayment of long-term debt (Note 16) | | (1,104 | ) | | (1,070 | ) | | (379 | ) |
| Settlement of contingent consideration | | — |
| | (15 | ) | | — |
|
| Net proceeds from public offering of common stock (Note 26) | | — |
| | 482 |
| | — |
|
| Receipts from exercise of stock options | | 20 |
| | 35 |
| | 1 |
|
| Taxes paid for equity compensation plans (Note 14) | | (10 | ) | | (4 | ) | | (1 | ) |
| Dividends paid | | (35 | ) | | (31 | ) | | (29 | ) |
| Net cash (used in) provided by financing activities | | (392 | ) | | 355 |
| | (408 | ) |
| Effect of exchange rate changes on cash | | 17 |
| | (8 | ) | | (41 | ) |
| Net increase (decrease) in cash and cash equivalents | | 38 |
| | 760 |
| | (599 | ) |
| Cash and cash equivalents at beginning of year | | 1,515 |
| | 755 |
| | 1,354 |
|
| Cash and cash equivalents at end of year | | $ | 1,553 |
| | $ | 1,515 |
| | $ | 755 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 |
| Increase (decrease) in cash and cash equivalents | | | | | | |
| Operating activities: | | | | | | |
| Net (loss) earnings | | $ | (1,165) | | | $ | (630) | | | $ | 1,115 | |
| Adjustments to reconcile net cash provided by operating activities: | | | | | | |
| Depreciation, depletion and amortization (Notes 13 and 14) | | 643 | | | 616 | | | 521 | |
| Asset impairment charges (Note 1) | | 263 | | | 0 | | | 0 | |
| Gain on equity investee transactions (Note 12) | | (31) | | | 0 | | | (38) | |
| Restructuring and other charges (Note 25) | | 138 | | | 275 | | | 0 | |
| Loss on debt extinguishment (Note 7) | | 0 | | | 0 | | | 98 | |
| Pensions and other post-employment benefits | | (21) | | | 101 | | | 77 | |
| Deferred income taxes (Note 11) | | (130) | | | 202 | | | (329) | |
| Net gain on sale of assets | | (149) | | | (1) | | | (6) | |
| Equity investees loss (earnings), net of distributions received | | 117 | | | (74) | | | (47) | |
| Changes in: | | | | | | |
| Current receivables | | 98 | | | 453 | | | (312) | |
| Inventories | | 506 | | | 296 | | | (374) | |
| Current accounts payable and accrued expenses | | (29) | | | (473) | | | 282 | |
| Income taxes receivable/payable | | 20 | | | 13 | | | (8) | |
| All other, net | | (122) | | | (96) | | | (41) | |
| Net cash provided by operating activities | | 138 | | | 682 | | | 938 | |
| Investing activities: | | | | | | |
| Capital expenditures | | (725) | | | (1,252) | | | (1,001) | |
| Investment in Big River Steel | | (9) | | | (710) | | | 0 | |
| Proceeds from sale of assets | | 167 | | | 4 | | | 10 | |
| Proceeds from sale of ownership interests in equity investees | | 8 | | | 0 | | | 30 | |
| Investments, net | | (4) | | | 0 | | | (2) | |
| Net cash used in investing activities | | (563) | | | (1,958) | | | (963) | |
| Financing activities: | | | | | | |
| Net change in short-term debt, net of financing costs | | 170 | | | 0 | | | 0 | |
| Revolving credit facilities - borrowings, net of financing costs | | 1,402 | | | 860 | | | 228 | |
| Revolving credit facilities - repayments | | (1,621) | | | (100) | | | 0 | |
| Issuance of long-term debt, net of financing costs (Note 17) | | 1,148 | | | 702 | | | 640 | |
| Repayment of long-term debt (Note 17) | | (13) | | | (155) | | | (1,299) | |
| Net proceeds from public offering of common stock (Note 27) | | 410 | | | 0 | | | 0 | |
| Proceeds from Stelco Option Agreement, net of financing costs | | 94 | | | 0 | | | 0 | |
| Common stock repurchased (Note 27) | | — | | | (88) | | | (75) | |
| Receipts from exercise of stock options (Note 15) | | 0 | | | 0 | | | 35 | |
| Taxes paid for equity compensation plans (Note 15) | | (1) | | | (7) | | | (8) | |
| Dividends paid | | (8) | | | (35) | | | (36) | |
| Net cash provided by (used in) financing activities | | 1,581 | | | 1,177 | | | (515) | |
| Effect of exchange rate changes on cash | | 23 | | | (2) | | | (17) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | 1,179 | | | (101) | | | (557) | |
| Cash, cash equivalents and restricted cash at beginning of year (Note 9) | | 939 | | | 1,040 | | | 1,597 | |
| Cash, cash equivalents and restricted cash at end of year (Note 9) | | $ | 2,118 | | | $ | 939 | | | $ | 1,040 | |
See Note 2122 for supplemental cash flow information.
The accompanying notes are an integral part of these Consolidated Financial Statements.
UNITED STATES STEEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Dollars in Millions | | Shares in Thousands |
| | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Common stock: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 179 | | | $ | 177 | | | $ | 176 | | | 178,555 | | | 177,386 | | | 176,425 | |
| Common stock issued | | 50 | | | 2 | | | 1 | | | 50,551 | | | 1,169 | | | 961 | |
| Balance at end of year | | $ | 229 | | | $ | 179 | | | $ | 177 | | | 229,106 | | | 178,555 | | | 177,386 | |
| Treasury stock: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | (173) | | | $ | (78) | | | $ | (76) | | | (8,509) | | | (2,858) | | | (1,203) | |
| Common stock repurchased | | 0 | | | (88) | | | (75) | | | 0 | | | (5,289) | | | (2,760) | |
| Common stock (repurchased) reissued for employee/non-employee director stock plans | | (2) | | | (7) | | | 73 | | | (164) | | | (362) | | | 1,105 | |
| Balance at end of year | | $ | (175) | | | $ | (173) | | | $ | (78) | | | (8,673) | | | (8,509) | | | (2,858) | |
| Additional paid-in capital: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 4,020 | | | $ | 3,917 | | | $ | 3,932 | | | | | | | |
| Dividends on common stock | | (6) | | | 0 | | | 0 | | | | | | | |
| Common stock issued | | 360 | | | 0 | | | 0 | | | | | | | |
| Issuance of conversion option in 2026 Senior Convertible Notes, net of tax | | 0 | | | 77 | | | 0 | | | | | | | |
| Employee stock plans | | 28 | | | 26 | | | (15) | | | | | | | |
| Balance at end of year | | $ | 4,402 | | | $ | 4,020 | | | $ | 3,917 | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Dollars in Millions | | Shares in Thousands |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Common stock: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 176 |
| | $ | 151 |
| | $ | 151 |
| | 176,425 |
| | 150,926 |
| | 150,926 |
|
| Common stock issued | | — |
| | 25 |
| | — |
| | — |
| | 25,499 |
| | — |
|
| Balance at end of year | | $ | 176 |
| | $ | 176 |
| | $ | 151 |
| | 176,425 |
| | 176,425 |
| | 150,926 |
|
| Treasury stock: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | (182 | ) | | $ | (339 | ) | | $ | (396 | ) | | (2,614 | ) | | (4,645 | ) | | (5,271 | ) |
| Common stock reissued for employee/non-employee director stock plans | | 106 |
| | 157 |
| | 57 |
| | 1,411 |
| | 2,031 |
| | 626 |
|
| Balance at end of year | | $ | (76 | ) | | $ | (182 | ) | | $ | (339 | ) | | (1,203 | ) | | (2,614 | ) | | (4,645 | ) |
| Additional paid-in capital: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 4,027 |
| | $ | 3,603 |
| | $ | 3,623 |
| | | | | | |
| Common stock issued | | — |
| | 557 |
| | — |
| | | | | | |
| Dividends on common stock | | (26 | ) | | (31 | ) | | — |
| | | | | | |
| Employee stock plans | | (69 | ) | | (102 | ) | | (20 | ) | | | | | | |
| Balance at end of year | | $ | 3,932 |
| | $ | 4,027 |
| | $ | 3,603 |
| | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
UNITED STATES STEEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Comprehensive (Loss) Income |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Retained earnings: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 544 | | | $ | 1,212 | | | $ | 133 | | | | | | | |
| Net (loss) earnings attributable to United States Steel Corporation | | (1,165) | | | (630) | | | 1,115 | | | $ | (1,165) | | | $ | (630) | | | $ | 1,115 | |
| Dividends on common stock | | (2) | | | (35) | | | (36) | | | | | | | |
| Other | | 0 | | | (3) | | | 0 | | | | | | | |
| Balance at end of year | | $ | (623) | | | $ | 544 | | | $ | 1,212 | | | | | | | |
| Accumulated other comprehensive (loss) income: | | | | | | | | | | | | |
Pension and other benefit adjustments (Note 18): | | | | | | | | | | | | |
| Balance at beginning of year | | $ | (843) | | | $ | (1,416) | | | $ | (1,309) | | | | | | | |
Changes during year, net of taxes (a) | | 360 | | | 580 | | | (108) | | | 360 | | | 580 | | | (108) | |
Changes during year, equity investee net of taxes (a) | | 25 | | | (7) | | | 1 | | | 25 | | | (7) | | | 1 | |
| Balance at end of year | | $ | (458) | | | $ | (843) | | | $ | (1,416) | | | | | | | |
| Foreign currency translation adjustments: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 381 | | | $ | 403 | | | $ | 463 | | | | | | | |
Changes during year, net of taxes (a) | | 68 | | | (22) | | | (60) | | | 68 | | | (22) | | | (60) | |
| Balance at end of year | | $ | 449 | | | $ | 381 | | | $ | 403 | | | | | | | |
| Derivative financial instruments: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | (16) | | | $ | (13) | | | $ | 1 | | | | | | | |
Changes during year, net of taxes (a) | | (22) | | | (3) | | | (14) | | | (22) | | | (3) | | | (14) | |
| Balance at end of year | | $ | (38) | | | $ | (16) | | | $ | (13) | | | | | | | |
| Total balances at end of year | | $ | (47) | | | $ | (478) | | | $ | (1,026) | | | | | | | |
| Total stockholders’ equity | | $ | 3,786 | | | $ | 4,092 | | | $ | 4,202 | | | | | | | |
| Noncontrolling interests: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 1 | | | $ | 1 | | | $ | 1 | | | | | | | |
| Stelco Option Agreement | | 93 | | | 0 | | | 0 | | | | | | | |
| Other | | (1) | | | 0 | | | 0 | | | | | | | |
| Net loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Balance at end of year | | $ | 93 | | | $ | 1 | | | $ | 1 | | | | | | | |
| Total comprehensive (loss) income | | | | | | | | $ | (734) | | | $ | (82) | | | $ | 934 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Comprehensive Income (Loss) |
| (Dollars in millions) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Retained earnings: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | (250 | ) | | $ | 190 |
| | $ | 1,862 |
| | | | | | |
| Net earnings (loss) attributable to United States Steel Corporation | | 387 |
| | (440 | ) | | (1,642 | ) | | $ | 387 |
| | $ | (440 | ) | | $ | (1,642 | ) |
| Dividends on common stock | | (9 | ) | | — |
| | (29 | ) | | | | | | |
| Other | | 5 |
| | — |
| | (1 | ) | | | | | | |
| Balance at end of year | | $ | 133 |
| | $ | (250 | ) | | $ | 190 |
| | | | | | |
| Accumulated other comprehensive (loss) income: | | | | | | | | | | | | |
Pension and other benefit adjustments (Note 17): | | | | | | | | | | | | |
| Balance at beginning of year | | $ | (1,771 | ) | | $ | (1,479 | ) | | $ | (1,852 | ) | | | | | | |
Changes during year, net of taxes(a) | | 454 |
| | (288 | ) | | 364 |
| | 454 |
| | (288 | ) | | 364 |
|
Changes during year, equity investee net of taxes(a) | | 8 |
| | (4 | ) | | 9 |
| | 8 |
| | (4 | ) | | 9 |
|
| Balance at end of year | | $ | (1,309 | ) | | $ | (1,771 | ) | | $ | (1,479 | ) | | | | | | |
| Foreign currency translation adjustments: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 274 |
| | $ | 312 |
| | $ | 416 |
| | | | | | |
Changes during year, net of taxes(a) | | 189 |
| | (38 | ) | | (104 | ) | | 189 |
| | (38 | ) | | (104 | ) |
| Balance at end of year | | $ | 463 |
| | $ | 274 |
| | $ | 312 |
| | | | | | |
| Other: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | — |
| | $ | (2 | ) | | $ | (5 | ) | | | | | | |
Changes during year, net of taxes(a) | | 1 |
| | 2 |
| | 3 |
| | 1 |
| | 2 |
| | 3 |
|
| Balance at end of year | | $ | 1 |
| | $ | — |
| | $ | (2 | ) | | | | | | |
| Total balances at end of year | | $ | (845 | ) | | $ | (1,497 | ) | | $ | (1,169 | ) | | | | | | |
| Total stockholders’ equity | | $ | 3,320 |
| | $ | 2,274 |
| | $ | 2,436 |
| | | | | | |
| Noncontrolling interests: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | | | | | |
| Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Balance at end of year | | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | | | | | |
| Total comprehensive (income) loss | | | | | | | | $ | 1,039 |
| | $ | (768 | ) | | $ | (1,370 | ) |
(a) Related income tax benefit (provision): |
| | | | | | | | | | | | |
Foreign currency translation adjustments(b) | | $ | — |
| | $ | — |
| | $ | 82 |
|
Pension and other benefits adjustments(b) | | — |
| | — |
| | (228 | ) |
Other adjustments(b) | | — |
| | — |
| | (2 | ) |
| | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments (b) | | $ | (16) | | | $ | 6 | | | $ | 0 | |
Pension and other benefits adjustments (b) | | (123) | | | (191) | | | 0 | |
Derivative adjustments (b) | | 4 | | | 1 | | | 0 | |
(b) Amounts for 2016 and 20172018 do not reflect a tax benefit as a result of a full valuation allowance on our domestic deferred tax assets.
The accompanying notes are an integral part of these Consolidated Financial Statements.
1. Nature of Business and Significant Accounting Policies
Nature of Business
U. S. Steel produces and sells steel products, including flat-rolled and tubular products, in North America and Europe. Operations in the United States also include iron ore and coke production facilities, railroad services and real estate operations located in the United States.operations. Operations in Europe also include coke production facilities.
Significant Accounting Policies
Principles applied in consolidation
These financial statements include the accounts of U. S. Steel and its majority-owned subsidiaries. Additionally, variable interest entities for which U. S. Steel is the primary beneficiary are included in the Consolidated Financial Statements and their impacts are either partially or completely offset by noncontrolling interests. Intercompany accounts, transactions and profits have been eliminated in consolidation. On September 16, 2014, U. S. Steel Canada Inc. (USSC), a wholly owned subsidiary of U. S. Steel, applied for relief from its creditors pursuant to Canada’s Companies’ Creditors Arrangement Act (CCAA). As a result of USSC filing for protection under CCAA (CCAA filing), U. S. Steel determined that USSC and its subsidiaries would be deconsolidated from U. S. Steel’s financial statements on a prospective basis effective as of the date of the CCAA filing. Transactions between USSC and U. S. Steel subsequent to the CCAA filing and prior to the sale to an affiliate of Bedrock Industries Group LLC (Bedrock) on June 30, 2017 are not eliminated and are considered related party.
Investments in entities over which U. S. Steel has significant influence are accounted for using the equity method of accounting and are carried at U. S. Steel’s share of net assets plus loans, advances and our share of earnings less distributions. Differences in the basis of the investment and the underlying net asset value of the investee, if any, are amortized into earnings over the remaining useful life of the associated assets.
Earnings or loss from investees includes U. S. Steel’s share of earnings or loss from equity method investments (and any amortization of basis differences), which isare generally recorded a month in arrears, except for significant and unusual items which are recorded in the period of occurrence. Gains or losses from changes in ownership of unconsolidated investees are recognized in the period of change. Intercompany profits and losses on transactions with equity investees have been eliminated in consolidation.arrears.
U. S. Steel evaluates impairment of its equity method investments whenever circumstances indicate that a decline in value below carrying value is other than temporary. Under these circumstances, we adjust the investment down to its estimated fair value, which then becomes its new carrying value.
Investments in companies whose equity has no readily determinable fair value are carried at cost and are periodically reviewed for impairment.
Use of estimates
Generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment; intangible assets; the fair value of assets or liabilities acquired in a business combination; valuation allowances for receivables, inventories and deferred income tax assets and liabilities; environmental liabilities; liabilities for potential tax deficiencies; potential litigation claims and settlements; and assets and obligations related to employee benefits.benefits; put, call option and contingent forward purchase commitment assets and liabilities and restructuring and other charges. Actual results could differ materially from the estimates and assumptions used.
The preparation of the financial statements includes an assessment of certain accounting matters using all available information including consideration of forecasted financial information in context with other information reasonably available to us. However, our future assessment of current expectations, including consideration of the unknown future impacts of the COVID-19 pandemic, could result in material impacts to our consolidated financial statements in future reporting periods. All such adjustments are of a normal recurring nature unless disclosed otherwise.
Sales recognition
Sales are recognized when U. S. Steel's performance obligations are satisfied. Generally, U. S. Steel’s performance obligations are satisfied, control of our products areis transferred, and revenue is recognized at a single point in time, when title transfers to our customer for product shipped properties are sold or when services are provided to customers; theprovided. Revenues are recorded net of any sales price is fixed and determinable; collectability is reasonably assured; and title and risks of ownership have passed to the buyer. Depending on the shipping terms, shippingincentives. Shipping and other transportation costs charged to buyerscustomers are treated as fulfillment activities and are recorded gross (asin both salesrevenue and cost of sales), or net ofsales at the amount paidtime control is transferred to shipping providers.the customer. See Note 6 for further details on U. S. Steel’s revenue.
Cash and cash equivalents
Cash and cash equivalents include cash on deposit and investments in highly liquid debt instruments with maturities of three months or less.
Inventories
Inventories are carried at the lower of cost or market.net realizable value. Fixed costs related to abnormal production capacity are expensed in the period incurred rather than capitalized into inventory.
LIFO (last-in, first-out) is the predominant method of inventory costing for inventories in the United States and FIFO (first-in, first-out) is the predominant method in Europe. The LIFO method of inventory costing was used on 59 percent and 75 percent of consolidated inventories at both December 31, 20172020 and 2016.2019, respectively.
Derivative instruments
From time to time, U. S. Steel may use fixed price forward physical purchase contracts to partially manage our exposure to price risk. Generally, forward physical purchase contracts qualify for the normal purchase normal sales exclusion in Accounting Standards Codification (ASC) 815, Derivatives and Hedging, and are not subject to mark-to-market accounting. U. S. Steel also uses derivatives such as commodity-based financial swaps and foreign currency derivative instrumentsexchange forward contracts to manage its exposure to purchase and sale price fluctuations and foreign currency exchange rate risk. Forward physical purchase contracts and foreign exchange forward contracts are used to reduce the effectsU. S. Steel elects hedge accounting for some of its derivatives. Under hedge accounting, fluctuations in the purchase pricevalue of natural gas and certain nonferrous metals and also certain business transactions denominatedthe derivative are recognized in foreign currencies. U. S. Steel does not have a material amountAccumulated Other Comprehensive Income (AOCI) until the associated underlying is recognized in earnings. When the associated underlying is recognized in earnings, the value of the derivative instrumentsis
reclassified to earnings from AOCI. We recognize fair value changes for whichderivatives where hedge accounting treatment has not been elected. As a result, the changes in fair value of these derivatives are recognizedelected immediately in results of operations.earnings. See Note 1516 for further details on U. S. Steel’s derivatives.
Identifiable intangible assetsFinancial Instruments
U. S. Steel's purchase of a 49.9% equity ownership interest in Big River Steel has determinedon October 31, 2019 included certain call and put options. U. S. Steel marked those options to fair value each reporting period using a Monte Carlo simulation which is considered a Level 3 valuation technique. Level 3 valuation techniques include inputs to the valuation methodology that certain acquired intangible assets have indefinite useful lives. These assets are reviewedconsidered unobservable and significant to the fair value measurement. On December 8, 2020, U. S. Steel exercised its call option to purchase the remaining interest in Big River Steel. When the U. S. Steel call option was exercised, the options were legally extinguished and a contingent forward purchase commitment was recorded for impairment annually and whenever events or circumstances indicate that the carrying value may not be recoverable.
Identifiable intangible assetsof the unsettled commitment to purchase the remaining interest in Big River Steel. The contingent forward purchase commitment was removed with finite lives are amortizedthe close of the Big River Steel purchase which occurred on a straight-line basis over their estimated useful lives and are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable.
January 15, 2021. See Note 135 and Note 20 for further details on our evaluation of intangible asset impairment.details.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated depreciation and is depreciated on a straight-line basis over the estimated useful lives of the assets.
Depletion of mineral properties is based on rates which are expected to amortize cost over the estimated tonnage of minerals to be removed.
When property, plant and equipment is sold or otherwise disposed of, any gains or losses are reflected in income. If a loss on disposal is expected, such losses are recognized when the assets are reclassified as assets held for sale or when impaired as part of an asset group’s impairment.
Asset Impairment
U. S. Steel evaluates impairment of its property, plant and equipment whenever circumstances indicate that the carrying value may not be recoverable. We evaluate the impairment of long-lived assets at the asset group level. Our asset groups are Flat-Rolled, welded tubular, seamless tubular and U. S. Steel Europe (USSE). Asset impairments are recognized when the carrying value of an asset groupinggroup exceeds its recoverable amount as determined by the asset group's aggregate projected undiscounted cash flows.
During 2017, there were no triggering eventsFor the period ended March 31, 2020, the steep decline in oil prices that required fixed assets to be evaluated for impairment.
During 2016, the permanent shutdown of certain Lorain, Lone Starresulted from market oversupply and Bellville tubular assets,declining demand was considered a triggering event for ourthe welded tubular and seamless tubular asset groups. A quantitative analysis was completed for both asset groups and a $263 million impairment, consisting of an impairment of $196 million for property, plant and equipment and $67 million for intangible assets was recorded for the welded tubular asset group while no impairment was indicated for the seamless tubular asset group. There were no other triggering events that required an impairment evaluation of our long-lived asset groups during the year-ended December 31, 2020.
During 2019, the challenging steel market environment in the U.S. that led to the idling of certain Flat-Rolled facilities, the challenging steel market in Europe that led to the temporary idling of a blast furnace and significant headcount reductions at USSE, and recent losses in the welded tubular asset group were considered triggering events for those asset groups, respectively. U. S. Steel completed a quantitative analysis of its long-lived assets for these asset groups within the Tubular segment and determined that the remaining assets were not impaired. The welded tubular asset group had a carrying value of $410 million at December 31, 2016 and the recoverable amount exceeded this carrying value by approximately $93 million, or 23 percent. The seamless tubular asset group had a carrying value of $210 million at December 31, 2016 and the recoverable amount exceeded this carrying value by $220 million, or 106 percent. The key assumption used to estimate the recoverable amounts for both the welded and seamless tubular asset groups was the forecasted price of oil over the 11-year average remaining useful lives of the assets within the asset groups. Management will continue to monitor market and economic conditions for triggering events that may warrant further review of long-lived assets.
During 2015, the economic environment, including the significant decline in energy prices and the high levels of tubular imports, was considered a triggering event for our welded and seamless tubular asset groups. U. S. Steel completed a quantitative analysis of its long-lived assets for these asset groups within the Tubular segment. This analysis indicated that the assets were not impaired. There were no triggering events for seamless tubular in 2019.
Supply Chain Financing
Change in Accounting Estimate - Capitalization and Depreciation Method
During 2017, U. S. Steel completedIn October 2020, the Company entered into a reviewsupply chain financing (SCF) agreement with third party administrators with an initial term of one year to allow participating suppliers, at their sole discretion, to make offers to sell payment obligations of the Company prior to their scheduled due dates at a discounted price to a participating financial institution. The third party administrators entered into a separate one year agreement with the Export Import Bank of the United States (Ex-Im Guarantee) that guarantees 95 percent of the supplier payment obligations sold for up to $200 million. No guarantees are provided by the Company or any of its accounting policy for property, plantsubsidiaries under the SCF program. The Company's goal is to capture overall supplier savings and equipment depreciated on a group basis. As a result of this review, U. S. Steel changed its accounting method for property, plantimprove working capital efficiency and equipment from the group method of depreciationagreements facilitate the suppliers' ability to the unitary method of depreciation, effective as of January 1, 2017.sell payment obligations, while providing them with greater working capital flexibility. The Company believeshas no economic interest in the change fromsale of the group method to the unitary method of depreciation is preferable under U.S. GAAP as it will result in a more precise estimate of depreciation expense. Additionally, the change to the unitary method of depreciation is consistentsuppliers' receivables and no direct financial relationship with the depreciation method appliedfinancial institution concerning these services. The Company's obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers' decisions to sell amounts under the arrangements. The underlying costs from suppliers that elected to participate in the SCF program are generally recorded in cost of sales in the Company's Consolidated Statement of Operations. Amounts due to suppliers who participate in the SCF program are reflected in accounts payable and accrued expenses on the Company's Consolidated Balance Sheet and payments on the obligations by our competitors, and improves the comparability of our results to the results of our competitors. Our changesuppliers are included in cash used in operating activities in the methodConsolidated Statement of depreciation is considered a change in accounting estimate effected by a change in accounting principle and has been applied prospectively. Due to the application of the unitary method of depreciation and resultant change in our capitalization policy, maintenance and outage spending that had previously been expensed as well as capital investments associated with our asset revitalization program will now be capitalized if it extends the useful life of the related asset.Cash Flows.
When property, plant, and equipment are disposed of by sale, retirement, or abandonment, the gross value of the property, plant and equipment and corresponding accumulated depreciation are removed from the Company’s financial accounting records. Due to the application of the unitary method of depreciation, any gain or loss resulting from an asset disposal by sale will now be immediately recognized as a gain or loss on the disposal of assets line in our consolidated statement of operations. Assets that are retired or abandoned will be reflected as an immediate charge to depreciation expense for any remaining book value in our consolidated statement of operations. Gains (losses) on disposals of assets for the year ended December 31, 2017 were immaterial.
U. S. Steel's property, plant and equipment totaled $3,979 million at December 31, 2016. U. S. Steel allocated the existing net book value of group assets at the transition date to approximate a unitary depreciation methodology, and the fixed assets are being depreciated over their estimated remaining useful lives as follows:
|
| | | |
| | (In millions) |
Remaining Useful Life of Assets | Net Book Value at December 31, 2016 |
| Under 5 years | $ | 597 |
|
| 6-10 years | 629 |
|
| 11-15 years | 765 |
|
| 16-20 years | 654 |
|
| 21-25 years | 363 |
|
| Over 25 years | 479 |
|
| Assets not subject to depreciation | 492 |
|
| Total | $ | 3,979 |
|
Major maintenance activities
U. S. Steel incurs maintenance costs on all of its major equipment. Costs that extend the life of the asset, materially add to its value, or adapt the asset to a new or different use are separately capitalized in property, plant and equipment and are depreciated over the estimated useful life. All other repair and maintenance costs are expensed as incurred.
Environmental remediation
Environmental expenditures are capitalized if the costs mitigate or prevent future contamination or if the costs improve existing assets’ environmental safety or efficiency. U. S. Steel provides for remediation costs and penalties when the
responsibility to remediate is probable and the amount of associated costs is reasonably estimable. The timing of remediation accruals typically coincides with completion of studies defining the scope of work to be undertaken or when it is probable that a formal plan of action will be approved by the oversight agency. Remediation liabilities are accrued based on estimates of believed environmental exposure and are discounted if the amount and timing of the cash disbursements are readily determinable.
Asset retirement obligations
Asset retirement obligations (AROs) are initially recorded at fair value and are capitalized as part of the cost of the related long-lived asset and depreciated in accordance with U. S. Steel’s depreciation policies for property, plant and equipment. The fair value of the obligation is determined as the discounted value of expected future cash flows. Accretion expense is recorded each month to increase this discounted obligation over time. Certain AROs related to disposal costs of the majority of assets at our integrated steel facilities are not 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. See Note 1819 for further details on U. S. Steel's AROs.
Pensions and other post-employment benefits
U. S. Steel has defined contribution or multi-employer arrangements for pension benefits for more than three-quarters of its employees in the United States and non-contributory defined benefit pension plans covering the remaining employees. Effective December 31, 2015, defined benefit pension benefits for non-represented employees were frozen. As ofFor hires before January 1, 2016, all non-represented employees participate in defined contribution plans. U. S. Steel has defined benefit retiree health care and life insurance plans (Other Benefits) that cover the majority of its represented employees in North America upon their retirement. On February 1, 2016, the United Steelworkers (USW) ratified successor three year Collective Bargaining Agreements with U. S. Steel and its U. S. Steel Tubular Products, Inc. subsidiary (the 2015 Labor Agreements). As a result of the 2015 Labor Agreements, retiree medical and retiree life benefit plans were closed to represented employees hired on or after January 1, 2016. Instead, these employees will receive a company defined contribution into a savings account of $0.50 per hour worked. Defined benefit retiree health and retiree life insurance has been eliminated for non-represented employee retirements after December 31, 2017. The Steelworkers Pension Trust (SPT), a multi-employer pension plan, to which U. S. Steel contributes on the basis of a fixed dollar amount for each hour worked by participating employees, currently covers approximately two-thirds of our represented employees in the United States. Government-sponsored programs into which U. S. Steel makes required contributions cover the majority of U. S. Steel’s European employees. For more details regarding pension and other post-employment benefits see Note 18 of the Consolidated Financial Statements.
The pension and other benefitsOther Benefits obligations and the related net periodic benefit costs are based on, among other things, assumptions ofregarding the discount rate, estimated return on plan assets, salary increases, the projected mortality of participants and the current level and future escalation of health care costs. Additionally, U. S. Steel recognizes an obligation to provide post-employment benefits for disability-related claims covering indemnity and medical payments for certain employees in North America. The obligation for these claims and the related periodic costs are measured using actuarial techniques and assumptions. Actuarial gains and losses occur when actual experience differs from any of the many assumptions used to value the benefit plans, or when assumptions change. For pension and other benefits,Other Benefits, the Company recognizes into income on an annual basis anya portion of unrecognized actuarial net gains or losses that exceed 10 percent of the larger of projected benefit obligations or plan assets (the corridor). These unrecognized amounts in excess of the corridor are amortized over the plan participants' average life expectancy or average future service, depending on the demographics of the plan. Unrecognized actuarial net gains and losses for disability-related claims are immediately recognized into income.
Concentration of credit and business risks
U. S. Steel is exposed to credit risk in the event of nonpayment by customers, principally within the automotive, container, construction, steel service center, appliance and electrical, conversion, and oil, gas and petrochemical industries. Changes in these industries may significantly affect U. S. Steel’s financial performance and management’s estimates. U. S. Steel mitigates its exposure to credit risk by performing ongoing credit evaluations and, when deemed necessary, requiring letters of credit, credit insurance, prepayments, guarantees or other collateral.
The majority of U. S. Steel’s customers are located in North America and Europe. No single customer accounted for more than 10 percent of gross annual revenues.
Foreign currency translation
U. S. Steel is subject to the risk of the effects of exchange rates on revenues and operating costs and existing assets or liabilities denominated in currencies other than our reporting currency, the U.S. dollar.
The functional currency for U. S. Steel Europe (USSE) is the euro (€). Assets and liabilities of USSE are translated into U.S. dollars at period-end exchange rates. Revenue and expenses are translated using the average exchange rate for the reporting period. Resulting translation adjustments are recorded in the accumulated other comprehensive income (loss) component of stockholders’ equity. Gains and losses from foreign currency transactions are included in net earnings (loss) for the period.
Stock-based compensation
U. S. Steel accounts for its various stock-based employee compensation plans in accordance with the guidance in Accounting Standards Codification (ASC) Topic 718 on stock compensation (see Note 14).
Deferred taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The realization of deferred tax assets is assessed quarterly based on several interrelated factors. These factors include U. S. Steel’s expectation to generate sufficient future taxable income and the projected time period over which these deferred tax assets will be realized. U. S. Steel records a valuation allowance when necessary to reduce deferred tax assets to the amount that will more likely than not be realized. Deferred taxes have been recognized for the undistributed earnings of most foreign subsidiaries because management does not intend to indefinitely reinvest such earnings in foreign operations. See Note 1011 for further details of deferred taxes.
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 automobile 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.
Sales taxes
Sales are generally recorded net of sales taxes charged to customers. Sales taxes primarily relate to value-added tax on sales.
Reclassifications
Effective January 1, 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (ASU 2016-09). As a result of adopting ASU 2016-09, cash taxes paid by the Company when directly withholding shares for tax withholding purposes have been classified as a cash flow financing activity. The adoption of this component of ASU 2016-09 was applied retrospectively, and prior year data has been reclassified to conform to current year data. Additionally, we have expanded our Property, Plant and Equipment disclosure to include additional disaggregation of the machinery and equipment category (see Note 12). Reclassification of prior year data has been made to conform to this expanded disclosure.
2. New Accounting Standards
In February 2018,August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, Reclassification2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of Certain Tax Effects from Accumulated Other Comprehensive Income (liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2018-02).2020-06 requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in ASC 260 on the computation of EPS for convertible instruments and contracts on an entity’s own equity. ASU 2018-02 allows a reclassification from Accumulated other Comprehensive Income to Retained Earnings2020-06 is effective for stranded tax effects resulting from the Tax Cuts and Jobs Act (the 2017 Act). The amendments in this ASU are effectivepublic companies for fiscal years beginning after December 15, 2018 and for interim periods therein. Early adoption of ASU 2018-02 is 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 Consolidated Financial Statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 20182021, and interim periods within those fiscal years, with early adoption of all amendments in the same period permitted. U. S. Steel will adoptThe Company is currently assessing the provisionsimpact of ASU 2017-12 effective January 1, 2018 and does not expect there to be a material impact on its Consolidated Financial Statements.adoption of the ASU.
On May 10, 2017,In December 2019, the FASB issuedIssued ASU 2017-09, Compensation – Stock Compensation: Scope2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 simplifies accounting for income taxes by removing certain exceptions from the general principles in Topic 740 including elimination of Modification Accounting (ASU 2017-09). The amendments included in ASU 2017-09 provide guidance about which changesthe exception to the termsincremental approach for intraperiod tax allocation when there is a loss from continuing operations and conditions ofincome or a share-based payment award require an entity to apply modification accounting. The amendmentsgain from other items such as other comprehensive income. ASU 2019-12 also clarifies and amends certain guidance in this update will be applied prospectively to an award modified on or after the adoption date.Topic 740. ASU 2017-092019-12 is effective for public companies for fiscal years beginning after December 15, 2017 and2020, including interim periods, within those
fiscal years, with early adoption of all amendments in the same period permitted. Although we believe that adoption of ASU 2019-12 in 2021 will not have a material impact, the tax benefit for the year ended 2020 includes a $138 million benefit related to recording a loss from
continuing operations and income from other comprehensive income categories. There was not a material impact in 2019 or 2018 related to intraperiod tax allocation.
3. Recently Adopted Accounting Standards
In March 2020, the FASB issued Accounting Standards Update 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). ASU 2020-04 provides optional exceptions for applying generally accepted accounting principles to modifications of contracts, hedging relationships, and other transactions that reference LIBOR or another rate that will be discontinued by reference rate reform if certain criteria are met. The guidance is effective beginning on March 12, 2020 and the amendments will be applied prospectively through December 31, 2022. U. S. Steel does not expect theadopted this guidance during 2020. The adoption of ASU 2017-09 tothis guidance did not have a material impact on itsthe Company's Consolidated Financial Statements.
On March 10, 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (ASU 2017-07). ASU 2017-07 requires an employer who offers defined benefit and postretirement benefit plans to report the service cost component of the net periodic benefit cost in the same line item or items as other compensation cost arising from services rendered by employees during the period. The other components of net periodic benefit costs are required to be presented on a retrospective basis in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net periodic benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net periodic benefit cost must be disclosed. The ASU also allows for the service cost component of net periodic benefit cost to be eligible for capitalization into inventory when applicable. ASU 2017-07 is effective for periods beginning after December 15, 2017, including interim periods within those annual periods; early adoption is permitted. The adoption of this ASU will not have an impact on U. S. Steel's net earnings (loss) but will be a reclassification from a line on the income statement within earnings (loss) before interest and income taxes to a line on the income statement below earnings (loss) before interest and income taxes.
On November 17,In June 2016, the FASB issued ASU 2016-18, Statement2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Cash Flows (Topic 230): Restricted CashCredit Losses on Financial Instruments (ASU 2016-18). The primary purpose of this2016-13), which adds an impairment model that is based on expected losses rather than incurred losses. ASU is to reduce the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. ASU 2016-18 will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is2016-13 was effective for public companies for fiscal years beginning after December 15, 2017,2019 including interim periods within those annual periods; early adoption is permitted.reporting periods. U. S. Steel will adopt the provisions of ASU 2016-18adopted this standard effective January 1, 20182020. The impact of adoption was not material to the Consolidated Financial Statements.
U. S. Steel's significant financial instruments which are valued at cost are trade receivables (receivables). U. S. Steel's receivables carry standard industry terms and will make the required changes to its Consolidated Statement of Cash Flows.
On August 26, 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receiptsare categorized in 2 receivable pools, U.S. and Cash Payments (ASU 2016-15). ASU 2016-15 reduces diversity in practice in how certain transactions are classified in the statement of cash flows by addressing eight specific cash receipt and cash payment issues. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. U. S. Steel does not expectEurope (USSE). Both pools use customer specific risk ratings based on customer financial metrics, past payment experience and other factors and qualitatively consider economic conditions to assess the adoptionlevel of ASU 2016-15 to have an overall impact toallowance for doubtful accounts. USSE mitigates credit risk for approximately 75 percent of its receivables balance using credit insurance, letters of credit, bank guarantees, prepayments or other collateral. Below is a summary of the Company's consolidated statement of cash flows, but it may resultallowance for doubtful accounts for the segments. Additional reserve recorded in a reclassification between cash flow line items.the twelve month period ended December 31, 2020 primarily reflects uncertainty over near-term anticipated market conditions.
On | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | U.S. | | USSE | | Total Allowance |
| Balance at December 31, 2019 | | $ | 12 | | | $ | 16 | | | $ | 28 | |
| Additional reserve | | 5 | | | 1 | | | 6 | |
| Balance at December 31, 2020 | | 17 | | | 17 | | | 34 | |
In February 25, 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02). ASU 2016-02 supersedes priorU. S. Steel adopted the new lease accounting guidance. Under ASU 2016-02,standard effective January 1, 2019 using the optional modified retrospective transition method. As a result of the adoption, an operating lease asset and current and noncurrent liabilities for operating leases a lessee should recognizewere recorded, and there was an insignificant reduction 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 assetprior year retained earnings for the cumulative effect of adoption for operating leases where payment started after 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 the operating activities in the statement of cash flows. For financing leases, a lessee is required to recognize a right-of-use asset and a lease liability; recognize interest on the lease liability separately from amortizationcommencement. See Note 24 for further details.
U. S. Steel's adoption 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 the 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 addition, at the inception of a contract, an entity should determine whether the contract is, or contains a lease. ASU 2016-02 is effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, using a modified retrospective approach. U. S. Steel is currently evaluating the financial statement implications of adopting ASU 2016-02, and has begun an inventory of its global leasing arrangements.
On May 28, 2014, the FASB and the International Accounting Standards Board issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2016; early application is not permitted. On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date (ASU 2015-14).
ASU 2015-14 defers the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, and only permits entities to adopt the standard one year earlier as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. U. S. Steel has completed its review of its significant customer contracts and has determined that the full retrospective adoption of this ASU on January 1, 2018 willfollowing ASU's did not have a material financial statement impact.impact on U. S. Steel will provide expanded disclosures in accordance with the ASU.Steel's financial position, results of operations or cash flows:
| | | | | | | | |
| Effective Date | ASU | Description |
| January 1, 2018 | 2014-09 | Revenue from Contracts with Customers |
| January 1, 2018 | 2017-09 | Compensation - Stock Compensation: Scope of Modification Accounting |
| January 1, 2018 | 2017-12 | Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities |
| July 1, 2018 | 2018-02 | Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income |
| January 1, 2019 | 2018-07 | Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting |
| January 1, 2019 | 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 |
3. Recently Adopted Accounting Standards
On March 30, 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (ASU 2016-09). ASU 2016-09 simplifies the accounting and reporting
On January 1, 2017, the Company adopted the provisions of ASU 2016-09. The adoption of ASU 2016-09 did not have a significant impact on the Company’s Consolidated Financial Statements and included the following items: (1) adoption on a prospective basis of the recognition of excess tax benefits and tax deficiencies in the Company’s income tax expense line in the Consolidated Statement of Operations for vested and exercised equity awards as discrete items in the period in which they occur; (2) adoption on a prospective basis of the classification of excess tax benefits in cash flows from operations in the Company’s Consolidated Statement of Cash Flows; (3) adoption on a retrospective basis of the classification of cash paid by the Company for directly withholding shares for tax withholding purposes in cash flows from financing activities, and (4) adoption on a prospective basis for the exclusion of the amount of excess tax benefits when applying the treasury stock method for the Company’s diluted earnings per share calculation.
Additionally, the Company continues to withhold the statutory minimum taxes for participants in the Company’s stock-based compensation plans and estimates forfeiture rates at the grant date and the expected term of its equity awards based on historical results.
On July 22, 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory(ASU 2015-11). ASU 2015-11 requires an entity to measure most inventory at the lower of cost and net realizable value, thereby simplifying the prior guidance under which an entity must measure inventory at the lower of cost or market. ASU 2015-11 does not apply to inventories that are measured using either the last-in, first-out (LIFO) method or the retail inventory method. ASU 2015-11 was effective for public entities for financial statements issued for fiscal years beginning after December 15, 2016. U. S. Steel adopted ASU 2015-11 on January 1, 2017. The adoption did not have a significant financial statement impact to U. S. Steel.
4. Segment Information
U. S. Steel has three3 reportable segments: North American Flat-Rolled Products (Flat-Rolled), USSE and Tubular Products (Tubular). The results of Big River Steel and our railroad and real estate businesses that do not constitute reportable segments are combined and disclosed in the Other Businesses category. The majority of U. S. Steel's customers are located in North America and Europe. No single customer accounted for more than 10 percent of gross annual revenues.
The Flat-Rolled segment includes the operating results of U. S. Steel’s integrated steel plants and equity investees in the United States (except for Big River Steel, which is included in Other Businesses) involved in the production of slabs, strip mill plates, sheets and tin mill products, as well as all iron ore and coke production facilities in the United States. These operations primarily serve North American customers in the service center, conversion, transportation (including automotive), construction, container, and appliance and electrical markets. Additionally, the Flat-Rolled segment consists of the following three commercial entities to specifically address our customers and service their needs: (1) automotive solutions, (2) consumer solutions, and (3) industrial, service center and mining solutions.
Flat-Rolled has historically supplied steel rounds and hot-rolled bands to Tubular. In the third quarter of 2015, the blast furnace and associated steelmaking operations, along with most of the flat-rolled finishing operations at Fairfield Works were shutdown. Therefore, Flat-Rolled is currently not supplying rounds to Tubular, and will not in the future.
The USSE segment includes the operating results of U. S. Steel Košice (USSK), U. S. Steel’s integrated steel plant and coke production facilities in Slovakia, and its subsidiaries. USSE conducts its business mainly in Central and Western Europe and primarily serves customers in the
Eastern European construction, service center, conversion, container, transportation (including automotive), construction, container, appliance, and electrical, service center, conversion and oil, gas and petrochemical markets. USSE produces and sells slabs, sheet, strip mill plate, sheet, tin mill products and spiral welded pipe, as well as heating radiators and refractory ceramic materials.
The Tubular segment includes the operating results of U. S. Steel’s tubular production facilities and an equity investee in the United States, and equity investees in the United States and Brazil. Our ownership interest in the equity investment in Brazil was sold in December of 2017.States. These operations produce and sell seamless and electric resistance welded (welded) steel casing and tubing (commonly known as oil country tubular goods or OCTG), standard and line pipe and mechanical tubing and primarily serve customers in the oil, gas and petrochemical markets. During the fourth quarter of 2016, certain of our tubular assets within the Tubular segment were permanently shut down, including Pipe Mill #1 at our Lone Star facility, Pipe Mill #4 at our Lorain facility and our Bellville facility. Additionally, we sold the assets at our McKeesport tubular operations in 2016.
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, post-employment benefit expenses (other than service cost and amortization of prior service cost for active employees) 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 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Customer
Sales | | Intersegment
Sales | | Net
Sales | | (Loss) Earnings
from
investees | | (Loss) Earnings before Interest and Income Taxes | | Depreciation,
depletion &
amortization | | Capital
expenditures |
| 2020 | | | | | | | | | | | | | | |
| Flat-Rolled | | $ | 7,071 | | | $ | 208 | | | $ | 7,279 | | | $ | (9) | | | $ | (596) | | | $ | 496 | | | $ | 484 | |
| USSE | | 1,967 | | | 3 | | | 1,970 | | | 0 | | | 9 | | | 97 | | | 79 | |
| Tubular | | 639 | | | 7 | | | 646 | | | 4 | | | (179) | | | 39 | | | 159 | |
| Total reportable segments | | 9,677 | | | 218 | | | 9,895 | | | (5) | | | (766) | | | 632 | | | 722 | |
| Other Businesses | | 64 | | | 98 | | | 162 | | | (94) | | | (39) | | | 11 | | | 3 | |
| Reconciling Items and Eliminations | | — | | | (316) | | | (316) | | | (18) | | | (270) | | | 0 | | | 0 | |
| Total | | $ | 9,741 | | | $ | — | | | $ | 9,741 | | | $ | (117) | | | $ | (1,075) | | | $ | 643 | | | $ | 725 | |
| 2019 | | | | | | | | | | | | | | |
| Flat-Rolled | | $ | 9,279 | | | $ | 281 | | | $ | 9,560 | | | $ | 84 | | | $ | 196 | | | $ | 456 | | | $ | 943 | |
| USSE | | 2,417 | | | 3 | | | 2,420 | | | 0 | | | (57) | | | 92 | | | 153 | |
| Tubular | | 1,188 | | | 3 | | | 1,191 | | | 5 | | | (67) | | | 46 | | | 145 | |
| Total reportable segments | | 12,884 | | | 287 | | | 13,171 | | | 89 | | | 72 | | | 594 | | | 1,241 | |
| Other Businesses | | 53 | | | 115 | | | 168 | | | (10) | | | 23 | | | 22 | | | 11 | |
| Reconciling Items and Eliminations | | — | | | (402) | | | (402) | | | 0 | | | (325) | | | 0 | | | 0 | |
| Total | | $ | 12,937 | | | $ | — | | | $ | 12,937 | | | $ | 79 | | | $ | (230) | | | $ | 616 | | | $ | 1,252 | |
| 2018 | | | | | | | | | | | | | | |
| Flat-Rolled | | $ | 9,681 | | | $ | 231 | | | $ | 9,912 | | | $ | 54 | | | $ | 883 | | | $ | 367 | | | $ | 820 | |
| USSE | | 3,205 | | | 23 | | | 3,228 | | | 0 | | | 359 | | | 87 | | | 104 | |
| Tubular | | 1,231 | | | 5 | | | 1,236 | | | 7 | | | (58) | | | 47 | | | 45 | |
| Total reportable segments | | 14,117 | | | 259 | | | 14,376 | | | 61 | | | 1,184 | | | 501 | | | 969 | |
| Other Businesses | | 61 | | | 125 | | | 186 | | | 0 | | | 55 | | | 20 | | | 32 | |
| Reconciling Items and Eliminations | | — | | | (384) | | | (384) | | | 0 | | | (115) | | | 0 | | | 0 | |
| Total | | $ | 14,178 | | | $ | — | | | $ | 14,178 | | | $ | 61 | | | $ | 1,124 | | | $ | 521 | | | $ | 1,001 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Customer
Sales | | Intersegment
Sales | | Net
Sales | | Earnings
(loss)
from
investees | | Earnings (Loss) before Interest and Income Taxes | | Depreciation,
depletion &
amortization | | Capital
expenditures |
| 2017 | | | | | | | | | | | | | | |
| Flat-Rolled | | $ | 8,297 |
| | $ | 194 |
| | $ | 8,491 |
| | $ | 38 |
| | $ | 380 |
| | $ | 352 |
| | $ | 388 |
|
| USSE | | 2,949 |
| | 25 |
| | 2,974 |
| | — |
| | 327 |
| | 76 |
| | 83 |
|
| Tubular | | 944 |
| | 1 |
| | 945 |
| | 8 |
| | (99 | ) | | 51 |
| | 28 |
|
| Total reportable segments | | 12,190 |
| | 220 |
| | 12,410 |
| | 46 |
| | 608 |
| | 479 |
| | 499 |
|
| Other Businesses | | 60 |
| | 119 |
| | 179 |
| | (2 | ) | | 44 |
| | 22 |
| | 6 |
|
| Reconciling Items and Eliminations | | — |
| | (339 | ) | | (339 | ) | | — |
| | (44 | ) | | — |
| | — |
|
| Total | | $ | 12,250 |
| | $ | — |
| | $ | 12,250 |
| | $ | 44 |
| | $ | 608 |
| | $ | 501 |
| | $ | 505 |
|
| 2016 | | | | | | | | | | | | | | |
| Flat-Rolled | | $ | 7,507 |
| | $ | 25 |
| | $ | 7,532 |
| | $ | 106 |
| | $ | (3 | ) | | $ | 349 |
| | $ | 111 |
|
| USSE | | 2,243 |
| | 3 |
| | 2,246 |
| | — |
| | 185 |
| | 80 |
| | 83 |
|
| Tubular | | 449 |
| | 2 |
| | 451 |
| | 6 |
| | (304 | ) | | 68 |
| | 88 |
|
| Total reportable segments | | 10,199 |
| | 30 |
| | 10,229 |
| | 112 |
| | (122 | ) | | 497 |
| | 282 |
|
| Other Businesses | | 62 |
| | 107 |
| | 169 |
| | (2 | ) | | 63 |
| | 10 |
| | 24 |
|
| Reconciling Items and Eliminations | | — |
| | (137 | ) | | (137 | ) | | (12 | ) | | (106 | ) | | — |
| | — |
|
| Total | | $ | 10,261 |
| | $ | — |
| | $ | 10,261 |
| | $ | 98 |
| | $ | (165 | ) | | $ | 507 |
| | $ | 306 |
|
| 2015 | | | | | | | | | | | | | | |
| Flat-Rolled | | $ | 8,293 |
| | $ | 268 |
| | $ | 8,561 |
| | $ | 49 |
| | $ | (237 | ) | | $ | 392 |
| | $ | 280 |
|
| USSE | | 2,323 |
| | 3 |
| | 2,326 |
| | — |
| | 81 |
| | 81 |
| | 110 |
|
| Tubular | | 898 |
| | — |
| | 898 |
| | 11 |
| | (179 | ) | | 64 |
| | 102 |
|
| Total reportable segments | | 11,514 |
| | 271 |
| | 11,785 |
| | 60 |
| | (335 | ) | | 537 |
| | 492 |
|
| Other Businesses | | 60 |
| | 105 |
| | 165 |
| | (22 | ) | | 33 |
| | 10 |
| | 8 |
|
| Reconciling Items and Eliminations | | — |
| | (376 | ) | | (376 | ) | | — |
| | (900 | ) | | — |
| | — |
|
| Total | | $ | 11,574 |
| | $ | — |
| | $ | 11,574 |
| | $ | 38 |
| | $ | (1,202 | ) | | $ | 547 |
| | $ | 500 |
|
A summary of total assets by segment is as follows:
| | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2020 | | 2019 |
| Flat-Rolled | | $ | 7,099 | | | $ | 7,267 | |
USSE (a) | | 5,502 | | | 5,360 | |
| Tubular | | 887 | | | 1,150 | |
| Total reportable segments | | $ | 13,488 | | | $ | 13,777 | |
| Other Businesses | | $ | 911 | | | $ | 1,267 | |
Corporate, reconciling items, and eliminations(b) | | (2,340) | | | (3,436) | |
| Total assets | | $ | 12,059 | | | $ | 11,608 | |
(a)Included in the USSE segment assets is goodwill of $4 million as of both December 31, 2020 and 2019.
(b)The majority of Corporate, reconciling items, and eliminations total assets is comprised of cash and the elimination of intersegment amounts.
|
| | | | | | | | |
| | | December 31, |
| (In millions) | | 2017 | | 2016 |
Flat-Rolled (a) | | $ | 5,823 |
| | $ | 5,431 |
|
USSE (a) | | 5,423 |
| | 5,375 |
|
| Tubular | | 1,076 |
| | 993 |
|
| Total reportable segments | | $ | 12,322 |
| | $ | 11,799 |
|
| Other Businesses | | $ | 344 |
| | $ | 375 |
|
Corporate, reconciling items, and eliminations(b) | | (2,804 | ) | | (3,014 | ) |
| Total assets | | $ | 9,862 |
| | $ | 9,160 |
|
| |
(a)
| Included in segment assets for each year presented is goodwill for Flat-Rolled and USSE of $3 million and $4 million, respectively. |
| |
(b)
| The majority of Corporate, reconciling items, and eliminations total assets is comprised of Cash and the elimination of intersegment amounts. |
|
| | | | | | | | | | | | |
| (In millions) | | 2017 | | 2016 | | 2015 |
| Items not allocated to segments: | | | | | | |
Post-employment benefit (expense) income (a) | | $ | (66 | ) | | $ | 62 |
| | $ | (43 | ) |
| Other items not allocated to segments: | | | | | | |
| Gain (loss) associated with U. S. Steel Canada Inc. (Note 5) | | 72 |
| | — |
| | (392 | ) |
Loss on shutdown of certain tubular pipe mill assets (b) | | (35 | ) | | (126 | ) | | — |
|
Loss on shutdown of coke production facilities (b) | | — |
| | — |
| | (153 | ) |
| Granite City Works temporary idling charges | | (17 | ) | | (18 | ) | | (99 | ) |
Loss on shutdown of Fairfield Flat-Rolled Operations (b) (c) | | — |
| | — |
| | (91 | ) |
Restructuring and other charges (b) | | — |
| | 2 |
| | (78 | ) |
| Post-employment benefit actuarial adjustment | | — |
| | — |
| | (26 | ) |
| Gain (loss) on equity investee transactions (Note 11) | | 2 |
| | (12 | ) | | (18 | ) |
| Impairment of intangible assets (Note 13) | | — |
| | (14 | ) | | — |
|
| Total other items not allocated to segments | | $ | 22 |
| | $ | (168 | ) | | $ | (857 | ) |
| Total reconciling items | | $ | (44 | ) | | $ | (106 | ) | | $ | (900 | ) |
| |
(a)
| Consists of the net periodic benefit cost elements, other than service cost and amortization of prior service cost for active employees, associated with our defined pension, retiree health care and life insurance benefit plans. |
| |
(b)
| Included in Restructuring and other charges on the Consolidated Statements of Operations. See Note 24 to the Consolidated Financial Statements. |
| |
(c)
| Fairfield Flat-Rolled Operations includes the blast furnace and associated steelmaking operations, along with most of the flat-rolled finishing operations at Fairfield Works. The #5 coating line continues to operate. |
Net Sales by Product:
The following summarizes net sales by product:detail of reconciling items to consolidated earnings (loss) before interest and income taxes is as follows:
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2020 | | 2019 | | 2018 |
| Items not allocated to segments: | | | | | | |
| Asset impairment charges | | (263) | | | 0 | | | 0 | |
| Gain on previously held investment in UPI | | 25 | | | 0 | | | — | |
| Tubular inventory impairment charges | | (24) | | | 0 | | | 0 | |
| December 24, 2018 Clairton coke making facility fire | | 6 | | | (50) | | | 0 | |
| Fairless property sale | | 145 | | | 0 | | | 0 | |
| Big River Steel debt extinguishment charges | | (18) | | | 0 | | | 0 | |
| Big River Steel transaction and other related costs | | (3) | | | 0 | | | 0 | |
| United Steelworkers labor agreement signing bonus and related costs | | 0 | | | 0 | | | (81) | |
| Granite City Works restart and related costs | | 0 | | | 0 | | | (80) | |
| Restructuring and other charges (Note 25) | | (138) | | | (275) | | | 0 | |
| Granite City Works temporary idling charges | | 0 | | | 0 | | | 8 | |
| Gain on equity investee transactions (Note 12) | | 0 | | | 0 | | | 38 | |
| Total reconciling items | | $ | (270) | | | $ | (325) | | | $ | (115) | |
|
| | | | | | | | | | | | |
| (In millions) | | 2017 | | 2016 | | 2015 |
| Flat-Rolled | | $ | 10,106 |
| | $ | 8,969 |
| | $ | 10,047 |
|
| Tubular | | 987 |
| | 481 |
| | 929 |
|
Other (a) | | 1,157 |
| | 811 |
| | 598 |
|
| Total | | $ | 12,250 |
| | $ | 10,261 |
| | $ | 11,574 |
|
| |
(a)
| Primarily includes sales of steel production by-products, railroad services and real estate operations. |
Geographic Area:
The information below summarizes external sales, property, plant and equipment and equity method investments based on the location of the operating segment to which they relate.
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Year | | External
Sales | | Assets | |
| North America | | 2020 | | $ | 7,774 | | | $ | 5,590 | | (a) |
| | 2019 | | 10,520 | | | 5,772 | | (a) |
| | 2018 | | 10,973 | | | 4,432 | | (a) |
| Europe | | 2020 | | 1,967 | | | 993 | | |
| | 2019 | | 2,417 | | | 947 | | |
| | 2018 | | 3,205 | | | 919 | | |
| Total | | 2020 | | 9,741 | | | 6,583 | | |
| | 2019 | | 12,937 | | | 6,719 | | |
| | 2018 | | 14,178 | | | 5,351 | | |
(a)Assets with a book value of $5,590 million, $5,772 million and $4,432 million were located in the United States at December 31, 2020, 2019 and 2018, respectively. |
| | | | | | | | | | | |
| (In millions) | | Year | | External
Sales | | Assets | |
| North America | | 2017 | | $ | 9,301 |
| | $ | 3,831 |
| (a) |
| | | 2016 | | 8,018 |
| | 3,671 |
| (a) |
| | | 2015 | | 9,251 |
| | 4,057 |
| (a) |
| Europe | | 2017 | | 2,949 |
| | 906 |
| |
| | | 2016 | | 2,243 |
| | 789 |
| |
| | | 2015 | | 2,323 |
| | 832 |
| |
| Other Foreign Countries | | 2017 | | — |
| | — |
| |
| | | 2016 | | — |
| | 18 |
| |
| | | 2015 | | — |
| | 24 |
| |
| Total | | 2017 | | 12,250 |
| | 4,737 |
| |
| | | 2016 | | 10,261 |
| | 4,478 |
| |
| | | 2015 | | $ | 11,574 |
| | $ | 4,913 |
| |
| |
(a)
| Assets with a book value of $3,817 million, $3,670 million and $4,047 million were located in the United States at December 31, 2017, 2016 and 2015, respectively.
|
5. Acquisitions
Big River Steel
On October 31, 2019, a wholly owned subsidiary of U. S. Steel Canada Inc. Retained Interestpurchased a 49.9% ownership interest in Big River Steel at a purchase price of approximately $683 million in cash, with a call option (U. S. Steel Call Option) to acquire the remaining 50.1% within the next four years at an agreed-upon price formula. On December 8, 2020, U. S. Steel announced that it exercised the U. S. Steel Call Option to acquire the remaining equity of Big River Steel. The purchase of the remaining interest in Big River Steel closed on January 15, 2021 for approximately $723 million in cash and the assumption of liabilities of approximately $50 million. The Company assumed certain indebtedness with the purchase, see Note 28 for further details. Big River Steel is a technologically advanced mini mill that completed an expansion in November 2020 that doubled its hot-rolled steel production capacity to 3.3 million tons annually.
SubsequentPrior to the CCAA filing,closing of the acquisition on January 15, 2021, U. S. Steel's management continued to assessSteel accounted for its investment in Big River Steel under the recoverabilityequity method as control and risk of loss were shared among the Company's retained interestpartnership members. U. S. Steel recorded an equity investment asset for Big River Steel of $710 million that included approximately $27 million of transaction costs and is reflected in USSC. During 2015, management's estimate of the recoverable retained interest was updated as a result of economic conditions impacting the steel industry in North America such as lower prices, elevated levels of imports, the strength of the U.S. dollarinvestments and depressed steel company valuations as well as the uncertainty of the ultimate outcome of USSC’s CCAA filing. As a result, an additional pre-tax charge was recognized during the fourth quarter of 2015, bringing the total charge to $392 million for the fiscal year ended December 31, 2015. long-term receivables line on our balance sheet.
U. S. Steel’s recoverability involved uncertainties from economic and other events, including developments related49.9% share of the total net assets of Big River Steel was approximately $155 million at October 31, 2019 resulting in a basis difference of approximately $550 million due to the ongoing CCAA proceedings, including the appealstep-up to fair value of certain assets attributable to Big River Steel. Approximately $88 million of the decisionstep-up was attributable to property, plant and equipment and approximately $460 million was attributable to goodwill. This basis difference, excluding the portion attributable to goodwill, is being amortized based on the remaining weighted average useful life of the Court inassets of approximately 18 years.
The transaction to acquire Big River Steel included the trial relating to the classification and amounts of our secured and unsecured USSC claims, which were beyond the control of U. S. Steel.
As part of the USSC CCAA restructuring process, U. S. Steel Call Option described above and USSC, entered into a mutually agreed upon, court approved, transition arrangement (the original transition plan) that provided for certain services to be provided byoptions where the Company to support USSC's continued operations as part of an orderly severance of the parties relationship. Additionally, the Court approved USSC's business preservation plan designed to conserve its liquidity.
The original transition plan requiredother Big River Steel equity owners could require U. S. Steel to continue to provide certain shared services to USSC for up to 24 months from October 9, 2015 (the date of the original transition plan), and transitionedpurchase their 50.1% ownership interest (Class B Common Put Option) or require U. S. Steel away from providing any technical and engineering services associated with product development or sales with USSC immediately. In addition,to sell its ownership interest (Class B Common Call Option) at an agreed upon
price if the U. S. Steel would no longer support any quality claims made against USSC. Further, unless mutually agreedCall Option expires. When the U. S. Steel Call Option was exercised on December 8, 2020, the options were legally extinguished and U. S. Steel recorded a contingent forward purchase commitment for the unsettled commitment to purchase the remaining interest in Big River Steel, see Note 20 for further details.
USS-POSCO Industries
On February 29, 2020, U. S. Steel purchased the remaining 50% ownership interest in USS-POSCO Industries (UPI) for $3 million, net of cash received of $2 million. There was an assumption of accounts payable owed to U. S. Steel would no longer generate anyfor prior sales ordersof steel substrate of $135 million associated with the purchase that was reflected as a reduction in receivables from related parties on behalf of USSC and would fulfill its production orders with its U.S. based operating facilities.the Company's Consolidated Balance Sheet.
Under the original transition plan,Using step acquisition accounting U. S. Steel provided USSC with funds forincreased the purpose of making payments for pension contributions which were due under the pension plan funding agreement that Stelco, now USSC, had with the Superintendent of Financial Services of Ontario that covers USSC’s four main pension plans (the Stelco Agreement) between September 1, 2015 and December 31, 2015. This funding requirement was satisfied as of December 31, 2015.
The write-downvalue of the retained interest, Stelco funding charge and other related charges were the componentsCompany's previously held equity investment to its fair value of the Losses associated with U. S. Steel Canada, Inc.$5 million which resulted in a gain of approximately $25 million. The gain was recorded in gain on equity investee transactions in the Consolidated Statement of Operations.
On June 30, 2017, U. S. Steel completed the restructuring
Receivables of $44 million, inventories of $96 million, accounts payable and dispositionaccrued liabilities of USSC through a sale$19 million, current portion of long-term debt of $55 million and transferpayroll and employee benefits liabilities of all of the issued and outstanding shares in USSC to an affiliate of Bedrock. In accordance$78 million were recorded with the Second Amendedacquisition. Property, plant and Restated Planequipment of Compromise, Arrangement and Reorganization, approved by the Ontario Superior Court of Justice on June 9, 2017, U. S. Steel received approximately $127 million in satisfaction of its secured claims, including interest, which resulted in a gain of $72 million on the Company's retained interest in USSC. U. S. Steel also agreed to the discharge and cancellation of its unsecured claims for nominal consideration. The terms of the settlement included mutual releases among key stakeholders, including a release of all claims against the Company regarding environmental, pension and other liabilities, and transition services agreements that superseded all prior arrangements among the parties, including the 2015 transition arrangements. Pursuant to the terms of these new transition services agreements, U. S. Steel will continue to provide various transition services for up to 24 months from June 30, 2017.
6. Acquisition
On May 29, 2015, the Company purchased the 50 percent joint venture interest in Double Eagle Steel Coating Company (DESCO) that it did not previously own for $25 million. DESCO's electrolytic galvanizing line (EGL) has become part of the larger operational footprint of U. S. Steel's Great Lakes Works within the Flat-Rolled segment. The EGL is increasing our ability to provide industry leading advanced high strength steels, including GEN3 grades under development, as well as to provide high quality exposed steel for automotive body and closure applications. The Company's previously held 50 percent equity interest of $3 million was recorded at fair market value resulting in a net gain of approximately $3$97 million which has been recognized in the earnings from investees line in the Consolidated Statementsincluded a fair value step-up of Operations. Goodwill$47 million and an intangible asset of approximately $3$54 million was recognized and is included as a component of other noncurrent assets inwere also recorded on the Company's Consolidated Balance Sheet. The fair valueintangible asset, which will be amortized over ten years, arises from a land lease contract, under which a certain portion of the DESCO acquisition was measured using both cost and market approaches, Level 2 inputs, in accordance with ASC No. 820, Fair Value Measurement. Transaction costs associated with the
acquisition were immaterial. The amount of revenue recognizedpayment owed to UPI is realized in the Consolidated Statementsform of Operationsdeductions from electricity costs.
6. Revenue
Revenue is generated primarily from contracts to produce, ship and deliver steel products, and to a lesser extent, raw materials sales such as iron ore pellets and coke by-products and railroad services. Generally, U. S. Steel’s performance obligations are satisfied and revenue is recognized at a resultpoint 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 acquisition was not significanttime control is transferred to the yearcustomer. 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.
The following table disaggregates our revenue by product for each of our reportable business segments for the years ended December 31, 2015.2020, 2019 and 2018, respectively:
| | | | | | | | | | | | | | | | | | | | |
| Customer Sales by Product: | | | | | | |
| | | | | | |
| (In millions) Year Ended December 31, 2020 | | Flat-Rolled | USSE | Tubular | Other Businesses | Total |
| Semi-finished | | $ | 94 | | $ | 2 | | $ | 0 | | $ | 0 | | $ | 96 | |
| Hot-rolled sheets | | 1,273 | | 793 | | 0 | | 0 | | 2,066 | |
| Cold-rolled sheets | | 2,102 | | 164 | | 0 | | 0 | | 2,266 | |
| Coated sheets | | 2,990 | | 904 | | 0 | | 0 | | 3,894 | |
| Tubular products | | 0 | | 40 | | 621 | | 0 | | 661 | |
All Other (a) | | 612 | | 64 | | 18 | | 64 | | 758 | |
| Total | | $ | 7,071 | | $ | 1,967 | | $ | 639 | | $ | 64 | | $ | 9,741 | |
| | | | | | |
| (In millions) Year Ended December 31, 2019 | | Flat-Rolled | USSE | Tubular | Other Businesses | Total |
| Semi-finished | | $ | 305 | | $ | 11 | | $ | 0 | | $ | 0 | | $ | 316 | |
| Hot-rolled sheets | | 2,504 | | 997 | | 0 | | 0 | | 3,501 | |
| Cold-rolled sheets | | 2,512 | | 283 | | 0 | | 0 | | 2,795 | |
| Coated sheets | | 2,993 | | 1,006 | | 0 | | 0 | | 3,999 | |
| Tubular products | | 0 | | 40 | | 1,166 | | 0 | | 1,206 | |
All Other (a) | | 965 | | 80 | | 22 | | 53 | | 1,120 | |
| Total | | $ | 9,279 | | $ | 2,417 | | $ | 1,188 | | $ | 53 | | $ | 12,937 | |
| | | | | | |
| (In millions) Year Ended December 31, 2018 | | Flat-Rolled | USSE | Tubular | Other Businesses | Total |
| Semi-finished | | $ | 156 | | $ | 174 | | $ | 0 | | $ | 0 | | $ | 330 | |
| Hot-rolled sheets | | 2,816 | | 1,313 | | 0 | | 0 | | 4,129 | |
| Cold-rolled sheets | | 2,709 | | 384 | | 0 | | 0 | | 3,093 | |
| Coated sheets | | 3,090 | | 1,164 | | 0 | | 0 | | 4,254 | |
| Tubular products | | 0 | | 48 | | 1,195 | | 0 | | 1,243 | |
All Other (a) | | 910 | | 122 | | 36 | | 61 | | 1,129 | |
| Total | | $ | 9,681 | | $ | 3,205 | | $ | 1,231 | | $ | 61 | | $ | 14,178 | |
(a) Consists primarily of sales of raw materials and coke making by-products.
7. Net Interest and Other Financial Costs
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2020 | | 2019 | | 2018 |
| Interest income: | | | | | | |
| Interest income | | $ | (7) | | | $ | (17) | | | $ | (23) | |
| Interest expense and other financial costs: | | | | | | |
| Interest incurred | | 306 | | | 162 | | | 175 | |
| Less interest capitalized | | 26 | | | 20 | | | 7 | |
| Total interest expense | | 280 | | | 142 | | | 168 | |
Loss on debt extinguishment (a) | | 0 | | | 0 | | | 98 | |
| Net periodic benefit (income) costs (other than service cost) | | (25) | | | 91 | | | 69 | |
Foreign currency net gain (b) | | (15) | | | (17) | | | (19) | |
| Financial costs on: | | | | | | |
| Amended Credit Agreement | | 3 | | | 5 | | | 5 | |
| USSK credit facilities | | 2 | | | 1 | | | 3 | |
Other (c) | | (21) | | | 10 | | | 3 | |
| Amortization of discounts and deferred financing costs | | 15 | | | 7 | | | 8 | |
| Total other financial costs | | (16) | | | 6 | | | 0 | |
| Net interest and other financial costs | | $ | 232 | | | $ | 222 | | | $ | 312 | |
(a)Represents a net pretax charge of $98 million during 2018 related to the retirement of our 2020 Senior Notes and 2021 Senior Secured Notes. |
| | | | | | | | | | | | |
| (In millions) | | 2017 | | 2016 | | 2015 |
| Interest income: | | | | | | |
| Interest income | | $ | (17 | ) | | $ | (5 | ) | | $ | (3 | ) |
| Interest expense and other financial costs: | | | | | | |
| Interest incurred | | 229 |
| | 234 |
| | 228 |
|
| Less interest capitalized | | 3 |
| | 4 |
| | 14 |
|
| Total interest expense | | 226 |
| | 230 |
| | 214 |
|
Loss on debt extinguishment (a) | | 54 |
| | 22 |
| | 36 |
|
Foreign currency net loss (gain) (b) | | 23 |
| | (14 | ) | | (15 | ) |
| Financial costs on: | | | | | | |
| Sale of receivables | | — |
| | — |
| | 2 |
|
| Amended Credit Agreement | | 6 |
| | 6 |
| | 4 |
|
| USSK credit facilities | | 3 |
| | 3 |
| | 3 |
|
| Other | | 2 |
| | — |
| | 5 |
|
| Amortization of discounts and deferred financing costs | | 10 |
| | 9 |
| | 11 |
|
| Total other financial costs | | 44 |
| | 4 |
| | 10 |
|
| Net interest and other financial costs | | $ | 307 |
| | $ | 251 |
| | $ | 257 |
|
| |
(a)
| Represents a net pretax charge of $54 million during 2017 related to the retirement of our 2018, 2021, and 2022 Senior Notes, partial redemption of our 2021 Senior Secured Notes, and redemption of the Lorain Recovery Zone Facility Bonds. A net pretax charge of $22 million during 2016 related to the retirement of our 2017 Senior Notes, and partial redemption of our 2018, 2020 and 2021 Senior Notes, and a $36 million pretax charge during 2015 related to the retirement of our 2019 Senior Convertible Notes. |
| |
(b)
| The functional currency for USSE is the euro. Foreign currency net loss (gain) is a result of transactions denominated in currencies other than the euro. |
(b)The functional currency for USSE is the euro. Foreign currency net gain is a result of transactions denominated in currencies other than the euro.
(c)2020 and 2019 include a $(39) million and $7 million change in fair value of certain call and put options, respectively, related to U. S. Steel's purchase of its 49.9% ownership interest in Big River Steel during 2019. See Note 5 and Note 20 for further details.
8. (Loss) Earnings and Dividends Per Common Share
(Loss) Earnings (Loss) per Share Attributable to United States Steel Corporation ShareholdersStockholders
Basic (loss) earnings (loss) per common share is based on the weighted average number of common shares outstanding during the period.
Diluted (loss) earnings (loss) 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 "treasury stock" method is used to calculate the dilutive effect of the Senior Convertible Notes due in 2026 (due to our current intent and policy, among other factors, to settle the principal amount of the 2026 Senior Convertible Notes in cash upon conversion).
The computations for basic and diluted (loss) earnings (loss) per common share from continuing operations are as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | | 2020 | | 2019 | | 2018 |
| Net (loss) earnings attributable to United States Steel Corporation stockholders | | $ | (1,165) | | | $ | (630) | | | $ | 1,115 | |
| Weighted-average shares outstanding (in thousands): | | | | | | |
| Basic | | 196,721 | | | 171,418 | | | 176,633 | |
| Effect of convertible notes | | 0 | | | 0 | | | 0 | |
| Effect of stock options, restricted stock units and performance awards | | 0 | | | 0 | | | 1,828 | |
| Adjusted weighted-average shares outstanding, diluted | | 196,721 | | | 171,418 | | | 178,461 | |
| Basic (loss) earnings per common share | | $ | (5.92) | | | $ | (3.67) | | | $ | 6.31 | |
| Diluted (loss) earnings per common share | | $ | (5.92) | | | $ | (3.67) | | | $ | 6.25 | |
|
| | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | | 2017 | | 2016 | | 2015 |
| Net earnings (loss) attributable to United States Steel Corporation shareholders | | $ | 387 |
| | $ | (440 | ) | | $ | (1,642 | ) |
| Weighted-average shares outstanding (in thousands): | | | | | | |
| Basic | | 174,793 |
| | 156,673 |
| | 146,094 |
|
| Effect of stock options, restricted stock units and performance awards | | 1,727 |
| | — |
| | — |
|
| Adjusted weighted-average shares outstanding, diluted | | 176,520 |
| | 156,673 |
| | 146,094 |
|
| Basic earnings (loss) per common share | | $ | 2.21 |
| | $ | (2.81 | ) | | $ | (11.24 | ) |
| Diluted earnings (loss) per common share | | $ | 2.19 |
| | $ | (2.81 | ) | | $ | (11.24 | ) |
The following table summarizes the securities that were antidilutive, and therefore, were not included in the computation of diluted (loss) earnings (loss) per common share:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| Securities granted under the 2005 Stock Incentive Plan | | 6,780 | | | 4,459 | | | 1,631 | |
| Securities convertible under the Senior Convertible Notes | | 0 | | | 650 | | | 0 | |
| Total | | 6,780 | | | 5,109 | | | 1,631 | |
|
| | | | | | | | | | | | |
| (In thousands) | | 2017 | | 2016 | | 2015 |
| Securities granted under the 2005 Stock Incentive Plan | | $ | 1,579 |
| | $ | 8,820 |
| | $ | 8,298 |
|
Dividends Paid per Share
Quarterly dividends on common stock were five1 cent per share for each quarter in 2020 and 5 cents per share for each quarter in 2017, 20162019 and 2015.2018.
9. 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:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2020 | | 2019 | | 2018 |
| Cash and cash equivalents | | $ | 1,985 | | | $ | 749 | | | $ | 1,000 | |
| Restricted cash in other current assets | | 3 | | | 2 | | | 3 | |
| Long-term restricted cash | | 130 | | | 188 | | | 37 | |
| Total cash, cash equivalents and restricted cash | | $ | 2,118 | | | $ | 939 | | | $ | 1,040 | |
Amounts included in restricted cash represent cash balances which are legally or contractually restricted, primarily for electric arc furnace construction, environmental capital expenditure projects and insurance purposes.
10. Inventories
| | | | | | | | | | | | | | |
| (In millions) | | December 31, 2020 | | December 31, 2019 |
| Raw materials | | $ | 416 | | | $ | 628 | |
| Semi-finished products | | 633 | | | 720 | |
| Finished products | | 300 | | | 376 | |
| Supplies and sundry items | | 53 | | | 61 | |
| Total | | $ | 1,402 | | | $ | 1,785 | |
|
| | | | | | | | |
| (In millions) | | December 31, 2017 | | December 31, 2016 |
| Raw materials | | $ | 527 |
| | $ | 449 |
|
| Semi-finished products | | 796 |
| | 686 |
|
| Finished products | | 356 |
| | 375 |
|
| Supplies and sundry items | | 59 |
| | 63 |
|
| Total | | $ | 1,738 |
| | $ | 1,573 |
|
Current acquisition costs were estimated to exceed the above inventory values at December 31 by $802$848 million in 20172020 and $489 millionin 2016. As a result of the liquidation of LIFO inventories, cost of sales increased and earnings (loss) before interest and income taxes decreased by $6 million and $77$735 million in 2017 and 2016, respectively.2019. As a result of the liquidation of LIFO inventories, cost of sales decreased and (loss) earnings (loss) before interest and income taxes increased by $9$5 million, $28 million and $10 million in 2015.2020, 2019 and 2018, respectively.
Inventory includes $42 million and $54 million of land held for residential/commercial development as of December 31, 2017 and 2016, respectively.
10.11. Income Taxes
(Benefit) Provision for income taxes
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| (In millions) | | Current | | Deferred | | Total | | Current | | Deferred | | Total | | Current | | Deferred | | Total |
| Federal | | $ | (66 | ) | | $ | (81 | ) | | $ | (147 | ) | | $ | (18 | ) | | $ | — |
| | $ | (18 | ) | | $ | (29 | ) | | $ | 168 |
| | $ | 139 |
|
| State and local | | (1 | ) | | — |
| | (1 | ) | | 1 |
| | — |
| | 1 |
| | (5 | ) | | 33 |
| | 28 |
|
| Foreign | | 53 |
| | 9 |
| | 62 |
| | 32 |
| | 9 |
| | 41 |
| | 4 |
| | 12 |
| | 16 |
|
| Total | | $ | (14 | ) | | $ | (72 | ) | | $ | (86 | ) | | $ | 15 |
| | $ | 9 |
| | $ | 24 |
| | $ | (30 | ) | | $ | 213 |
| | $ | 183 |
|
A reconciliationComponents of the federal statutory tax rate of 35 percent to total provision follows:
|
| | | | | | | | | | | | |
| (In millions) | | 2017 | | 2016 | | 2015 |
| Statutory rate applied to earnings (loss) before income taxes | | $ | 105 |
| | $ | (146 | ) | | $ | (511 | ) |
| Valuation allowance | | 36 |
| | 252 |
| | 804 |
|
| Excess percentage depletion | | (68 | ) | | (49 | ) | | (49 | ) |
| State and local income taxes after federal income tax effects | | (28 | ) | | (20 | ) | | (42 | ) |
| Adjustments of prior years’ federal income taxes | | (5 | ) | | (6 | ) | | (23 | ) |
| Tax credits | | (56 | ) | | (39 | ) | | (7 | ) |
| Effects of foreign operations | | 56 |
| | 36 |
| | 5 |
|
| Effect of tax reform | | (81 | ) | | — |
| | — |
|
| Alternative minimum tax credit refund | | (48 | ) | | (18 | ) | | — |
|
| Other | | 3 |
| | 14 |
| | 6 |
|
| Total (benefit) provision | | $ | (86 | ) | | $ | 24 |
| | $ | 183 |
|
The tax benefit differs from the domestic statutory rate of 35 percent as a result of the items listed above. In particular, it includes a benefit of $10 million related to the corporate rate reduction provided by the 2017 Act, as well as a benefit of $71 million related to the reversal of the valuation allowance recorded against the remaining balance of the Company’s AMT credits, which became fully refundable pursuant to the 2017 Act. Also included in the 2017 tax benefit is a benefit of $48 million related to the Company’s election to claim a refund of AMT credits pursuant to a provision in the Protecting Americans from Tax Hikes (PATH) Act.
Included in the 2016 tax provision is a benefit of $18 million related to the Company's election to claim a refund of AMT credits pursuant to a provision in the PATH Act. The provision also reflects a write-off of certain deferred tax assets and liabilities related to branch operations pursuant to new regulations. However, the write-off does not impact the total provision because of the valuation allowance on the net domestic deferred tax asset.
Included in the 2015 tax provision is a tax benefit of $31 million relating to adjustments to tax reserves related to the conclusion of certain audits.
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 ASC Topic 740 on income taxes. The total amount of unrecognized tax benefits was $42 million, $72 million and $74 million as of December 31, 2017, 2016 and 2015, respectively.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $6 million as of December 31, 2017 and $9 million as of December 31, 2016.
U. S. Steel records interest related to uncertain tax positions as a part of net interest and other financial costs in the Consolidated Statements of Operations. Any penalties are recognized as part of selling, general and administrative expenses. U. S. Steel had accrued liabilities of $6 million and $4 million for interest and penalties related to uncertain tax positions as of December 31, 2017 and 2016, respectively.
A tabular reconciliation of unrecognized tax benefits follows:
|
| | | | | | | | | | | | |
| (In millions) | | 2017 | | 2016 | | 2015 |
| Unrecognized tax benefits, beginning of year | | $ | 72 |
| | $ | 74 |
| | $ | 112 |
|
| Increases – tax positions taken in prior years | | 1 |
| | — |
| | — |
|
| Decreases – tax positions taken in prior years | | (26 | ) | | (4 | ) | | (5 | ) |
| Increases – current tax positions | | — |
| | 3 |
| | — |
|
| Settlements | | (4 | ) | | — |
| | (26 | ) |
| Lapse of statute of limitations | | (1 | ) | | (1 | ) | | (7 | ) |
| Unrecognized tax benefits, end of year | | $ | 42 |
| | $ | 72 |
| | $ | 74 |
|
Tax years subject to examination
Below is a summary of the tax years open to examination by major tax jurisdiction:
U.S. Federal – 2011 and forward*
U.S. States – 2009 and forward
Slovakia – 2007 and forward
*U. S. Steel's 2011 federal tax year remains open to the extent of net operating losses carried back from 2013.
Status of Internal Revenue Service (IRS) examinations
The IRS audit of U. S. Steel’s 2012 and 2013 tax returns began in 2015 and is ongoing. The IRS and the Company have agreed to a number of adjustments, but two issues remain unagreed and the parties are using the Appeals process in an attempt to resolve their differences. To the extent that some issues have been agreed to, the effect of those items are now reflected in the Company’s tax accounts. The IRS completed its audit of U. S. Steel’s 2010 and 2011 tax returns in 2014, and the audit report was agreed to by the Company, and was approved by the Congressional Joint Committee on Taxation in the first quarter of 2015.
Taxes on foreign(loss) earnings
Pretax earnings for 2017 include domestic earnings of $75 million and earnings attributable to foreign sources of $226 million. Pretax loss and earnings for 2016 and 2015 include domestic losses of $588 million and $1,193 million, respectively, and earnings attributable to foreign sources of $172 million and a loss attributable to foreign sources of $266 million, respectively. | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2020 | | 2019 | | 2018 |
| United States | | $ | (1,303) | | | $ | (381) | | | $ | 434 | |
| Foreign | | (4) | | | (71) | | | 378 | |
| (Loss) earnings before income taxes | | $ | (1,307) | | | $ | (452) | | | $ | 812 | |
At the end of both 20172020 and 2016,2019, U. S. Steel does not have any undistributed foreign earnings and profits for which U.S. deferred taxes have not been provided.
Income tax (benefit) provision
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| (In millions) | | Current | | Deferred | | Total | | Current | | Deferred | | Total | | Current | | Deferred | | Total |
| Federal | | $ | (10) | | | $ | (95) | | | $ | (105) | | | $ | (18) | | | $ | 196 | | | $ | 178 | | | $ | (40) | | | $ | (283) | | | $ | (323) | |
| State and local | | (3) | | | (24) | | | (27) | | | 0 | | | 23 | | | 23 | | | 2 | | | (58) | | | (56) | |
| Foreign | | 1 | | | (11) | | | (10) | | | (6) | | | (17) | | | (23) | | | 64 | | | 12 | | | 76 | |
| Total | | $ | (12) | | | $ | (130) | | | $ | (142) | | | $ | (24) | | | $ | 202 | | | $ | 178 | | | $ | 26 | | | $ | (329) | | | $ | (303) | |
A reconciliation of the federal statutory tax rate of 21 percent to total (benefit) provision follows:
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2020 | | 2019 | | 2018 |
| Statutory rate applied to (loss) earnings before income taxes | | $ | (275) | | | $ | (95) | | | $ | 171 | |
| Valuation allowance | | 367 | | | 334 | | | (412) | |
| Tax accounting benefit related to increase in OCI | | (138) | | | 0 | | | 0 | |
| Excess percentage depletion | | (31) | | | (46) | | | (48) | |
| State and local income taxes after federal income tax effects | | (47) | | | (36) | | | 8 | |
| Effects of foreign operations | | (10) | | | (23) | | | 74 | |
| U.S. impact of foreign operations | | 1 | | | 25 | | | (21) | |
| Impact of tax credits | | (18) | | | 5 | | | (71) | |
| Adjustment of prior years' federal income taxes | | 12 | | | 7 | | | 0 | |
| Other | | (3) | | | 7 | | | (4) | |
| Total (benefit) provision | | $ | (142) | | | $ | 178 | | | $ | (303) | |
The 2020 tax benefit includes a $138 million benefit related to recording a loss from continuing operations and income from other comprehensive income categories and expense of $13 million for an updated estimate to tax reserves related to an unrecognized tax benefit. Due to the full valuation allowance on our domestic deferred tax assets, the tax benefit in 2020 does not reflect any additional tax benefit for domestic pretax losses.
In 2019, the tax benefit differs from the domestic statutory rate of 21 percent primarily due to the fact that it does not reflect any tax benefit in the U.S. as a valuation allowance was recorded against the Company's net domestic deferred tax asset (excluding a portion of a deferred tax liability related to an asset with an indefinite life, as well as a deferred tax asset related to refundable Alternative Minimum Tax (AMT) credits).
Included in the 2018 tax benefit is a benefit of $374 million related to the reversal of a portion of the valuation allowance recorded against the Company's net domestic deferred tax asset, as well as a benefit of $38 million related to the reversal of the valuation allowance for current year activity.
Deferred taxes
Deferred tax assets and liabilities resulted from the following:
| | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2020 | | 2019 |
| Deferred tax assets: | | | | |
| Federal tax loss carryforwards (expiring in 2035 through 2037) | | $ | 443 | | | $ | 176 | |
| Federal capital loss carryforwards (expiring 2021) | | 0 | | | 27 | |
| State tax credit carryforwards (expiring in 2021 through 2029) | | 16 | | | 18 | |
| State tax loss carryforwards (expiring in 2021 through 2040) | | 182 | | | 130 | |
| Minimum tax credit carryforwards | | 0 | | | 19 | |
| General business credit carryforwards (expiring in 2026 through 2040) | | 103 | | | 85 | |
| Foreign tax loss and credit carryforwards (expiring in 2023 through 2030) | | 171 | | | 170 | |
| Employee benefits | | 71 | | | 173 | |
| Contingencies and accrued liabilities | | 52 | | | 71 | |
| Operating lease liabilities | | 51 | | | 58 | |
| Section 59(e) amortization | | 27 | | | 18 | |
| Investments in subsidiaries and equity investees | | 0 | | | 49 | |
| Inventory | | 21 | | | 32 | |
| Other temporary differences | | 46 | | | 17 | |
| Valuation allowance | | (796) | | | (563) | |
| Total deferred tax assets | | 387 | | | 480 | |
| Deferred tax liabilities: | | | | |
| Property, plant and equipment | | 244 | | | 368 | |
| Operating right-of-use assets | | 49 | | | 58 | |
| Investments in subsidiaries and equity investees | | 23 | | | 0 | |
| Receivables, payables and debt | | 22 | | | 17 | |
| Indefinite-lived intangible assets | | 19 | | | 19 | |
| Other temporary differences | | 19 | | | 3 | |
| Total deferred tax liabilities | | 376 | | | 465 | |
| Net deferred tax asset | | $ | 11 | | | $ | 15 | |
|
| | | | | | | | |
| | | December 31, |
| (In millions) | | 2017 | | 2016 |
| Deferred tax assets: | | | | |
| Federal tax loss carryforwards (expiring in 2033 through 2036) | | $ | 394 |
| | $ | 754 |
|
| Federal capital loss carryforwards (expiring 2021) | | 36 |
| | — |
|
| State tax credit carryforwards (expiring in 2018 through 2031) | | 14 |
| | 15 |
|
| State tax loss carryforwards (expiring in 2018 through 2037) | | 155 |
| | 110 |
|
| Minimum tax credit carryforwards | | 76 |
| | 109 |
|
| General business credit carryforwards (expiring in 2025 through 2037) | | 86 |
| | 85 |
|
| Foreign tax loss and credit carryforwards (expiring in 2024 through 2027) | | 102 |
| | 51 |
|
| Employee benefits | | 266 |
| | 633 |
|
| Receivables, payables and debt | | — |
| | 5 |
|
| Future reduction of foreign tax credits | | 1 |
| | 1 |
|
| Contingencies and accrued liabilities | | 70 |
| | 97 |
|
| Investments in subsidiaries and equity investees | | 33 |
| | 211 |
|
| Valuation allowance | | (608 | ) | | (1,113 | ) |
| Total deferred tax assets | | 625 |
| | 958 |
|
| Deferred tax liabilities: | | | | |
| Property, plant and equipment | | 516 |
| | 899 |
|
| Inventory | | 6 |
| | 23 |
|
| Receivables, payables and debt | | 14 |
| | — |
|
| Expected federal benefit for deducting state deferred income taxes | | 14 |
| | 9 |
|
| Indefinite-lived intangible assets | | 18 |
| | 28 |
|
| Other temporary differences | | 7 |
| | 21 |
|
| Total deferred tax liabilities | | 575 |
| | 980 |
|
| Net deferred tax asset (liability) | | $ | 50 |
| | $ | (22 | ) |
U. S. Steel recognizes deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The realization of deferred tax assets is assessed quarterly based on several interrelated factors. These factors include U. S. Steel’s expectation to generate sufficient future taxable income and the projected time period over which these deferred tax assets will be realized.
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 a deferred tax asset will not be realized.
At December 31, 2017,2020, we identified the following negative evidence concerning U. S. Steel's ability to use some or all of its domestic deferred tax assets:
•U. S. Steel's domestic operations generated a significant loss in the current year and the Company is currently in a cumulative 12 quarter loss position, and
•some of our domestic deferred tax assets are carryforwards, which have expiration dates.
Most positive evidence can be categorized into one of the four sources of taxable income sequentially. These are (from least to most subjective):
•taxable income in prior carryback years, if carryback is permitted,
•future reversal of existing taxable temporary differences,
•tax planning strategies, and
•future taxable income exclusive of reversing temporary differences and carryforwards.
U. S. Steel utilized all available carrybacks, and therefore, our analysis at December 31, 2020 focused on the other sources of taxable income. Our projection of the reversal of our existing temporary differences generated significant taxable income. This source of taxable income, however, was not sufficient to project full utilization of U. S. Steel’s domestic deferred tax assets. To assess the realizability of the remaining domestic deferred tax assets, U. S. Steel analyzed its prudent and feasible tax planning strategies.
At December 31, 2020, after weighing all the positive and negative evidence, U. S. Steel determined that it was still more likely than not that the net domestic deferred tax asset (excluding a portion of a deferred tax liability related to an asset with an indefinite life) may not be realized. As a result, U. S. Steel recorded a $229 million non-cash charge to tax expense. In the future, if we determine that it is more likely than not that we will be able to realize all or a portion of our deferred tax assets, the valuation allowance will be reduced, and we will record a benefit to earnings.
At December 31, 2020, the net domestic deferred tax liability was $53$7 million, net of an established valuation allowance of $604$793 million. At December 31, 2016,2019, the net domestic deferred tax liabilityasset was $28$12 million, net of an established valuation allowance of $1,109$560 million.
At December 31, 2017,2020, the net foreign deferred tax liabilityasset was $18 million, net of an established valuation allowance of $3 million. At December 31, 2019, the net foreign deferred tax asset was $3 million, net of an established valuation allowance of $4 million. At December 31, 2016, the net foreign deferred tax asset was $6 million, net of an established valuation allowance of $4$3 million. The net foreign deferred tax asset will fluctuate as the value of the U.S. dollar changes with respect to the euro.
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 a deferred tax assetsasset 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 ASC Topic 740 on income taxes. The total amount of unrecognized tax benefits was $16 million, $3 million and $35 million as of December 31, 2020, 2019 and 2018, respectively.
11.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $15 million and $2 million as of December 31, 2020 and 2019, respectively.
U. S. Steel records interest related to uncertain tax positions as a part of net interest and other financial costs in the Consolidated Statements of Operations. Any penalties are recognized as part of selling, general and administrative expenses. U. S. Steel had accrued liabilities of $2 million for interest and penalties related to uncertain tax positions as of both December 31, 2020 and 2019.
A tabular reconciliation of unrecognized tax benefits follows:
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2020 | | 2019 | | 2018 |
| Unrecognized tax benefits, beginning of year | | $ | 3 | | | $ | 35 | | | $ | 42 | |
| Increases – tax positions taken in prior years | | 13 | | | 0 | | | 0 | |
| Decreases – tax positions taken in prior years | | 0 | | | 0 | | | (2) | |
| Settlements | | 0 | | | (32) | | | 0 | |
| Lapse of statute of limitations | | 0 | | | 0 | | | (5) | |
| Unrecognized tax benefits, end of year | | $ | 16 | | | $ | 3 | | | $ | 35 | |
It is reasonably expected that during the next 12 months unrecognized tax benefits related to income tax issues will change by an immaterial amount.
Tax years subject to examination
Below is a summary of the tax years open to examination by major tax jurisdiction:
U.S. Federal – 2017 and forward
U.S. States – 2012 and forward
Slovakia – 2010 and forward
Status of Internal Revenue Service (IRS) examinations
The IRS audit of U. S. Steel’s 2017-2018 federal consolidated tax returns began in 2020 and is ongoing. The IRS completed its audit of the Company's 2014 and 2016 tax returns in 2020.
12. Investments, and Long-Term Receivables and Equity Investee Transactions
| | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2020 | | 2019 |
| Equity method investments | | $ | 1,140 | | | $ | 1,272 | |
| Receivables due after one year, less allowance of $5 in both periods | | 34 | | | 191 | |
| Other | | 3 | | | 3 | |
| Total | | $ | 1,177 | | | $ | 1,466 | |
|
| | | | | | | | |
| | | December 31, |
| (In millions) | | 2017 | | 2016 |
| Equity method investments | | $ | 457 |
| | $ | 499 |
|
| Receivables due after one year, less allowance of $11 and $10 | | 20 |
| | 25 |
|
| Other | | 3 |
| | 4 |
|
| Total | | $ | 480 |
| | $ | 528 |
|
Summarized financial information of all investees accounted for by the equity method of accounting is as follows (amounts represent 100% of investee financial information):
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2020 | | 2019 | | 2018 |
Income data – year ended December 31:(a) | | | | | | |
| Net Sales | | $ | 2,485 | | | $ | 2,528 | | | $ | 2,193 | |
| Operating income | | 12 | | | 253 | | | 157 | |
| Net earnings | | (124) | | | 235 | | | 134 | |
| Balance sheet date – December 31: | | | | | | |
| Current Assets | | $ | 960 | | | $ | 1,144 | | | $ | 642 | |
| Noncurrent Assets | | 3,101 | | | 2,976 | | | 853 | |
| Current liabilities | | 419 | | | 573 | | | 348 | |
| Noncurrent Liabilities | | 3,063 | | | 2,542 | | | 516 | |
|
| | | | | | | | | | | | |
| (In millions) | | 2017 | | 2016 | | 2015 |
Income data – year ended December 31:(a) | | | | | | |
| Net Sales | | $ | 2,485 |
| | $ | 2,839 |
| | $ | 3,176 |
|
| Operating income | | 132 |
| | 345 |
| | 529 |
|
| Net earnings | | 109 |
| | 323 |
| | 491 |
|
| Balance sheet date – December 31: | | | | | | |
| Current Assets | | $ | 633 |
| | $ | 771 |
| | $ | 732 |
|
| Noncurrent Assets | | 710 |
| | 989 |
| | 988 |
|
| Current liabilities | | 441 |
| | 478 |
| | 485 |
|
| Noncurrent Liabilities | | 335 |
| | 506 |
| | 490 |
|
| |
(a) | Former equity affiliates, Swan Point Development Company, Inc., Tilden Mining Company and Apolo Tubulars S.A. were sold on February 6, 2017, September 29, 2017 and December 22, 2017, respectively. The former equity affiliates are included in the Income data through the month prior to the date of sale. |
U. S. Steel's portion of the equity in net earnings for its equity investments as reported in the(loss) income from investees linereflected on the Consolidated Statements of Operations was $44$(117) million, $98$79 million and $38$61 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
All of our significant investees are located in the U.S. Investees accounted for using the equity method include:
|
| | | | |
| Investee | Country | December 31, 20172020 Interest |
Acero Prime, S. R. L. de CVBig River Steel(a) | Mexico49.9 | 40 | % |
| Chrome Deposit Corporation | United States50 | 50 | % |
| Daniel Ross Bridge, LLC | United States50 | 50 | % |
Double G Coatings Company, L.P.Inc. | United States50 | 50 | % |
Feralloy Processing Company | United States | 49 | % |
| Hibbing Development Company | United States24.1 | 24.1 | % |
Hibbing Taconite Company(a)(b) | United States14.7 | 14.7 | % |
Leeds Retail Center, LLC | United States | 33.3 | % |
| Patriot Premium Threading Services, LLC | United States50 | 50 | % |
| PRO-TEC Coating Company, LLC | United States50 | 50 | % |
Strategic Investment Fund Partners II(b)(c) | United States5.2 | 5.2 | % |
USS-POSCO Industries | United States | 50 | % |
| Worthington Specialty Processing | United States49 | 49 | % |
| |
(a) | Hibbing Taconite Company (HTC) is an unincorporated joint venture that is owned, in part, by Hibbing Development Company (HDC), |
(a)U. S. Steel's 49.9% ownership in Big River Steel consists of 47.7535% interests in Big River Steel Holdings LLC and BRS Stock Holdco LLC. U. S. Steel Blocker LLC, a wholly-owned subsidiary of U. S. Steel, holds a 2.1465% interest in both of those entities.
(b)Hibbing Taconite Company (Hibbing) is an unincorporated joint venture that is owned, in part, by Hibbing Development Company (HDC), which is accounted for using the equity method. Through HDC we are able to influence the activities of HTC, and as such, its activities are accounted for using the equity method.
| |
(b) | Strategic Investment Fund Partners II is a limited partnership and in accordance with ASC Topic 323, the financial activities are accounted for using the equity method. |
Dividends(c)Strategic Investment Fund Partners II is a limited partnership and in accordance with ASC Topic 323, the financial activities are accounted for using the equity method.
In 2020, we recognized pre-tax gains on equity investee transactions of approximately $6 million on the sale of our 49 percent ownership interest in Feralloy Processing Company and $25 million for the step-up to fair value of our previously held investment in UPI.
In 2018, we recognized pre-tax gains on equity investee transactions of approximately $18 million for the assignment of our ownership interest in Leeds Retail Center, LLC and $20 million from the sale of our 40 percent ownership interest in Acero Prime, S. R. L. de CV.
There were no dividends or partnership distributions received from equity investees in 2020. There were $12dividends or partnership distributions of $5 million in 2017, $92019 and $13 million in 2016 and $10 million in 2015.2018.
U. S. Steel evaluates impairment of its equity method investments whenever circumstances indicate that a decline in value below carrying value is other than temporary. Under these circumstances, we would adjust the investment down to its estimated fair value, which then becomes its new carrying value.
During the fourth quarter of 2016, the Company completed a review of its equity method investments and determined there was an other than temporary impairment of an equity investee within our Tubular segment. Accordingly, U. S. Steel recorded an impairment charge of $12 million, which reduced the carrying value of the investment to $18 million, at December 31, 2016. The equity investment was sold in 2017.
During the fourth quarter of 2015, U. S. Steel completed a review of its equity method investments and determined there was an other than temporary impairment of an equity investee within a non-core operating segment of U. S. Steel. The other than temporary impairment resulted from a decision to cease the funding of the long-term development plans of the equity investment, due to our intent to sell the particular investment, thereby inhibiting sufficient recovery of the market value. Accordingly, U. S. Steel recorded an impairment charge of $18 million, which reduced the carrying amount of the equity investment to $3 million, in the fourth quarter of 2015. The equity investment was sold in 2017.
We supply substrate to certain of our equity method investees and from time to time will extend the payment terms for their trade receivables. For discussion of transactions and related receivable and payable balances between U. S. Steel and its investees, see Note 22.23.
Big River Steel
12.On October 31, 2019, a wholly owned subsidiary of U. S. Steel purchased a 49.9% ownership interest in Big River Steel at a purchase price of approximately $683 million in cash. U. S. Steel recorded an equity investment asset for Big River Steel of $710 million that includes approximately $27 million of transaction costs. On January 15, 2021, U. S. Steel purchased the remaining interest in Big River Steel for $723 million in cash and the assumption of approximately $50 million in liabilities. See Note 5 for further details.
Patriot Premium Threading Services, LLC
Patriot Premium Threading Services, LLC (Patriot) is located in Midland, Texas and provides oil country threading, accessory threading, repair services and rig site services to exploration and production companies located principally in the Permian Basin. During the fourth quarter of 2019, Patriot’s 50-50 joint venture partners, a wholly owned subsidiary of U. S. Steel and Butch Gilliam Enterprises, Inc. (BGE) amended the joint venture agreement. In accordance with the amended agreement, U. S. Steel will be entitled to receive distributions of 100% of Patriot’s earnings starting January 1, 2020 and will purchase BGE’s ownership interest in Patriot after a three-year period in exchange for certain fixed payments and payments equal to 10 percent of Patriot’s earnings before interest and taxes during that time period. The prepaid asset (recorded in other noncurrent assets) related to the future purchase of Patriot was $33 million at both year end 2020 and 2019. The liability (recorded in deferred credits and other noncurrent liabilities) related to the future purchase of Patriot was $6 million at both year end 2020 and 2019.
Patriot is classified as a variable interest entity because its economics are not proportional to the equal voting interests of its two joint venture partners. U. S. Steel is not the primary beneficiary because it does not direct the decisions that most significantly impact the economic performance of Patriot. These decisions include those related to sales of Patriot’s goods and services, its production planning and scheduling and its negotiation of procurement contracts.
At December 31, 2020 and 2019, U. S. Steel had other assets of approximately $28 million and $30 million, respectively, on its consolidated balance sheets related to Patriot. These assets were comprised primarily of our equity investment in Patriot which is classified in investments and other long-term receivables and an insignificant related party receivable for the sale of pipe to Patriot for threading services. The assets represent our maximum exposure to Patriot without consideration of any recovery that could be received if there were a sale of Patriot’s assets. Creditors of Patriot have no recourse to the general credit of U. S. Steel.
13. Property, Plant and Equipment
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| (In millions) | | Useful Lives | | 2020 | | 2019 |
| Land and depletable property | | — | | | $ | 237 | | | $ | 202 | |
| Buildings | | 35 years | | 1,154 | | | 1,105 | |
| Machinery and equipment | | | | | | |
| Steel producing | | 2-30 years | | 14,417 | | | 13,658 | |
| Transportation | | 3-40 years | | 282 | | | 280 | |
| Other | | 5-30 years | | 92 | | | 129 | |
| Information technology | | 5-6 years | | 796 | | | 787 | |
| Assets under finance lease | | 5-15 years | | 113 | | | 83 | |
| Construction in process | | — | | | 613 | | | 833 | |
| Total | | | | 17,704 | | | 17,077 | |
| Less accumulated depreciation and depletion | | | | 12,260 | | | 11,630 | |
| Net | | | | $ | 5,444 | | | $ | 5,447 | |
|
| | | | | | | | | | | |
| | | | | December 31, |
| (In millions) | | Useful Lives | | 2017 | | 2016 |
| Land and depletable property | | — |
| | $ | 208 |
| | $ | 204 |
|
| Buildings | | 35 years |
| | 1,109 |
| | 1,051 |
|
| Machinery and equipment | | | | | | |
| Steel producing | | 3-30 years |
| | 12,590 |
| | 11,773 |
|
| Transportation | | 3-40 years |
| | 239 |
| | 234 |
|
| Other | | 5-30 years |
| | 122 |
| | 121 |
|
| Information technology | | 5-6 years |
| | 782 |
| | 777 |
|
| Assets under capital lease | | 5-15 years |
| | 36 |
| | 36 |
|
| Total | | | | 15,086 |
| | 14,196 |
|
| Less accumulated depreciation and depletion | | | | 10,806 |
| | 10,217 |
|
| Net | | | | $ | 4,280 |
| | $ | 3,979 |
|
Amounts in accumulated depreciation and depletion for assets acquired under capitalfinance leases (including sale-leasebacks accounted for as financings) were $18$40 million and $16$27 million at December 31, 20172020 and 2016,2019, respectively.
13.14. Intangible Assets
Intangible assets are being amortized on a straight-line basis over their estimated useful lives and are detailed below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, 2020 | | As of December 31, 2019 |
| (In millions) | | Useful
Lives | | Gross
Carrying
Amount | | Accumulated Impairment (a) | | Accumulated
Amortization | | Net
Amount | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Amount |
| Customer relationships | | 22 Years | | $ | 132 | | | $ | 55 | | | $ | 77 | | | $ | 0 | | | $ | 132 | | | $ | 76 | | | $ | 56 | |
| Patents | | 10-15 Years | | 22 | | | 7 | | 10 | | | 5 | | | 22 | | | 8 | | | 14 | |
| Energy Contract | | 10 Years | | 54 | | | 0 | | | 5 | | | $ | 49 | | | 0 | | | 0 | | | 0 | |
| Other | | 4-20 Years | | 14 | | | 5 | | 9 | | | 0 | | | 14 | | | 9 | | | 5 | |
| Total amortizable intangible assets | | | | $ | 222 | | | $ | 67 | | | $ | 101 | | | $ | 54 | | | $ | 168 | | | $ | 93 | | | $ | 75 | |
(a) The impairment charge was the result of the quantitative impairment analysis of the welded tubular asset group for the period ended March 31, 2020. See Note 1 for further details. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of December 31, 2017 | | As of December 31, 2016 |
| (In millions) | | Useful
Lives | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Amount | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Amount |
| Customer relationships | | 22 Years | | $ | 132 |
| | $ | 64 |
| | $ | 68 |
| | $ | 132 |
| | $ | 59 |
| | $ | 73 |
|
| Patents | | 10-15 Years | | 22 |
| | 5 |
| | 17 |
| | 22 |
| | 3 |
| | 19 |
|
| Other | | 4-20 Years | | 15 |
| | 8 |
| | 7 |
| | 14 |
| | 6 |
| | 8 |
|
| Total amortizable intangible assets | | | | $ | 169 |
| | $ | 77 |
| | $ | 92 |
| | $ | 168 |
| | $ | 68 |
| | $ | 100 |
|
The carrying amount of acquired water rights with indefinite lives as of December 31, 20172020 and December 31, 20162019 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 quantitative impairment evaluation of its acquired water rights during the third quarter of 2017. Based on the results of the evaluation, the water rights were not impaired.
The research and development activities of the Company's acquired indefinite lived in-process research and development patents was completed during the fourth quarter of 2016 and the carrying amount of the patents is being amortized over the useful lives of the patents (approximately 10 years). As a result of the quantitative impairment evaluation of its in-process research and development patents during 2016, an impairment charge of approximately $14 million was recorded during 2016. Key assumptions used in the discounted cash flow analysis for the evaluation of the patents consisted of a combination of Level 2 and Level 3 inputs, which included future cash flow projections, a royalty rate of 5% and a discount rate of 17%.
Identifiable intangible assets with finite lives are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. During the fourth quarter of 2016, U. S. Steel completed a review of certain of its identifiable intangible assets with finite lives, primarily customer relationships with a carrying value of $73 million as of December 31, 2016, and determined that the assets were not impaired. There were no triggering events in 2017 that required a review for impairment.
Amortization expense was $9 million for the year ended December 31, 2017and $8 million for the year ended December 31, 2016. The estimated future amortization expense of identifiable intangible assets is $8 million in each year from 2018 to 2022.
14.15. 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) (collectively the Plans). 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, 2017.2017 and an additional 4,700,000 shares under the Omnibus Plan on April 28, 2020. 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 December 31, 2017,2020, there were 12,579,9846,092,033 shares available for future grants under the
Omnibus Plan. Generally, a share issued under the Omnibus Plan pursuant to an award other than a stock option will reduce the number of shares available under the Stock Plan by 1.731.78 shares. Also, sharesShares related to awards under either plan (i) that are forfeited, (ii) that terminate without shares having been issued or (iii) for which payment is made in cash or property other than shares, are again available for awards under the Omnibus Plan; provided, however, that sharesPlan. Shares delivered to U. S. Steel or withheld for purposes of satisfying the exercise price or tax withholding obligations shallare not be available for future awards. The purpose of the Plans is to attract, retain and motivate employees and non-employee directors of outstanding ability, and to align their interests with those of the stockholders of U. S. Steel. The Committee administers the plan pursuant to which theyPlans, and under the Omnibus Plan may make grants of stock options, restricted stock, restricted stock units (RSUs), performance awards, and other stock-based awards.
The following table summarizes the total stock-based compensation awards granted during the years 2017, 20162020, 2019 and 2015:2018:
|
| | | | | | | | | |
| | | Stock Options | | Restricted Stock Units | | TSR Performance Awards |
| 2017 Grants | | 647,780 |
| | 348,040 |
| | 169,850 |
|
| 2016 Grants | | 1,333,210 |
| | 1,120,332 |
| | 308,130 |
|
| 2015 Grants | | 1,638,540 |
| | 807,432 |
| | 273,560 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Restricted Stock Units | | TSR Performance Awards | | ROCE Performance Awards (a) |
| 2020 Grants | | 2,640,690 | | | 671,390 | | | 0 | |
| 2019 Grants | | 1,005,500 | | | 210,520 | | | 527,470 | |
| 2018 Grants | | 824,195 | | | 79,190 | | | 247,510 | |
(a) The ROCE awards granted in 2020 are not shown in the table because they were granted in cash.
Stock-based compensation expense
The following table summarizes the total compensation expense recognized for stock-based compensation awards:
| | | | | | | | | | | | | | | | | | | | |
| (In millions, except per share amounts) | | Year Ended December 31, 2020 | | Year Ended December 31, 2019 | | Year Ended December 31, 2018 |
| Stock-based compensation expense recognized: | | | | | | |
| Cost of sales | | $ | 8 | | | $ | 9 | | | $ | 11 | |
| Selling, general and administrative expenses | | 18 | | | 17 | | | 21 | |
| Decrease in net income | | 26 | | | 26 | | | 32 | |
| Decrease in basic earnings per share | | 0.13 | | | 0.15 | | | 0.14 | |
| Decrease in diluted earnings per share | | 0.13 | | | 0.15 | | | 0.13 | |
|
| | | | | | | | | | | | |
| (In millions, except per share amounts) | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 |
| Stock-based compensation expense recognized: | | | | | | |
| Cost of sales | | $ | 10 |
| | $ | 9 |
| | $ | 14 |
|
| Selling, general and administrative expenses | | 17 |
| | 13 |
| | 23 |
|
| Total | | 27 |
| | 22 |
| | 37 |
|
Related deferred income tax benefit (a) | | — |
| | — |
| | 13 |
|
| Decrease in net income | | $ | 27 |
| | $ | 22 |
| | $ | 24 |
|
| Decrease in basic earnings per share | | 0.15 |
| | 0.14 |
| | 0.16 |
|
| Decrease in diluted earnings per share | | 0.15 |
| | 0.14 |
| | 0.16 |
|
(a)Amounts for 2017 and 2016 do not reflect a tax benefit as a result of a full valuation allowance on our domestic deferred tax assets.
As of December 31, 2017,2020, total future compensation cost related to nonvested stock-based compensation arrangements was $15$12 million and the average period over which this cost is expected to be recognized is approximately 1020 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. The 2017, 2016 and 2015 awardsAwards generally vest ratably over a three-yearthree-year service period and have a term of ten years.years. Stock options are generally issued at the 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 were no stock options granted in 2020, 2019 and 2018.
|
| | | | | | | | | | | | |
Black-Scholes Assumptions (a) | | 2017 Grants | | 2016 Grants | | 2015 Grants |
| Grant date price per share of option award | | $ | 36.94 |
| | $ | 14.78 |
| | $ | 24.74 |
|
| Exercise price per share of option award | | $ | 36.94 |
| | $ | 14.78 |
| | $ | 24.74 |
|
| Expected annual dividends per share | | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
|
| Expected life in years | | 5.0 |
| | 5.0 |
| | 5.0 |
|
| Expected volatility | | 57 | % | | 53 | % | | 47 | % |
| Risk-free interest rate | | 2.0 | % | | 1.5 | % | | 1.6 | % |
| Average grant date fair value per share of unvested option awards as calculated from above | | $ | 17.28 |
| | $ | 6.24 |
| | $ | 10.02 |
|
(a) The assumptions represent a weighted-average for all grants during the year.
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 following table shows a summary of the status and activity of stock options for the year ended December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted-
Average
Exercise Price
(per share) | | Weighted-
Average
Remaining
Contractual Term
(in years) | | Aggregate
Intrinsic
Value
(in millions) |
| Outstanding at January 1, 2020 | | 2,351,831 | | | $ | 27.08 | | | | | |
| Granted | | 0 | | | $ | 0 | | | | | |
| Exercised | | (22,849) | | | $ | 14.78 | | | | | |
| Forfeited or expired | | (282,746) | | | $ | 36.10 | | | | | |
| Outstanding at December 31, 2020 | | 2,046,236 | | | $ | 25.98 | | | 3.72 | | $ | 1 | |
| Exercisable at December 31, 2020 | | 2,046,236 | | | $ | 25.98 | | | 3.72 | | $ | 1 | |
| Exercisable and expected to vest at December 31, 2020 | | 2,046,236 | | | $ | 25.98 | | | 3.72 | | $ | 1 | |
|
| | | | | | | | | | | | | |
| | | Shares | | Weighted-
Average
Exercise Price
(per share) | | Weighted-
Average
Remaining
Contractual Term
(in years) | | Aggregate
Intrinsic
Value
(in millions) |
| Outstanding at January 1, 2017 | | 5,693,211 |
| | $ | 29.94 |
| | | | |
| Granted | | 647,780 |
| | $ | 36.94 |
| | | | |
| Exercised | | (879,942 | ) | | $ | 23.07 |
| | | | |
| Forfeited or expired | | (848,109 | ) | | $ | 48.00 |
| | | | |
| Outstanding at December 31, 2017 | | 4,612,940 |
| | $ | 28.92 |
| | 5.25 | | $ | 48 |
|
| Exercisable at December 31, 2017 | | 3,177,505 |
| | $ | 30.86 |
| | 3.97 | | $ | 31 |
|
| Exercisable and expected to vest at December 31, 2017 | | 4,369,238 |
| | $ | 29.12 |
| | 5.09 | | $ | 45 |
|
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (difference between our closing stock price on the last trading day of 20172020 and the exercise price, multiplied by the number of in-the-money options). Intrinsic value changes are a function of the fair market value of our stock.
The total intrinsic value of stock options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the option) was $11immaterial during the year ended December 31, 2020 and December 31, 2019 and $27 million during the year ended December 31, 2017, $13 million during the year ended December 31, 2016 and immaterial during the year ended December 31, 2015.2018. The total amount of cash received by U. S. Steel from the exercise of options during the year ended December 31, 20172020 and December 31, 2016,2019, was $20 million and $35 million, respectively,an immaterial amount and the related net tax benefit realized from the exercise of these options was immaterial.an immaterial amount in 2020 and 2019.
Stock awards
Compensation expense for nonvested stock awards is recorded over the vesting period based on the fair value at the date of grant.
RSUs awarded as part of annual grants generally vest ratably over 3 years.three years. Their fair value is the market price of the underlying common stock on the date of grant. RSUs granted in connection with new-hire or retentions grantsretention awards generally cliff vest three years from the date of the grant.
Total shareholder return (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. For the 2018 awards, TSR is calculated over the full three-year performance period. For the 2020 and 2019 awards, TSR is calculated as follows: 20 percent for each year in the three-year performance period meetsand 40 percent for the full three-year period. TSR performance criteria. Performance awards canmay vest and payout 50 percent at between zero and 200the threshold level, 100 percent of at the target award.level and 200 percent at the maximum level for payouts. Payment for performance in between the threshold percentages will be interpolated. The fair value of the performance awards is calculated using a Monte-Carlo simulation.
Beginning in 2014Performance awards based on the Committee added return on capital employed (ROCE) as a second performance measure for the performance awards as permitted under the terms of the Plans.metric were granted in cash in 2020, and in equity in 2019 and 2018. ROCE awards granted will be measured on a weighted average basis of the Company’s consolidated worldwide earnings (loss) before interest and income taxes, as adjusted, divided by consolidated worldwide capital employed, as adjusted, over a three year period.
Weighted average ROCE is calculated based on the ROCE achieved in the first, second and third years of the performance period, weighted at 20 percent, 30 percent and 50 percent, respectively. The ROCE awards will payout 50 percent at the threshold level, 100 percent at the target level and 200 percent at the maximum level. AmountsPayouts for performance in between the threshold percentages will be interpolated.
Compensation expense associated with the ROCE awards will be contingent based upon the achievement of the specified ROCE performance goals and will be adjusted on a quarterly basis to reflect the probability of achieving the ROCE metric.
ROCE performance awards may vest at the end of a three-yearthree-year performance period contingent upon meeting ROCE performance goals approved by the Committee. The fair value of the ROCE performance awards is the average market price of the underlying common stock on the date of grant. Beginning in 2015, ROCE awards were granted and can be paid in cash if the ROCE performance goals are achieved.
The following table shows a summary of the performance awards outstanding as of December 31, 2017,2020, and their fair market value on the respective grant date:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Performance Period | | Fair Value
(in millions) | | Minimum
Shares | | Target
Shares | | Maximum
Shares |
| 2020 - 2022 | | $ | 5 | | | 0 | | | 671,390 | | | 1,342,780 | |
| 2019 - 2021 | | $ | 16 | | | 0 | | | 632,217 | | | 1,264,434 | |
| 2018 - 2020 | | $ | 13 | | | 0 | | | 281,693 | | | 563,386 | |
|
| | | | | | | | | | | | | |
| Performance Period | | Fair Value
(in millions) | | Minimum
Shares | | Target
Shares | | Maximum
Shares |
| 2017 - 2019 | | $ | 4 |
| | — |
| | 106,440 |
| | 212,880 |
|
| 2016 - 2018 | | $ | 2 |
| | — |
| | 206,401 |
| | 412,802 |
|
| 2015 - 2017 | | $ | 5 |
| | — |
| | 202,690 |
| | 405,380 |
|
The following table shows a summary of the status and activity of nonvested stock awards for the year ended December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Restricted
Stock Units | | TSR Performance
Awards (a) | | ROCE Performance
Awards (a) | | Total | | Weighted-
Average
Grant-Date
Fair Value |
| Nonvested at January 1, 2020 | | 1,589,824 | | | 350,317 | | | 692,843 | | | 2,632,984 | | | $ | 30.72 | |
| Granted | | 2,640,690 | | | 671,390 | | | 0 | | | 3,312,080 | | | 8.69 | |
| Vested | | (527,534) | | | 0 | | | 0 | | | (527,534) | | | 30.55 | |
Performance adjustment factor (b) | | 0 | | | 0 | | | (101,587) | | | (101,587) | | | 34.82 | |
| Forfeited or expired | | (187,255) | | | (1,556) | | | (26,107) | | | (214,918) | | | 19.00 | |
| Nonvested at December 31, 2020 | | 3,515,725 | | | 1,020,151 | | | 565,149 | | | 5,101,025 | | | $ | 16.85 | |
|
| | | | | | | | | | | | | | | | |
| | | Restricted
Stock Units | | TSR Performance
Awards (a) | | ROCE Performance
Awards (a) | | Total | | Weighted-
Average
Grant-Date
Fair Value |
| Nonvested at January 1, 2017 | | 1,593,155 |
| | 751,579 |
| | 205,453 |
| | 2,550,187 |
| | $ | 18.58 |
|
| Granted | | 348,040 |
| | 169,850 |
| | — |
| | 517,890 |
| | 37.68 |
|
| Vested | | (533,371 | ) | | — |
| | — |
| | (533,371 | ) | | 21.15 |
|
Performance adjustment factor (b) | | — |
| | (220,943 | ) | | (205,453 | ) | | (426,396 | ) | | 22.91 |
|
| Forfeited or expired | | (219,078 | ) | | (184,955 | ) | | — |
| | (404,033 | ) | | 24.59 |
|
| Nonvested at December 31, 2017 | | 1,188,746 |
| | 515,531 |
| | — |
| | 1,704,277 |
| | $ | 21.08 |
|
(a)The number of shares shown for the performance awards is based on the target number of share awards.
(b)Consists of adjustments to vested performance awards to reflect actual performance. The adjustments were required since the original grants of the awards were at 100 percent of the targeted amounts.amounts and the awards vested at greater than target.
The following table presents information on RSUs and performance awards granted:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Number of awards granted | | 3,312,080 | | | 1,743,490 | | | 1,150,895 | |
| Weighted-average grant-date fair value per share | | $ | 8.69 | | | $ | 24.46 | | | $ | 41.65 | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Number of awards granted | | 517,890 |
| | 1,428,462 |
| | 1,080,992 |
|
| Weighted-average grant-date fair value per share | | $ | 37.68 |
| | $ | 13.39 |
| | $ | 24.63 |
|
During the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, the total fair value of shares vested was $11$16 million,, $17 $21 million,, and $14$14 million,, respectively.
15.16. Derivative Instruments
U. S. Steel is exposed to foreign currency exchange rate risks as a result ofin our European operations. USSE’s revenues are primarily in euros and costs are primarily in euros and U.S. dollars and euros. In addition, cash requirements may be funded by intercompany loans, creating intercompany monetary assets and liabilities in currencies other than the functional currency of the entities involved, and affect income when remeasured at the end of each period.
(USD). U. S. Steel uses euroforeign exchange forward sales contracts (foreign exchange forwards) with maturities no longer than 12 months to exchange euros for U.S. dollarsUSD 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 Consolidated Balance Sheet. U. S. Steel hasdid not electeddesignate euro foreign exchange forwards entered into prior to designate these euro forward sales contractsJuly 1, 2019, as hedges. Therefore,hedges; therefore, changes in their fair value arewere recognized immediately in the Consolidated Statements of Operations.
As of December 31, 2017,Operations (mark-to-market accounting). For those contracts, U. S. Steel heldrecognized changes in fair value immediately through earnings until all of the contracts matured in July 2020. U. S. Steel elected cash flow hedge accounting for euro forward sales contracts with a total notional value of approximately $273 million.foreign exchange forwards prospectively effective July 1, 2019. Accordingly, gains and losses for euro foreign exchange forwards entered into after July 1, 2019 are 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 forward sales contractsforwards from several counterparties.
Additionally,In 2018, U. S. Steel usesentered 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 12 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. All of these contracts had matured as of December 2020.
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 certain nonferrous metalstin used in the production process. During 2017, 2016 and 2015, theGenerally, forward physical purchase contracts for natural gas and nonferrous metals
qualifiedqualify for the normal purchasespurchase and normal sales exemptionexceptions described in ASC Topic 815 and wereare not subject to mark-to-market accounting.
The following summarizes the financial statement location and amounts of the fair values related to derivatives included in U. S. Steel’s consolidatedSteel also uses financial statements asswaps to protect from the commodity price risk associated with purchases of December 31, 2017natural gas, zinc, tin and 2016:
electricity (commodity purchase swaps). We elected cash flow hedge accounting for domestic commodity purchase swaps for natural gas, zinc and tin and use mark-to-market accounting for electricity swaps used in our domestic operations and for commodity purchase swaps used in our European operations.
|
| | | | | | | | | | |
| | | | | Fair Value |
| (In millions) | | Balance Sheet
Location | | December 31, 2017 | | December 31, 2016 |
| Foreign exchange forward contracts | | Accounts receivable | | $ | — |
| | $ | 9 |
|
| Foreign exchange forward contracts | | Accounts payable | | $ | 11 |
| | $ | — |
|
The following summarizesFrom time to time, we enter into financial swaps that are used to partially manage the financial statement locationsales price of certain hot-rolled coil and amounts of the gainsiron ore pellet sales (sales swaps). We elected cash flow hedge accounting for hot-rolled coil sales swaps effective January 1, 2018 and losses related to derivatives included in U. S. Steel’s consolidated financial statements for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | | | | |
| | | | | Amount of (Loss) Gain |
| (In millions) | | Statement of Operations
Location | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 |
| Foreign exchange forward contracts | | Other financial costs | | $ | (23 | ) | | $ | 7 |
| | $ | 39 |
|
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 euro forwardforeign exchange forwards, commodity purchase swaps and sales contractsswaps was determined using Level 2 inputs, which are defined as “significant"significant other observable”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 December 31, 2020 and December 31, 2019:
| | | | | | | | | | | | | | | | | |
| Hedge Contracts | Classification | | December 31, 2020 | | December 31, 2019 |
| Natural gas (in mmbtus) | Commodity purchase swaps | | 38,801,400 | | 56,613,200 |
| Tin (in metric tons) | Commodity purchase swaps | | 812 | | 145 |
| Zinc (in metric tons) | Commodity purchase swaps | | 25,361 | | 9,819 |
| Electricity (in megawatt hours) | Commodity purchase swaps | | 760,320 | | | 0 |
| Hot-rolled coils (in tons) | Sales swaps | | 120,000 | | | 0 |
| Foreign currency (in millions of euros) | Foreign exchange forwards | | € | 242 | | | € | 282 | |
| Foreign currency (in millions of CAD) | Foreign exchange forwards | | $ | 0 | | | $ | 25 | |
16.The following summarizes the fair value amounts included in our Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019:
| | | | | | | | | | | | | | | | | |
| (In millions) Designated as Hedging Instruments | Balance Sheet Location | | December 31, 2020 | | December 31, 2019 |
| Sales swaps | Accounts payable | | $ | 26 | | | $ | 0 | |
| Sales swaps | Other long-term liabilities | | 0 | | | 0 | |
| Commodity purchase swaps | Accounts receivable | | 5 | | | 1 | |
| Commodity purchase swaps | Accounts payable | | 10 | | | 17 | |
| Commodity purchase swaps | Investments and long-term receivables | | 0 | | | 1 | |
| Commodity purchase swaps | Other long-term liabilities | | 0 | | | 7 | |
| Foreign exchange forwards | Accounts payable | | 18 | | | 1 | |
| Foreign exchange forwards | Other long-term liabilities | | 0 | | | 0 | |
| | | | | |
| Not Designated as Hedging Instruments | | | | | |
| Commodity purchase swaps | Investments and long-term receivables | | 1 | | | 4 | |
The table below summarizes the effect of hedge accounting on AOCI and amounts reclassified from AOCI into earnings for 2020, 2019, and 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (Loss) Gain on Derivatives in AOCI | | | | Amount of Loss Recognized in Income |
| (In millions) | | 2020 | | 2019 | | 2018 | | Location of Reclassification from AOCI (a) | | 2020 | | 2019 | | 2018 |
| Sales swaps | | $ | (26) | | | $ | 1 | | | $ | 0 | | | Net sales (b) | | $ | 0 | | | $ | (1) | | | $ | (13) | |
| Commodity purchase swaps | | 17 | | | (6) | | | (15) | | | Cost of sales (c) | | (24) | | | (19) | | | (8) | |
| Foreign exchange forwards | | (17) | | | 1 | | | (2) | | | Cost of sales | | (7) | | | (1) | | | 0 | |
(a) The earnings impact of our hedging instruments substantially offsets the earnings impact of the related hedged items resulting in immaterial ineffectiveness.
(b) U. S. Steel 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.
(c) Costs for commodity purchase swaps are recognized in cost of sales as products are sold.
The table below summarizes the impact of derivative activity where hedge accounting has not been elected on our Consolidated Statements of Operations for 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount of (Loss) Gain Recognized in Income |
| (In millions) | Consolidated Statement of Operations Location | | 2020 | | 2019 | | 2018 |
Sales swaps (a) | Net sales | | $ | 0 | | | $ | 0 | | | $ | (1) | |
| Commodity purchase swaps | Cost of sales | | (1) | | | 0 | | | 0 | |
Foreign exchange forwards (b) | Other financial costs | | 0 | | | 17 | | | 24 | |
(a) U. S. Steel 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.
(b) U. S. Steel elected hedge accounting for foreign exchange forwards to exchange USD for CAD and for euro foreign exchange forwards prospectively effective July 1, 2019.
At current contract values, $49 million in AOCI as of December 31, 2020 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 12 months, the maximum duration for sales swaps is 12 months and the maximum derivative contract duration for commodity purchase swaps where hedge accounting was not elected is 25 months.
17. Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, |
| (In millions) | | Interest
Rates % | | Maturity | | 2020 | | 2019 |
| 2037 Senior Notes | | 6.650 | | 2037 | | $ | 350 | | | $ | 350 | |
| 2026 Senior Notes | | 6.250 | | 2026 | | 650 | | | 650 | |
| 2026 Senior Convertible Notes | | 5.000 | | 2026 | | 350 | | | 350 | |
| 2025 Senior Notes | | 6.875 | | 2025 | | 750 | | | 750 | |
| 2025 Senior Secured Notes | | 12.000 | | 2025 | | 1,056 | | | 0 | |
| Export-Import Credit Agreement | | Variable | | 2021 | | 180 | | | 0 | |
| Environmental Revenue Bonds | | 4.875 - 6.750 | | 2024 - 2050 | | 717 | | | 620 | |
| Finance leases and all other obligations | | | | 2021-2029 | | 81 | | | 66 | |
| ECA Credit Agreement | | Variable | | 2031 | | 113 | | | 0 | |
| Credit Facility Agreement, $2.0 billion | | Variable | | 2024 | | 500 | | | 600 | |
| UPI Amended Credit Facility | | Variable | | 2020 | | 0 | | | 0 | |
| USSK Credit Agreement | | Variable | | 2023 | | 368 | | | 393 | |
| USSK credit facilities | | Variable | | 2021 | | 0 | | | 0 | |
| Total debt | | | | | | 5,115 | | | 3,779 | |
| Less unamortized discount and debt issuance costs | | | | | | 228 | | | 138 | |
| Less short-term debt and long-term debt due within one year | | | | | | 192 | | | 14 | |
| Long-term debt | | | | | | $ | 4,695 | | | $ | 3,627 | |
|
| | | | | | | | | | | | |
| | | | | | | December 31, |
| (In millions) | | Interest
Rates % | | Maturity | | 2017 | | 2016 |
| 2037 Senior Notes | | 6.65 | | 2037 | | $ | 350 |
| | $ | 350 |
|
| 2025 Senior Notes | | 6.875 | | 2025 | | 750 |
| | — |
|
| 2022 Senior Notes | | 7.50 | | 2022 | | — |
| | 400 |
|
| 2021 Senior Secured Notes | | 8.375 | | 2021 | | 780 |
| | 980 |
|
| 2021 Senior Notes | | 6.875 | | 2021 | | — |
| | 200 |
|
| 2020 Senior Notes | | 7.375 | | 2020 | | 432 |
| | 432 |
|
| 2018 Senior Notes | | 7.00 | | 2018 | | — |
| | 161 |
|
| Environmental Revenue Bonds | | 5.750 - 6.875 | | 2019 - 2042 | | 400 |
| | 447 |
|
| Recovery Zone Facility Bonds | | 6.75 | | 2040 | | — |
| | 70 |
|
| Fairfield Caster Lease | | | | 2022 | | 24 |
| | 28 |
|
| Other capital leases and all other obligations | | | | 2019 | | 1 |
| | 1 |
|
| Third Amended and Restated Credit Agreement | | Variable | | 2020 | | — |
| | — |
|
| USSK Revolver | | Variable | | 2021 | | — |
| | — |
|
| USSK credit facilities | | Variable | | 2018 | | — |
| | — |
|
| Total debt | | | | | | 2,737 |
| | 3,069 |
|
| Less unamortized discount and debt issuance costs | | | | | | 34 |
| | 38 |
|
| Less short-term debt and long-term debt due within one year | | | | | | 3 |
| | 50 |
|
| Long-term debt | | | | | | $ | 2,700 |
| | $ | 2,981 |
|
On September 30, 2020, U. S. Steel and its subsidiary, United States Steel International, Inc., as the borrowers, entered into an Export-Import Transaction Specific Loan and Security Agreement (Export-Import Credit Agreement) with the lenders party thereto from time to time and PNC Bank, National Association (PNC), as agent for the lenders, under which it borrowed $250 million, and received proceeds of approximately $240 million, net of transaction fees of approximately $10 million. The Export-Import Credit Agreement provides for up to $250 million of term loans, which mature on August 30, 2021, unless sooner terminated or extended by the borrowers to July 30, 2022. The maturity of the term loans under the Export-Import Credit Agreement may be extended only if the loan facility continues to be eligible for coverage (at a 95% level) under the Ex-Im Guarantee (as defined in the Export-Import Credit Agreement) and each lender consents to such extension. Interest on the term loans will accrue at a contract rate of 2.50% plus the applicable LIBOR rate. The obligations under the Export-Import Credit Agreement are secured by receivables (collateral) under certain iron ore pellet export contracts. The Export-Import Credit Agreement permits voluntary prepayments and requires mandatory prepayments with net cash proceeds of dispositions of collateral. The Export-Import Credit Agreement also contains certain customary covenants and restrictions, including restrictions on sale of assets, restrictions on incurring liens upon collateral and a requirement that the borrowers comply with the Ex-Im Borrower Agreement (entered into on September 30, 2020 by the borrowers in favor of Ex-Im Bank, the lenders and PNC, as agent for the lenders).
Issuance of
2025 Senior Secured Notes due 2025
In August 2017,On May 29, 2020, U. S. Steel issued $750 million$1.056 billion aggregate principal amount of 6.875%12.000% Senior Secured Notes due August 15,June 1, 2025 (2025 Senior Secured Notes). in a 144A private transaction exempt from the registration requirements of the Securities Act of 1933, as amended. The notes were issued at a price equal to 94.665% of their face value. U. S. Steel received net proceeds from the offering of approximately $737$977 million after fees of approximately $13$23 million related to the underwriting and third party expenses. The net proceeds from the issuance of the 2025
Senior Notes, together with cash on hand, were used to redeem portions of our outstanding senior notes as discussed below.
The 2025 Senior Notes are senior and unsecured obligations that rank equally in right of payment with all of our other existing and future senior notes. U. S. Steel will pay interest on the notes semi-annually in arrears on February 15thJune 1 and August 15thDecember 1 of each year, commencingbeginning on February 15, 2018.
SimilarDecember 1, 2020. The notes are fully and unconditionally guaranteed on a senior secured basis by all of our existing and future direct and indirect material domestic subsidiaries (other than certain subsidiaries excluded in the indenture). The notes and notes guarantees are secured by first priority-liens, subject to our other senior notes, the indenture governing the 2025 Senior Notes restricts our ability to create certainpermitted liens, to enter into sale leaseback transactions and to consolidate, merge, transfer or sell all, oron substantially all of our assets. It also contains provisions requiringU. S. Steel’s domestic assets, other than certain excluded assets per the purchaseterms of the 2025 Senior Notes upon a changenotes indenture and exclusive of controlthe collateral required under certain specified circumstances, as well as other customary provisions.the Credit Facility Agreement.
U. S. SteelThe Company may redeem the 2025 Senior Secured Notes, in whole or in part, at ourits option at any time, or from time to time, on or after August 15, 2020June 1, 2022 at the redemption price for such notes set forth below as a percentage of the principal amount, plus accrued and unpaid interest if any, to, but excluding, the redemption date, if redeemed during the twelve-month period beginning August 15on June 1st of each of the years indicated below:below.
| | | | | |
| Year | Redemption Price |
| 2022 | 106 | % |
| 2023 | 103 | % |
| 2024 and thereafter | 100 | % |
|
| | |
| Year | Redemption Price |
| 2020 | 103.438 | % |
| 2021 | 101.719 | % |
| 2022 and thereafter | 100.000 | % |
At any time priorPrior to August 15, 2020, U. S. SteelJune 1, 2022, the Company may also redeem the 2025 Senior Notes, at our option, in whole or in part, or from time to time, at a price equal to the greater of 100 percent of the principal amount of the 2025 Senior Notes to be redeemed, or the sum of the present value of the redemption price of the 2025 Senior Notes if they were redeemed on August 15, 2020 plus interest payments due through August 15, 2020 discounted to the date of redemption at the applicable treasury yield, plus 50 basis points and accrued and unpaid interest, if any.
At any time prior to August 15, 2020 we may also purchase up to 35% of the original aggregate principal amount of the 2025 Senior Secured Notes at 106.875%,with the net cash proceeds of one or more equity offerings for a price of 112.000% of principal amount of the 2025 Senior Secured Notes plus accrued and unpaid interest, if any, up to but excluding the applicable date of redemption, withredemption. Upon the occurrence of certain assets sales, we are required to apply asset sale proceeds from equity offerings.
towards investments in assets that constitute Notes collateral. If all asset sale proceeds are not invested within one year, or such longer period as permitted by the indenture, the Company may be required to offer to repurchase the 2025 Senior Note Redemption
In September 2017, U. S. Steel redeemed $161 millionSecured Notes up to an amount of 7.00% Senior Notes due 2018, $200 millionasset sale proceeds that remain uninvested at a price of 6.875% Senior Notes due 2021, and $400 million100% of 7.50% Senior Notes due 2022 in accordance with the redemption provisions under the indentures governing these notes. The aggregate redemption cost of approximately $808 million included $761 million for the remaining principal balances, $21 million inamount thereof, plus accrued and unpaid interest if any to the date of such purchase. The indenture pursuant to which the 2025 Senior Secured Notes were issued contains limitations on the incurrence of additional debt secured by liens and $26 million in redemption premiums,additional customary covenants and other obligations.
Export Credit Agreement
Funding of which approximately $4 million was a make-whole premium.
In December 2017,U. S. Steel’s vendor supported Export Credit Agreement (ECA) occurred on February 19, 2020. U. S. Steel redeemed $200had borrowed $113 million of 8.375% Senior Secured Notes due 2021.The aggregate redemption cost of approximately $227 million included $200 million forunder the present value of the remaining principal balances, $8 million in accrued and unpaid interest and $19 million in redemption premiums, of which all was considered a make-whole premium.
Redemption of Recovery Zone Facility Bonds
On March 10, 2017, U. S. Steel announced the permanent shutdown of the No. 6 Quench & Temper Mill at Lorain Tubular Operations in Lorain, Ohio. Under the terms of the Trust Indenture datedECA as of December 1, 2010, between31, 2020. Loan repayments start six months after the Lorain County Port Authoritystarting point of credit as defined in the loan agreement with a total repayment term up to eight years. Loan availability and repayment terms are subject to certain customary covenants and events of default. The Bank of New York Mellon Trust Company, N.A., as Trustee (the Indenture), this action and our decision to relocate the Lorain No. 6 Quench & Temper equipment triggered an Extraordinary Mandatory Redemptionpurpose of the Lorain County Port Authority Recovery ZoneECA is to finance equipment purchased for the endless casting and rolling facility at the Mon Valley Works facility in Braddock, Pennsylvania.
Credit Facility Revenue Bonds (the Recovery Zone Bonds) and accordingly required U. S. Steel to redeem the Recovery Zone Bonds and repay in full the principal amount plus accrued interest. In accordance with the termsAgreement
As of the Indenture, U. S. Steel paid in full all amounts dueDecember 31, 2020, there was $505 million drawn under the Indenture, comprised of $70 million principal and accrued interest of approximately $2 million, on April 27, 2017.
Third$2.0 billion Fifth Amended and Restated Credit Facility Agreement
On July 27, 2015, the Company entered into a five-year revolving credit facility (Third Amended and Restated Credit (Credit Facility Agreement) replacing the Company's former $875, of which $5 million facility agreement, and concurrently terminated the Receivables Purchase Agreement. The Third Amended and Restated Credit Agreement increased the amountwas utilized for letters of the facility to $1.5 billion. As of both December 31, 2017 and 2016, there were no amounts drawn on the Third Amended and Restated Credit Agreement.credit. 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 Third Amended and Restated Credit Facility Agreement is less than the greater of 10%10 percent of the total aggregate commitments or $150and $200 million. Based on the most recent four quarters as of December 31, 2017, we2020, the Company would not have met this covenant. If we are unable to meet this covenant in future periods,the fixed charge coverage ratio test; therefore, the amount available to the Company under this facility would beis effectively reduced by $150$200 million. In addition, since the value of our inventory and trade accounts receivable less specified reserves calculated in accordance with the Credit Facility Agreement do not support the full amount of the facility at December 31, 2020, the amount available to the Company under this facility was further reduced by $351 million. The availability under the Credit Facility Agreement was $944 million as of December 31, 2020.
The Third Amended and Restated Credit Facility Agreement provides for borrowings at interest rates based on defined, short-term market rates plus a spreadmargin 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 Third Amended and Restated Credit Facility Agreement expires in July 2020.October 2024. 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 Third Amended and Restated Credit Facility Agreement. Borrowings are secured by liens on certain domesticNorth American inventory and trade accounts receivable. Availability under this facility may be impacted by additional footprint decisions that are made to the extent the value of the collateral pool of inventory and accounts receivable that support our borrowing availability are reduced.
The Third AmendedCredit Facility Agreement has customary representations and Restatedwarranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition that is not disclosed in our last published financial results. The facility also has customary defaults, including a cross-default to material indebtedness of U. S. Steel and our subsidiaries.
On September 30, 2020, U. S. Steel entered into an Amendment No. 1 (the “Amendment”) to the Credit Facility Agreement permits incurrence of additional secured debt upwith the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, to 15% of Consolidated Net Tangible Assets.permit U. S. Steel and United States Steel International Inc. to enter into, and grant the applicable collateral pursuant to, the Export-Import Credit Agreement.
U. S. Steel Košice (USSK) credit facilities
At both December 31, 2017 and 2016,2020, USSK had noborrowings of €300 million (approximately $368 million) under its €200€460 million (approximately $240 million and $210 million, respectively) unsecured$564 million) revolving credit facility (the USSK(USSK Credit Agreement). At December 31, 2019, USSK had borrowings of €350 million (approximately $393 million) under its €460 million (approximately $517 million) revolving credit facility. The USSK Credit Agreement contains certain USSK specific financial covenants including maximum Leverage, maximum Net Debta minimum subordinated intercompany indebtedness and stockholders' equity to Tangible Net Worth,assets ratio and minimum Interest Coverage ratios as defined in the USSK Credit agreement.net debt to EBITDA ratio. The covenants are measured semi-annually at June and December each year for the period covering the last twelve calendar months.months, with the first net debt to EBITDA measurement occurring at June 2021. USSK must maintain a net debt to EBITDA ratio of less than 6.5 as of June 30, 2021 and 3.5 for semi-annual measurements starting December 31, 2021. If covenant compliance requirements are not met and the covenants are not amended or waived, noncompliance may result in an event of default, in which case USSK may not draw onupon the facility, and the majority lenders, as defined in the USSK Credit Agreement, if it does not comply withmay cancel any and all commitments, and/or accelerate full repayment of the financial covenants until the next measurement date. At both December 31, 2017 and 2016, USSK had full availabilityany or all amounts outstanding under the USSK Credit Agreement. Currently,An event of default under the USSK Credit Agreement expirescould also result in July 2020. an event of default under the Credit Facility Agreement.
The USSK Credit Agreement permits one additional one-year extensioncontains customary representations and warranties, terms and conditions, including, as a condition to borrowing, that it met certain financial covenants since the final maturitylast measurement date, atand that all such representations and warranties are true and correct, in all material respects, on the mutual consentdate of the borrowing, and representations as to no material adverse change in our business or financial condition since December 31, 2017. The USSK Credit Facility Agreement also contains customary events of default, including a cross-default upon acceleration of material indebtedness of USSK and its lenders. On January 22, 2018 USSK's lenders confirmed the second maturity extension request to July 2021 under the USSK Credit Agreement.subsidiaries.
At December 31, 2017,2020, USSK had no0 borrowings under its €40€20 million and €10 million unsecured credit facilities (collectively approximately $60$37 million) and the availability was approximately $57$28 million due to approximately $3$9 million of customs and other guarantees outstanding. At December 31, 2016, USSK had no borrowings under its €40 million and €10 million unsecured credit facilities (collectively approximately $53 million) and the availability was approximately $51 million due to approximately $2 million of customs and other guarantees outstanding. On October 27, 2017, USSK entered into an amendment to its €10 million unsecured credit agreement to extend the agreement's final maturity date from December 2017 to December 2018. The agreement also permits one additional one-year extension to the final maturity date at the mutual consent of USSK and its lender.
Each of these facilities bear interest at the applicable inter-bank offershort-term rate market rates plus a margin and contain customary terms and conditions.
USS-POSCO Industries Credit Facility
The USS-POSCO Industries (UPI) Amended Credit Facility agreement was terminated on July 17, 2020 and the outstanding borrowings were repaid using cash on hand. Upon termination of the UPI Amended Credit Facility, UPI was added as a subsidiary guarantor to the Credit Facility Agreement, which increased the amount of collateral and availability under the Credit Facility Agreement.
Change in control event
If there is a change in control of U. S. Steel: (a) debt obligations totaling $2,312$4,317 million as of December 31, 2017 (including the Senior Notes and Senior Secured Notes)2020 may be declared due and payable; and (b) the Third Amended and Restated Credit Facility Agreement and USSK’s €200 million Revolving Credit Agreementthe 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 Works slab caster for $26 million or provide a letter of credit to secure the remaining obligation.payable.
Debt Maturities – Aggregate maturities of debt are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Later
Years | | Total |
| $ | 196 | | | $ | 22 | | | $ | 379 | | | $ | 568 | | | $ | 1,813 | | | $ | 2,137 | | | $ | 5,115 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Later
Years | | Total |
| $ | 3 |
| | $ | 59 |
| | $ | 435 |
| | $ | 784 |
| | $ | 10 |
| | $ | 1,446 |
| | $ | 2,737 |
|
17.18. Pensions and Other Benefits
U. S. Steel has defined contribution or multi-employer retirement benefits for more than three-quarters of its employees in the United States and non-contributory defined benefit pension plans covering the remaining employees. Benefits under the defined benefit pension plans are based upon years of service and final average pensionable earnings, or a minimum benefit based upon years of service, whichever is greater. In addition, pension benefits for most non-represented employees under these plans are based upon a percent of total career pensionable earnings. Effective December 31, 2015, non-represented participants in the defined benefit plan no longer accrue additional benefits under the plan. For those non-represented employees without defined benefit coverage (defined benefit pension plan was closed to new participants in 2003) and those for which the defined benefit plan was frozen, the Company also provides in the defined contribution plans (401(k) plans) a retirement account benefit based on salary and attained age. Most non-represented employees also participate in defined contributionthe 401(k) plans (401(k) plans) whereby the Company matches a certain percentage of salary based on the amount contributed by the participant. At December 31, 2017,2020, more than two-thirds of U. S. Steel’s represented employees in the United States are covered by the Steelworkers Pension Trust (SPT), a multi-employer pension plan, to which U. S. Steel contributes on the basis of a fixed dollar amount for each hour worked.
U.S.In February of 2020, U. S. Steel acquired the remaining 50% ownership of its joint venture with USS/POSCO Industries (UPI) and its associated benefit plans. Upon acquisition, UPI defined benefit pension and other benefit liability was estimated on a net basis at $8 million and $55 million, respectively.
On November 13, 2018, the USW ratified successor four year Collective Bargaining Agreements with U. S. Steel and its U. S. Steel Tubular Products, Inc. subsidiary (the 2018 Labor Agreements). The 2018 Labor Agreements were effective as of September 1, 2018 and expire on September 1, 2022. As a result of the 2018 Labor Agreements, the defined benefit pension liability increased $26 million after considering higher wages on final average pay formulas and higher flat rate minimum multipliers.
U. S. Steel’s defined benefit retiree health care and life insurance plans (Other Benefits) cover the majority of its represented employees in the United States upon their retirement. Health care benefits are provided for Medicare and pre-Medicare retirees, with Medicare retirees largely enrolled in Medicare Advantage Plans. Both are subject to various cost sharing features, and in most cases domestically, an employer cap on total costs.
On February 1, 2016, the USW ratified successor three year Collective Bargaining Agreements with U. S. Steel and its U. S. Steel Tubular Products, Inc. subsidiary (the 2015 Labor Agreements). The 2015 Labor Agreements were effective as of September 1, 2015 and expire on September 1, 2018.
The 2015 Labor Agreements provide for certain employee and retiree benefit modifications, as well as closure of the Other Benefits plan was closed to represented employees hired or rehired under certain conditions on or after January 1, 2016. Instead, these employees will receive a company defined contribution into a savings account
Additionally, the 2015 Labor Agreements preserved the Company’s capped amounts for retiree healthcare contributions and restructured prior contractual obligations that required U. S. Steel to make $235 million in cash contributions to our trust for represented retiree health care and life insurance benefits (VEBA). These funds will now be used to help keep healthcare affordable for our retirees.
Per an amendment effective June 30, 2014 non-representedto the retiree medical and retiree life insurance plan, benefits are eliminated for non-represented employees who retireretired after December 31, 2017.2017 were eliminated.
The majority of U. S. Steel’s European employees are covered by government-sponsored programs into which U. S. Steel makes required contributions. Also, U. S. Steel sponsors defined benefit plans for most European employees covering benefit payments due to employees upon their retirement, some of which are government mandated. These same employees receive service awards throughout their careers based on stipulated service and, in some cases, age and service.
U. S. Steel uses a December 31 measurement date for its plans and may have an interim measurement date if significant events occur. Details relating to Pension Benefitspension benefits and Other Benefits are below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| (In millions) | | 2020 | | 2019 | | 2020 | | 2019 |
| Change in benefit obligations | | | | | | | | |
| Benefit obligations at January 1 | | $ | 5,822 | | | $ | 5,626 | | | $ | 1,876 | | | $ | 2,121 | |
| Service cost | | 51 | | | 44 | | | 12 | | | 13 | |
| Interest cost | | 193 | | | 237 | | | 63 | | | 91 | |
| | | | | | | | |
| UPI acquisition | | 246 | | | 0 | | | 56 | | | 0 | |
| Actuarial losses (gains) | | 400 | | | 416 | | | (23) | | | (195) | |
| Exchange rate loss | | 3 | | | 1 | | | 0 | | | 0 | |
| Settlements, curtailments and termination benefits | | 4 | | | 0 | | | 4 | | | 0 | |
| Benefits paid | | (533) | | | (502) | | | (147) | | | (154) | |
| Benefit obligations at December 31 | | $ | 6,186 | | | $ | 5,822 | | | $ | 1,841 | | | $ | 1,876 | |
| Change in plan assets | | | | | | | | |
| Fair value of plan at January 1 | | $ | 5,406 | | | $ | 4,960 | | | $ | 2,025 | | | $ | 1,860 | |
| Actual return on plan assets | | 922 | | | 948 | | | 219 | | | 274 | |
| UPI acquisition | | 238 | | | 0 | | | 1 | | | 0 | |
| Asset reversion | | 0 | | | 0 | | | (38) | | | 0 | |
| Employer contributions | | 0 | | | 0 | | | 1 | | | 0 | |
| Benefits paid from plan assets | | (531) | | | (502) | | | (97) | | | (109) | |
| Fair value of plan assets at December 31 | | $ | 6,035 | | | $ | 5,406 | | | $ | 2,111 | | | $ | 2,025 | |
| Funded status of plans at December 31 | | (151) | | | (416) | | | 270 | | | 149 | |
|
| | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| (In millions) | | 2017 | | 2016 | | 2017 | | 2016 |
| Change in benefit obligations | | | | | | | | |
| Benefit obligations at January 1 | | $ | 6,214 |
| | $ | 6,374 |
| | $ | 2,432 |
| | $ | 2,310 |
|
| Service cost | | 50 |
| | 54 |
| | 17 |
| | 20 |
|
| Interest cost | | 235 |
| | 258 |
| | 94 |
| | 98 |
|
| Plan amendments | | — |
| | (25 | ) | | — |
| | 172 |
|
| Actuarial losses (gains) | | 214 |
| | 264 |
| | 8 |
| | (6 | ) |
| Exchange rate loss/(gain) | | 4 |
| | (1 | ) | | — |
| | — |
|
| Settlements, curtailments and termination benefits | | (12 | ) | | (25 | ) | | — |
| | (1 | ) |
| Benefits paid | | (598 | ) | | (685 | ) | | (172 | ) | | (161 | ) |
| Benefit obligations at December 31 | | $ | 6,107 |
| | $ | 6,214 |
| | $ | 2,379 |
| | $ | 2,432 |
|
| Change in plan assets | | | | | | | | |
| Fair value of plan at January 1 | | $ | 5,482 |
| | $ | 5,639 |
| | $ | 1,984 |
| | $ | 1,990 |
|
| Actual return on plan assets | | 773 |
| | 414 |
| | 171 |
| | 94 |
|
| Employer contributions | | 75 |
| | 113 |
| | — |
| | — |
|
| Benefits paid from plan assets | | (598 | ) | | (684 | ) | | (113 | ) | | (100 | ) |
| Fair value of plan assets at December 31 | | $ | 5,732 |
| | $ | 5,482 |
| | $ | 2,042 |
| | $ | 1,984 |
|
| Funded status of plans at December 31 | | (375 | ) | | (732 | ) | | (337 | ) | | (448 | ) |
For Other Benefits, the largest contributor to the actuarial gain in 2020 was attributable to reductions in future health care costs. The gain was partially offset by a decrease in the discount rate from 3.43% at December 31, 2019 to 2.80% at December 31, 2020. In 2019, the largest contributor of actuarial gain was attributable to reductions in future health care costs and assumptions on future participant enrollment in the plan. The gain was partially offset by a decrease in the discount rate from 4.47% at December 31, 2018 to 3.43% at December 31, 2019.
Amounts recognized in accumulated other comprehensive loss:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2020 | | |
| (In millions) | | 12/31/2019 | | Amortization | | Activity | | 12/31/2020 |
| Pensions | | | | |
| Prior Service Cost | | $ | 16 | | | $ | (2) | | | $ | 0 | | | $ | 14 | |
| Actuarial Losses | | 2,101 | | | (147) | | | (190) | | | 1,764 | |
| Other Benefits | | | | | | | | |
| Prior Service Credit | | (109) | | | 6 | | | 0 | | | (103) | |
| Actuarial Gains | | (411) | | | 16 | | | (161) | | | (556) | |
|
| | | | | | | | | | | | | | | | |
| | | | | 2017 | | |
| (In millions) | | 12/31/2016 | | Amortization | | Activity | | 12/31/2017 |
| Pensions | | | | |
| Prior Service Cost | | $ | (8 | ) | | $ | — |
| | $ | — |
| | $ | (8 | ) |
| Actuarial Losses | | 2,562 |
| | (148 | ) | | (176 | ) | | 2,238 |
|
| Other Benefits | | | | | | | | |
| Prior Service Cost | | (22 | ) | | (29 | ) | | — |
| | (51 | ) |
| Actuarial Losses | | 141 |
| | (3 | ) | | (97 | ) | | 41 |
|
As of December 31, 20172020 and 2016,2019, the following amounts were recognized in the Consolidated Balance Sheet:
| | | | | Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
| (In millions) | | 2017 | | 2016 | | 2017 | | 2016 | (In millions) | | 2020 | | 2019 | | 2020 | | 2019 |
Noncurrent assets (a) | | Noncurrent assets (a) | | 12 | | | 0 | | | 326 | | | 158 | |
| Current liabilities | | (4 | ) | | (3 | ) | | (59 | ) | | (60 | ) | Current liabilities | | (9) | | | (3) | | | (4) | | | (1) | |
| Noncurrent liabilities | | (371 | ) | | (729 | ) | | (278 | ) | | (388 | ) | Noncurrent liabilities | | (154) | | | (413) | | | (52) | | | (8) | |
Accumulated other comprehensive loss (a)(b) | | 2,230 |
| | 2,554 |
| | (10 | ) | | 119 |
| | 1,778 | | | 2,117 | | | (659) | | | (520) | |
| Net amount recognized | | $ | 1,855 |
| | $ | 1,822 |
| | $ | (347 | ) | | $ | (329 | ) | Net amount recognized | | $ | 1,627 | | | $ | 1,701 | | | $ | (389) | | | $ | (371) | |
| |
(a)
| Accumulated other comprehensive loss effects associated with accounting for pensions and other benefits in accordance with ASC Topic 715 at December 31, 2017 and December 31, 2016, respectively, are reflected net of tax of $958 million and $939 million respectively, on the Consolidated Statements of Stockholders’ Equity. |
(a) Included in noncurrent assets for Other Benefits are $45 million of expected retiree medical and life insurance payments for the next twelve months.
(b) Accumulated other comprehensive loss effects associated with accounting for pensions and other benefits in accordance with ASC Topic 715 at December 31, 2020 and December 31, 2019, respectively, are reflected net of tax of $678 million and $800 million respectively, on the Consolidated Statements of Stockholders’ Equity.
The Accumulated Benefit Obligation (ABO) for all defined benefit pension plans was $5,937$5,979 million and $6,064$5,636 million at December 31, 20172020 and 2016,2019, respectively.
| | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2020 | | 2019 |
| Information for pension plans with an accumulated benefit obligation in excess of plan assets: | | | | |
| Aggregate accumulated benefit obligations (ABO) | | $ | (5,979) | | | $ | (5,636) | |
| Aggregate projected benefit obligations (PBO) | | (6,186) | | | (5,822) | |
| Aggregate fair value of plan assets | | 6,035 | | | 5,406 | |
|
| | | | | | | | |
| | | December 31, |
| (In millions) | | 2017 | | 2016 |
| Information for pension plans with an accumulated benefit obligation in excess of plan assets: | | | | |
| Aggregate accumulated benefit obligations (ABO) | | $ | (5,937 | ) | | $ | (6,064 | ) |
| Aggregate projected benefit obligations (PBO) | | (6,107 | ) | | (6,214 | ) |
| Aggregate fair value of plan assets | | 5,732 |
| | 5,482 |
|
The aggregate ABOPBO in excess of plan assets reflected above is included in the payroll and benefits payable and employee benefits lines on the Consolidated Balance Sheet.
Following are the details of net periodic benefit costs related to Pension and Other Benefits:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| (In millions) | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Components of net periodic benefit cost: | | | | | | | | | | | | |
| Service cost | | $ | 51 | | | $ | 44 | | | $ | 49 | | | $ | 12 | | | $ | 13 | | | $ | 17 | |
| Interest cost | | 193 | | | 237 | | | 233 | | | 63 | | | 91 | | | 92 | |
| Expected return on plan assets | | (333) | | | (324) | | | (361) | | | (80) | | | (79) | | | (82) | |
| Amortization - prior service costs (credits) | | 2 | | | 2 | | | 0 | | | (6) | | | 29 | | | 29 | |
| - actuarial losses (gains) | | 145 | | | 132 | | | 152 | | | (16) | | | 3 | | | 4 | |
| Net periodic benefit cost, excluding below | | 58 | | | 91 | | | 73 | | | (27) | | | 57 | | | 60 | |
Multiemployer plans (a) | | 76 | | | 77 | | | 60 | | | 0 | | | 0 | | | 0 | |
| Settlement, termination and curtailment losses | | 11 | | | 11 | | | 10 | | | 4 | | | 0 | | | 0 | |
| Net periodic benefit cost | | $ | 145 | | | $ | 179 | | | $ | 143 | | | $ | (23) | | | $ | 57 | | | $ | 60 | |
(a) Primarily represents pension expense for the SPT covering USW employees hired from National Steel Corporation and new USW employees hired after May 21, 2003. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| (In millions) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Components of net periodic benefit cost: | | | | | | | | | | | | |
| Service cost | | $ | 50 |
| | $ | 54 |
| | $ | 102 |
| | $ | 17 |
| | $ | 20 |
| | $ | 21 |
|
| Interest cost | | 235 |
| | 258 |
| | 263 |
| | 94 |
| | 98 |
| | 97 |
|
| Expected return on plan assets | | (390 | ) | | (422 | ) | | (435 | ) | | (65 | ) | | (151 | ) | | (155 | ) |
| Amortization - prior service costs | | — |
| | 11 |
| | 17 |
| | 29 |
| | 26 |
| | (6 | ) |
| - actuarial losses | | 148 |
| | 129 |
| | 241 |
| | 3 |
| | 3 |
| | 7 |
|
| Net periodic benefit cost (benefit), excluding below | | 43 |
| | 30 |
| | 188 |
| | 78 |
| | (4 | ) | | (36 | ) |
Multiemployer plans (a) | | 59 |
| | 63 |
| | 68 |
| | — |
| | — |
| | — |
|
| Settlement, termination and curtailment losses/(gains) | | 7 |
| | 13 |
| | 35 |
| | — |
| | (1 | ) | | (4 | ) |
| Net periodic benefit cost (benefit) | | $ | 109 |
| | $ | 106 |
| | $ | 291 |
| | $ | 78 |
| | $ | (5 | ) | | $ | (40 | ) |
| |
(a) | Primarily represents pension expense for the SPT covering USW employees hired from National Steel Corporation and new USW employees hired after May 21, 2003. |
Net periodic benefit cost for pensions and other benefitsOther Benefits is projected to be approximately $135$87 million and approximately $60$(72) million, respectively, in 2018.2021. The pension cost projection includes approximately $54$73 million of contributions to the SPT. The amounts in accumulated other comprehensive income that are expected to be recognized as components of net periodic benefit cost during 2018 are as follows:
|
| | | | | | | | |
| (In millions) | | Pension Benefits 2018 | | Other Benefits 2018 |
| Amortization of actuarial loss | | $ | 143 |
| | $ | 4 |
|
| Amortization of prior service cost | | — |
| | 29 |
|
| Total recognized from accumulated other comprehensive income | | $ | 143 |
| | $ | 33 |
|
Weighted average assumptions used to determine the benefit obligation at December 31 and net periodic benefit cost for the year ended December 31 are detailed below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2020 | 2019 | | 2020 | 2019 |
| | U.S. and Europe | | U.S. and Europe | | U.S. | | U.S. |
| Actuarial assumptions used to determine benefit obligations at December 31: | | | | | | | | |
| Discount rate | | 2.72 | % | | 3.35 | % | | 2.80 | % | | 3.43 | % |
| Increase in compensation rate | | 2.62 | % | | 2.60 | % | | N/A | | N/A |
| | | | | | | | | | | | Pension Benefits | | Other Benefits |
| | | Pension Benefits | | Other Benefits | | 2020 | 2019 | | 2018 | | 2020 | 2019 | 2018 |
| | | 2017 | 2016 | | 2017 | 2016 | | U.S. and Europe | | U.S. and Europe | | U.S. and Europe | | U.S. | | U.S. | | U.S. |
| | | U.S. and Europe | | U.S. and Europe | | U.S. | | U.S. | |
| Actuarial assumptions used to determine benefit obligations at December 31: | | | | | | | | | |
| Actuarial assumptions used to determine net periodic benefit cost for the year ended December 31: | | Actuarial assumptions used to determine net periodic benefit cost for the year ended December 31: | | | |
| Discount rate | | 4.00 | % | | 4.00 | % | | 4.03 | % | | 4.00 | % | Discount rate | | 3.35 | % | | 4.41 | % | | 4.00 | % | | 3.42 | % | | 4.47 | % | | 4.03 | % |
| Expected annual return on plan assets | | Expected annual return on plan assets | | 6.47 | % | | 6.50 | % | | 6.85 | % | | 4.25 | % | | 4.25 | % | | 4.25 | % |
| Increase in compensation rate | | 2.60 | % | | 2.60 | % | | N/A |
| | 3.50 | % | Increase in compensation rate | | 2.62 | % | | 2.60 | % | | 2.60 | % | | N/A | | N/A | | N/A |
|
| | | | | | | | | |
| | | Pension Benefits |
| | | 2017 | 2016 | | 2015 |
| | | U.S. and Europe | | U.S. and Europe | | U.S. and Europe |
| Actuarial assumptions used to determine net periodic benefit cost for the year ended December 31: | | | | | | |
| Discount rate | | 4.00 | % | | 4.25 | % | | 3.75 | % |
| Expected annual return on plan assets | | 7.25 | % | | 7.50 | % | | 7.50 | % |
| Increase in compensation rate | | 2.60 | % | | 2.60 | % | | 3.00 | % |
|
| | | | | | | | | |
| | | Other Benefits |
| | | 2017 | 2016 | 2015 |
| | | U.S. | | U.S. | | U.S. |
| Discount rate | | 4.00 | % | | 4.25 | % | | 3.75 | % |
| Expected annual return on plan assets | | 3.25 | % | | 7.50 | % | | 7.50 | % |
| Increase in compensation rate | | 3.50 | % | | 3.50 | % | | 3.50 | % |
The discount rate reflects the current rate at which the pension and other benefitOther Benefit liabilities could be effectively settled at the measurement date. In 2016 and prior years, the discount rate for our U.S. plans was determined by utilizing several AAA and AA corporate bond indices as an indication of interest rate movements and levels. In 2017, we refined our discount rate determination process for our U.S. plans by using a bond matching approach to select specific bonds that would satisfy our projected benefit payments. We believe the bond matching approach more closely reflects the process we would employ to settle our pension and other benefits obligations. This process refinement had an impact of increasing the pension benefits and other benefits discount rate by 25 and 28 basis points for 2017 as compared to the previous methodology. For 2017, each basis point increase in the discount rate decreases the projected benefit obligation by approximately $6 million and $2 million for pension and other benefits, respectively. For our European pension plan, the discount rate is determined using a yield curve methodologythe iboxx Euro indices based on European bonds.duration. The discount rate assumptions are updated annually.
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Assumed health care cost trend rates at December 31: | | U.S. | | U.S. |
| Health care cost trend rate assumed for next year | | 6.50% | | 6.50% |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | | 4.50% | | 4.50% |
| Year that the rate reaches the ultimate trend rate | | 2029 | | 2028 |
At December 31, 2017 due to a recent experience study performed, the Company updated the mortality assumptions used to calculate its main U.S. defined benefit pension and other post-employment benefit liabilities. As a result of this change in mortality assumptions, our projected benefit obligations have increased by $194 million and $42 million for pension and other benefits, respectively.
|
| | | | |
| | | 2017 | | 2016 |
| Assumed health care cost trend rates at December 31: | | U.S. | | U.S. |
| Health care cost trend rate assumed for next year | | 7.00% | | 7.00% |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | | 5.00% | | 5.00% |
| Year that the rate reaches the ultimate trend rate | | 2022 | | 2021 |
A one-percentage-point change in the assumed return on plan assets, discount rate or health care cost trend rates would have the following effects:
|
| | | | | | | | |
| (In millions) | | 1-Percentage-
Point Increase | | 1-Percentage-
Point Decrease |
| Expected return on plan assets | | | | |
| Incremental (decrease) increase in: | | | | |
| Net periodic pension costs for 2018 | | $ | (72 | ) | | $ | 72 |
|
| Discount rate | | | | |
| Incremental (decrease) increase in: | | | | |
| Net periodic pension & other benefits costs for 2018 | | $ | (8 | ) | | $ | 6 |
|
| Pension & other benefits liabilities at December 31, 2017 | | $ | (743 | ) | | $ | 885 |
|
| Health care cost escalation trend rates | | | | |
| Incremental increase (decrease) in: | | | | |
| Other post-employment benefit obligations | | $ | 99 |
| | $ | (85 | ) |
| Service and interest costs components for 2018 | | $ | 5 |
| | $ | (4 | ) |
U. S. Steel reviews its actual historical rate experience and expectations of future health care cost trends to determine the escalation of per capita health care costs under U. S. Steel’s benefit plans. About three quarters of our costs for the domestic USW participants’ retiree health benefits in the Company’s main domestic benefit plan are limited to a per capita dollar maximum calculation based on 2006 base year actual costs incurred under the main U. S. Steel benefit plan for USW participants (cost cap). The full effect of the cost cap is expected to be realized around 2024.2028. After 2024,2028, the Company’s costs for a majority of USW retirees and their dependents are expected to remain fixed and as a result, the cost impact of health care escalation for the Company is projected to be limited for this group.
Plan Assets
On January 1, 2016, U. S. Steel adopted Accounting Standards Update 2015-07, Fair Value Measurement (Topic 820) Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (ASU 2015-07). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.
ASC Topic 820 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Plan's investments, and requires additional disclosure about fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy are summarized below:
•Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the PartnershipPlan has the ability to access.
•Level 2 – Inputs to the valuation methodology include:
◦Quoted prices for similar assets or liabilities in active markets;
◦Quoted prices for identical or similar assets or liabilities in inactive markets;
◦Inputs other than quoted prices that are observable for the asset or liability;
◦Inputs that are derived principally from or corroborated by observable market data by correlation or other means
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
•Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
U. S. Steel’s Pension plan and Other Benefits plan assets are classified as follows:
| | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 |
| Short-term Investments | | Corporate Bonds - U.S. & Non U.S. | | Timberlands |
| Equity Securities - U.S. & International | | Government Bonds - U.S. & Non U.S. | | Real Estate |
| | Mortgage and asset-backed securities | | Mineral Interests and Other Alternatives |
| | | | |
Level 1 | | Level 2 | | Level 3 |
Short-term Investments | | Corporate Bonds - U.S. | | Private Equities |
Equity Securities - U.S. | | Government Bonds - U.S. | | Real Estate |
Exchange-traded Funds | | Mortgage-backed GNMAs & FNMAs | | Mineral Interests |
| | | | Timberlands |
An instrument’s level is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The following is a
description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 20172020 and 2016.2019.
Short-term investments are valued at amortized cost which approximates fair value due to the short-term maturity of the instruments. Equity securities - U.S., investments in investment trusts and exchange-traded funds & International are valued at the closing price reported on the active exchange on which the individual securities are traded. U.S. and Non U.S. government bonds are valued using pricing models maximizing the use of observable inputs for similar securities. Corporate U.S. & Non U.S. bonds are also valued using pricing models maximizing the use of observable inputs for similar securities, which includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the bond is valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks. Mortgage-backed GNMAsMortgage and FNMAsasset-backed securities are valued using quotes from a broker dealer. Internally Managed Partnerships are valued at the net asset value (NAV) of units of the partnership. NAV is used as a practical expedient to estimate fair value. Investment opportunities in these partnerships are restricted to the benefit plans of U. S. Steel, its subsidiaries and current and former affiliates. The Internally Managed Partnerships were liquidated during 2017. Investments in non-public investment partnerships are valued using NAV as a practical expedient. Private equities and real estate are valued using information provided by external managers for each individual investment held in the fund or using NAV (net asset value) as a practical expedient. Timberland investments are eithervalued at their appraised or valued using the investment managers' assessment of the assets within the fund.value. Mineral Interests and other alternatives are valued at the present value of estimated future cash flows discounted at estimated market rates for assets of similar quality and duration.
The following is a summaryfair value of U. S. Steel’s PensionSteel's pension plan assets carried at fair valueby asset category at December 31 2017 and 2016were as follows (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at December 31, 2017 (in millions) |
| | | Total | | Quoted Prices in
Active Markets
(Level 1) | | Other Significant Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Asset Classes | |
| |
| | | |
|
| Short-term investments | | $ | 155 |
| | $ | 155 |
| | $ | — |
| | $ | — |
|
Equity Securities - U.S. (a) | | 260 |
| | 260 |
| | — |
| | — |
|
Corporate & Government Bonds (b) | | 1,806 |
| | — |
| | 1,806 |
| | — |
|
| Mineral Interests | | 3 |
| | — |
| | — |
| | 3 |
|
| Timberlands | | 300 |
| | — |
| | — |
| | 300 |
|
Private equities (c) | | 4 |
| | — |
| | — |
| | 4 |
|
Real Estate (d) | | 33 |
| | — |
| | — |
| | 33 |
|
All Other (e) | | (39 | ) | | (39 | ) | | — |
| | — |
|
| Total assets in the fair value hierarchy | | $ | 2,522 |
| | $ | 376 |
| | $ | 1,806 |
| | $ | 340 |
|
Investments measured at net asset value (f) | | 3,210 |
| | | | | | |
| Investments at fair value | | $ | 5,732 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | Level 1 | | Level 2 | | Level 3 | | measured at NAV (a) | | Total | | Level 1 | | Level 2 | | Level 3 | | measured at NAV (a) | | Total |
| Asset Category | | | | | | | | | | | | | | | | | | | | |
| Equity | | | | | | | | | | | | | | | | | | | | |
| U. S. companies | | $ | 306 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 306 | | | $ | 123 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 123 | |
| International companies | | 177 | | | 0 | | | 0 | | | 0 | | | 177 | | | 7 | | | 0 | | | 0 | | | 0 | | | 7 | |
| Total equity | | 483 | | | 0 | | | 0 | | | 0 | | | 483 | | | 130 | | | 0 | | | 0 | | | 0 | | | 130 | |
| Fixed Income | | | | | | | | | | | | | | | | | | | | |
| Corporate Bonds - U.S. | | 0 | | | 1,514 | | | 0 | | | 0 | | | 1,514 | | | 0 | | | 1,004 | | | 0 | | | 0 | | | 1,004 | |
| Corporate Bonds - Non-U.S. | | 0 | | | 252 | | | 0 | | | 0 | | | 252 | | | 0 | | | 160 | | | 0 | | | 0 | | | 160 | |
| U.S. government and agencies | | 0 | | | 202 | | | 0 | | | 0 | | | 202 | | | 0 | | | 771 | | | 0 | | | 0 | | | 771 | |
| Non-U.S. government | | 0 | | | 97 | | | 0 | | | 0 | | | 97 | | | 0 | | | 77 | | | 0 | | | 0 | | | 77 | |
| Mortgage and asset-backed securities | | 0 | | | 213 | | | 0 | | | 0 | | | 213 | | | 0 | | | 265 | | | 0 | | | 0 | | | 265 | |
| Total fixed income | | 0 | | | 2,278 | | | 0 | | | 0 | | | 2,278 | | | 0 | | | 2,277 | | | 0 | | | 0 | | | 2,277 | |
| Alternatives | | | | | | | | | | | | | | | | | | | | |
| Timberlands | | 0 | | | 0 | | | 269 | | | 0 | | | 269 | | | 0 | | | 0 | | | 283 | | | 0 | | | 283 | |
| Mineral Interests and other alternatives | | 0 | | | 0 | | | 19 | | | 0 | | | 19 | | | 0 | | | 0 | | | 2 | | | 0 | | | 2 | |
| Private equity | | 0 | | | 0 | | | 0 | | | 231 | | | 231 | | | 0 | | | 0 | | | 0 | | | 238 | | | 238 | |
| Real estate | | 0 | | | 0 | | | 36 | | | 205 | | | 241 | | | 0 | | | 0 | | | 32 | | | 240 | | | 272 | |
| Total alternatives | | 0 | | | 0 | | | 324 | | | 436 | | | 760 | | | 0 | | — | | 0 | | | 317 | | | 478 | | | 795 | |
| Commingled Funds | | 0 | | | 0 | | | 0 | | | 2,289 | | | 2,289 | | | 0 | | | 0 | | | 0 | | | 2,170 | | | 2,170 | |
| Short-Term Investments | | 173 | | | 0 | | | 0 | | | 0 | | | 173 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other (b) | | 52 | | | 0 | | | 0 | | | 0 | | | 52 | | | 34 | | | 0 | | | 0 | | | 0 | | | 34 | |
| Total assets at fair value | | $ | 708 | | | $ | 2,278 | | | $ | 324 | | | $ | 2,725 | | | $ | 6,035 | | | $ | 164 | | | $ | 2,277 | | | $ | 317 | | | $ | 2,648 | | | $ | 5,406 | |
(a) Includes U. S. Steel stock.
(b) Underlying investments include:
|
| | | |
| Corporate Bonds – U.S. | $ | 1,084 |
|
| Government Bonds – U.S. | 720 |
|
| Agency Mortgages | 2 |
|
| Total | $ | 1,806 |
|
(c) Includes investments in CAI Partners and Company III LP, Clayton Dubilier Rice Fund VI, Epiris Club 2007 (formerly Electra Partners Club 2007 LP) and FF&P Investor 8 ERISA LP.
(d) Includes investments in the Avanti Funds and the Mariano Ranch properties.
(e) Includes $157 million of investment sales, $19 million of accrued income, $(197) million of investment purchases and $(18) million of miscellaneous payables.
(f) In accordance with ASC Topic 820, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
The following table represents investments based on net asset value and the significant unobservable inputs and the ranges of values for those inputs:
|
| | | | | | | | | | | | |
| | | Net Asset Value at December 31, 2017 | | Unfunded Commitments | | Redemption Frequency | | Redemption Notice Period |
Private Equity Funds (a) | | $ | 252 |
| | $ | 91 |
| | Not redeemable | | N/A |
Real Estate Funds (a) | | 260 |
| | 117 |
| | ** | | N/A |
Interest in Investment Partnerships (b) | | 729 |
| | N/A |
| | N/A | | N/A |
| Commingled Funds | | 1,969 |
| | N/A |
| | N/A | | N/A |
Investments measured at net asset value
| | $ | 3,210 |
| | | | | | |
** Not redeemable, except for JP Morgan Real Estate Income & Growth, which has a quarterly redemption provision.
(a) The remaining lives of such investments range from less than one year to up to eleven years.
(b) Investment partnerships whose investment objectives are to achieve long-term capital appreciation by investing in global equity markets.
|
| | | | | | | | | | | | |
| | | Fair Value Measurements at December 31, 2016 (in millions) |
| | | Total | | Quoted Prices in
Active Markets
(Level 1) | | Significant
Unobservable
Inputs
(Level 3) |
| Asset Classes | | | | | | |
| Short-term investments | | $ | 98 |
| | $ | 98 |
| | $ | — |
|
| Exchange-Traded Funds | | 61 |
| | 61 |
| | — |
|
Equity Securities - U.S. (a) | | 124 |
| | 124 |
| | — |
|
| Mineral Interests | | 3 |
| | — |
| | 3 |
|
| Timberlands | | 312 |
| | — |
| | 312 |
|
Private equities (b) | | 8 |
| | — |
| | 8 |
|
Real Estate (c) | | 34 |
| | — |
| | 34 |
|
All Other (d) | | (4 | ) | | (4 | ) | | — |
|
| Total assets in the fair value hierarchy | | $ | 636 |
| | $ | 279 |
| | $ | 357 |
|
Investments measured at net asset value (e) | | 4,846 |
| | | | |
| Investments at fair value | | $ | 5,482 |
| | | | |
| |
(a) | Includes U. S. Steel stock. |
| |
(b) | Includes investments in CAI Partners and Company III LP, Clayton Dubilier Rice Fund VI, Electra Partners Club 2007 LP and FF&P Investor 8 ERISA LP. |
| |
(c) | Includes investments in the Avanti Funds and the Mariano Ranch properties. |
| |
(d) | Includes $50 million of investment sales, $1 million of accrued income and $(55) million of miscellaneous payables. |
| |
(e) | In accordance with ASC Topic 820, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. |
The following table represents investments based on net asset value and the significant unobservable inputs and the ranges of values for those inputs:
|
| | | | | | | | | | | | |
| | | Net Asset Value at December 31, 2016 | | Unfunded Commitments | | Redemption Frequency | | Redemption Notice Period |
Private Equity Funds (a) | | $ | 273 |
| | $ | 124 |
| | Not redeemable | | N/A |
Real Estate Funds (a) | | 252 |
| | 156 |
| | ** | | N/A |
Interest in Internally Managed Partnership - Fixed Income (b) | | 1,490 |
| | N/A |
| | N/A | | N/A |
Interest in Internally Managed Partnership - Equity (c) | | 2,232 |
| | N/A |
| | N/A | | N/A |
Interest in Investment Partnerships (d) | | 599 |
| | N/A |
| | N/A | | N/A |
Investments measured at net asset value
| | $ | 4,846 |
| | | | | | |
** Not redeemable, except for JP Morgan U.S. Real Estate Income & Growth, which has a quarterly redemption provision.
(a) The remaining lives of such investments range from less than one year to up to twelve years.
(b) Underlying investments include:
|
| | | |
| Corporate Bonds – U.S. | $ | 885 |
|
| Government Bonds – U.S. | 564 |
|
Other(1) | 41 |
|
| Total | $ | 1,490 |
|
(1) Other includes $27 million of mortgages, $20 million of contributions, $13 million ofIncludes cash, accrued income, and miscellaneous payables.
$(19) million
(c) Underlying investments include:
|
| | | |
| Exchange-Traded Funds | $ | 100 |
|
| Equity Securities – U.S. | 2,038 |
|
Other (2) | 94 |
|
| Total | $ | 2,232 |
|
(2)Other includes $57 million of equity securities - foreign, $55 million of investment sales receivable, $3 million of
accrued income, $1 million of short-term investment funds, $(20) million of withdrawals, and $(2) million of
investment purchases payable.
(d) Investment partnerships whose investment objectives are to achieve long-term capital appreciation by investing in global equity markets.
The following table sets forth a summary of changes in the fair value of U. S. Steel’s Pension plan Level 3 assets for the years ended December 31, 20172020 and 2016 (in millions):2019:
| | | | |
Level 3 assets only | | Level 3 assets only |
| (In millions) | | 2017 | | 2016 | (In millions) | | 2020 | | 2019 |
| Balance at beginning of period | | $ | 357 |
| | $ | 336 |
| Balance at beginning of period | | $ | 317 | | | $ | 331 | |
| Transfers in and/or out of Level 3 | | — |
| | — |
| Transfers in and/or out of Level 3 | | 0 | | | 0 | |
| Actual return on plan assets: | | | | | Actual return on plan assets: | |
| Realized gain/(loss) | | 2 |
| | (2 | ) | |
| Net unrealized (loss)/gain | | (16 | ) | | 29 |
| |
| Realized gain | | Realized gain | | 2 | | | 8 | |
| Net unrealized loss | | Net unrealized loss | | (9) | | | (21) | |
| Purchases, sales, issuances and settlements: | | | | | Purchases, sales, issuances and settlements: | |
| Purchases | | — |
| | 1 |
| Purchases | | 17 | | | 1 | |
| Sales | | (3 | ) | | (7 | ) | Sales | | (3) | | | (2) | |
| Balance at end of period | | $ | 340 |
| | $ | 357 |
| Balance at end of period | | $ | 324 | | | $ | 317 | |
The following is a summaryfair value of U. S. Steel’sSteel's Other Benefits plan assets carried at fair valueby asset category at December 31 2017 and 2016. During 2016, the VEBA Trust withdrew from the Fixed Income Internally Managed Partnership and invested in Corporate Bonds - U.S., Government bonds - U.S. and Agency mortgages.were as follows (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at December 31, 2017 (in millions) |
| | | Total | | Quoted Prices in
Active Markets
(Level 1) | | Other Significant Observable Inputs (Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Asset Classes | | | | | |
| | |
| Short-term investments | | $ | 54 |
| | $ | 54 |
| | — |
| | $ | — |
|
| Equity Securities - U.S. | | 29 |
| | 29 |
| | — |
| | — |
|
| Corporate Bonds - U.S. | | 1,455 |
| | — |
| | 1,455 |
| | — |
|
| Government bonds - U.S. | | 323 |
| | — |
| | 323 |
| | — |
|
| Timberlands | | 34 |
| | — |
| | — |
| | 34 |
|
Private equities (a) | | 1 |
| | — |
| | — |
| | 1 |
|
All Other (b) | | 39 |
| | 39 |
| | — |
| | — |
|
| Total assets in the fair value hierarchy | | $ | 1,935 |
| | $ | 122 |
| | $ | 1,778 |
| | $ | 35 |
|
Investments measured at net asset value (c) | | 107 |
| | | | | | |
| Investments at fair value | | $ | 2,042 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | Level 1 | | Level 2 | | Level 3 | | measured at NAV (a) | | Total | | Level 1 | | Level 2 | | Level 3 | | measured at NAV (a) | | Total |
| Asset Category | | | | | | | | | | | | | | | | | | | | |
| Equity | | | | | | | | | | | | | | | | | | | | |
| U. S. companies | | $ | 77 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 77 | | | $ | 30 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 30 | |
| International companies | | 27 | | | 0 | | | 0 | | | 0 | | | 27 | | | 19 | | | 0 | | | 0 | | | 0 | | | 19 | |
| Total equity | | 104 | | | 0 | | | 0 | | | 0 | | | 104 | | | 49 | | | 0 | | | 0 | | | 0 | | | 49 | |
| Fixed Income | | | | | | | | | | | | | | | | | | | | |
| Corporate Bonds - U.S. | | 0 | | | 1,121 | | | 0 | | | 0 | | | 1,121 | | | 0 | | | 1,132 | | | 0 | | | 0 | | | 1,132 | |
| Corporate Bonds - Non-U.S. | | 0 | | | 231 | | | 0 | | | 0 | | | 231 | | | 0 | | | 287 | | | 0 | | | 0 | | | 287 | |
| U.S. government and agencies | | 0 | | | 365 | | | 0 | | | 0 | | | 365 | | | 0 | | | 329 | | | 0 | | | 0 | | | 329 | |
| Non-U.S. government | | 0 | | | 9 | | | 0 | | | 0 | | | 9 | | | 0 | | | 13 | | | 0 | | | 0 | | | 13 | |
| Mortgage and asset-backed securities | | 0 | | | 31 | | | 0 | | | 0 | | | 31 | | | 0 | | | 38 | | | 0 | | | 0 | | | 38 | |
| Total fixed income | | 0 | | | 1,757 | | | 0 | | | 0 | | | 1,757 | | | 0 | | | 1,799 | | | 0 | | | 0 | | | 1,799 | |
| Alternatives | | | | | | | | | | | | | | | | | | | | |
| Timberlands | | 0 | | | 0 | | | 35 | | | 0 | | | 35 | | | 0 | | | 0 | | | 35 | | | 0 | | | 35 | |
| | | | | | | | | | | | | | | | | | | | |
| Private equity | | 0 | | | 0 | | | 0 | | | 48 | | | 48 | | | 0 | | | 0 | | | 0 | | | 54 | | | 54 | |
| Real estate | | 0 | | | 0 | | | 0 | | | 29 | | | 29 | | | 0 | | | 0 | | | 0 | | | 32 | | | 32 | |
| Total alternatives | | 0 | | | 0 | | | 35 | | | 77 | | | 112 | | | 0 | | — | | 0 | | | 35 | | | 86 | | | 121 | |
| | | | | | | | | | | | | | | | | | | | |
| Short-Term Investments | | 102 | | | 0 | | | 0 | | | 0 | | | 102 | | | 31 | | | 0 | | | 0 | | | 0 | | | 31 | |
Other (b) | | 36 | | | 0 | | | 0 | | | 0 | | | 36 | | | 25 | | | 0 | | | 0 | | | 0 | | | 25 | |
| Total assets at fair value | | $ | 242 | | | $ | 1,757 | | | $ | 35 | | | $ | 77 | | | $ | 2,111 | | | $ | 105 | | | $ | 1,799 | | | $ | 35 | | | $ | 86 | | | $ | 2,025 | |
(a) Includes investment in Epiris Club 2007 (formerly Electra Partners Club 2007 LP) and FF&P Investor 8 ERISA LP.
(b) Includes $23 million of investment sales, $17 million of accrued income and $(1) million of investment purchase payables.
(c) In accordance with Subtopic 820-10,ASC Topic 820, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
The following table represents investments based on net asset value and the significant unobservable inputs and the ranges of values for those inputs:
|
| | | | | | | | | | | | |
| | | Net Asset Value at December 31, 2017 | | Unfunded Commitments | | Redemption Frequency | | Redemption Notice Period |
Private Equity Funds (a) | | $ | 62 |
| | $ | 15 |
| | Not redeemable | | N/A |
Real Estate Funds (a) | | 33 |
| | 15 |
| | ** | | N/A |
Interest in Investment Partnerships (b) | | 12 |
| | N/A |
| | N/A | | N/A |
Investments measured at net asset value
| | $ | 107 |
| |
| |
| |
|
** Not redeemable, except for JP Morgan U.S. Real Estate Income & Growth, which has a quarterly redemption provision.
(a) The remaining lives of such investments range from less than one year up to eleven years.
(b) Investment partnerships whose investment objectives are to achieve long-term capital appreciation by investing in global equity markets.
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at December 31, 2016 (in millions) |
| | | Total | | Quoted Prices in
Active Markets
(Level 1) | | Other Significant Observable Inputs (Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Asset Classes | | | | | | | | |
| Short-term investments | | $ | 24 |
| | $ | 24 |
| | — |
| | $ | — |
|
| Equity Securities - U.S. | | 21 |
| | 21 |
| | — |
| | — |
|
| Corporate Bonds - U.S. | | 1,369 |
| | — |
| | 1,369 |
| | — |
|
| Government bonds - U.S. | | 173 |
| | — |
| | 173 |
| | — |
|
| Agency Mortgages | | 13 |
| | — |
| | 13 |
| | — |
|
| Timberlands | | 37 |
| | — |
| | — |
| | 37 |
|
Private equities (a) | | 1 |
| | — |
| | — |
| | 1 |
|
All Other (b) | | 18 |
| | 18 |
| | — |
| | — |
|
| Total assets in the fair value hierarchy | | $ | 1,656 |
| | $ | 63 |
| | 1,555 |
| | $ | 38 |
|
Investments measured at net asset value (c) | | 328 |
| | | | | | |
| Investments at fair value | | $ | 1,984 |
| | | | | | |
(a) Includes investment in Electra Partners Club 2007 LP and FF&P Investor 8 ERISA LP.
(b) Includes $15 million of investment sales, $16 million ofcash, accrued income, and $(13) million of investment purchasemiscellaneous payables.
(c) In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
The following table represents investments based on net asset value and the significant unobservable inputs and the ranges of values for those inputs:
|
| | | | | | | | | | | | |
| | | Net Asset Value at December 31, 2016 | | Unfunded Commitments | | Redemption Frequency | | Redemption Notice Period |
Private Equity Funds (a) | | $ | 66 |
| | $ | 22 |
| | Not redeemable | | N/A |
Real Estate Funds (a) | | 41 |
| | 21 |
| | ** | | N/A |
Interest in Internally Managed Partnership - Equity (b) | | 162 |
| | N/A |
| | N/A | | N/A |
Interest in Investment Partnerships (c) | | 59 |
| | N/A |
| | N/A | | N/A |
Investments measured at net asset value
| | $ | 328 |
| | | | | | |
** Not redeemable, except for JP Morgan U.S. Real Estate Income & Growth, which has quarterly redemption provisions.
(a) The remaining lives of such investments range from less than one year to up to twelve years.
(b) Underlying investments include:
|
| | | |
| Equity Securities – U.S. | $ | 160 |
|
Withdrawal(1) | (15 | ) |
Other(2) | 17 |
|
| Total | $ | 162 |
|
(1) This represents a withdrawal to rebalance the investment mix in the other benefits plan.
(2) Other includes $8 million of exchange-traded funds, $5 million in equity securities - foreign and $4 million in investment sales receivable.
(c) Investment partnerships whose investment objectives are to achieve long-term capital appreciation by investing in global equity markets.
The following table sets forth a summary of changes in the fair value of U. S. Steel’s Other Benefits plan Level 3 assets for the years ended December 31, 20172020 and 2016 (in millions):2019:
| | | | | | | | | | | | | | |
| | Level 3 assets only |
| (In millions) | | 2020 | | 2019 |
| Balance at beginning of period | | $ | 35 | | | $ | 35 | |
| Transfers in and/or out of Level 3 | | 0 | | | 0 | |
| Actual return on plan assets: | | | | |
| Realized gain | | 0 | | | 0 | |
| Net unrealized loss | | 0 | | | 0 | |
| Purchases, sales, issuances and settlements: | | | | |
| Purchases | | 2 | | | 0 | |
| Sales | | (2) | | | 0 | |
| Balance at end of period | | $ | 35 | | | $ | 35 | |
|
| | | | | | | | |
| | |
Level 3 assets only |
| (In millions) | | 2017 | | 2016 |
| Balance at beginning of period | | $ | 38 |
| | $ | 41 |
|
| Transfers in and/or out of Level 3 | | — |
| | — |
|
| Actual return on plan assets: | | | | |
| Net unrealized loss | | (2 | ) | | (2 | ) |
| Purchases, sales, issuances and settlements: | | | | |
| Sales | | (1 | ) | | (1 | ) |
| Balance at end of period | | $ | 35 |
| | $ | 38 |
|
U. S. Steel’s investment strategy for its U.S. pension and other benefitsOther Benefits plan assets provides for a diversified mix of public equities, high quality bonds, public equities and selected smaller investments in private equities, investment trusts and partnerships,private credit, timber and mineral interests. For its U.S. Pension,pension, U. S. Steel has a target allocation for plan assets of 5545 percent in equities (inclusive ofcorporate bonds, government bonds and mortgage and asset-backed securities. The balance is invested in equity securities, timber, private equity and investment trusts). The balance is primarily invested in corporate bonds, Treasury bonds and government-backed mortgages.real estate partnerships. U. S. Steel believes that returns on equities over the long term will be higher than returns from fixed-income securities as actual historical returns from U. S. Steel’s trusts have shown. Returns on bonds tend to offset some of the short-term volatility of stocks. Both equity and fixed-income investments are made across a broad range of industries and companies (both domestic and foreign) to provide protection against the impact of volatility in any single industry as well as company specific developments. U. S. Steel will use a 6.856.90 percent assumed rate of return on assets for the development of net periodic cost for the main defined benefit pension plan in 2018.2021. The 20182021 assumed rate of return is lower thanwas updated after a review of forecasted returns based on target allocations and an assessment of alpha returns. As a result, the expected asset return for 2021 was increased to 6.90 percent from the rate of return used for 20172020 domestic expense and was determined by taking into account the intended asset mix and some moderationnet periodic benefit cost of the historical premiums that fixed-income and equity investments have yielded above government bonds.6.50 percent. Actual returns since the inception of the plan have exceeded this 6.856.90 percent rate and while recent annual returns have been volatile, it is U. S. Steel’s expectation that rates will achieve this level in future periods.
The UPI investment strategy for its pension plan is to minimize the volatility of the value of pension assets relative to obligations and to ensure assets are sufficient to pay plan benefits. To achieve this strategy, UPI has a liability driven allocation of 60 percent in fixed income with the balance primarily invested in return seeking U.S. and global equity. UPI will use a 5.35 percent assumed rate of return on assets for the development of net periodic cost for the UPI defined benefit pension plan in 2021. The 2021 assumed rate of return was updated after a review of forecasted returns based on updated 2020 target allocations. As a result, the expected asset return for 2021 was lowered to 5.35 percent from the rate of return used for 2020 of 5.75 percent.
For its Other Benefits Plan,plan, U. S. Steel is now employing a liability driven investment strategy. The plan assets are allocated to match the plan cash flows with maturing investments. To achieve this strategy, U. S. Steel has a target allocation for plan assets of 90 percent in high quality domestic bonds with thebonds. The balance is primarily invested in equity securities.securities, timber, private equity, private credit and real estate partnerships. U. S. Steel will use a 4.25 percent assumed rate of return on assets for the development of net periodic cost for its Other Benefits Plan.Benefit plans for 2021. The 20182021 assumed rate of return is consistent with the rate of return used for 2020 and has been conservatively set taking into account the intended asset mix.
Steelworkers Pension Trust
U. S. Steel participates in a multi-employer defined benefit pension plan, the Steelworkers Pension Trust (SPT).
For most bargaining unit employees participating in the SPT, U. S. Steel contributes to the SPT a fixed dollar amount for each hour worked of $2.65; a rate agreed$3.35 through December 31, 2020. SPT contributions per hour worked increase to as part of the 2015 Labor Agreements, that are set to expire on September$3.50 effective January 1, 2018.2021. U. S. Steel’s contributions to the SPT represented greater than 5% of the total combined contributions of all employers participating in the plan for the years ended December 31, 2017, 20162020, 2019 and 2015.2018.
Participation in a multi-employer pension plan agreed to under the terms of a collective bargaining agreement differ from a traditional qualified single employer defined benefit pension plan. The SPT shares risks associated with the plan in the following respects:
a. Contributions to the SPT by U. S. Steel may be used to provide benefits to employees of other participating employers;
b. If a participating employer stops contributing to the SPT, the unfunded obligations of the plan may be borne by the remaining participating employers;
c. If U. S. Steel chooses to stop participating in the SPT, U. S. Steel may be required to pay an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
On March 21, 2011 the Board of Trustees of the SPT elected funding relief which has the effect of decreasing the amount of required minimum contributions in near-term years, but will increase the minimum funding requirements during later plan years. As a result of the election of funding relief, the SPT’s zone funding under the Pension Protection Act may be impacted.
In addition to the funding relief election, the Board of Trustees also elected a special amortization rule, which allows the SPT to separately amortize investment losses incurred during the SPT’s December 31, 2008 plan year-end over a 29 year period, whereas they were previously required to be amortized over a 15 year period.
U. S. Steel’s participation in the SPT for the annual periods ended December 31, 2017, 20162020, 2019 and 20152018 is outlined in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Employer
Identification
Number/
Pension Plan
Number | Pension Protection Act Zone
Status as of
December 31 (a) | FIP/RP Status
Pending/Implemented(b) | U.S. Steel
Contributions
(in millions) | Surcharge
Imposed(c) | Expiration Date
of Collective
Bargaining
Agreement |
| Pension Fund | 2020 | 2019 | 2020 | 2019 | 2018 | 2020 | 2019 |
| Steelworkers Pension Trust | 23-6648508/499 | Green | Green | No | $ | 76 | | $ | 77 | | $ | 60 | | No | No | September 1, 2022 |
(a)The zone status is based on information that U. S. Steel received from the plan and is certified by the plan’s actuary. Among other factors, plans in the green zone are at least 80 percent funded, while plans in the yellow zone are less than 80 percent funded and plans in the red zone are less than 65 percent funded. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Employer
Identification
Number/
Pension Plan
Number | | Pension Protection Act Zone
Status as of
December 31(a) | | FIP/RP Status
Pending/
Implemented(b) | | U.S. Steel
Contributions
(in millions) | | Surcharge
Imposed(c) | | Expiration Date
of Collective
Bargaining
Agreement |
| Pension Fund | | 2017 | | 2016 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | |
| Steelworkers Pension Trust | | 23-6648508/499 | | Green | | Green | | No | | $ | 59 |
| | $ | 63 |
| | $ | 66 |
| | No | | No | | September 1, 2018 |
| |
(a) | The zone status is based on information that U. S. Steel received from the plan and is certified by the plan’s actuary. Among other factors, plans in the green zone are at least 80 percent funded, while plans in the yellow zone are less than 80 percent funded and plans in the red zone are less than 65 percent funded.
|
| |
(b) | Indicates if a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. |
| |
(c) | Indicates whether there were charges to U. S. Steel from the plan. |
(c)Indicates whether there were charges to U. S. Steel from the plan.
Cash Flows
Employer Contributions – In
The following information is in addition to the contributions to the SPT noted in the table above, on November 20, 2017,above.
Employer Contributions – U. S. Steel made adid not make any voluntary contribution of $75 millionor mandatory contributions to the U. S. Steel Retirement Plan Trust whichin 2020 or 2019. The U. S. Steel Retirement Plan Trust is the funding vehicle for the Company's main defined benefit pension plan. In 2016, U. S. Steel made a voluntary contribution of 3,763,643 shares of common stock (the shares), par value of $1.00 per share, to the U. S. Steel Retirement Plan Trust. The shares were valued by an independent valuation firm for the purposes of the contribution at $26.57 per share, or approximately $100 million in the aggregate, which was the closing price of the Company's common stock on August 1, 2016.
For pension plans not funded by trusts, U. S. Steel made $13$7 million, $26$8 million and $38$20 million of pension payments not funded by trusts in 2017, 20162020, 2019 and 2015,2018, respectively.
Cash payments totaling $59$46 million, $61$45 million and $75$48 million were made for other post-employment benefit payments not funded by trusts in 2017, 20162020, 2019 and 2015,2018, respectively. In 20172020, 2019 and 2016,2018, U. S. Steel continued to use assets from our VEBA assetstrust for represented retiree health care and life insurance benefits to pay USW post-employment benefit claims. In addition, in 2015, we made a $10 million contribution to our VEBA. The 2015 Labor Agreements restructured prior contractual obligations that required U. S. Steel to make $235 million in cash contributions to the VEBA trust fund. These funds will now be used to help keep healthcare affordable for our retirees.
Estimated Future Benefit Payments – The following benefit payments, which reflect expected future service as appropriate, are expected to be paid from U. S. Steel’s defined benefit plans:
| | | | | | | | | | | | | | |
| (In millions) | | Pension
Benefits | | Other
Benefits |
| 2021 | | $ | 499 | | | $ | 147 | |
| 2022 | | 459 | | | 146 | |
| 2023 | | 435 | | | 143 | |
| 2024 | | 421 | | | 141 | |
| 2025 | | 409 | | | 138 | |
| Years 2026 - 2028 | | 1,867 | | | 604 | |
|
| | | | | | | | |
| (In millions) | | Pension
Benefits | | Other
Benefits |
| 2018 | | $ | 523 |
| | $ | 177 |
|
| 2019 | | 482 |
| | 183 |
|
| 2020 | | 471 |
| | 188 |
|
| 2021 | | 455 |
| | 189 |
|
| 2022 | | 442 |
| | 189 |
|
| Years 2023 - 2027 | | 2,039 |
| | 860 |
|
Defined contribution plans
U. S. Steel also contributes to several defined contribution plans for its salaried employees. Effective December 31, 2015,January 1, 2016, all non-represented salaried employees in North America receive pension benefits in the form of a separate retirement account through a defined contribution pension plan with contribution percentages based upon age, for which company contributions totaled $22$10 million, $23 million and $17$23 million in 2017, 20162020, 2019 and 2015,2018, respectively. U. S. Steel’s matching contributions to salaried employees’ defined contribution savings fund plans, which for the most part are based on a percentage100 percent of the employees’ contributions up to 6 percent of their eligible salary, totaled $8 million, $18 million and $17 million in 20172020, 2019 and 2016, and $22 million in 2015.2018, respectively. U. S. Steel also maintains non-qualified defined contribution plans to provide benefits which are otherwise limited by the Internal Revenue ServiceCode for qualified plans. U. S. Steel’s contributions under these defined contribution plans totaled $1 million, $1 million, and $4 million in 2017, 20162020, 2019 and 2015.2018, respectively.
Most represented employees are eligible to participate in a defined contribution savings fund plan where there is no company match on savings except for certain Tubular hourly employees. Effective with the 2015 Labor Agreement, represented hires on or after January 1, 2016 are eligible for a $0.50 per hour savings account contribution. As a result of the 2018 Labor Agreements, the savings account contribution for each hour worked will increase to $0.55 effective January 1, 2019, $0.60 effective January 1, 2020, and $0.65 effective January 1, 2021. These companyCompany contributions for represented employees totaled $1$4 million, $3 million and $2 million in 2017, 20162020, 2019 and 2015.2018, respectively.
Other post-employment benefits
The Company provides benefits to former or inactive employees after employment but before retirement. Certain benefits including workers’ compensation and black lung benefits represent material obligations to the Company and under the
guidance for nonretirement post-employment benefits, have historically been treated as accrued benefit obligations. Liabilities for these benefits recorded at December 31, 2017,2020, totaled $116$115 million as compared to $114$111 million at December 31, 2016.2019. Liability amounts were developed assuming a discount rate of 3.57%2.54% and 4.00%3.40% at December 31, 20172020 and 2016.2019. Net periodic benefit cost for these benefits is projected to be $12$16 million in 20182021 compared to $22$20 million in 20172020 and $3$21 million in 2016.2019.
Non-retirement post-employment benefits
U. S. Steel recorded a favorable adjustment associated with a change in estimate that resulted in a benefit of $2 million in 2017 compared to costs of less than $1 million in 2016, related to the accrual of employee costs for supplemental unemployment benefits and the continuation of health care benefits and life insurance coverage for employees associated with the temporary idling of certain facilities and reduced production at others. Payments for these benefits during 2017 and 2016 were $18 million and $81 million, respectively.
Pension Funding
In October 2017, U. S. Steel’s Board of Directors authorized voluntary contributions to U. S. Steel’s trusts for pensions and other benefits of up to $200 million through the end of 2018. On November 20, 2017, the Company made a voluntary contribution of $75 million to the U. S. Steel Retirement Plan Trust.
In November 2015, pension stabilization legislation further extended a revised interest rate formula to be used to measure defined benefit pension obligations for calculating minimum annual contributions. The new interest rate formula results in higher interest rates for minimum funding calculations as compared to prior law over the next few years, which will improve the funded status of our main defined benefit pension plan and reduce minimum required contributions.
U. S. Steel will monitor the funded status of the plan to determine when voluntary contributions may be prudent in order to mitigate potentially larger mandatory contributions in later years.
18.19. 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 for the years ended December 31, 20172020 and 2016:2019:
| | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2020 | | 2019 |
| Balance at beginning of year | | $ | 58 | | | $ | 60 | |
| Additional obligations incurred | | 5 | | | 4 | |
| Obligations settled | | (7) | | | (9) | |
| Foreign currency translation effects | | 1 | | | 0 | |
| Accretion expense | | 3 | | | 3 | |
| Balance at end of period | | $ | 60 | | | $ | 58 | |
|
| | | | | | | | | |
| | | December 31, | |
| (In millions) | | 2017 | | 2016 | |
| Balance at beginning of year | | $ | 79 |
| | $ | 89 |
| |
| Additional obligations incurred | | — |
| | 2 |
| |
| Obligations settled | | (8 | ) | | (15 | ) | |
| Change in estimate of obligations | | (6 | ) | | — |
| |
| Foreign currency translation effects | | 2 |
| | — |
| |
| Accretion expense | | 2 |
| | 3 |
| |
| Balance at end of period | | $ | 69 |
| | $ | 79 |
| |
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.
19.20. 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 Consolidated Balance Sheet approximate fair value. See Note 1516 for disclosure of U. S. Steel’s derivative instruments, which are accounted for at fair value on a recurring basis. Additionally, see Note 5
Big River Steel
On October 31, 2019, a wholly owned subsidiary of U. S. Steel purchased a 49.9% ownership interest in Big River Steel. The transaction included a call option (U. S. Steel Call Option) to acquire the remaining 50.1% within the next four years at an agreed-upon price formula.
The investment purchase also included options where the other Big River Steel equity owners could have required U. S. Steel to purchase their 50.1% ownership interest (Class B Common Put Option) or could have required U. S. Steel to sell its ownership interest (Class B Common Call Option) after the U. S. Steel Call Option expired. On December 8, 2020, U. S. Steel announced that it exercised the U. S. Steel Call Option to acquire the remaining equity of Big River Steel. The purchase of the remaining interest in Big River Steel closed on January 15, 2021 for disclosureapproximately $723 million in cash and the assumption of short-termliabilities of approximately $50 million.
Prior to exercise of the U. S. Steel Call Option, the options were marked to fair value each period using a Monte Carlo simulation which is considered a Level 3 valuation technique. Level 3 valuation techniques include inputs to the valuation methodology that are considered unobservable and significant to the fair value measurement. The simulation relied on assumptions that included Big River Steel's equity value, volatility, the risk free interest rate and U. S. Steel's credit spread. A significant factor in determining equity value was the discounted forecasted cash flows of Big River Steel. Forecasted cash flows are primarily impacted by the forecasted market price of steel and metallic inputs as well as the expected timing of significant capital expenditures. An updated forecast indicated an increase in the equity value which led to a favorable mark-to-market adjustment impact during 2020.
When the U. S. Steel Call Option was exercised on December 8, 2020, the options were legally extinguished and U. S. Steel recorded a contingent forward for the unsettled commitment to purchase the remaining interest in Big River
Steel. As this is a contingent forward contract to purchase a business, it is no longer considered a derivative subject to ASC 815, Derivative Instruments and Hedging Activities, and is not subject to subsequent fair value adjustments. The value of the contingent forward asset of $11 million was determined by subtracting the fixed U. S. Steel Call Option strike price from the estimated equity value of the 50.1% interest in Big River Steel as of December 8, 2020. The fair value of the remaining equity in Big River Steel was calculated using a financial model which is considered a Level 3 valuation technique. A significant factor in determining equity value was the discounted forecasted cash flows of Big River Steel. Forecasted cash flows are primarily impacted by the forecasted market price of steel and metallic inputs. The model utilized a weighted average of the income and market approach. The significant inputs under the income approach were the updated forecast, weighted average cost of capital of 11.0% and long-term receivablesrevenue growth rate of 2.0%. The market approach was primarily impacted by the EBITDA multiple of 8.5.
The following table shows the change in fair value by option from related parties (USSC Retainedthe investment purchase date of October 31, 2019 through December 31, 2019 that resulted in a $7 million loss. During the year-ended December 31, 2020, the value of these options were adjusted for fair value changes and then removed and the contingent forward asset discussed above was recorded resulting in a gain that totaled $39 million. The loss and gain amounts were recorded in Other Financial Costs on the Consolidated Statement of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Balance Sheet Location | | Fair Value asset/(liability at Purchase Date (a) | | Fair Value
Mark to Market
gain/(loss) | Fair Value asset/(liability) December 31, 2019 | | Fair Value
Mark to Market
gain/(loss) | | Fair Value asset/(liability)
at December 31, 2020 |
| U. S. Steel Call Option | | Investments and Long-Term Receivables | | $ | 162 | | | $ | 4 | | $ | 166 | | | $ | (166) | | | $ | 0 | |
Class B Common
Put Option | | Deferred credits and other noncurrent liabilities | | $ | (181) | | | $ | (11) | | $ | (192) | | | $ | 192 | | | $ | 0 | |
Class B Common
Call Option | | Deferred credits and other noncurrent liabilities | | $ | (2) | | | $ | 0 | | $ | (2) | | | $ | 2 | | | $ | 0 | |
| Contingent forward asset | | Investments and Long-Term Receivables | | 0 | | $ | 0 | | $ | 0 | | | $ | 11 | | | $ | 11 | |
| Net Mark to Market Impact | | | | | | $ | (7) | | | | $ | 39 | | | |
(a)On October 31, 2019 a wholly owned subsidiary of U. S. Steel purchased a 49.9% ownership interest in Big River Steel.
Stelco Option for Minntac Mine Interest
On April 30, 2020, the Company entered into an Option Agreement with Stelco, Inc. (Stelco), that grants Stelco the option to purchase a 25 percent interest (the Option Interest) in a to-be-formed entity (the Joint Venture) that will own the Company’s current iron ore mine located in Mt. Iron, Minnesota (the Minntac Mine). As consideration for the option, Stelco paid the Company an aggregate amount of $100 million in 5 $20 million installments during the year-ended December 31, 2020 which is presentedare recorded net of transaction costs in the allowance for doubtful accounts,Consolidated Balance Sheet. In the event Stelco exercises the option, Stelco will contribute an additional $500 million to the Joint Venture, which approximates fair value.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 assets and liabilities that were not carried at fair value at December 31, 20172020 and 2016.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| (In millions) | | Fair Value | | Carrying
Amount | | Fair Value | | Carrying
Amount |
| Financial liabilities: | | | | | | | | |
Short-term and long-term debt (a) | | $ | 5,323 | | | $ | 4,806 | | | $ | 3,576 | | | $ | 3,575 | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | December 31, 2016 |
| (In millions) | | Fair Value | | Carrying
Amount | | Fair Value | | Carrying
Amount |
| Financial liabilities: | | | | | | | | |
Long-term debt (a) | | $ | 2,851 |
| | $ | 2,678 |
| | $ | 3,139 |
| | $ | 3,002 |
|
(a)Excludes capitalfinance lease obligations.
The following methods and assumptions were used to estimate the fair value of financial instruments included in the table above:
Long-termlong-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 assets and 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 25.26.
20.
21. 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 (loss) before reclassifications | | 446 | | | (22) | | | (19) | | | 405 | |
Amounts reclassified from AOCI (a) | | 127 | | | 0 | | | 16 | | | 143 | |
| Net current-period other comprehensive income (loss) | | 573 | | | (22) | | | (3) | | | 548 | |
| Balance at December 31, 2019 | | $ | (843) | | | $ | 381 | | | $ | (16) | | | $ | (478) | |
| Other comprehensive income (loss) before reclassifications | | 271 | | | 68 | | | (49) | | | 290 | |
Amounts reclassified from AOCI (a) | | 114 | | | 0 | | | 27 | | | 141 | |
| Net current-period other comprehensive income (loss) | | 385 | | | 68 | | | (22) | | | 431 | |
| Balance at December 31, 2020 | | $ | (458) | | | $ | 449 | | | $ | (38) | | | $ | (47) | |
|
| | | | | | | | | | | | | | | | |
(In millions) (a) | | Pension and Other Benefit Items | | Foreign Currency Items | | Other | | Total |
| Balance at December 31, 2015 | | $ | (1,479 | ) | | $ | 312 |
| | $ | (2 | ) | | $ | (1,169 | ) |
| Other comprehensive (loss) income before reclassifications | | (111 | ) | | (38 | ) | | 20 |
| | (129 | ) |
| Amounts reclassified from AOCI | | (181 | ) | (b) | — |
| | (18 | ) | | (199 | ) |
| Net current-period other comprehensive (loss) income | | (292 | ) | | (38 | ) | | 2 |
| | (328 | ) |
| Balance at December 31, 2016 | | $ | (1,771 | ) | | $ | 274 |
| | $ | — |
| | $ | (1,497 | ) |
| Other comprehensive income before reclassifications | | 640 |
| | 189 |
| | 5 |
| | 834 |
|
| Amounts reclassified from AOCI | | (187 | ) | (b) | — |
| | (4 | ) | | (191 | ) |
| Sale of ownership interest in Tilden Mining Company L.C. | | 9 |
|
| — |
|
| — |
|
| 9 |
|
| Net current-period other comprehensive income | | 462 |
| | 189 |
| | 1 |
| | 652 |
|
| Balance at December 31, 2017 | | $ | (1,309 | ) | | $ | 463 |
| | $ | 1 |
| | $ | (845 | ) |
(a)Amounts for 2016 and 2017 do not reflect a tax benefit as a result of a full valuation allowance on our domestic deferred tax assets. Amounts for 2015 are shown net of tax. Amounts in parentheses indicate decreases in AOCI.
(b) See table below for further details.
| | | | | | | | | | | | | | | | | | | | |
(In millions) (a) | | Amount reclassified from AOCI |
| Details about AOCI components | | 2020 | | 2019 | | 2018 |
| Amortization of pension and other benefit items | | | | | | |
Prior service costs (a) | | $ | (4) | | | $ | 31 | | | $ | 29 | |
Actuarial losses (a) | | 129 | | | 135 | | | 156 | |
Settlements, termination and curtailment gains (a) | | 2 | | | 3 | | | 10 | |
| UPI purchase accounting adjustment | | 23 | | | 0 | | | 0 | |
| Total pensions and other benefits items | | 150 | | | 169 | | | 195 | |
| Derivative reclassifications to Consolidated Statements of Operations | | 32 | | | 22 | | | (19) | |
| Total before tax | | 182 | | | 191 | | | 176 | |
| Tax provision | | (41) | | | (48) | | | (42) | |
| Net of tax | | $ | 141 | | | $ | 143 | | | $ | 134 | |
(a)These AOCI components are included in the computation of net periodic benefit cost (see Note 18 for additional details).
|
| | | | | | | | | | | | | | |
| | | | | Amount reclassified
from AOCI |
(In millions) (a) | | Details about AOCI components | | 2017 | | 2016 | | 2015 |
| | | Amortization of pension and other benefit items | | | | | | |
| | | Prior service costs (b) | | $ | (29 | ) | | $ | (37 | ) | | $ | (11 | ) |
| | | Actuarial losses (b) | | (151 | ) | | (132 | ) | | (265 | ) |
| | | Settlements, termination and curtailment losses (b) | | (7 | ) | | (12 | ) | | — |
|
| | | Total before tax | | (187 | ) | | (181 | ) | | (276 | ) |
| | | Tax benefit | | — |
| | — |
| | 99 |
|
| | | Net of tax (c) | | $ | (187 | ) | | $ | (181 | ) | | $ | (177 | ) |
(a)Amounts in parentheses indicate decreases in AOCI.
| |
(b)
| These AOCI components are included in the computation of net periodic benefit cost (see Note 17 for additional details). |
(c) Amounts for 2016 and 2017 do not reflect a tax benefit as a result of a full valuation allowance on our domestic deferred tax assets.
21.22. Supplemental Cash Flow Information
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | | 2020 | | 2019 | | 2018 |
| Net cash (used in) provided by operating activities included: | | | | | | |
| Interest and other financial costs paid (net of amount capitalized) | | $ | (248) | | | $ | (151) | | | $ | (207) | |
| Income taxes refunded (paid) | | $ | 45 | | | $ | 38 | | | $ | (39) | |
| Non-cash investing and financing activities: | | | | | | |
| Change in accrued capital expenditures | | $ | (121) | | | $ | (70) | | | $ | 135 | |
| U. S. Steel common stock issued for employee/non-employee director stock plans | | $ | 19 | | | $ | 19 | | | $ | 21 | |
| Capital expenditures funded by finance lease borrowings | | $ | 31 | | | $ | 46 | | | $ | 0 | |
| Export Credit Agreement (ECA) financing | | $ | 34 | | | $ | 0 | | | $ | 0 | |
Big River Steel put and call options (a) | | $ | 0 | | | $ | 21 | | | $ | 0 | |
(a)The Big River Steel put and call options amount represents the excess of the Class B Common Put Option and the Class B Common Call Option liabilities over the U. S. Steel Call Option asset from U. S. Steel's acquisition of its 49.9% ownership interest in Big River Steel on October 31, 2019. See Note 20 for further details.
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (In millions) | | 2017 | | 2016 | | 2015 |
| Net cash used in operating activities included: | | | | | | |
| Interest and other financial costs paid (net of amount capitalized) | | $ | (242 | ) | | $ | (193 | ) | | $ | (229 | ) |
| Income taxes paid | | $ | (40 | ) | | $ | (6 | ) | | $ | — |
|
| Non-cash investing and financing activities: | | | | | | |
| Change in accrued capital expenditures | | $ | 208 |
| | $ | (110 | ) | | $ | 59 |
|
| U. S. Steel common stock issued for employee stock plans | | $ | 49 |
| | $ | 32 |
| | $ | 18 |
|
| U. S. Steel common stock issued for defined benefit pension plans | | $ | — |
| | $ | 100 |
| | $ | — |
|
22.23. 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 and USSC after the CCAA filing on September 16, 2014, but before the sale to an affiliate of Bedrock on June 30, 2017. Generally, transactions are conducted under long-term contractual arrangements. Related party sales and service transactions are primarily related to equity investees and were $1,204$976 million,, $1,216 $1,431 million and $1,463$1,420 million in 2017, 20162020, 2019 and 2015,2018, respectively. The long-termtransaction to purchase UPI included the assumption of $135 million of accounts payable owed to U. S. Steel for prior sales of steel substrate to UPI. This amount is reflected as a reduction in receivables from related parties was due from USSC. The $1,627 million was fully reservedon the Company's Consolidated Balance Sheet as both the corresponding receivable and payable amounts between U. S. Steel and UPI were eliminated in consolidation upon acquisition. See Note 5 for further details.
Purchases from related parties for steel substrate and outside processing services provided by equity investees and USSC after the CCAA filing on September 16, 2014, but before the sale to an affiliate of Bedrock, amounted to $70$90 million,, $80 $31 million and $383$29 million during 2017, 20162020, 2019 and 2015,2018, respectively. Purchases of iron ore pellets from related parties amounted to $140$78 million,, $177 $104 million and $203$91 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Accounts payable to related parties include balances due to PRO-TEC Coating Company (PRO-TEC) of $72$86 million and $63$82 million at December 31, 20172020 and 2016,2019, 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 including USSC after the CCAA filing on September 16, 2014, but before the sale to an affiliate of Bedrock, totaled $2$19 million and $3$2 million at December 31, 20172020 and 2016,2019, respectively.
23.24. Leases
Future minimum commitments for capital leases (including sale-leasebacks accounted for as financings) and for operating leases having initial non-cancelable lease terms in excess of one year are as follows:
|
| | | | | | | | |
| (In millions) | | Capital
Leases | | Operating
Leases |
| 2018 | | $ | 5 |
| | $ | 67 |
|
| 2019 | | 5 |
| | 48 |
|
| 2020 | | 5 |
| | 35 |
|
| 2021 | | 5 |
| | 28 |
|
| 2022 | | 12 |
| | 22 |
|
| Later years | | — |
| | 71 |
|
| Sublease rentals | | — |
| | — |
|
| Total minimum lease payments | | $ | 32 |
| | $ | 271 |
|
| Less imputed interest costs | | 7 |
| | |
| Present value of net minimum lease payments included in long-term debt (see Note 16) | | $ | 25 |
| | |
Operating lease rental expense:
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (In millions) | | 2017 | | 2016 | | 2015 |
| Minimum rentals | | $ | 114 |
| | $ | 115 |
| | $ | 117 |
|
| Contingent rentals | | 10 |
| | 8 |
| | 11 |
|
| Sublease rentals | | — |
| | — |
| | — |
|
| Net rental expense | | $ | 124 |
| | $ | 123 |
| | $ | 128 |
|
U. S. Steel leases a wide varietyassets consist primarily of office space, heavy mobile equipment used in our mining operations and facilities and equipment under operating leases, including landservice agreements for electricity generation and building space, office equipment, productionscrap processing. We also have operating lease assets for light mobile equipment and transportation equipment.information technology assets. Significant finance leases include the Fairfield slab caster lease and heavy mobile equipment used in our mining operations (see Note 17 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. See the discussion ofGenerally, we are not reasonably certain that these options will be exercised. We have residual value guarantees under “other contingencies”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 25. Contingent rental payments26 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.
The following table summarizes the lease amounts included in our Consolidated Balance Sheet as of December 31, 2020.
| | | | | | | | | | | | | | |
| (In millions) | Balance Sheet Location | December 31, 2020 | | December 31, 2019 |
| Assets | | | | |
| Operating | Operating lease assets (a) | $ | 214 | | | $ | 230 | |
| Finance | Property, plant and equipment (b) | 73 | | | 56 | |
| Total Lease Assets | | $ | 287 | | | $ | 286 | |
| | | | |
| Liabilities | | | | |
| Current | | | | |
| Operating | Current operating lease liabilities | $ | 59 | | | $ | 60 | |
| Finance | Current portion of long-term debt | 16 | | | 11 | |
| Non-Current | | | | |
| Operating | Noncurrent operating lease liabilities | 163 | | | 177 | |
| Finance | Long-term debt less unamortized discount and issue costs | 65 | | | 51 | |
| Total Lease Liabilities | | $ | 303 | | | $ | 299 | |
(a) Operating lease assets are determined based on operatingrecorded net of accumulated amortization of $96 million and $50 million as of December 31, 2020 and December 31, 2019, respectively.
(b) Finance lease agreements that include floating rental charges thatassets are directly associatedrecorded net of accumulated depreciation of $40 million and $27 million as of December 31, 2020 and December 31, 2019, respectively.
The following table summarizes lease costs included in our Consolidated Statement of Operations for the years ended December 31, 2020 and December 31, 2019.
| | | | | | | | | | | | | | |
| (In millions) | Classification | Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
Operating Lease Cost (a) | Cost of sales | $ | 67 | | | $ | 81 | |
| Operating Lease Cost | Selling, general and administrative expenses | 14 | | | 11 | |
| Finance Lease Cost | | | | |
| Amortization | Depreciation, depletion and amortization | 14 | | | 7 | |
| Interest | Interest expense | 4 | | | 3 | |
| Total Lease Cost | | $ | 99 | | | $ | 102 | |
(a) Operating lease cost recorded in cost of sales includes $7 million and $15 million of variable lease cost for the year ended December 31, 2020 and December 31, 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 December 31, 2020 are shown below.
| | | | | | | | | | | | | | | | | |
| (In millions) | Operating | | Finance | | Total |
| 2021 | $ | 73 | | | $ | 20 | | | $ | 93 | |
| 2022 | 54 | | | 24 | | | 78 | |
| 2023 | 42 | | | 12 | | | 54 | |
| 2024 | 33 | | | 10 | | | 43 | |
| 2025 | 24 | | | 8 | | | 32 | |
| After 2025 | 39 | | | 17 | | | 56 | |
| Total Lease Payments | $ | 265 | | | $ | 91 | | | $ | 356 | |
| Less: Interest | 43 | | | 10 | | | 53 | |
| Present value of lease liabilities | $ | 222 | | | $ | 81 | | | $ | 303 | |
Lease terms and discount rates are shown below.
| | | | | |
| December 31, 2020 |
| Weighted average lease term | |
| Finance | 5 years |
| Operating | 5 years |
| |
| Weighted average discount rate | |
| Finance | 4.94 | % |
| Operating | 7.45 | % |
Supplemental cash flow information related to variable operating components.leases is as follows:
| | | | | | | | | | | |
| (In millions) | Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 71 | | | $ | 72 | |
| Operating cash flows from finance leases | 4 | | | 3 | |
| Financing cash flows from finance leases | 13 | | | 7 | |
| Right-of-use assets exchanged for lease liabilities: | | | |
| Operating leases | 41 | | | 53 | |
| Finance leases | 31 | | | 46 | |
24.
25. Restructuring and Other Charges
During 2017, U. S. Steel2020, the Company recorded net restructuring and other charges of approximately $31$138 million, which consists of charges of $37$66 million primarily related tofor the permanent shutdownindefinite idling of a significant portion of Great Lakes Works, and relocationour Keetac mining operations which was restarted in the fourth quarter, $25 million for the indefinite idling of the No. 6 Quench & Temper Mill at Lorain Tubular Operations and a favorable adjustment of $6Lone Star Tubular Operations, and $15 million primarily associated with a change in estimateand $32 million for previously recordedemployee benefit costs for environmental obligations andrelated to Company-wide headcount reductions.reductions and headcount reductions under a voluntary early retirement program offered at USSK, respectively. Cash payments were made related to severance and exit costs of $32approximately $169 million. A portion of these cash payments, approximately
$38 million, were funded by the postretirement benefit trust (VEBA) per an agreement with the United Steelworkers of America.
During 2016,2019, U. S. Steel recorded net restructuring and other charges of approximately $122$275 million, which consists of: (1)of charges of $124$25 million related to the permanent shutdown of the Lorain #4, Lone Star #1at USSK for headcount reductions and Bellville pipe mills within our Tubular segment; (2) charges of $24plant exit costs, $227 million for Company-wide headcount reductions, including withinthe indefinite idling of our Flat-Rolled, TubularEast Chicago Tin operations, our finishing facility in Dearborn, Michigan, and USSE segments;the intended indefinite idling of a significant portion of Great Lakes Works and (3) a favorable adjustment of $26$23 million primarily associated with a change in estimate for previously recorded costs for Company-wide headcount reductions. Cash payments were made related to severance and exit costs of $79$35 million.
During 2018, restructuring and other charges recorded were immaterial. Cash payments were made related to severance and exit costs of $21 million.
Charges for restructuring and ongoing cost reduction initiatives are recorded in the period U. S. Steel commits to a restructuring or cost reduction plan, or executes specific actions contemplated by the plan and all criteria for liability recognition have been met. Charges related to the restructuring and cost reductions are reported in restructuring and other charges in the Consolidated Statements of Operations.
The activity in the accrued balances incurred in relation to restructuring and other cost reduction programs during the years ended December 31, 20172020 and December 31, 20162019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Employee Related Costs | | Exit Costs | | Non-cash Charges | | Total |
| Balance at December 31, 2018 | | $ | 0 | | | $ | 17 | | | $ | 0 | | | $ | 17 | |
| Additional charges | | 111 | | | 119 | | | 45 | | | $ | 275 | |
| Cash payments/utilization | | (24) | | | (11) | | | (45) | | | (80) | |
| Balance at December 31, 2019 | | $ | 87 | | | $ | 125 | | | $ | 0 | | | $ | 212 | |
| Additional charges | | 81 | | | 53 | | | 4 | | | 138 | |
| Cash payments/utilization | | (117) | | | (52) | | | (4) | | | (173) | |
| Balance at December 31, 2020 | | $ | 51 | | | $ | 126 | | | $ | 0 | | | $ | 177 | |
|
| | | | | | | | | | | | | | | | |
| (in millions) | | Employee Related Costs | | Exit Costs | | Non-cash Charges | | Total |
| Balance at December 31, 2015 | | $ | 48 |
| | $ | 107 |
| | $ | — |
| | $ | 155 |
|
| | | | | | | | | |
| Additional charges | | 24 |
| | — |
| | 124 |
| (a) | 148 |
|
| Cash payments/utilization | | (40 | ) | | (39 | ) | | (124 | ) | | (203 | ) |
| Other adjustments and reclasses | | (18 | ) | | (8 | ) | | — |
| | (26 | ) |
| | | | | | | | | |
| Balance at December 31, 2016 | | $ | 14 |
| | $ | 60 |
| | $ | — |
| | $ | 74 |
|
| | | | | | | | | |
| Additional charges | | 2 |
| | — |
|
| 35 |
| (b) | 37 |
|
| Cash payments/utilization | | (8 | ) | | (24 | ) | | (35 | ) | | (67 | ) |
| Other adjustments and reclasses | | (4 | ) | | (2 | ) | | — |
| | (6 | ) |
| | | | | | | | | |
| Balance at December 31, 2017 | | $ | 4 |
| | $ | 34 |
| | $ | — |
| | $ | 38 |
|
(a) Charges are primarily related to the write down of inventory and assets associated with the permanent shutdown of the Lorain #4 and Lone Star #1 pipe mills and Bellville Operations within our Tubular segment.
(b) Charges are primarily related to the write down of assets associated with the permanent shutdown and relocation of the No. 6 Quench & Temper Mill at Lorain Tubular Operations.
Accrued liabilities for restructuring and other cost reduction programs are included in the following balance sheet lines:
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2020 | | December 31, 2019 |
| Accounts payable | | $ | 34 | | | $ | 46 | |
| Payroll and benefits payable | | 29 | | | 64 | |
| Employee benefits | | 22 | | | 23 | |
| Deferred credits and other noncurrent liabilities | | 92 | | | 79 | |
| Total | | $ | 177 | | | $ | 212 | |
|
| | | | | | | | |
| (in millions) | | December 31, 2017 | | December 31, 2016 |
| Accounts payable | | $ | 26 |
| | $ | 50 |
|
| Payroll and benefits payable | | 4 |
| | 11 |
|
| Employee benefits | | — |
| | 1 |
|
| Deferred credits and other noncurrent liabilities | | 8 |
| | 12 |
|
| Total | | $ | 38 |
| | $ | 74 |
|
25.26. 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 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 December 31, 2017,2020, U. S. Steel was a defendant in approximately 820855 active cases involving approximately 3,3152,445 plaintiffs. The vast majority of these cases involve multiple defendants. At December 31, 2016, U. S. Steel was a defendant in approximately 845 cases involving approximately 3,340 plaintiffs. About 2,500,1,540, or approximately 7563 percent, of these plaintiff claims are currently pending in jurisdictions which permit filings with massive numbers of plaintiffs. At December 31, 2019, U. S. Steel was a defendant in approximately 800 cases involving approximately 2,390 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 year and the prior two years:
|
| | | | | | | | |
| Period ended | | Opening
Number
of Claims | | Claims
Dismissed,
Settled
and Resolved | | New
Claims | | Closing
Number
of Claims |
| December 31, 2015 | | 3,455 | | 415 | | 275 | | 3,315 |
| December 31, 2016 | | 3,315 | | 225 | | 250 | | 3,340 |
| December 31, 2017 | | 3,340 | | 275 | | 250 | | 3,315 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period ended | | Opening
Number
of Claims | | Claims Dismissed, Settled and Resolved (a) | | New
Claims | | Closing
Number
of Claims |
| December 31, 2018 | | 3,315 | | 1,285 | | 290 | | 2,320 |
| December 31, 2019 | | 2,320 | | 195 | | 265 | | 2,390 |
| December 31, 2020 | | 2,390 | | 240 | | 295 | | 2,445 |
(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 2019 and 2020, 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, although the resolution of such matters could significantly impact results of operations for a particular quarter.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:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | | 2020 | | 2019 |
| Beginning of period | | $ | 186 | | | $ | 187 | |
| Accruals for environmental remediation deemed probable and reasonably estimable | | 7 | | | 20 | |
| | | | |
| Obligations settled | | (47) | | | (21) | |
| End of period | | $ | 146 | | | $ | 186 | |
|
| | | | | | | | |
| | | Year Ended December 31, |
| (In millions) | | 2017 | | 2016 |
| Beginning of period | | $ | 179 |
| | $ | 197 |
|
| Accruals for environmental remediation deemed probable and reasonably estimable | | 8 |
| | 1 |
|
| Adjustments for changes in estimates | | — |
| | (7 | ) |
| Obligations settled | | (8 | ) | | (12 | ) |
| End of period | | $ | 179 |
| | $ | 179 |
|
Accrued liabilities for remediation activities are included in the following Consolidated Balance Sheet lines:
| | | | | | | | | | | | | | |
| (In millions) | | December 31, 2020 | | December 31, 2019 |
| Accounts payable | | $ | 43 | | | $ | 53 | |
| Deferred credits and other noncurrent liabilities | | 103 | | | 133 | |
| Total | | $ | 146 | | | $ | 186 | |
|
| | | | | | | | |
| (In millions) | | December 31, 2017 | | December 31, 2016 |
| Accounts payable | | $ | 29 |
| | $ | 19 |
|
| Deferred credits and other noncurrent liabilities | | 150 |
| | 160 |
|
| Total | | $ | 179 |
| | $ | 179 |
|
Expenses related to remediation are recorded in cost of sales and were immaterial for the years ended December 31, 2017,2020, December 31, 20162019 and December 31, 2015.2018. It is not presentlycurrently 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 1520 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:
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(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, Cherryvale Zinc and the former steelmaking plant at Joliet, Illinois. As of December 31, 2017, 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 $30 million to $50 million.
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| |
(2) | Significant Projects with Defined Scope – Projects with significant accrued liabilities with a defined scope. As of December 31, 2017, there are three significant projects with defined scope greater than or equal to $5 million each, with a total accrued liability of $135 million. These projects are: Gary Resource Conservation and Recovery Act (RCRA) (accrued liability of $25 million), the former Geneva facility (accrued liability of $63 million), and the former Duluth facility St. Louis River Estuary (accrued liability of $47 million).
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(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 December 31, 2017 was $4 million. These projects have progressed through a significant portion of the design phase and material additional costs are not expected.
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(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 4 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), and the former steelmaking plant at Joliet, Illinois. As of December 31, 2020, 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) Significant Projects with Defined Scope – Projects with significant accrued liabilities with a defined scope. As of December 31, 2020, there are 4 significant projects with defined scope greater than or equal to $5 million each, with a total accrued liability of $87 million. These projects are: Gary Resource Conservation and Recovery Act (RCRA) (accrued liability of $25 million), the former Geneva facility (accrued liability of $21 million), the Cherryvale Zinc site (accrued liability of $7 million) and the former Duluth facility St. Louis River Estuary (accrued liability of $34 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 3 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 December 31, 2020 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 December 31, 20172020 was approximately $6$3 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$23 million at December 31, 20172020 and were based on known scopes of work.
Administrative and Legal Costs – As of December 31, 2017,2020, U. S. Steel had an accrued liability of $8$13 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 bring existing facilities into compliancecomply with various regulations, laws, and other requirements relating to the environment. In 20172020 and 2016,2019, such capital expenditures totaled $52$42 million and $31$123 million, respectively. U. S. Steel anticipates making additional such expenditures in the future;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 EmissionEU Emissions Trading Scheme (ETS)System (EU ETS), USSK'sUSSE's final allocation of free allowances for the Phase III period, which covers the years 2013 through 2020 is 48 million allowances. Based on projected futuretotal production levels, we started to purchase allowances in the third quarter of 2017 to meet the annual compliance submission in the future. As of December 31, 2017,2020, we have purchased 5approximately 12.3 million European Union Allowances (EUA) totaling €36€141 million (approximately $44$173 million). We estimate a to cover the estimated Phase III period shortfall of approximately 16 million allowances for the Phase III period. However, due to a number of variables such as the future market value of allowances, future production levels and future emission intensity levels, we cannot reliably estimate the fullallowances. The exact cost of complying with the EU ETS regulations atwill depend on verified 2020 emissions.
In the fourth quarter of 2020 USSE started purchasing allowances for the Phase IV period. As of December 31, 2020, we have pre-purchased approximately 1.5 million EUA totaling €38 million (approximately $47 million). Currently, the overall target is a 40 percent reduction of 1990 emissions by 2030. Ongoing political discussions indicate that an even more stringent target of 60 percent may be instituted. At this time.time, carbon neutrality of the EU industry is set to be achieved by 2050.
The EU's Industry EmissionIndustrial 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 futureTotal capital expenditures for projects to comply with or go beyond BAT requirements is €138 million (approximately $166$169 million) over the 2017 to 2020actual program period. ThereThese 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 ongoing efforts to seek EU grants to fund a portionassessed annually. USSK complied with these covenants as of these capital expenditures. The actual amount spent will depend largely upon the amount of EU incentive grants received.
Due to other EU legislation requirements - BAT for Large Combustion Plants (LCP),December 31, 2020. If we are unable to meet these covenants in the future, USSK might be required to make changesprovide additional collateral (e.g. bank guarantee) to the boilers at our steam and power generation plant in order to comply with stricter air emission limits for large combustion plants. The new requirements for LCP resulted in the construction of a new boiler and certain upgrades to our existing boilers. In January 2014, the operation of USSK's boilers was approved by the European Commission (EC) as part of Slovakia's Transitional National Plan (TNP) for bringing all boilers in Slovakia into compliance by no later than 2020. The TNP establishes emission ceilings for each category of emissions (total suspended particulate, sulfur dioxide (SO2) and nitrogen oxide (NOx)) for both stacks within the power plant. The allowable amount of discharged emissions will decrease each year until mid 2020. An emission ceiling will be a limiting factor for future operationsecure 50 percent of the boilers. The boiler projects have been approved by our Board of Directors and we are now in the execution phase. These projects will result in a reduction in electricity, carbon dioxide (CO2) emissions and operating, maintenance and waste disposal costs once completed. The construction of the new boiler is complete with a total final installed cost of €128 million (approximately $154 million). Reconstruction of the existing boiler with a projected cost of €54 million (approximately $65 million) is in progress. The total remaining to be spent on the existing boiler project is projected to be €7 million (approximately $8 million). Broad legislative changes were enacted by the Slovak Republic to extend the scope of support for renewable sources of energy, that are intended to allow USSK to participate in Slovakia's renewable energy incentive program once the boiler projects are completed.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.
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 $179$146 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 and other obligations of unconsolidated entities of U. S. Steel totaled $4$7 million at December 31, 2017.2020.
EPA Region V Federal Lawsuit – This is a Clean Air Act (CAA) enforcement action brought in Federal Court in the Northern District of Indiana in 2012. The U.S. Government, joined by the States of Illinois, Indiana, and Michigan initiated the action alleging the Company violated the CAA and failed to have in place appropriate pollution control equipment at Gary Works, Granite City Works, and Great Lakes Works. A Consent Decree with a proposed settlement agreement was filed with the Court on November 22, 2016. As part of the settlement agreement, U. S. Steel agreed to perform seven supplemental environmental projects totaling approximately $3 million and to pay a civil penalty of approximately $2 million. The enforcement action concluded on March 30, 2017 when the Court signed and entered the Consent Decree. In April 2017, U. S. Steel satisfied payment of the approximately $2 million civil penalty and is currently in various phases of implementing the supplemental environmental projects.
CCAA- On September 16, 2014, USSC commenced court-supervised restructuring proceedings under CCAA before the Ontario Superior Court of Justice (the Court). As part of the CCAA proceedings, U. S. Steel submitted both secured and unsecured claims of approximately C$2.2 billion which were verified by the court-appointed Monitor. U. S. Steel's claims were challenged by a number of interested parties, and on February 29, 2016, the Court denied those challenges and verified U. S. Steel's secured claims in the amount of approximately $119 million and unsecured claims of approximately C$1.8 billion and $120 million. The interested parties had appealed the determinations of the Court, but the appeals have been discontinued as a result of the sale of USSC to Bedrock on June 30, 2017 for approximately $127 million.
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 $10$23 million at December 31, 2017)2020). NoNaN 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 $158$222 million as of December 31, 2017,2020, 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 Third Amended and Restated 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 $44$133 million and $40$190 million at December 31, 20172020 and December 31, 20162019 respectively.
Capital Commitments– At December 31, 2017,2020, U. S. Steel’s contractual commitments to acquire property, plant and equipment totaled $397$583 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Later years | | Total |
| $962 | | $956 | | $395 | | $175 | | $139 | | $702 | | $3,329 |
|
| | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Later years | | Total |
| $617 | | $419 | | $313 | | $307 | | $295 | | $1,259 | | $3,210 |
The majority of U. S. Steel’s unconditional purchase obligations relatesrelate to the supply of industrial gases, and certain energy and utility services with terms ranging from two to 15 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 December 31, 2017,2020, if U. S. Steel were to terminate the agreement, it may be obligated to pay in excess of $175$110 million.
Total payments relating to unconditional purchase obligations were approximately $576$553 million in 2017, $4572020, $653 million in 20162019 and $408$600 million in 2015.2018.
26.27. Common Stock IssuanceIssued and Repurchased
On August 15, 2016, the CompanyJune 22, 2020, U. S. Steel issued 21,735,00050 million shares of common stock par(par value of $1.00$1 per share,share) at a price of $23.00$8.2075 per share, in an underwritten public offering. Third-party expenses related to the issuance of approximately $18 million were recorded as a decrease to additional paid-in capital, resulting in net proceeds of approximately $482$410 million.
In November 2018, U. S. Steel announced 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 through 2020 at the discretion of management. U. S. Steel repurchased 5,289,475 shares of common stock for approximately $88 million under this program during 2019. In December 2019, the Board of Directors terminated the authorization for the common stock repurchase program.
28. Subsequent Event
Big River Steel
On October 31, 2019, a wholly owned subsidiary of U. S. Steel purchased a 49.9% ownership interest in Big River Steel at a purchase price of approximately $683 million in cash, with a call option (U. S. Steel Call Option) to acquire the remaining 50.1% within the next four years at an agreed-upon price formula. On December 8, 2020, U. S. Steel announced that it exercised the U. S. Steel Call Option to acquire the remaining equity of Big River Steel. The purchase of the remaining interest in Big River Steel closed on January 15, 2021 for approximately $723 million in cash and the assumption of liabilities of approximately $50 million. Big River Steel is a technologically advanced mini mill that completed an expansion in November 2020 that doubled its hot-rolled steel production capacity to 3.3 million tons annually. See Note 5 for further details.
After the closing of the Big River Steel purchase on January 15, 2021, additional indebtedness of approximately $1.9 billion (excluding any potential step-up to fair value) became the financial obligation of the Company and will be included on our Consolidated Balance Sheet in future periods. Below is a summary:
•6.625% Senior Secured Notes in the aggregate principal amount of $900 million that mature on January 31, 2029 that pay interest semi-annually on January 31 and July 31 of each year;
•4.50% Arkansas Development Finance Authority Bonds in the amount of $487 million that have a final maturity of September 1, 2049 that pay interest semi-annually on each March 1 and September 1;
•4.75% Arkansas Development Finance Authority Bonds Tax Exempt Series 2020 (Green Bonds) in the amount of $265 million that have a final maturity on September 1, 2049 and pay interest semi-annually on March 1 and September 1 each year;
•Other debt including loans and leases that total approximately $200 million.
Equity and Debt Offerings and Redemption of the 2025 Senior Secured Debt
On February 5, 2021, we sold 42,000,000 shares of our common stock for net proceeds of approximately $687 million. The sale of shares of our common stock could reach 48,300,000 with net proceeds of approximately $790 million if the underwriter exercises in full their 30 day option to purchase additional shares.
On February 11, 2021, the Company issued $750 million aggregate principal amount of Senior Notes due 2029.
On February 2, 2021, U. S. Steel issued a notice of redemption to redeem approximately $370 million of aggregate principal amount outstanding of its 12.000% 2025 Senior Secured Notes due 2025. U. S. Steel intends to use the net proceeds from the Senior Notes offering, together with cash on hand, to redeem the remaining approximately $687 million aggregate principal amount outstanding of its 2025 Senior Secured Notes and pay related fees and expenses.
Credit Facility Activity
The following credit facility activity has occurred in January and early February of 2021:
•On January 15, 2021, a payment of €50 million (approximately $61 million) was made under the USSK Credit Agreement.
•On January 22, 2021, our Big River Steel subsidiary borrowed $50 million under its credit facility.
•On January 29, 2021, a payment of $100 million was made under the Credit Facility Agreement.
•On February 10, 2021, notice was given that we intend to make an additional payment on February 16, 2021 of $250 million under the Credit Facility Agreement.
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| (In millions, except per share data) | | 4th Qtr. (a) | | 3rd Qtr. | | 2nd Qtr. | | 1st Qtr. | | 4th Qtr. | | 3rd Qtr. | | 2nd Qtr. | | 1st Qtr. |
| Net sales | | $ | 2,562 | | | $ | 2,340 | | | $ | 2,091 | | | $ | 2,748 | | | $ | 2,824 | | | $ | 3,069 | | | $ | 3,545 | | | $ | 3,499 | |
| Segment (loss) earnings before interest and income taxes: | | | | | | | | | | | | | | | | |
| Flat-rolled | | (73) | | | (159) | | | (329) | | | (35) | | | (79) | | | 46 | | | 134 | | | 95 | |
| USSE | | 36 | | | 13 | | | (26) | | | (14) | | | (30) | | | (46) | | | (10) | | | 29 | |
| Tubular | | (32) | | | (52) | | | (47) | | | (48) | | | (46) | | | (25) | | | (6) | | | 10 | |
| Total reportable segments | | $ | (69) | | | $ | (198) | | | $ | (402) | | | $ | (97) | | | $ | (155) | | | $ | (25) | | | $ | 118 | | | $ | 134 | |
| Other Businesses | | (6) | | | (13) | | | (21) | | | 1 | | | (3) | | | 8 | | | 10 | | | 8 | |
| Items not allocated to segments | | 118 | | | — | | | (109) | | | (279) | | | (218) | | | (63) | | | (13) | | | (31) | |
| Total earnings (loss) before interest and income taxes | | $ | 43 | | | $ | (211) | | | $ | (532) | | | $ | (375) | | | $ | (376) | | | $ | (80) | | | $ | 115 | | | $ | 111 | |
| Net earnings (loss) | | 49 | | | (234) | | | (589) | | | (391) | | | (668) | | | (84) | | | 68 | | | 54 | |
| Net earnings (loss) attributable to United States Steel Corporation | | $ | 49 | | | $ | (234) | | | $ | (589) | | | $ | (391) | | | $ | (668) | | | $ | (84) | | | $ | 68 | | | $ | 54 | |
| | | | | | | | | | | | | | | | |
| Gross profit | | $ | 178 | | | $ | 45 | | | $ | (183) | | | $ | 143 | | | $ | 43 | | | $ | 167 | | | $ | 318 | | | $ | 327 | |
| | | | | | | | | | | | | | | | |
| Common stock data | | | | | | | | | | | | | | | | |
| Net earnings (loss) per share attributable to United States Steel Corporation | | | | | | | | | | | | | | | | |
| - Basic | | $ | 0.22 | | | $ | (1.06) | | | $ | (3.36) | | | $ | (2.30) | | | $ | (3.93) | | | $ | (0.49) | | | $ | 0.39 | | | $ | 0.31 | |
| - Diluted | | $ | 0.22 | | | $ | (1.06) | | | $ | (3.36) | | | $ | (2.30) | | | $ | (3.93) | | | $ | (0.49) | | | $ | 0.39 | | | $ | 0.31 | |
| Dividends paid per share | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.05 | | | $ | 0.05 | | | $ | 0.05 | | | $ | 0.05 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 |
| (In millions, except per share data) | | 4th Qtr. | | 3rd Qtr. | | 2nd Qtr. | | 1st Qtr. | | 4th Qtr. | | 3rd Qtr. | | 2nd Qtr. | | 1st Qtr. |
| Net sales | | $ | 3,133 |
| | $ | 3,248 |
| | $ | 3,144 |
| | $ | 2,725 |
| | $ | 2,650 |
| | $ | 2,686 |
| | $ | 2,584 |
| | $ | 2,341 |
|
| Segment earnings (loss) before interest and income taxes: | | | | | | | | | | | | | | | | |
| Flat-rolled | | 92 |
| | 160 |
| | 218 |
| | (90 | ) | | 65 |
| | 114 |
| | 6 |
| | (188 | ) |
| USSE | | 112 |
| | 73 |
| | 55 |
| | 87 |
| | 63 |
| | 81 |
| | 55 |
| | (14 | ) |
| Tubular | | (6 | ) | | (7 | ) | | (29 | ) | | (57 | ) | | (87 | ) | | (75 | ) | | (78 | ) | | (64 | ) |
| Total reportable segments | | $ | 198 |
| | $ | 226 |
| | $ | 244 |
| | $ | (60 | ) | | $ | 41 |
| | $ | 120 |
| | $ | (17 | ) | | $ | (266 | ) |
| Other Businesses | | 10 |
| | 12 |
| | 9 |
| | 13 |
| | 21 |
| | 18 |
| | 10 |
| | 14 |
|
| Items not allocated to segments | | (60 | ) | | 7 |
| | 60 |
| | (51 | ) | | (126 | ) | | (6 | ) | | 35 |
| | (9 | ) |
| Total earnings (loss) before interest and income taxes | | $ | 148 |
| | $ | 245 |
| | $ | 313 |
| | $ | (98 | ) | | $ | (64 | ) | | $ | 132 |
| | $ | 28 |
| | $ | (261 | ) |
| Net earnings (loss) | | 159 |
| | 147 |
| | 261 |
| | (180 | ) | | (105 | ) | | 51 |
| | (46 | ) | | (340 | ) |
| Net earnings (loss) attributable to United States Steel Corporation | | $ | 159 |
| | $ | 147 |
| | $ | 261 |
| | $ | (180 | ) | | $ | (105 | ) | | $ | 51 |
| | $ | (46 | ) | | $ | (340 | ) |
| | | | | | | | | | | | | | | | | |
| Gross profit (loss) | | $ | 384 |
| | $ | 419 |
| | $ | 419 |
| | $ | 164 |
| | $ | 220 |
| | $ | 326 |
| | $ | 187 |
| | $ | (95 | ) |
| | | | | | | | | | | | | | | | | |
| Common stock data | | | | | | | | | | | | | | | | |
| Net earnings (loss) per share attributable to United States Steel Corporation | | | | | | | | | | | | | | | | |
| - Basic | | $ | 0.91 |
| | $ | 0.84 |
| | $ | 1.49 |
| | $ | (1.03 | ) | | $ | (0.61 | ) | | $ | 0.32 |
| | $ | (0.32 | ) | | $ | (2.32 | ) |
| - Diluted | | $ | 0.90 |
| | $ | 0.83 |
| | $ | 1.48 |
| | $ | (1.03 | ) | | $ | (0.61 | ) | | $ | 0.32 |
| | $ | (0.32 | ) | | $ | (2.32 | ) |
| Dividends paid per share | | $ | 0.05 |
| | $ | 0.05 |
| | $ | 0.05 |
| | $ | 0.05 |
| | $ | 0.05 |
| | $ | 0.05 |
| | $ | 0.05 |
| | $ | 0.05 |
|
| Price range of common stock | | | | | | | | | | | | | | | | |
| - Low | | $ | 24.93 |
| | $ | 21.37 |
| | $ | 19.09 |
| | $ | 31.09 |
| | $ | 16.17 |
| | $ | 15.72 |
| | $ | 12.77 |
| | $ | 6.15 |
|
| - High | | $ | 35.74 |
| | $ | 27.63 |
| | $ | 34.50 |
| | $ | 41.31 |
| | $ | 39.14 |
| | $ | 27.64 |
| | $ | 20.55 |
| | $ | 17.04 |
|
SUPPLEMENTARY INFORMATION ON MINERAL RESERVES OTHER THAN OIL AND GAS
(Unaudited)
Mineral Reserves
U. S. Steel operates two surface iron ore mining complexes in Minnesota consisting of the Minntac Mine and Pellet Plant and the Keetac Mine and Pellet Plant. As of December 31, 20172020 U. S. Steel owns an interest in the iron ore mining assets of Hibbing Taconite Company.
The following table provides a summary of our reserves and minerals production by mining complex:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Proven and Probable Reserves
As of December 31, 2020 | | Production |
| (Millions of short tons) | | Owned | | Leased | | Total | | 2020 | | 2019 | | 2018 |
| Iron ore pellets: | | | | | | | | | | | | |
| Minntac Mine and Pellet Plant | | 112 | | | 288 | | | 400 | | | 14.1 | | | 14.4 | | | 15.9 | |
| Keetac Mine and Pellet Plant | | 19 | | | 347 | | | 366 | | | 2.0 | | | 5.8 | | | 5.9 | |
Hibbing Taconite Company(1) | | — | | | 5 | | | 5 | | | 0.9 | | | 1.2 | | | 1.3 | |
| Total | | 131 | | | 640 | | | 771 | | | 17.0 | | | 21.4 | | | 23.1 | |
(1) Represents U. S. Steel’s proportionate share of proven and probable reserves and production as these investments are unconsolidated equity affiliates. |
| | | | | | | | | | | | | | | | | | |
| | | Proven and Probable Reserves
As of December 31, 2017 | | Production |
| (Millions of short tons) | | Owned | | Leased | | Total | | 2017 | | 2016 | | 2015 |
| Iron ore pellets: | | | | | | | | | | | | |
| Minntac Mine and Pellet Plant | | 104 |
| | 376 |
| | 480 |
| | 16.0 |
| | 15.0 |
| | 13.6 |
|
| Keetac Mine and Pellet Plant | | 19 |
| | 361 |
| | 380 |
| | 5.1 |
| | — |
| | 1.9 |
|
Tilden Mining Company, L.C.(1)( 2) | | — |
| | — |
| | — |
| | 0.8 |
| | 1.3 |
| | 0.6 |
|
Hibbing Taconite Company(1) | | — |
| | 8 |
| | 8 |
| | 1.3 |
| | 1.3 |
| | 1.3 |
|
| Total | | 123 |
| | 745 |
| | 868 |
| | 23.2 |
| | 17.6 |
| | 17.4 |
|
| |
(1) | Represents U. S. Steel’s proportionate share of proven and probable reserves and production as these investments are unconsolidated equity affiliates. |
| |
(2) | On September 29, 2017, a subsidiary of U. S. Steel completed the sale of its 15% ownership interest in Tilden Mining Company L.C. |
Iron Ore Reserves
Reserves are defined by SEC Industry Standard Guide 7 as that part of a mineral deposit that could be economically and legally extracted and produced at the time of the reserve determination. The estimate of proven and probable reserves is of recoverable tons. Recoverable tons mean the tons of product that can be used internally or delivered to a customer after considering mining and beneficiation or preparation losses. Neither inferred reserves nor resources that exist in addition to proven and probable reserves were included in these figures. At December 31, 2017,2020, all 868771 million tons of proven and probable reserves are assigned, which means that they have been committed by U. S. Steel to its operating mines and are of blast furnace pellet grade.
U. S. Steel estimates its iron ore reserves using exploration drill holes, physical inspections, sampling, laboratory testing, 3-D computer models, economic pit analysis and fully-developed pit designs for its operating mines. These estimates are reviewed and reassessed from time to time. The most recent such review for our Keetac operating mine was completed in 2013 and resulted in an increase in the proven and probable reserves primarily due to additional exploration drilling and development of an economic computerized mine plan. The most recent review for our Minntac operating mine was conducted in 20052019 and led U. S. Steel to reduce its determination of proven and probable reserves mainlyresulted in a decrease due to excluding areas where samplingupdated drilling and measurement did not meet its new 600-foot drill spacing standard, based on updated geostatistical studies. Estimateseconomic parameters. The estimate for our share of the unconsolidated equity affiliates areaffiliate is based upon information supplied by the joint ventures.venture. The most recent such reviewsreview for Hibbing Taconite Company was conducted in 2015.
FIVE-YEAR OPERATING SUMMARY (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Thousands of tons, unless otherwise noted) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Raw Steel Production | | | | | | | | | | |
| Gary, IN | | 4,675 | | 4,974 | | 5,958 | | 5,755 | | 5,608 |
| Great Lakes, MI | | 328 | | 1,964 | | 2,369 | | 2,592 | | 2,543 |
| Mon Valley, PA | | 2,552 | | 2,331 | | 2,640 | | 2,473 | | 2,555 |
| Granite City, IL | | 1,758 | | 2,140 | | 926 | | — | | — |
| Total Flat-Rolled facilities | | 9,313 | | 11,409 | | 11,893 | | 10,820 | | 10,706 |
| Fairfield, AL | | 16 | | — | | — | | — | | — |
| Total Tubular facilities | | 16 | | — | | — | | — | | — |
| U. S. Steel Košice | | 3,366 | | 3,903 | | 5,023 | | 5,091 | | 4,967 |
| Total | | 12,695 | | 15,312 | | 16,916 | | 15,911 | | 15,673 |
| Raw Steel Capability | | | | | | | | | | |
| Flat-Rolled | | 17,000 | | 17,000 | | 17,000 | | 17,000 | | 17,000 |
Tubular (c) | | 900 | | — | | — | | — | | — |
| USSE | | 5,000 | | 5,000 | | 5,000 | | 5,000 | | 5,000 |
| Total | | 22,900 | | 22,000 | | 22,000 | | 22,000 | | 22,000 |
| Production as % of total capability: | | | | | | | | | | |
| Flat-Rolled | | 55 | % | | 67 | % | | 70 | % | | 64 | % | | 63 | % |
Tubular (c) | | 7 | % | | — | % | | — | % | | — | % | | — | % |
| USSE | | 67 | % | | 78 | % | | 100 | % | | 102 | % | | 99 | % |
| Coke Production | | | | | | | | | | |
| Flat-Rolled | | 2,557 | | 3,485 | | 3,718 | | 3,416 | | 2,961 |
| USSE | | 1,116 | | 1,328 | | 1,514 | | 1,497 | | 1,545 |
| Total | | 3,673 | | 4,813 | | 5,232 | | 4,913 | | 4,506 |
Iron Ore Pellet Production (a) | | | | | | | | | | |
| Total | | 16,981 | | 21,450 | | 23,054 | | 23,246 | | 17,635 |
Steel Shipments by Segment (b) | | | | | | | | | | |
| Flat-Rolled | | 8,711 | | 10,700 | | 10,510 | | 9,887 | | 10,094 |
| USSE | | 3,041 | | 3,590 | | 4,457 | | 4,585 | | 4,496 |
| Tubular | | 464 | | 769 | | 780 | | 688 | | 400 |
| Total steel shipments | | 12,216 | | 15,059 | | 15,747 | | 15,160 | | 14,990 |
| Average Realized Price (dollars per net ton) | | | | | | | | | | |
| Flat-Rolled | | $ | 718 | | | $ | 753 | | | $ | 811 | | | $ | 726 | | | $ | 666 | |
| USSE | | $ | 626 | | | $ | 652 | | | $ | 693 | | | $ | 622 | | | $ | 483 | |
| Tubular | | $ | 1,271 | | | $ | 1,450 | | | $ | 1,483 | | | $ | 1,253 | | | $ | 1,071 | |
(a)Includes our share of production from Hibbing and Tilden. As a result of the sale of our ownership interest, iron ore pellet production amounts do not include Tilden after September 29, 2017.
(b)Does not include intersegment shipments or shipments by joint ventures and other equity investees of U. S. Steel. Includes shipments from U. S. Steel to joint ventures and equity investees of substrate materials, primarily hot-rolled and cold-rolled sheets.
(c)The Fairfield Electric Arc Furnace commenced operation in October 2020. The 2020 production as a % of total capability amount is based on an October 1, 2020 start date.
|
| | | | | | | | | | | | | | | | | | | | |
| (Thousands of tons, unless otherwise noted) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Raw Steel Production | | | | | | | | | | |
| Gary, IN | | 5,755 |
| | 5,608 |
| | 5,172 |
| | 5,936 |
| | 6,396 |
|
| Great Lakes, MI | | 2,592 |
| | 2,543 |
| | 2,257 |
| | 2,442 |
| | 2,883 |
|
| Mon Valley, PA | | 2,473 |
| | 2,555 |
| | 2,266 |
| | 2,563 |
| | 2,918 |
|
| Granite City, IL | | — |
| | — |
| | 1,162 |
| | 2,285 |
| | 2,538 |
|
Fairfield, AL(a) | | — |
| | — |
| | 480 |
| | 1,992 |
| | 1,943 |
|
Lake Erie, Ontario, Canada(a) | | — |
| | — |
| | — |
| | 1,744 |
| | 1,189 |
|
| Total Flat-Rolled facilities | | 10,820 |
| | 10,706 |
| | 11,337 |
| | 16,962 |
| | 17,867 |
|
| U. S. Steel Košice | | 5,091 |
| | 4,967 |
| | 4,669 |
| | 4,788 |
| | 4,598 |
|
| Total | | 15,911 |
| | 15,673 |
| | 16,006 |
| | 21,750 |
| | 22,465 |
|
| Raw Steel Capability | | | | | | | | | | |
Flat-Rolled(a) | | 17,000 |
| | 17,000 |
| | 17,000 |
| | 19,400 |
| | 24,300 |
|
| USSE | | 5,000 |
| | 5,000 |
| | 5,000 |
| | 5,000 |
| | 5,000 |
|
| Total | | 22,000 |
| | 22,000 |
| | 22,000 |
| | 24,400 |
| | 29,300 |
|
| Production as % of total capability: | | | | | | | | | | |
| Flat-Rolled | | 64 | % | | 63 | % | | 60 | % | | 80 | % | | 74 | % |
| USSE | | 102 | % | | 99 | % | | 93 | % | | 96 | % | | 92 | % |
| Coke Production | | | | | | | | | | |
Flat-Rolled(a) | | 3,416 |
| | 2,961 |
| | 3,957 |
| | 5,406 |
| | 6,494 |
|
| USSE | | 1,497 |
| | 1,545 |
| | 1,600 |
| | 1,539 |
| | 1,508 |
|
| Total | | 4,913 |
| | 4,506 |
| | 5,557 |
| | 6,945 |
| | 8,002 |
|
Iron Ore Pellet Production(b) | | | | | | | | | | |
| Total | | 23,246 |
| | 17,635 |
| | 17,422 |
| | 24,959 |
| | 24,151 |
|
Steel Shipments by Segment(c) | | | | | | | | | | |
Flat-Rolled(a) | | 9,887 |
| | 10,094 |
| | 10,595 |
| | 13,908 |
| | 14,644 |
|
| USSE | | 4,585 |
| | 4,496 |
| | 4,357 |
| | 4,179 |
| | 4,000 |
|
| Tubular | | 688 |
| | 400 |
| | 593 |
| | 1,744 |
| | 1,757 |
|
| Total steel shipments | | 15,160 |
| | 14,990 |
| | 15,545 |
| | 19,831 |
| | 20,401 |
|
| Average Realized Price (dollars per net ton) | | | | | | | | | | |
| Flat-Rolled | | $ | 726 |
| | $ | 666 |
| | $ | 695 |
| | $ | 772 |
| | $ | 735 |
|
| USSE | | $ | 622 |
| | $ | 483 |
| | $ | 516 |
| | $ | 667 |
| | $ | 706 |
|
| Tubular | | $ | 1,253 |
| | $ | 1,071 |
| | $ | 1,464 |
| | $ | 1,538 |
| | $ | 1,530 |
|
| |
(a) | As a result of the CCAA filing and deconsolidation of USSC on September 16, 2014, the year ended December 31, 2014 raw steel and coke production amounts and shipments for Flat-Rolled do not include USSC after September 15, 2014 and Flat-Rolled's annual raw steel capability was reduced to 19.4 million tons. As a result of the permanent shutdown of the blast furnace and associated steelmaking operations, along with most of the flat-rolled finishing operations at Fairfield Works late in the third quarter of 2015, Flat-Rolled's annual raw steel capability was reduced to 17.0 million tons. In 2015, coke operations at Gary Works and Granite City Works were permanently shutdown. |
| |
(b) | Includes our share of production from Hibbing and Tilden. |
| |
(c) | Does not include shipments by joint ventures and other equity investees of U. S. Steel, but instead reflects the shipments of substrate materials, primarily hot-rolled and cold-rolled sheets, to those entities. |
FIVE-YEAR OPERATING SUMMARY (Unaudited) (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Thousands of net tons) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Steel Shipments by Market - North American Facilities (a) (c) | | | | | | | | | | |
| Steel service centers | | 1,450 | | 1,902 | | 1,904 | | 1,953 | | 2,094 |
| Further conversion: | | | | | | | | | | |
| Trade customers | | 2,063 | | 2,823 | | 2,273 | | 1,738 | | 1,420 |
Joint ventures (b) | | 415 | | 819 | | 810 | | 715 | | 414 |
Transportation and automotive (b) | | 2,012 | | 2,620 | | 2,874 | | 2,982 | | 2,228 |
| Construction and construction products | | 1,295 | | 1,120 | | 991 | | 951 | | 1,025 |
| Containers and packaging | | 913 | | 652 | | 768 | | 715 | | 2,107 |
| Appliances and electrical equipment | | 497 | | 570 | | 599 | | 594 | | 600 |
| Oil, gas and petrochemicals | | 430 | | 725 | | 742 | | 647 | | 360 |
| All other | | 100 | | 238 | | 329 | | 280 | | 246 |
| Total | | 9,175 | | 11,469 | | 11,290 | | 10,575 | | 10,494 |
| Steel Shipments by Market - USSE | | | | | | | | | | |
| Steel service centers | | 690 | | 740 | | 799 | | 761 | | 801 |
| Further conversion: | | | | | | | | | | |
| Trade customers | | 202 | | 214 | | 287 | | 284 | | 274 |
| Transportation and automotive | | 517 | | 676 | | 728 | | 708 | | 660 |
| Construction and construction products | | 775 | | 1,048 | | 1,637 | | 1,831 | | 1,811 |
| Containers and packaging | | 435 | | 440 | | 439 | | 438 | | 436 |
| Appliances and electrical equipment | | 194 | | 220 | | 261 | | 247 | | 236 |
| Oil, gas and petrochemicals | | 5 | | — | | 11 | | 10 | | 4 |
| All other | | 223 | | 252 | | 295 | | 306 | | 274 |
| Total | | 3,041 | | 3,590 | | 4,457 | | 4,585 | | 4,496 |
(a)Does not include shipments by joint ventures and other equity investees of U. S. Steel, but instead reflects the shipments of substrate materials, primarily hot-rolled and cold-rolled sheets, to those entities.
(b)PRO-TEC automotive substrate shipments are included in the Transportation and Automotive category.
(c)Shipments previously reported in 2018, 2017 and 2016 as Exports have been reclassified to one of the other categories to which they relate.
|
| | | | | | | | | | | | | | | |
| (Thousands of net tons) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Steel Shipments by Market - North American Facilities(a) (b) | | | | | | | | | | |
| Steel service centers | | 1,587 |
| | 1,765 |
| | 1,702 |
| | 2,578 |
| | 2,721 |
|
| Further conversion: | | | | | | | | | | |
| Trade customers | | 2,951 |
| | 2,650 |
| | 3,039 |
| | 4,013 |
| | 4,409 |
|
| Joint ventures | | 1,513 |
| | 1,423 |
| | 1,254 |
| | 1,519 |
| | 1,664 |
|
| Transportation (including automotive) | | 1,453 |
| | 1,725 |
| | 2,011 |
| | 2,445 |
| | 2,480 |
|
| Construction and construction products | | 706 |
| | 765 |
| | 704 |
| | 897 |
| | 905 |
|
| Containers | | 597 |
| | 600 |
| | 692 |
| | 1,287 |
| | 1,259 |
|
| Appliances & electrical equipment | | 406 |
| | 420 |
| | 429 |
| | 616 |
| | 666 |
|
| Oil, gas and petrochemicals | | 631 |
| | 340 |
| | 513 |
| | 1,545 |
| | 1,540 |
|
| Export from the United States | | 468 |
| | 456 |
| | 259 |
| | 340 |
| | 450 |
|
| All other | | 263 |
| | 350 |
| | 585 |
| | 412 |
| | 307 |
|
| Total | | 10,575 |
| | 10,494 |
| | 11,188 |
| | 15,652 |
| | 16,401 |
|
| Steel Shipments by Market - USSE | | | | | | | | | | |
| Steel service centers | | 761 |
| | 801 |
| | 718 |
| | 682 |
| | 560 |
|
| Further conversion: | | | | | | | | | | |
| Trade customers | | 284 |
| | 274 |
| | 304 |
| | 299 |
| | 286 |
|
| Transportation (including automotive) | | 708 |
| | 660 |
| | 705 |
| | 674 |
| | 709 |
|
| Construction and construction products | | 1,831 |
| | 1,811 |
| | 1,703 |
| | 1,584 |
| | 1,501 |
|
| Containers | | 438 |
| | 436 |
| | 424 |
| | 403 |
| | 393 |
|
| Appliances & electrical equipment | | 247 |
| | 236 |
| | 236 |
| | 267 |
| | 275 |
|
| Oil, gas and petrochemicals | | 10 |
| | 4 |
| | — |
| | 3 |
| | 15 |
|
| All other | | 306 |
| | 274 |
| | 267 |
| | 267 |
| | 261 |
|
| Total | | 4,585 |
| | 4,496 |
| | 4,357 |
| | 4,179 |
| | 4,000 |
|
| |
(a) | Does not include shipments by joint ventures and other equity investees of U. S. Steel, but instead reflects the shipments of substrate materials, primarily hot-rolled and cold-rolled sheets, to those entities. |
| |
(b) | As a result of the CCAA filing, shipments do not include USSC after September 15, 2014. |
FIVE-YEAR FINANCIAL SUMMARY (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Net sales by segment: | | | | | | | | | | |
Flat-Rolled(a) | | $ | 8,491 |
| | $ | 7,532 |
| | $ | 8,561 |
| | $ | 12,895 |
| | $ | 12,830 |
|
| USSE | | 2,974 |
| | 2,246 |
| | 2,326 |
| | 2,936 |
| | 2,944 |
|
| Tubular | | 945 |
| | 451 |
| | 898 |
| | 2,774 |
| | 2,777 |
|
| Total reportable segments | | $ | 12,410 |
| | $ | 10,229 |
| | $ | 11,785 |
| | $ | 18,605 |
| | $ | 18,551 |
|
| Other Businesses | | 179 |
| | 169 |
| | 165 |
| | 269 |
| | 273 |
|
| Intersegment sales | | (339 | ) | | (137 | ) | | (376 | ) | | (1,367 | ) | | (1,400 | ) |
| Total | | $ | 12,250 |
| | $ | 10,261 |
| | $ | 11,574 |
| | $ | 17,507 |
| | $ | 17,424 |
|
| Segment earnings (loss) before interest and income taxes: | | | | | | | | | | |
Flat-Rolled(a) | | $ | 380 |
| | $ | (3 | ) | | $ | (237 | ) | | $ | 709 |
| | $ | 105 |
|
| USSE | | 327 |
| | 185 |
| | 81 |
| | 133 |
| | 28 |
|
| Tubular | | (99 | ) | | (304 | ) | | (179 | ) | | 261 |
| | 190 |
|
| Total reportable segments | | $ | 608 |
| | $ | (122 | ) | | $ | (335 | ) | | $ | 1,103 |
| | $ | 323 |
|
| Other Businesses | | 44 |
| | 63 |
| | 33 |
| | 82 |
| | 77 |
|
Items not allocated to segments(b) | | (44 | ) | | (106 | ) | | (900 | ) | | (772 | ) | | (2,300 | ) |
| Total earnings (loss) before interest and income taxes | | $ | 608 |
| | $ | (165 | ) | | $ | (1,202 | ) | | $ | 413 |
| | $ | (1,900 | ) |
| Net interest and other financial costs | | 307 |
| | 251 |
| | 257 |
| | 243 |
| | 332 |
|
| Income tax (benefit) provision | | (86 | ) | | 24 |
| | 183 |
| | 68 |
| | (587 | ) |
| Net earnings (loss) attributable to United States Steel Corporation | | $ | 387 |
| | $ | (440 | ) | | $ | (1,642 | ) | | $ | 102 |
| | $ | (1,645 | ) |
| Per common share: | | | | | | | | | | |
| - Basic | | $ | 2.21 |
| | $ | (2.81 | ) | | $ | (11.24 | ) | | $ | 0.71 |
| | $ | (11.37 | ) |
| - Diluted | | $ | 2.19 |
| | $ | (2.81 | ) | | $ | (11.24 | ) | | $ | 0.69 |
| | $ | (11.37 | ) |
| |
(a) | Excludes the results of USSC beginning September 16, 2014 as a result of the CCAA filing. |
| |
(b) | See Note 4 to the Consolidated Financial Statements. |
FIVE-YEAR FINANCIAL SUMMARY (Unaudited) (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Net sales by segment: | | | | | | | | | | |
| Flat-Rolled | | $ | 7,279 | | | $ | 9,560 | | | $ | 9,912 | | | $ | 8,491 | | | $ | 7,532 | |
| USSE | | 1,970 | | | 2,420 | | | 3,228 | | | 2,974 | | | 2,246 | |
| Tubular | | 646 | | | 1,191 | | | 1,236 | | | 945 | | | 451 | |
| Total reportable segments | | $ | 9,895 | | | $ | 13,171 | | | $ | 14,376 | | | $ | 12,410 | | | $ | 10,229 | |
| Other Businesses | | 162 | | | 168 | | | 186 | | | 179 | | | 169 | |
| Intersegment sales | | (316) | | | (402) | | | (384) | | | (339) | | | (137) | |
| Total | | $ | 9,741 | | | $ | 12,937 | | | $ | 14,178 | | | $ | 12,250 | | | $ | 10,261 | |
| Segment earnings (loss) before interest and income taxes: | | | | | | | | | | |
| Flat-Rolled | | $ | (596) | | | $ | 196 | | | $ | 883 | | | $ | 375 | | | $ | 22 | |
| USSE | | 9 | | | (57) | | | 359 | | | 327 | | | 185 | |
| Tubular | | (179) | | | (67) | | | (58) | | | (99) | | | (303) | |
| Total reportable segments | | $ | (766) | | | $ | 72 | | | $ | 1,184 | | | $ | 603 | | | $ | (96) | |
| Other Businesses | | (39) | | | 23 | | | 55 | | | 44 | | | 63 | |
Items not allocated to segments (b) | | (270) | | | (325) | | | (115) | | | 22 | | | (168) | |
Total (loss) earnings before interest and income taxes (a) | | $ | (1,075) | | | $ | (230) | | | $ | 1,124 | | | $ | 669 | | | $ | (201) | |
Net interest and other financial costs (a) | | 232 | | | 222 | | | 312 | | | 368 | | | 215 | |
| Income tax provision (benefit) | | (142) | | | 178 | | | (303) | | | (86) | | | 24 | |
| Net (loss) earnings attributable to United States Steel Corporation | | $ | (1,165) | | | $ | (630) | | | $ | 1,115 | | | $ | 387 | | | $ | (440) | |
| Per common share: | | | | | | | | | | |
| - Basic | | $ | (5.92) | | | $ | (3.67) | | | $ | 6.31 | | | $ | 2.21 | | | $ | (2.81) | |
| - Diluted | | $ | (5.92) | | | $ | (3.67) | | | $ | 6.25 | | | $ | 2.19 | | | $ | (2.81) | |
(a)Amounts have been adjusted to include $61 million and ($36) million in 2017 and 2016 respectively, of postretirement benefit expense (other than service cost) related to the retrospective presentation change of net periodic benefit cost of our defined benefit pension and other post-employment benefits as a result of the adoption of Accounting Standards Update 2017-07, Compensation - Retirement Benefits on January 1, 2018.
(b)See Note 4 to the Consolidated Financial Statements.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
Balance Sheet Position at Year-End (dollars in millions) (a) | | | | | | | | | | | |
| Current assets | | $ | 4,755 |
| | $ | 4,356 |
| | $ | 3,917 |
| | $ | 5,829 |
| | $ | 5,502 |
| |
| Net property, plant & equipment | | 4,280 |
| | 3,979 |
| | 4,411 |
| | 4,574 |
| | 5,922 |
| |
| Total assets | | 9,862 |
| | 9,160 |
| | 9,167 |
| (b) | 11,975 |
| (b)(c) | 12,679 |
| (b)(c) |
| Short-term debt and current maturities of long-term debt | | 3 |
| | 50 |
| | 45 |
| | 378 |
| | 323 |
| |
| Other current liabilities | | 2,718 |
| | 2,281 |
| | 2,103 |
| | 3,191 |
| | 2,922 |
| |
| Long-term debt | | 2,700 |
| | 2,981 |
| | 3,093 |
| (b) | 3,082 |
| (b) | 3,569 |
| (b) |
| Employee benefits | | 759 |
| | 1,216 |
| | 1,101 |
| | 1,117 |
| | 2,064 |
| |
| Total United States Steel Corporation stockholders’ equity | | 3,320 |
| | 2,274 |
| | 2,436 |
| | 3,799 |
| | 3,375 |
| |
| Cash Flow Data (dollars in millions) | | | | | | | | | | | |
Net cash provided by operating activities(a) (d) | | $ | 802 |
| | $ | 731 |
| (e) | $ | 360 |
| (e) | $ | 1,558 |
| (e) | $ | 408 |
| (e) |
Capital expenditures(a) (d) | | 505 |
| | 306 |
| | 500 |
| | 480 |
| | 468 |
| |
| Dividends paid | | 35 |
| | 31 |
| | 29 |
| | 29 |
| | 29 |
| |
| Employee Data | | | | | | | | | | | |
Total employment costs (dollars in millions)(a) | | $ | 2,477 |
|
| $ | 2,342 |
|
| $ | 2,780 |
| | $ | 3,408 |
| | $ | 3,611 |
| |
Average North America employment costs (dollars per hour)(a) | | $ | 62.32 |
| | $ | 61.75 |
| | $ | 65.64 |
| | $ | 57.55 |
| | $ | 55.06 |
| |
Average number of North America employees(a) | | 15,326 |
| | 15,048 |
| | 19,391 |
| | 22,408 |
| | 25,621 |
| |
| Average number of USSE employees | | 11,948 |
|
| 11,927 |
|
| 12,052 |
| | 12,272 |
| | 12,470 |
| |
| Number of pensioners at year-end | | 45,837 |
| | 47,765 |
| | 49,802 |
| | 52,483 |
| | 68,221 |
| |
| Stockholder Data at Year-End | | | | | | | | | | | |
| Common shares outstanding, net of treasury shares (millions) | | 175.2 |
| | 173.8 |
| | 146.3 |
| | 145.7 |
| | 144.7 |
| |
| Registered shareholders (thousands) | | 13.8 |
| | 14.8 |
| | 15.4 |
| | 16.1 |
| | 16.8 |
| |
| Market price of common stock | | $ | 35.19 |
| | $ | 33.01 |
| | $ | 7.98 |
| | $ | 26.74 |
| | $ | 29.50 |
| |
| |
(a) | Excludes the results of USSC beginning September 16, 2014 as a result of the CCAA filing. |
| |
(b) | 2015, 2014 and 2013 amounts have been adjusted to retroactively adopt Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability.
|
| |
(c) | 2014 and 2013 amounts have been adjusted to retroactively adopt Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet.
|
| |
(d) | 2014 and 2013 amounts have been revised to correct a prior period error that resulted in an increase in capital expenditures of $61 million, and a decrease in capital expenditures of $9 million, respectively, with an offsetting change to net cash provided by operating activities. |
| |
(e) | 2016, 2015, 2014 and 2013 amounts have been adjusted to retroactively adopt Accounting Standards Update 2016-09, Compensation - Stock Compensation, which requires that cash taxes paid by the Company when directly withholding shares for tax withholding purposes be classified as a cash flow from financing activity.
|
FIVE-YEAR FINANCIAL SUMMARY (Unaudited) (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Balance Sheet Position at Year-End (dollars in millions) | | | | | | | | | | |
| Current assets | | $ | 4,432 | | | $ | 3,813 | | | $ | 4,830 | | | $ | 4,755 | | | $ | 4,356 | |
| Net property, plant & equipment | | 5,444 | | | 5,447 | | | 4,865 | | | 4,280 | | | 3,979 | |
| Total assets | | 12,059 | | | 11,608 | | | 10,982 | | | 9,862 | | | 9,160 | |
| Short-term debt and current maturities of long-term debt | | 192 | | | 14 | | | 65 | | | 3 | | | 50 | |
| Other current liabilities | | 2,464 | | | 2,611 | | | 3,132 | | | 2,770 | | | 2,281 | |
| Long-term debt | | 4,695 | | | 3,627 | | | 2,316 | | | 2,700 | | | 2,981 | |
| Employee benefits | | 322 | | | 532 | | | 980 | | | 759 | | | 1,216 | |
| Total United States Steel Corporation stockholders’ equity | | 3,786 | | | 4,092 | | | 4,202 | | | 3,320 | | | 2,274 | |
| Cash Flow Data (dollars in millions) | | | | | | | | | | |
Net cash provided by operating activities (a) (b) | | $ | 138 | | | $ | 682 | | | $ | 938 | | | $ | 826 | | | $ | 754 | |
| Capital expenditures | | 725 | | | 1,252 | | | 1,001 | | | 505 | | | 306 | |
| Dividends paid | | 8 | | | 35 | | | 36 | | | 35 | | | 31 | |
| Employee Data | | | | | | | | | | |
| Total employment costs (dollars in millions) | | $ | 2,327 | | | $ | 2,870 | | | $ | 2,824 | | | $ | 2,477 | | | $ | 2,342 | |
| Average North America employment costs (dollars per hour) | | $ | 63.25 | | | $ | 65.70 | | | $ | 65.97 | | | $ | 62.32 | | | $ | 61.75 | |
| Average number of North America employees | | 14,582 | | | 16,633 | | | 16,258 | | | 15,326 | | | 15,048 | |
| Average number of USSE employees | | 9,906 | | | 11,314 | | | 11,993 | | | 11,948 | | | 11,927 | |
| Number of pensioners at year-end | | 40,138 | | | 41,198 | | | 43,573 | | | 45,837 | | | 47,765 | |
| Stockholder Data at Year-End | | | | | | | | | | |
| Common shares outstanding, net of treasury shares (millions) | | 220.4 | | | 170.0 | | | 174.5 | | | 175.2 | | | 173.8 | |
| Registered stockholders (thousands) | | 11.7 | | | 12.1 | | | 13.0 | | | 13.8 | | | 14.8 | |
| Market price of common stock | | $ | 16.77 | | | $ | 11.41 | | | $ | 18.24 | | | $ | 35.19 | | | $ | 33.01 | |
(a)2016 amounts have been adjusted to retroactively adopt Accounting Standards Update 2016-09, Compensation - Stock Compensation, which requires that cash taxes paid by the Company when directly withholding shares for tax withholding purposes be classified as a cash flow from financing activity.
(b)2017 and 2016 amounts have been adjusted to retroactively adopt Accounting Standards Update 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which requires that all payments to extinguish debt now be presented as cash outflows from financing activities on our Consolidated Statement of Cash Flows.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of U. S. Steel’s management, including the chief executive officer and chief financial officer, U. S. Steel conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, U. S. Steel’s chief executive officer and chief financial officer concluded that U. S. Steel’s disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
See “Item 8. Financial Statements and Supplementary Data – Management’s Reports to Stockholders – Internal Control Over Financial Reporting.”
Attestation Report of Independent Registered Public Accounting Firm
See “Item 8. Financial Statements and Supplementary Data – Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control Over Financial Reporting
There have not been any changes in U. S. Steel’s internal control over financial reporting that occurred during the fourth quarter of 20172020 which have materially affected, or are reasonably likely to materially affect, U. S. Steel’s internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning the directors of U. S. Steel required by this item is incorporated and made part hereof by reference to the material appearing under the heading “Election of Directors” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, no later than 120 days after the end of the fiscal year. Information concerning the Audit Committee and its financial expert required by this item is incorporated and made part hereof by reference to the material appearing under the heading “Corporate Governance - Board Committees – Audit Committee” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders. Information regarding the Nominating Committee required by this item is incorporated and made part hereof by reference to the material appearing under the heading “Corporate Governance - Board Committees – Corporate Governance & Public PolicySustainability Committee” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders. Information regarding the ability of stockholders to communicate with the Board of Directors is incorporated and made part hereof by reference to the material appearing under the heading “Communications from Stockholders and Interested Parties” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders. Information regarding compliance with Section 16(a) of the Exchange Act required by this item is incorporated and made part hereof by reference to the material appearing under the heading “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders. Information concerning the executive officers of U. S. Steel is contained in Part I of this Form 10-K under the caption “Executive Officers of the Registrant.”
U. S. Steel has adopted a Code of Ethical Business Conduct that applies to all of our directors and officers, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. U. S. Steel will provide a copy of this code free of charge upon request. To obtain a copy, contact the Office of the Corporate Secretary, United States Steel Corporation, 600 Grant Street, Pittsburgh, Pennsylvania, 15219-2800 (telephone: 412-433-1121). The Code of Ethical Business Conduct is also available through the Company’s website at www.ussteel.com. U. S. Steel does not intend to incorporate the contents of our website into this Annual Report on Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated and made part hereof by reference to the material appearing under the heading “Compensation & Organization Committee Report” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
| | | | | | | | | | | |
| Plan Category | (1) Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights | (2) Weighted-average
exercise price of
outstanding options,
warrants and rights | (3) Number of securities remaining available for future issuance under equity compensation plans [excluding securities reflected in Column (1)] (b) |
Equity compensation plans approved by security holders (a) | 9,380,548 | $25.98 | 6,092,033 |
Equity compensation plans not approved by security holders(c) | — | (one for one) | — |
| Total | 9,380,548 | — | 6,092,033 |
|
| | | | | | |
| Plan Category | | (1) Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights | | (2) Weighted-average
exercise price of
outstanding options,
warrants and rights | | (3) Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
Column (1)) |
Equity compensation plans approved by security holders(a) | | 7,250,994 | | $28.92 | | 12,579,984(b) |
Equity compensation plans not approved by security holders(c) | | 5,055 | | (one for one) | | — |
| Total | | 7,256,049 | | — | | 12,579,984 |
| |
(a) | The numbers in columns (1) and (2) of this row contemplate all shares that could potentially be issued as a result of outstanding grants under the 2005 Stock Incentive Plan and the 2016 Omnibus Incentive Compensation Plan as of December 31, 2017. (For more information, see Note 14 to the Consolidated Financial Statements. Column (1) includes (i) 418,246 shares of common stock that could be issued for the Common Stock Units outstanding under the Deferred Compensation Program for Non-Employee Directors and (ii) 1,031,062 shares that could be issued for the 515,531 performance awards outstanding under the Long-Term Incentive Compensation Program (a program under the 2005 Stock Incentive Plan and the 2016 Omnibus Incentive Compensation Plan). The calculation in column (2) does not include the Common Stock Units since the weighted average exercise price for Common Stock Units is one for one; that is, one share of common stock will be given in exchange for each unit of such phantom stock accumulated through the date of the director’s retirement. Also, the calculation in column (2) does not include the performance awards since the weighted average exercise price for performance awards can range from zero for one to two for one; that is, performance awards may result in up to 1,031,062 shares of common stock being issued (two for one), or some lesser number of shares (including zero shares of common stock issued), depending upon the Corporation’s common stock performance versus that of a peer group of companies. |
| |
(b) | Represents shares available under the 2005 Stock Incentive Plan and 2016 Omnibus Incentive Compensation Plan. |
| |
(c) | At December 31, 2017, U. S. Steel had no securities remaining for future issuance under equity compensation plans that had not been approved by security holders. Column (1) represents Common Stock Units that were issued pursuant to the Deferred Compensation Plan for Non-Employee Directors prior to its being amended to make it a program under the 2005 Stock Incentive Plan and 2016 Omnibus Plan. The weighted average exercise price for Common Stock Units in column (2) is one for one; that is, one share of common stock will be given in exchange for each unit of phantom stock upon the director’s retirement from the Board of Directors. All future grants under this amended plan/program will count as shares issued under to the 2016 Omnibus Incentive Compensation Plan, a shareholder approved plan. |
(b)Represents shares available under the 2016 Omnibus Incentive Compensation Plan.
(c)At December 31, 2020, U. S. Steel had no securities remaining for future issuance under equity compensation plans that had not been approved by security holders. Column (1) represents Common Stock Units that were issued pursuant to the Deferred Compensation Plan for Non-Employee Directors prior to its being amended to make it a program under the 2005 Stock Incentive Plan and 2016 Omnibus Incentive Compensation Plan. The weighted average exercise price for Common Stock Units in column (2) is one for one; that is, one share of common stock will be given in exchange for each unit of phantom stock upon the director’s retirement from the Board of Directors. All future grants under this amended plan/program will count as shares issued under to the 2016 Omnibus Incentive Compensation Plan, a stockholder approved plan.
Other information required by this item is incorporated and made part hereof by reference to the material appearing under the headings “Stock Ownership of Directors and Executive Officers” and “Stock Ownership of Certain Beneficial Owners” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this item is incorporated and made part hereof by reference to the material appearing under the headings “Policy with Respect to Related Person Transactions” and “Corporate Governance – Independence” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this item is incorporated and made part hereof by reference to the material appearing under the heading “Audit Fees” in U. S. Steel’s Proxy Statement for the 20182021 Annual Meeting of Stockholders.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Documents Filed as Part of the Report
1. Financial Statements and Supplementary Data
Financial Statements filed as part of this report are included in “Item 8 – Financial Statements and Supplementary Data” beginninglist on page F-1.
2. Financial Statement Schedules and Supplementary Data
“Schedule II – Valuation and Qualifying Accounts and Reserves" for years ended December 31, 2017, 2016,2020, 2019, and 20152018 is included on page 105.107. All other schedules are omitted because they are not applicable or the required information is contained in the applicable financial statements or notes thereto.
B. Exhibits
Exhibit No.
2. Plan of acquisition, reorganization, arrangement, liquidation or succession
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| (a) | | | Incorporated by reference to Exhibit 2.1 to United States Steel Corporation’sCorporation's Form 8-K filed on February 6, 2012,December 18, 2020, Commission File Number 1-16811. |
3. Articles of Incorporation and By-Laws
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| (a) | | | Incorporated by reference to Exhibit 3.1 to United States Steel Corporation’s Form 10-Q for the quarter ended September 30, 2003, Commission File Number 1-16811. |
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(b) | | | Incorporated by reference to Exhibit 3.B to United States Steel Corporation’s Form 10-K for the year ended December 31, 2015, Commission File Number 1-16811.
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(c) | | | Incorporated by reference to Exhibit 3.1 to United States Steel Corporation's Form 8-K filed on November 2, 2016, Commission File Number 1-16811. |
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(d) | | | Incorporated by reference to Exhibit 3.1 to United States Steel Corporation’s Form 10-Q for the quarter ended June 30, 2016, Commission File Number 1-16811. |
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(e) | | | Incorporated by reference to Exhibit 3.1 to United States Steel Corporation's Form 8-K filed on April 28, 2017, Commission File Number 1-16811. |
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| (b) | | | Incorporated by reference to Exhibit 3.1 to United States Steel Corporation's Form 8-K filed on July 30, 2020, Commission File Number 1-16811. |
4. Instruments Defining the Rights of Security Holders, Including Indentures |
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| (a) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on May 22, 2007, Commission File Number 1-16811. |
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| (b) | | | Incorporated by reference to Exhibit 4.2 to United States Steel Corporation’s Form 8-K filed on May 22, 2007, Commission File Number 1-16811. |
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| (c) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on December 10, 2007, Commission File Number 1-16811. |
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(d) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on March 23, 2010, Commission File Number 1-16811. |
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(e)(d) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on March 16, 2012, Commission File Number 1-16811. |
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(f) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on March 27, 2013, Commission File Number 1-16811. |
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(g) | | | Incorporated by reference to Exhibit 3.1 to United States Steel Corporation's Form 8-K filed on December 6, 2007, Commission File Number 1-16811. |
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(h)(e) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on May 10, 2016, Commission File Number 1-16811. |
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(i) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on August 4, 2017, Commission File Number 1-16811. |
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| (f) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on March 15, 2018, Commission File Number 1-16811. |
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| (g) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on October 21, 2019, Commission File Number 1-16811. |
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| (h) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 10-K filed on February 14, 2020, Commission File Number 1-16811. |
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| (i) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on May 29, 2020, Commission File Number 1-16811. |
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| (j) | Indenture, dated as of September 18, 2020, by and among Big River Steel LLC, as issuer, BRS Finance Corp., as co-issuer, BRS Intermediate Holdings LLC, as parent guarantor, each guarantor that may become party thereto and U.S. Bank National Association, as trustee and collateral agent. | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on January 19, 2021, Commission File Number 1-16811. |
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| (k) | | | Incorporated by reference to Exhibit 4.1 to United States Steel Corporation’s Form 8-K filed on February 11, 2021, Commission File Number 1-16811. |
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| (l) | | | Incorporated by reference to Exhibit 4.2 to United States Steel Corporation’s Form 8-K filed on February 11, 2021, Commission File Number 1-16811. |
Certain long-term debt instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. U. S. Steel agrees to furnish to the Commission on request a copy of any instrument defining the rights of holders of long-term debt of U. S. Steel and of any subsidiary for which consolidated or unconsolidated financial statements are required to be filed.
10. Material Contracts
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| (a) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q for the quarter ended September 30, 2015, Commission File Number 1-16811.
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| (b) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 8-K filed on August 21, 2015, Commission File Number 1-16811. |
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| (c) | | | Incorporated by reference to Exhibit 10.7 to United States Steel Corporation’s Form 10-Q for the quarter ended September 30, 2013, Commission File Number 1-16811. |
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| (d) | | | Incorporated by reference to Exhibit 10(d) to United States Steel Corporation’s Form 10-K for the year ended December 31, 2011, Commission File Number 1-16811. |
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| (e) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on July 2, 2012, Commission File Number 1-16811. |
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(f) | | | Incorporated by reference to Exhibit 10.10 to United States Steel Corporation’s Form 10-Q for the quarter ended September 30, 2013, Commission File Number 1-16811. |
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(g) | | | Incorporated by reference to Exhibit 10.4 to United States Steel Corporation’s Form 8-K filed on July 2, 2012, Commission File Number 1-16811. |
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(h) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation's Form 8-K filed on August 20, 2013, Commission File Number 1-16811. |
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(i)(f) | | | Incorporated by reference to Exhibit 99.3 to United States Steel Corporation’s Form 8-K filed on January 3, 2002, Commission File Number 1-16811. |
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(j) | | | Incorporated by reference to Exhibit 99.5 to United States Steel Corporation’s Form 8-K filed on January 3, 2002, Commission File Number 1-16811. |
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(k)(g) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q for the quarter ended June 30, 2015, Commission File Number 1-16811. |
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(l)(h) | | | Incorporated by reference to Exhibit 10.110(L) to United States Steel Corporation’s Form 8-K filed on February 24, 2016,10-K for the year ended December 31, 2015, Commission File Number 1-16811.
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(m)(i) |
| | Incorporated by reference to Exhibit 10.110.2 to United States Steel Corporation’s Form 10-Q for the quarter ended June 30, 2015, Commission File Number 1-16811. |
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(n)(j) | EUR 200,000,000 multicurrency revolving credit facility agreement dated February 22. 2016, among U. S. Steel Košice, s.r.o., and ING Bank N.V., Commerzbank Aktiengesellschaft, Slovenská sporiteĺňa, a.s., Komerční banka, a.s. and Citibank Europe plc. | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on February 24, 2016, Commission File Number 1-16811. |
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(o)(k) | | | Filed herewith as Exhibit 10.3.
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(p) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on August 21, 2015, Commission File Number 1-16811. |
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(q)(l) | | | Incorporated by reference to Exhibit 10(dd) to United States Steel Corporation’s Form 10-K for the year ended December 31, 2013, Commission File Number 1-16811.
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(r)(m) | | | Incorporated by reference to Appendix B to United States Steel Corporation’s Definitive Proxy Statement on Schedule 14A filed on March 11, 2005, Commission File Number 1-16811. |
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(s)(n) | | | Incorporated by reference to Appendix A to United States Steel Corporation’s Definitive Proxy Statement on Schedule 14A filed on March 12, 2010, Commission File Number 1-16811. |
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(t)(o) |
| | Incorporated by reference to Appendix A to United States Steel Corporation’s Definitive Proxy Statement on Schedule 14A filed on March 14, 2014, Commission File Number 1-16811.
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(u)(p) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on May 30, 2013, Commission File Number 1-16811. |
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(v)(q) |
| | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on March 3, 2014, Commission File Number 1-16811.
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(w)(r) |
| | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2015, Commission File Number 1-16811.
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(x)(s) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on May 31, 2005, Commission File Number 1-16811. |
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(y) | | | Incorporated by reference to Exhibit 10(x) to United States Steel Corporation’s Form 10-K for the year ended December 31, 2006, Commission File Number 1-16811. |
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(z)(t) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2011, Commission File Number 1-16811. |
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(aa)(u) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2011, Commission File Number 1-16811. |
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(bb)(v) | | | Incorporated by reference to Exhibit 10.5 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2011, Commission File Number 1-16811. |
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(cc)(w) | | | Incorporated by reference to Exhibit 10.4 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2011, Commission File Number 1-16811. |
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(dd)(x) | | | Incorporated by reference to Exhibit 10.5 to United States Steel Corporation’s Form 8-K filed on July 2, 2012, Commission File Number 1-16811. |
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(ee)(y) |
| | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2015, Commission File Number 1-16811. |
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(ff)(z) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2015, Commission File Number 1-16811. |
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(gg)(aa) | | | Incorporated by reference to Appendix B to United States Steel Corporation’s Definitive Proxy Statement on Schedule 14A filed on March 12, 2010, Commission File Number 1-16811. |
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(hh)(bb) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on January 31, 2014, Commission File Number 1-16811. |
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(ii)(cc) | | | Incorporated by reference to Exhibit 10.4 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2015, Commission File Number 1-16811. |
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(jj) | | | | | | | | | | | |
| (dd) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on November 6, 2015, Commission File Number 1-16811. |
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(kk)(ee) | | | Incorporated by reference to Exhibit 10(kk) to United States Steel Corporation’s Form 10-K for the year ended December 31, 2015, Commission File Number 1-16811.
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(ll)(ff) | | | Incorporated by reference to Exhibit 10(ll) to United States Steel Corporation’s Form 10-K for the year ended December 31, 2015, Commission File Number 1-16811.
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(mm)(gg) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q for the quarter ended March 31, 2016, Commission File Number 1-16811. |
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(nn)(hh) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q for the quarter ended June 30, 2016, Commission File Number 1-16811. |
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(oo)(ii) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-Q for the quarter ended June 30, 2016, Commission File Number 1-16811. |
| | | |
(pp)(jj) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-Q for the quarter ended June 30, 2016, Commission File Number 1-16811. |
| | | |
(qq)(kk) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q for the quarter ended September 30, 2016, Commission File Number 1-16811. |
| | | |
(rr)(ll) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-Q for the quarter ended September 30, 2016, Commission File Number 1-16811. |
| | | |
(ss)(mm) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-Q for the quarter ended September 30, 2016, Commission File Number 1-16811. |
| | | |
(tt) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on May 4, 2016, Commission File Number 1-16811. |
| | | |
(uu) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on May 10, 2016, Commission File Number 1-16811. |
|
| | | |
| | | |
(vv)(nn) | | | Incorporated by reference to Exhibit 1.1 to United States Steel Corporation’s Form 8-K filed on August 15, 2016, Commission File Number 1-16811. |
| | | |
(ww) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on August 2, 2017, Commission File Number 1-16811. |
| | | |
(xx) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q filed on November 1, 2017, Commission File Number 1-16811. |
| | | |
(yy) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on May 10, 2017, Commission File Number 1-16811. |
| | | |
(zz) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q filed on April 26, 2017, Commission File Number 1-16811. |
|
| |
| |
10.1.(oo) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on March 2, 2018, Commission File Number 1-16811. |
| | | |
| (pp) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 8-K filed on March 2, 2018, Commission File Number 1-16811. |
| | | |
10.2.(qq) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 8-K filed on March 2, 2018, Commission File Number 1-16811. |
| | | |
| | | | | | | | | | | |
| (rr) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on March 15, 2018, Commission File Number 1-16811. |
| | | |
| (ss) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q filed on April 27, 2018, Commission File Number 1-16811. |
| | | |
| (tt) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-Q filed on April 27, 2018, Commission File Number 1-16811. |
| | | |
| (uu) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-Q filed on April 27, 2018, Commission File Number 1-16811. |
| | | |
| (vv) | | | Incorporated by reference to Exhibit 10.4 to United States Steel Corporation’s Form 10-Q filed on April 27, 2018, Commission File Number 1-16811. |
| | | |
| (ww) | | | Incorporated by reference to Exhibit 10.5 to United States Steel Corporation’s Form 10-Q filed on April 27, 2018, Commission File Number 1-16811. |
| | | |
| (xx) | EUR 460,000,000 multicurrency revolving credit facility agreement dated September 26, 2018, among U. S. Steel Košice, s.r.o., and Commerzbank Aktiengesellschaft, ING Bank N.V., Komerèní banka, a.s., Slovenská sporiteåòa, a.s., Unicredit Bank Czech Republic and Slovakia , a.s., Èeskoslovenská Obchodná Banka, a.s., and Citibank Europe plc. | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on October 2, 2018, Commission File Number 1-16811. |
| | | |
| (yy) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-K filed on February 15, 2019, Commission File Number 1-16811. |
| | | |
| (zz) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-K filed on February 15, 2019, Commission File Number 1-16811. |
| | | |
| (aaa) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-K filed on February 15, 2019, Commission File Number 1-16811. |
| | | |
| (bbb) | | | Incorporated by reference to Exhibit 10.4 to United States Steel Corporation’s Form 10-K filed on February 15, 2019, Commission File Number 1-16811. |
| | | |
| (ccc) | | | Incorporated by reference to Exhibit 10.5 to United States Steel Corporation’s Form 10-K filed on February 15, 2019, Commission File Number 1-16811. |
| | | |
| (ddd) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q filed on May 3, 2019, Commission File Number 1-16811. |
| | | |
| (eee) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-Q filed on May 3, 2019, Commission File Number 1-16811. |
| | | |
| | | | | | | | | | | |
| (fff) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-Q filed on May 3, 2019, Commission File Number 1-16811. |
| | | |
| (ggg) | | | Incorporated by reference to Exhibit 10.4 to United States Steel Corporation’s Form 10-Q filed on May 3, 2019, Commission File Number 1-16811. |
| | | |
| (hhh) | | | Incorporated by reference to Exhibit 10.5 to United States Steel Corporation’s Form 10-Q filed on May 3, 2019, Commission File Number 1-16811. |
| | | |
| (iii) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on October 1, 2019, Commission File Number 1-16811. |
| | | |
| (jjj) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 8-K filed on October 1, 2019, Commission File Number 1-16811. |
| | | |
| (kkk) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on October 21, 2019, Commission File Number 1-16811. |
| | | |
| (lll) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on October 28, 2019, Commission File Number 1-16811. |
| | | |
| (mmm) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 8-K filed on October 28, 2019, Commission File Number 1-16811. |
| | | |
| (nnn) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 8-K filed on October 28, 2019, Commission File Number 1-16811. |
| | | |
| (ooo) | | | Incorporated by reference to Exhibit 10.4 to United States Steel Corporation’s Form 8-K filed on October 28, 2019, Commission File Number 1-16811. |
| | | |
| (ppp) | | | Incorporated by reference to Exhibit 10.5 to United States Steel Corporation’s Form 8-K filed on October 28, 2019, Commission File Number 1-16811. |
| | | |
| (qqq) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on December 23, 2019, Commission File Number 1-16811. |
| | | |
| (rrr) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-K filed on February 14, 2020, Commission File Number 1-16811. |
| | | |
| (sss) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-K filed on February 14, 2020, Commission File Number 1-16811. |
| | | |
| | | | | | | | | | | |
| (ttt) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-K filed on February 14, 2020, Commission File Number 1-16811. |
| | | |
| (uuu) | | | Incorporated by reference to Exhibit 10.4 to United States Steel Corporation’s Form 10-K filed on February 14, 2020, Commission File Number 1-16811. |
| | | |
| (vvv) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on April 30, 2020, Commission File Number 1-16811. |
| | | |
| (www) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 10-Q filed on May 1, 2020, Commission File Number 1-16811. |
| | | |
| (xxx) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 10-Q filed on May 1, 2020, Commission File Number 1-16811. |
| | | |
| (yyy) | | | Incorporated by reference to Exhibit 10.3 to United States Steel Corporation’s Form 10-Q filed on May 1, 2020, Commission File Number 1-16811. |
| | | |
| (zzz) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on May 1, 2020, Commission File Number 1-16811. |
| | | |
| (aaaa) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on May 26, 2020, Commission File Number 1-16811. |
| | | |
| (bbbb) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on May 29, 2020, Commission File Number 1-16811. |
| | | |
| (cccc) | | | Incorporated by reference to Exhibit 1.1 to United States Steel Corporation's Form 8-K filed on June 22, 2020, Commission File Number 1-16811. |
| | | |
| (dddd) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on July 30, 2020, Commission File Number 1-16811. |
| | | |
| (eeee) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on October 2, 2020, Commission File Number 1-16811. |
| | | |
| (ffff) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 8-K filed on October 2, 2020, Commission File Number 1-16811. |
| | | |
| (gggg) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on November 24, 2020, Commission File Number 1-16811. |
| | | |
| (hhhh) | | | Incorporated by reference to Exhibit 10.2 to United States Steel Corporation’s Form 8-K filed on November 24, 2020, Commission File Number 1-16811. |
| | | |
| | | | | | | | | | | |
| (iiii) | | | Incorporated by reference to Exhibit 10.1 to United States Steel Corporation’s Form 8-K filed on January 19, 2021, Commission File Number 1-16811. |
| | | |
| (jjjj) | | | Incorporated by reference to Exhibit 10.2.1 to United States Steel Corporation’s Form 8-K filed on January 19, 2021, Commission File Number 1-16811. |
| | | |
| (kkkk) | | | Incorporated by reference to Exhibit 10.2.2 to United States Steel Corporation’s Form 8-K filed on January 19, 2021, Commission File Number 1-16811. |
| | | |
| (llll) | | | Incorporated by reference to Exhibit 10.3.1 to United States Steel Corporation’s Form 8-K filed on January 19, 2021, Commission File Number 1-16811. |
| | | |
| (mmmm) | | | Incorporated by reference to Exhibit 10.3.2 to United States Steel Corporation’s Form 8-K filed on January 19, 2021, Commission File Number 1-16811. |
| | | |
| (nnnn) | | | Incorporated by reference to Exhibit 1.1 to United States Steel Corporation’s Form 8-K filed on February 5, 2021, Commission File Number 1-16811. |
| | | |
| (oooo) | | | Incorporated by reference to Exhibit 1.1 to United States Steel Corporation’s Form 8-K filed on February 11, 2021, Commission File Number 1-16811. |
| | | | | |
| |
| 10.1 | |
| |
12.1.10.2 | |
| |
21.10.3 | |
| |
| 10.4 | |
| |
| 21. | |
| |
| 23. | |
| |
| 24. | |
| |
| 31.1. | |
| |
| 31.2. | |
| |
| 32.1. | |
| |
| 32.2. | |
| |
| 95. | |
| |
| 101. | INSThe following financial information from United States Steel Corporation's Annual Report on Form 10-K for the year ended December 31, 2020 formatted in Inline XBRL Instance Document(Extensible Business Reporting Language) includes: (i) the Consolidated Statement of Operations, (ii) the Consolidated Statement of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheet, (iv) the Consolidated Statement of Cash Flows, and (v) Notes to the Consolidated Financial Statements. |
| |
101.104. | SCHCover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Schema Document |
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101. | CAL XBRL Taxonomy Extension Calculation Linkbase Document |
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101. | DEF XBRL Taxonomy Extension Definition Linkbase Document |
| |
101. | LAB XBRL Taxonomy Extension Label Linkbase Document |
| |
101. | PRE XBRL Taxonomy Extension Presentation Linkbase Documentand contained in Exhibit 101) |
* PortionsIndicates management contract or compensatory plan or arrangement.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 2017, 20162020, 2019 AND 20152018
(Millions of Dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Additions | | Deductions | | |
| Description | | Balance at
Beginning
of Period | | Charged to
Costs and
Expenses | | Charged
to Other
Accounts | | Charged to
Costs and
Expenses | | Charged
to Other
Accounts | | Balance
at End
of Period |
| Year ended December 31, 2020: | | | | | | | | | | | | |
| Reserves deducted in the balance sheet from the assets to which they apply: | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 28 | | | $ | 6 | | | $ | 2 | | | $ | 0 | | | $ | 2 | | | $ | 34 | |
| Investments and long-term receivables reserve | | 5 | | | 0 | | | 3 | | | 0 | | | 3 | | | 5 | |
| Deferred tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | 560 | | | 240 | | | 2 | | | 0 | | | 9 | | | 793 | |
| Foreign | | 3 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | |
| Year ended December 31, 2019: | | | | | | | | | | | | |
| Reserves deducted in the balance sheet from the assets to which they apply: | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 29 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 28 | |
| Investments and long-term receivables reserve | | 5 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5 | |
| Deferred tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | 211 | | | 349 | | | 0 | | | 0 | | | 0 | | | 560 | |
| Foreign | | 3 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | |
| Year ended December 31, 2018: | | | | | | | | | | | | |
| Reserves deducted in the balance sheet from the assets to which they apply: | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 28 | | | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 4 | | | $ | 29 | |
| Investments and long-term receivables reserve | | 11 | | | 0 | | | 0 | | | 0 | | | 6 | | | 5 | |
| Deferred tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | 604 | | | 0 | | | 0 | | | 393 | | | 0 | | | 211 | |
| Foreign | | 4 | | | 0 | | | 0 | | | 1 | | | 0 | | | 3 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Additions | | Deductions | | |
| Description | | Balance at
Beginning
of Period | | Charged to
Costs and
Expenses | | Charged
to Other
Accounts | | Charged to
Costs and
Expenses | | Charged
to Other
Accounts | | Balance
at End
of Period |
| Year ended December 31, 2017: | | | | | | | | | | | | |
| Reserves deducted in the balance sheet from the assets to which they apply: | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 25 |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | 1 |
| | $ | 28 |
|
| Allowance for related party doubtful accounts | | 265 |
| | — |
| | — |
| | — |
| | 265 |
| | — |
|
| Investments and long-term receivables reserve | | 10 |
| | — |
| | 1 |
| | — |
| | — |
| | 11 |
|
| Long-term receivables from related parties reserve | | 1,627 |
| | — |
| | — |
| | — |
| | 1,627 |
| | — |
|
| Deferred tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | 1,109 |
| | 42 |
| | — |
| | 373 |
| | 174 |
| | 604 |
|
| Foreign | | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
|
| Year ended December 31, 2016: | | | | | | | | | | | | |
| Reserves deducted in the balance sheet from the assets to which they apply: | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 28 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 25 |
|
| Allowance for related party doubtful accounts | | 254 |
| | — |
| | 11 |
| | — |
| | — |
| | 265 |
|
| Investments and long-term receivables reserve | | 7 |
| | — |
| | 3 |
| | — |
| | — |
| | 10 |
|
| Long-term receivables from related parties reserve | | 1,446 |
| | — |
| | 181 |
| | — |
| | — |
| | 1,627 |
|
| Deferred tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | 804 |
| | 174 |
| | 131 |
| | — |
| | — |
| | 1,109 |
|
| Foreign | | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
|
| Year ended December 31, 2015: | | | | | | | | | | | | |
| Reserves deducted in the balance sheet from the assets to which they apply: | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 45 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | 6 |
| | $ | 28 |
|
| Allowance for related party doubtful accounts | | 218 |
| | 74 |
| | — |
| | — |
| | 38 |
| | 254 |
|
| Investments and long-term receivables reserve | | 8 |
| | — |
| | — |
| | — |
| | 1 |
| | 7 |
|
| Long-term receivables from related parties reserve | | 1,188 |
| | 465 |
| | — |
| | — |
| | 207 |
| | 1,446 |
|
| Deferred tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | — |
| | 753 |
| | 51 |
| | — |
| | — |
| | 804 |
|
| Foreign | | 5 |
| | — |
| | — |
| | 1 |
| | — |
| | 4 |
|
Item 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report has beento be signed belowon its behalf by the following persons on behalf of the registrant and in the capacity indicated onundersigned, thereunto duly authorized.
Date: February 21, 2018.12, 2021
UNITED STATES STEEL CORPORATION
|
| | |
By: | | /s/ Colleen M. Darragh |
| | Colleen M. Darragh |
| | Vice President & Controller |
|
| | |
Signature | | Title |
/s/ David B. Burritt | | President & Chief Executive Officer &
Director |
David B. Burritt | |
| | |
/s/ Kevin P. Bradley | | Executive Vice President &
Chief Financial Officer |
Kevin P. Bradley | |
| | |
/s/ Colleen M. Darragh | | Vice President & Controller |
Colleen M. Darragh | |
| | |
* | | Director |
Patricia Diaz Dennis | |
| | |
* | | Director |
Dan O. Dinges | |
| | |
* | | Director |
John G. Drosdick | |
| | |
* | | Director |
John J. Engel | |
| | |
* | | Director |
Murry S. Gerber | |
| | |
* | | Director |
Stephen J. Girsky | |
| | |
* | | Director |
Paul A. Mascarenas | |
| | |
* | | Director |
Glenda G. McNeal | |
| | |
* | | Director |
Eugene B. Sperling | |
| | |
* | | Director |
Robert J. Stevens | |
| | |
* | | Director |
David S. Sutherland | |
| | |
* | | Director |
Patricia A. Tracey | |
|
| | | | |
*By: | | BY:
/s/ Manpreet S. Grewal |
| | Manpreet S. Grewal |
| | Vice President & Controller |
| | | | | | | | |
| Signature | | Title |
| | |
| /s/ David B. Burritt | | President & Chief Executive Officer & Director |
| | | | David B. Burritt | | (Principal Executive Officer) |
| | |
| /s/ Christine S. Breves | | Attorney-in-FactSenior Vice President & Chief Financial Officer |
| Christine S. Breves | | (Principal Financial Officer) |
| | |
| /s/ Manpreet S. Grewal | | Vice President & Controller |
| Manpreet S. Grewal | | (Principal Accounting Officer) |
| | |
| * | | Director |
| Tracy A. Atkinson | |
| * | | Director |
| Patricia Diaz Dennis | |
| * | | Director |
| Dan O. Dinges | |
| * | | Director |
| John J. Engel | |
| * | | Director |
| John V. Faraci | |
| * | | Director |
| Murry S. Gerber | |
| * | | Director |
| Stephen J. Girsky | |
| * | | Director |
| Jeh C. Johnson | |
| * | | Director |
| Paul A. Mascarenas | |
| * | | Director |
| Michael H. McGarry | |
| * | | Director |
| Eugene B. Sperling | |
| * | | Chairman of the Board |
| David S. Sutherland | |
| * | | Director |
| Patricia A. Tracey | |
| | | | | | | | | | | | | | |
| * | | BY: | | /s/ Manpreet S. Grewal |
| | | | Manpreet S. Grewal |
| | | | Attorney-in-Fact |
GLOSSARY OF CERTAIN DEFINED TERMS
The following definitions apply to terms used in this document:
|
| | | | | | | |
Acero Prime2025 Senior Secured Notes | | Acero Prime, S.R.L. de CV12.000% Senior Secured Notes due June 1, 2025 |
AD401(k) plans | | antidumpingdefined contribution plans |
ApoloABO | | Apolo Tubulars S.A.Accumulated Benefit Obligation |
AROACE | | Affordable Clean Energy |
| ACHD | | Allegheny County Health Department |
| AD | | antidumping |
| AD/CVD | | antidumping and countervailing duty |
| AHSS | | advanced high-strength steels |
| AMT | | Alternative Minimum Tax |
| AOCI | | Accumulated Other Comprehensive Income |
| API | | American Petroleum Institute |
| ARO | | Asset Retirement Obligation |
| ASC | | Accounting Standards Codification |
BATASU | | Accounting Standards Update |
| BART | | Best Available Retrofit Technology |
| BAT | | Best Available Technique |
CAABGE | | Butch Gilliam Enterprises, Inc. |
| BOF | | Basic Oxygen Furnace Steelmaking |
| CAA | | Clean Air Act |
CALCAD | | Canadian dollars |
| CAFC | | U.S. Court of Appeals for the Federal Circuit |
| CAFE | | Corporate Average Fuel Economy |
| CAL | | continuous annealing line |
CCAACAMU | | Canada's Companies' Creditors Arrangement ActCorrective Action Management Unit |
| CDC | | Chrome Deposit Corporation |
| CERCLA | | Comprehensive Environmental Response, Compensation and Liability Act |
CMSCGL | | continuous galvanizing line |
| CIT | | U.S. Court of International Trade |
| Class B Common Call Option | | Big River Steel equity owners could require U. S. Steel to sell its ownership interest. |
| Class B Common Put Option | | Big River Steel equity owners could require U. S. Steel to purchase their 50.1% ownership interest |
| CMS | | Corrective Measure Study |
CO2
CO2 | | carbon dioxide |
Commercecommodity purchase swaps | | U.S. Departmentfinancial swaps associated with purchases of Commercenatural gas, zinc, tin and electricity |
| CORE | | corrosion-resistant steel |
CVDCOSO | | countervailing dutiesCommittee of Sponsoring Organizations of the Treadway Commission |
CWAcost cap | | per capita dollar maximum the company is expected to pay per participant under the main U. S. Steel benefit plan |
| County Health Services | | Contra Costa Health Services Hazardous Materials Programs |
| COVID-19 | | the coronavirus |
| CPP | | Clean Power Plan |
| Credit Facility Agreement | | Fifth Amended and Restated Credit Facility Agreement |
| CVD | | countervailing duties |
| CWA | | Clean Water Act |
DESCODAFW | | OSHA Days Away From Work |
| DEC | | Department of Environmental Conservation |
| DESCO | | Double Eagle Steel Coating Company |
| DOC | | U.S. Department of Commerce |
| DOJ | | The United States Department of Justice |
| Double G | | Double G Coatings Company LLC |
| EAF | | Electric Arc Furnace |
| EBITDA | | earnings before interest, taxes, depreciation and amortization |
| EC | | European Commission |
Economic ProfitECA | | After tax income from operations in excess of weighted average cost of capitalExport Credit Agreement |
EPAECT | | U.S.East Chicago Tin |
| EGLE | | Environment, Great Lakes and Energy |
| | | | | | | | |
| ERGs | | employee resource groups |
| ERISA | | Employee Retirement Income Security Act of 1974 |
| ERW | | electric resistance welded |
| EU | | European Union |
| EU ETS | | EU Emissions Trading System |
| ETS | | Emissions Trading System |
| EUA | | European Union Allowances |
| EWPM | | electric-weld pipe mil |
| Ex-Im Guarantee | | Export Import Bank of the United States |
| Export-Import Credit Agreement | | Export-Import Transaction Specific Loan and Security Agreement |
| Fairfield EAF | | Fairfield, Alabama pipe mil |
| FASB | | Financial Accounting Standards Board |
| FIFO | | first in, first out |
| FIP | | Federal Implementation Plan |
| Flat-Rolled | | North American Flat-Rolled segment |
| Fond du Lac Band | | Minnesota Native American Tribe |
| FX | | foreign exchange |
| Gateway | | Gateway Energy and Coke Company LLC |
| GDPR | | General Data Protection Regulation |
| GHG | | greenhouse gas |
| GLNPO | | Great Lakes National Program Office |
| HDC | | Hibbing Development Company |
| Hibbing | | Hibbing Taconite Company |
| IDEM | | Indiana Department of Environmental Management |
| IEPA | | Illinois Environmental Protection Agency |
ERBIRS | | EnvironmentalInternal Revenue BondService |
ERPISO | | Enterprise resource planningInternational Organization for Standardization |
ERWITC | | electric resistance weldedU.S. International Trade Commission |
ETSKDHE | | Emissions Trading SystemKansas Department of Health & Environment |
EUKeetac | | European Union |
Eurofer | | European Confederation of Iron and Steel Industries |
Flat-Rolled | | Flat-Rolled Products segment |
FPC | | Feralloy Processing Company |
Gateway | | Gateway Energy & Coke Company, LLC, a subsidiary of SunCoke Energy |
GHG | | greenhouse gas |
Hibbing | | Hibbing Taconite Company |
HWD | | hazardous waste disposal |
HWT | | hazardous waste treatment |
Keetac | | U. S. Steel’s iron ore operations at Keewatin, Minnesota |
MACTLIFO | | last in, first out |
| LMF | | ladle metallurgy facility |
| MACT | | Maximum Achievable Control Technology |
MinntacMidwest | | Midwest Plant |
| Minntac | | U. S. Steel’s iron ore operations at Mt. Iron, Minnesota |
NAAQSMPCA | | Minnesota Pollution Control Agency |
| NAAQS | | National Ambient Air Quality Standards |
NESHAPNAV | | net asset value |
| NESHAP | | National Emission Standards for Hazardous Air Pollutants |
NPDESNGO | | non-grain oriented |
| NLMK | | NLMK Pennsylvania, LLC and NLMK Indiana, |
| non-GAAP | | Non-Generally Accepted Accounting Principles |
| NOV | | Notice of Violation |
| NOx | | nitrogen oxide |
| NPDES | | National Pollutant Discharge Elimination System |
O. D.O.D. | | outer diameter |
| OCTG | | oil country tubular goods |
OSHAOPEB | | Occupational Safety and Health Administrationother post-employment benefits |
PRO-TECOrder | | Administrative Order on Consent |
| Other Benefits | | defined benefit retiree health care and life insurance plans |
| PADEP | | Pennsylvania Department of Environmental Protection |
| Patriot | | Patriot Premium Threading Services, LLC |
| PBGC | | Pension Benefit Guarantee Corporation |
| PBO | | Projected Benefit Obligations |
| PCAOB | | Public Company Accounting Oversight Board (United States) |
| PII | | Personally Identifiable Information |
| PM | | Particulate Matter |
| | | | | | | | |
| PNC | | PNC Bank, National Association |
| PPA | | Pension Protection Act of 2006 |
| ppb | | parts per billion |
| PRO-TEC | | PRO-TEC Coating Company, U. S. Steel and Kobe Steel Ltd. joint venture |
| PRP | | potentially responsible party |
| RCRA | | Resource Conservation and Recovery Act |
REACHRFI | | Registration, Evaluation, Authorization and Restriction of Chemicals, Regulation 1907/2006 |
RFI | | RCRA Facility Investigation |
SECROCE | | Return On Capital Employed |
| RP | | Rehabilitation plan |
| RSU | | Restricted Stock Units |
| RTR | | Residual Risk and Technology Review |
| S&P | | Standard & Poor’s |
| sales swaps | | financial swaps hot-rolled coil and iron ore pellet sales |
| SCF | | supply chain finance |
| SEC | | Securities and Exchange Commission |
| SIP | | State Implementation Plan |
SPTSO2 | | Sulfur dioxide |
| SPT | | Steelworkers Pension Trust |
|
| SSB | | Salomon Smith Barney Holdings, Inc. |
SWMUStelco | | Stelco Inc. |
| SWMU | | Solid Waste Management Units |
Tildenthe 2005 Plan | | 2005 Stock Incentive Plan |
| the 2018 Labor Agreements | | collective bargaining agreements with United Steelworkers effective September 1, 2018 |
| the "BRS ABL Facility" | | Big River Steel LLC's asset-based revolving credit facility |
| the Exchange Act | | the Securities Exchange Act of 1934 |
| the Minntac Mine | | iron ore mine located in Mt. Iron, Minnesota |
| the Omnibus Plan | | 2016 Omnibus Incentive Compensation Plan |
| USSK Credit Agreement | | USSK €460 million revolving credit facility |
| Tilden | | Tilden Mining Company, L.C. |
tonsTRQ | | net tonstariff rate quotas |
TubularTSR | | Total Shareholder Return |
| Tubular | | Tubular Products segment |
| U. S. Steel | | United States Steel Corporation |
| U. S. Steel Call Option | | call option exercised by USS to acquire BRS |
| U.S. EPA | | United States Environmental Protection Agency |
| U.S. GAAP | | accounting standards generally accepted in the United States |
UPIUDEQ | | USS-POSCO Industries, U. S. Steel and POSCO joint ventureUtah Department of Environmental Quality |
USITCUHSS | | U.S. International Trade CommissionUltra High Strength Steels |
USSCug/m3 | | U. S. Steel Canada Inc.micrograms per cubic meter |
USSEUPI | | USS-POSCO Industries |
| USD | | U.S. dollars |
| USSE | | U. S. Steel Europe segment |
| USSK | | U. S. Steel Košice |
| USSTP | | U. S. Steel Tubular Products |
| USW | | United Steelworkers |
WorthingtonVEBA | | trusts for retiree healthcare and life insurance |
| VERP | | voluntary early retirement program |
| Water Legacy | | a nonprofit environmental group |
| welded | | seamless and electric resistance welded |
| Worthington | | Worthington Specialty Processing, U. S. Steel and Worthington Industries, Inc. joint venture |
| WTO | | World Trade Organization |
