United States Steel

X
Delayed Nyse - 02/21 10:01:03 pm
9.43USD
+1.73%

UNITED STATES STEEL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

Envoyer par e-mail
02/14/2020 | 11:28 pm


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 2018 Form 10-K for further discussion and analysis
of our 2017 financial condition and results of operations.


Overview




According to World Steel Association's latest published statistics, U. S. Steel
was the twenty-sixth largest steel producer in the world in 2018. Also in 2018
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
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 accomplishments achieved in 2019:



• Set a safety performance record with a 2019 Days Away from Work rate of



0.10, which is seven times better than the industry average reported by
the U.S. Bureau of Labor Statistics.




• Articulating and executing on the transformative 'best of both" strategy,



including acquiring a 49.9% interest in Big River Steel with an option to



acquire the remaining 50.1% within four years and beginning process of



constructing a world-class endless casting and rolling line at Mon Valley



Works.




• Positive operating cash flow of $682 million in 2019.






• Strong year-end liquidity of approximately $2.3 billion, including $749
million
of cash, to support the execution of our strategy.




• Successfully raised approximately $1.1 billion in incremental capital



through debt offerings and an increase in our U.S. credit facility by $500



million, providing for future financial flexibility.



• Continued executing investments in our assets, including strategic



investments in the electric arc furnace at Fairfield Tubular Operations,



Gary Works hot strip mill upgrades and the dynamo line at USSE.




• Announced industry-leading GHG emissions intensity reduction goal aligned



to our strategy.




• Named to the Forbes Global 2000 World's Best Employers list for 2019.



• Awarded a perfect "100" score on the Human Rights Campaign Corporate



Equality Index.



Our disciplined and balanced capital strategy has positioned our balance sheet
to support investments in our 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 best 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 both" company, we
are enhancing our focus on operational and commercial excellence and promoting
technological innovation, so we can establish a more competitive cost structure
and enhance our capabilities … two key drivers for our strategy.


67



--------------------------------------------------------------------------------



Table of Contents



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; potential tax
deficiencies; environmental obligations; potential litigation claims and
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.




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 75 percent and 74 percent of consolidated inventories at December 31, 2019
and 2018, 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.
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.

Financial Instruments - 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. U. S. Steel marks 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. See Note 5 and Note 20 to the Consolidated Financial Statements for
further details.

Pensions and Other Benefits - The recording of net periodic benefit costs for
defined benefit pensions and Other 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 high quality bonds, public equities and selected smaller
investments in private equities, timber and mineral interests. For its U.S.
pension plan, U. S. Steel has a target allocation for plan assets of 45 percent
in corporate bonds, government bonds and

68



--------------------------------------------------------------------------------



Table of Contents




mortgage and asset-backed securities. The balance is invested in equity
securities, timber, private equity and 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 6.50 percent assumed rate
of return on assets for the development of net periodic cost for the main
defined benefit pension plan in 2020. The 2020 assumed rate of return 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 6.50 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.

For its Other 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 bonds with the balance
primarily invested in equity securities, timber, private equity 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 plans.
The 2020 assumed rate of return has been conservatively set, taking into account
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 Benefit
obligations for U.S. plans we utilize a bond matching approach to select
specific bonds that would satisfy our projected benefit payments. At
December 31, 2019, the weighted average discount rate used for our pension and
Other Benefit obligations was determined to be 3.35 percent and 3.43 percent,
respectively, compared to the weighted average discount rate used of 4.41
percent and 4.47 percent, respectively, at December 31, 2018. The discount rate
reflects the current rate at which we estimate the pension and Other Benefits
liabilities could be effectively settled at the measurement date.

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 2028. After 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
18 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 6.50 percent for 2020.
This rate is assumed to decrease gradually to an ultimate rate of 4.50 percent
in 2028 and remain at that level thereafter.

Net periodic pension cost, including multiemployer plans, is expected to total
approximately $141 million in 2020 compared to $179 million in 2019. Excluding
settlement and special termination losses totaling $11 million in 2019, the
decrease in expected pension expense in 2020 is primarily due the 2019 asset
performance and a change in mortality assumptions, partially offset by the
decrease in discount rates. Total Other Benefits income in 2020 is expected to
be approximately $29 million, compared to $57 million of expense in 2019. The
expected improvement in the 2020 Other Benefit expense (income) is primarily due
to the expiration of a prior service cost from the 2008 labor agreement and
projected decreases in future healthcare costs and assumed participant
enrollments.

The tables below project the incremental effect of a hypothetical one percentage
point change in significant assumptions used in determining the funded status
and expense for pension and Other Benefits:


69



--------------------------------------------------------------------------------



Table of Contents

At December 31, 2019
Hypothetical Rate Change
(In millions) 1% (1)%
Discount rates and Interest rates
Incremental change in:


Pension & other benefits obligations, increase/(decrease) $ (671 ) $ 799



Fixed Income Assets, (increase)/decrease 433 (524 )
Net impact on funded status, increase/(decrease) $ 238


$ (275 )






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 asset allocation and investment policy effective December 31, 2019.
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 pension and other benefit expense. The table below estimates the
impact to expense 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 & other benefits costs for 2020 $ (68 ) $ 68
Discount rates
Incremental (decrease) increase in:
Net periodic pension & other benefits costs for 2020 $ (16 ) $ 17



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
18 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 Flows and Liquidity - Liquidity."

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 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 and determined that the 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. The key
assumptions 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
Flat-Rolled and USSE asset groups.

In 2019, there were no triggering events for the seamless tubular asset group
that required long-lived assets to be evaluated for impairment and in 2018 none
of the asset groups had a triggering event that required long-lived assets to be
evaluated for impairment.


70



--------------------------------------------------------------------------------



Table of Contents




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, 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 (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 AMT credits) may not be realized. As a result, U. S. Steel recorded a
$334 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 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, 2018, U. S. Steel determined that a partial valuation allowance
was required for only certain of its domestic deferred tax assets that have
expiration dates which may limit their realizability, including state net
operating losses (NOLs), state income tax credits, foreign tax credits, general
business credits (GBCs) and capital losses. Accordingly, we reversed a portion
of the valuation allowance, which resulted in a $374 million non-cash benefit to
earnings. That determination was based in part, on U. S. Steel's cumulative
income from the past three years and projections of income in future years. In
addition, U. S. Steel had seven consecutive quarters of positive pretax income.

At the end of both 2019 and 2018, 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 seven sites under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (CERCLA) as of December 31,
2019
. Of these, there are three sites where information requests have been
received or there are other indications that U. S. Steel may be a PRP under
CERCLA, but where sufficient information is not presently available to confirm
the existence of liability or to make a reasonable estimate with respect to any
potential liabilities. There are also 18 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.
U. S. Steel's accrual for environmental liabilities for U.S. and international
facilities as of December 31, 2019 and 2018 was $186 million and $187 million,
respectively. These amounts exclude liabilities related to asset retirement
obligations, disclosed in Note 19 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."
Segments

U. S. Steel has three reportable segments: North American Flat-Rolled
(Flat-Rolled), U. 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.


71



--------------------------------------------------------------------------------



Table of Contents




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.

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 European transportation (including
automotive), construction, container appliance, electrical, service center,
conversion and oil, gas and petrochemical markets. USSE produces and sells
slabs, strip mill plate, sheet, tin mill products and spiral welded pipe, as
well as 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. These
operations produce and sell seamless and electric resistance welded (ERW) steel
casing and tubing (commonly known as oil country tubular goods or OCTG),
standard and line pipe and mechanical tubing and primarily serve customers in
the oil, gas and petrochemical markets.

For further information, see Note 4 to the Consolidated Financial Statements.

Net Sales
[[Image Removed: chart-7349a4cf9461534e970.jpg]]



Net Sales by Segment



(Dollars in millions, excluding intersegment sales) 2019 2018



2017
Flat-Rolled $ 9,279 $ 9,681 $ 8,297
USSE 2,417 3,205 2,949
Tubular 1,188 1,231 944
Total sales from reportable segments 12,884 14,117 12,190
Other Businesses 53 61 60
Net sales $ 12,937 $ 14,178 $ 12,250




72



--------------------------------------------------------------------------------



Table of Contents



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, 2019 versus Year December 31, 2018

Steel Products(a)
Net
Volume Price Mix FX(b) Coke, Pellets & Other(c) Change
Flat-Rolled 1 % (5 )% (1 )% - % 1 % (4 )%
USSE (19 )% (3 )% 3 % (5 )% (1 )% (25 )%
Tubular (1 )% (1 )% (1 )% - % - % (3 )%



(a) Excludes intersegment sales



(b) Foreign currency translation effects



(c) Includes sales of scrap inventory






The decrease in 2019 sales for the Flat-Rolled segment primarily reflects lower
average realized prices (decrease of $58 per ton) and a less favorable product
mix. In 2019 to adjust production to declining customer demand a blast furnace
at Gary Works was temporally idled (subsequently restarted in December 2019) and
a blast furnace at Great Lakes Works was temporarily idled (subsequently to be
indefinitely idled in early 2020 along with remainder of the iron and steel
making facilities at Great Lake Works).

The decrease in 2019 sales for the USSE segment was primarily due to decreased
shipments (decrease of 867 thousand net tons) and lower average realized prices
(decrease of $41 per net ton) in most product categories due to increased import
competition, flat to declining demand and the weakening of the Euro versus the
U.S. dollar.
The decrease in 2019 sales for the Tubular segment resulted from lower average
realized prices (decrease of $33 per net ton) and decreased net shipments
(decrease of 11 thousand net tons) from lower demand for tubular products.

Operating Expenses

Union profit-sharing costs

Year Ended December 31,
(Dollars in millions) 2019 2018
Allocated to segment results $ 12 $ 92




Profit-based amounts 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.



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.



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 $121 million in 2019 and $109 million in 2018.



Other benefit expense included in cost of sales totaled $13 million in 2019 and
$17 million in 2018.



Costs related to defined contribution plans totaled $48 million in 2019 and $44
million
in 2018.



Selling, general and administrative expenses



73



--------------------------------------------------------------------------------



Table of Contents



Selling, general and administrative expenses were $289 million in 2019 and $336
million
in 2018. The decrease from 2018 to 2019 is primarily related to
decreased variable compensation.



Operating configuration adjustments




Over the past three years, the Company has adjusted its operating configuration
in response to changing market conditions including global overcapacity, unfair
trade practices and increases in domestic demand as a result of tariffs on
imports by indefinitely and temporarily idling and then re-starting production
at certain of its facilities. U. S. Steel will continue to adjust its operating
configuration in order to maximize its strategy of combining the "best of both"
leading integrated and mini mill technology.

In December 2019, U. S. Steel announced that it would indefinitely idle a
significant portion of Great Lakes Works. The Company expects to begin idling
the iron and steelmaking facilities on or around April 1, 2020, and the hot
strip mill rolling facility before the end of 2020. The carrying value of the
Great Lakes Works facilities that we intend to indefinitely idle was
approximately $385 million as of December 31, 2019.

In December 2019, the Company completed the indefinite idling of its East
Chicago Tin (ECT) operations within its Flat-Rolled segment. ECT was
indefinitely idled primarily due to increased tin import levels in the U.S.
Additionally, U. S. Steel indefinitely idled its finishing facility in Dearborn,
Michigan
(which operates an electrolytic galvanizing line), during the fourth
quarter of 2019. The carrying value of these facilities was approximately $20
million
as of December 31, 2019.
In October 2019, the Company announced that it is implementing an enhanced
operating model and organizational structure to accelerate the Company's
strategic transformation and better serve its customers. The new operating model
was effective January 1, 2020 and is centered around manufacturing, commercial,
and technological excellence. Our former "commercial entity" structure was put
into place to deepen understanding of business ownership and our relationships
with customers and allowed the Company to identify the technology that would
differentiate our products and processes on the basis of cost and/or
capabilities. The new enhanced operating model is a logical next step in the
execution of the Company's strategy and will make us a more nimble company
positioned to deliver the benefits of our strategy through the cycle.
In July 2019, U. S. Steel began implementing a labor productivity strategy at
USSK so that it could better compete in the European steel market, which has
experienced softening demand as well as a significant increase in imports. It is
anticipated that the labor productivity strategy will result in total headcount
reductions, including contractors, of approximately 2,500 by the end of 2021. As
of December 31, 2019, approximately 1,900 positions, including approximately 400
contractors, were eliminated.
In June 2019, U. S. Steel idled two blast furnaces in the U.S. and one blast
furnace in Europe to better align global production with its order book. As a
result, monthly blast furnace production capacity was reduced by approximately
200,000 - 225,000 tons in the U.S. and 125,000 tons in Europe. In December 2019,
for the U.S., we restarted one of the idled blast furnaces and announced the
indefinite idling on or around April 1, 2020 of the other. The production at the
idled blast furnace in Europe may resume when market conditions improve.
In June 2019, U. S. Steel restarted the No. 1 Electric-Weld Pipe Mill (No. 1
Pipe Mill) at its Lone Star Tubular Operations to enable the Company to support
increased demand for high-quality electric-welded pipe produced in the United
States
. The No. 1 Pipe Mill produces 7-16 inch welded pipe and is complementing
our current Tubular product offerings. It had been idled since 2016.
In February 2019, U. S. Steel restarted construction of the electric arc furnace
(EAF) capital project located in Fairfield, Alabama. Construction had previously
been delayed.


In 2018 and 2017, the Granite City Works steelmaking operations and hot strip
mill, respectively, were restarted after they were temporarily idled in 2015.



Depreciation, depletion and amortization



Depreciation, depletion and amortization expenses were $616 million in 2019 and
$521 million in 2018. The increases from 2018 to 2019 are primarily due to
increased capital spending in recent years.



Earnings from investees



74



--------------------------------------------------------------------------------



Table of Contents





Earnings from investees were $79 million in 2019 and $61 million in 2018. The
increase from 2018 to 2019 is primarily due to increased earnings from our iron
ore investee and our PRO-TEC joint venture, partially offset by an equity loss
related to our investment in Big River Steel.

Restructuring and Other Charges
During 2019, U. S. Steel recorded restructuring and other charges of $275
million
, which consists of charges of $25 million at USSK for headcount
reductions and plant exit costs, $227 million for the indefinite idling of ECT,
our finishing facility in Dearborn, Michigan, and the intended indefinite idling
of a significant portion of Great Lakes Works and $23 million for Company-wide
headcount reductions.

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 restructuring and cost
reductions are reported in restructuring and other charges in the Consolidated
Statements of Operations.


Earnings (loss) before interest and income taxes by Segment (a)




Year Ended December 31,
(Dollars in Millions) 2019 2018
Flat-Rolled $ 196 $ 883
USSE (57 ) 359
Tubular (67 ) (58 )
Total earnings (loss) from reportable segments 72 1,184
Other Businesses 23 55
Segment earnings (loss) before interest and income taxes 95 1,239
Other items not allocated to segments:
December 24, 2018 Clairton coke making facility fire (50 ) -
Restructuring and other charges (b) (275 ) -
USW labor agreement signing bonus and related costs - (81 )
Granite City Works restart and related costs - (80 )
Granite City Works temporary idling charges - 8
Gain on equity investee transactions (Note 12) - 38


Total (loss) earnings before interest and income taxes $ (230 )



$ 1,124





(a) See Note 4 to the Consolidated Financial Statements for reconciliations and
other disclosures required by Accounting Standards Codification Topic 280.
(b) Included in restructuring and other charges on the Consolidated Statements
of Operations. See Note 25 to the Consolidated Financial Statements.

75



--------------------------------------------------------------------------------



Table of Contents


Gross Margin by Segment




Year Ended December 31,
2019 2018
Flat-Rolled 8 % 15 %
USSE 3 % 15 %
Tubular (1 )% 1 %



76



--------------------------------------------------------------------------------



Table of Contents



Segment results for Flat-Rolled
[[Image Removed: chart-c812d35fdaf65fb58f9.jpg]][[Image Removed: chart-bb25abc6dbd55d4a809.jpg]]



Segment Earnings


(Loss) before



Average Realized Price Per Ton Interest and



Income Taxes



[[Image Removed: chart-b0321aa1d6f45be08ee.jpg]][[Image Removed: chart-269d6c1b86a35e1693c.jpg]]




The Flat-Rolled segment had earnings of $196 million for the year ended
December 31, 2019 compared to earnings of $883 million for the year ended
December 31, 2018. The decrease in Flat-Rolled results for 2019 compared to 2018
resulted primarily from lower average realized prices (approximately $570
million
), increased spending on operating and maintenance costs (approximately
$110 million), higher raw material costs (approximately $65 million) and
increased other operating costs, primarily depreciation (approximately $90
million
). These charges were partially offset by decreased other costs which was
primarily related to decreased variable compensation (approximately $135
million
) and lower energy costs (approximately $15 million).

Gross margin for 2019 as compared to 2018 decreased primarily as a result of
lower average prices due to lower spot prices and adjustable, spot market
index-based contract prices, both of which consistently decreased throughout
2019.

77



--------------------------------------------------------------------------------



Table of Contents


Segment results for USSE



[[Image Removed: chart-ef94f559d2765482bda.jpg]][[Image Removed: chart-359bac338b6152cf81c.jpg]]



[[Image Removed: chart-62ae38274c47560cbfa.jpg]][[Image Removed: chart-642058c25084506ca3d.jpg]]




The USSE segment had a loss of $57 million for the year ended December 31, 2019
compared to earnings of $359 million for the year ended December 31, 2018. The
decrease in USSE results in 2019 compared to 2018 was primarily due to
significant market challenges from weakening economic conditions resulting in
decreased shipments (approximately $130 million), lower average realized prices
(approximately $100 million), higher raw material costs (approximately $115
million
), the weakening of the euro versus the U.S. dollar (approximately $70
million
), higher energy costs ($35 million). These charges were partially offset
by lower spending for operating and maintenance (approximately $10 million) and
other costs (approximately $25 million).


Gross margin decreased from 2019 as compared to 2018 primarily due to lower
average realized prices.



78



--------------------------------------------------------------------------------



Table of Contents



Segment results for Tubular
[[Image Removed: chart-d61d5a59bdba540983a.jpg]][[Image Removed: chart-5559549c3a105be6ae4.jpg]]



[[Image Removed: chart-5fd112231eb95c558ba.jpg]]




The Tubular segment had a loss of $67 million for the year ended December 31,
2019
compared to a loss of $58 million for the year ended December 31, 2018. The
decrease in Tubular results in 2019 as compared to 2018 was primarily due to
lower average realized prices (approximately $15 million), decreased shipments
(approximately $15 million), increased spending on operating costs
(approximately $35 million) and increased costs associated with the continued
execution of Tubular's commercial and technology strategy (approximately $25
million
). Theses charges were partially offset by lower substrate and rounds
costs (approximately $80 million).


Gross margin for 2019 as compared to 2018 decreased primarily due to lower
average realized prices.



Results for Other Businesses



Other Businesses had earnings of $23 million and $55 million for 2019 and 2018,
respectively.





79


--------------------------------------------------------------------------------



Table of Contents



Items not allocated to segments:



We incurred charges of $50 million for costs associated with the December 24,
2018
Clairton coke making facility fire.




We recorded $275 million of restructuring and other charges for the intended
indefinite idling of a significant portion of Great Lakes Works, the indefinite
idling of ECT and our finishing facility in Dearborn, Michigan, within the
Flat-Rolled segment, the labor productivity strategy within the USSE segment and
company-wide headcount reductions.


We recorded a charge of $81 million for United Steelworkers labor agreement
signing bonus and related costs in 2018 associated with the 2018 Labor
Agreements with the United Steelworkers.




We recorded $80 million for Granite City Works restart and related costs in 2018
as a result of costs associated with the restart of the "A" and "B" blast
furnaces.
We recorded a favorable adjustment of $8 million in 2018 related to Granite City
Works temporary idling charges.

We recognized a gain on equity investee transactions of $38 million in 2018. The
gain on equity investee transactions included approximately $18 million for the
assignment of our 33% ownership interest in Leeds Retail Center, LLC and $20
million
from the sale of our 40% ownership interest in Acero Prime, S. R. L. de
CV
. (see Note 12 to the Consolidated Financial Statements, "Investments and
Long-Term Receivables and Equity Investee Transactions" for further details).


Net Interest and Other Financial Costs




Year Ended December 31,
(Dollars in millions) 2019 2018
Interest income $ (17 ) $ (23 )
Interest expense 142 168
Net periodic benefit cost (other than service cost) 91 69
Loss on debt extinguishment - 98
Other financial costs 6 -
Net interest and other financial costs $ 222 $


312






During 2019, U. S. Steel entered into a new five-year senior secured asset-based
revolving credit facility in an aggregate amount of $2.0 billion (Fifth Credit
Facility Agreement) to replace its former $1.5 billion credit facility. Also,
during 2019 U. S. Steel had net borrowings of $600 million from the Fifth Credit
Facility Agreement; launched offerings of two series of environmental revenue
bonds in aggregate principal amount of approximately $368 million, that will
mature between 2024 and 2049 of which approximately $93 million was used to
redeem a portion of our existing outstanding environmental revenue bonds; issued
$350 million aggregate principal amount of 5.00% Senior Convertible Notes due
2026 (2026 Senior Convertible Notes) and, had additional borrowings of €150
million (approximately $164 million) from the USSK Credit Agreement. For
additional information regarding changes in our debt profile see Note 17 to the
Consolidated Financial Statements.
During 2018, U. S. Steel issued $650 million aggregate principal amount of
6.250% Senior Notes due 2026 (2026 Senior Notes) and had borrowings of €200
million (approximately $229 million) from the USSK Credit Agreement. Also,
during 2018, through a series of open market purchases, U. S. Steel repurchased
approximately $75 million of its 7.375% Senior Notes due in 2020 (2020 Senior
Notes) and redeemed the remaining $357 million. Additionally, U. S. Steel
tendered and then redeemed the $780 million aggregate principal amount of its
8.375% Senior Secured Notes due 2021 (2021 Senior Secured Notes). The aggregate
redemption costs of these repurchases and redemptions totaled $1,296 million,
which included $1,212 million for the remaining principal balances and $84
million
of redemption premiums which have been reflected within the loss on debt
extinguishment line in the table above.
The net periodic benefit cost (other than service cost) of pension and other
benefit costs are a component of net interest and other financial costs. The
increase in 2019 pension and Other Benefit expense was primarily due to lower
asset returns than expected for 2018 and a lower asset return assumption used in
2019, partially offset by the natural maturation of the plans.


80



--------------------------------------------------------------------------------



Table of Contents




For additional information on U. S. Steel's foreign currency exchange activity
see Note 16 to the Consolidated Financial Statements and Item 7A. "Quantitative
and Qualitative Disclosures about Market Risk - Foreign Currency Exchange Rate
Risk."

Income Taxes

The income tax expense for the year ended December 31, 2019 was $178 million
compared to an income tax benefit of $303 million in 2018. The tax provision in
2019 does not reflect any tax benefit in the U.S. as a valuation allowance was
recorded against the net domestic deferred tax asset (excluding a portion of
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.
The net domestic deferred tax asset was $12 million at December 31, 2019, net of
an established valuation allowance of $560 million, compared to a net domestic
deferred tax asset of $445 million at December 31, 2018, net of an established
valuation allowance of $211 million.
At December 31, 2019, the net foreign deferred tax asset was $3 million, net of
an established valuation allowance of $3 million. At December 31, 2018, the net
foreign deferred tax liability was $14 million, net of an established valuation
allowance of $3 million.


For further information on income taxes see Note 11 to the Consolidated
Financial Statements.



Net earnings/(loss) attributable to U. S. Steel




Net loss attributable to U. S. Steel in 2019 was $(630) million compared to net
earnings of $1,115 million in 2018. The changes primarily reflected the factors
discussed above.


Financial Condition, Cash Flows and Liquidity



Financial Condition




Accounts receivable decreased by $482 million from December 31, 2018 primarily
as a result of lower average realized prices in all of our segments and lower
shipments in our European segment.


Inventories decreased by $307 million from December 31, 2018 primarily due to
decreased operating levels in our Flat-Rolled and USSE segments.




Long-term restricted cash increased by $151 million primarily related to
proceeds from environmental revenue bonds that are restricted to pay for the
electric arc furnace construction and certain other capital expenditure projects
at the Company's Fairfield Tubular Operations.

Investments and long-term receivables increased by $953 million from year-end
2018 primarily as a result of our purchase of a 49.9% ownership interest in Big
River Steel and the call option related to it.


Operating lease assets increased by $230 million from year-end 2018 as a result
of the adoption of the new accounting standard for leases (see Note 24 for
further details).



Property, plant and equipment, net increased by $582 million from year-end 2018
due to the level of capital expenditures exceeding depreciation expense.




Deferred income tax benefits decreased by $426 million from year-end 2018
primarily because it was determined that it was 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, as well as a deferred tax asset
related to refundable AMT credits) may not be realized.


Other noncurrent assets increased by $161 million primarily due to the over
funded status of our OPEB obligation.



81



--------------------------------------------------------------------------------



Table of Contents



Accounts payable and other accrued liabilities decreased by $481 million from
year-end 2018 primarily as a result of decreased operating levels in our
Flat-Rolled and USSE segments.




Payroll and benefits payable decreased by $104 million from year-end 2018
primarily due to lower accruals for variable compensation, reclassification of
liabilities to noncurrent assets due to the overfunded status of our OPEB
obligation, partially offset by employee costs associated with the idling of
facilities.

Noncurrent operating lease liabilities increased by $177 million from year-end
2018 as a result of the adoption of
the new accounting standard for leases (see Note 24 for further details).


Long-term debt increased by $1,311 million from year-end 2018 primarily due to
the net draw of $600 million on the Fifth Credit Facility Agreement for the
purchase of Big River Steel; the issuance of $350 million in 2026 Senior
Convertible Notes and increase of $275 million, net of redemptions, in
environmental revenue bonds for the construction of an EAF at our Fairfield
Tubular Operations.




Employee benefits decreased by $448 million from year-end 2018 primarily due to
higher than expected returns on pension plan assets and a reduction in future
health care costs partially offset by a lower discount rate.

Deferred credits and other noncurrent liabilities increased by $278 million from
year-end 2018 primarily due to the put option related to our purchase of a 49.9%
ownership interest in Big River Steel and liabilities associated with the idling
of facilities.

Cash Flows

Net cash provided by operating activities was $682 million in 2019 compared to
$938 million in 2018. The decrease in 2019 compared to 2018 was primarily due to
decreased operating results, partially offset by changes in working 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 key working capital components include accounts receivable and inventory.
The accounts receivable and inventory turnover ratios for the years ended
December 31, 2019 and 2018 are as follows:




Year Ended December 31,
2019 2018
Accounts Receivable Turnover 9.1 9.3
Inventory Turnover 6.2 6.4



The decrease in accounts receivable turnover approximates one day for 2019 as
compared to 2018 and is primarily due to decreased sales as a result of
decreased shipments in our USSE segment and lower average realized prices across
all segments. The decrease in inventory turnover approximates two days for 2019
as compared to 2018 and is primarily due to lower inventory levels from reduced
production in our Flat-Rolled and USSE segments.

The last-in, first-out (LIFO) inventory method is the predominant method of
inventory costing in the United States. At December 31, 2019 and 2018, the LIFO
method accounted for 75 percent and 74 percent of total inventory 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, 2019 and 2018, the replacement cost of the inventory was higher by
approximately $735 million and $1,038 million, respectively.


Our cash conversion cycle increased nine days in the fourth quarter of 2019 from
the fourth quarter of 2018 as shown below:



82



--------------------------------------------------------------------------------



Table of Contents

Cash Conversion Cycle 2019 2018
$ millions Days $ millions Days
Accounts receivable, net (a) $ 1,177 42 $ 1,659 42

+ Inventories (b) $ 1,785 64 $ 2,092 58

- Accounts Payable and Other Accrued
Liabilities (c) $ 1,970 69 $ 2,477 72


= Cash Conversion Cycle (d) 37 28


(a) Calculated as Average Accounts Receivable, net divided by total Net Sales
multiplied by the number of days in the period.
(b) Calculated as Average Inventory divided by total Cost of Sales multiplied by
the number of days in the period.
(c) Calculated as Average Accounts Payable and Other Accrued Liabilities less
bank checks outstanding and other current liabilities divided by total Cost of
Sales multiplied by the number of days in the period.
(d) Calculated as Accounts Receivable Days plus Inventory Days less Accounts
Payable Days.


Net cash provided by operating activities for 2019 and 2018 reflects employee
benefits payments as shown in the following table.




Employee Benefits Payments

Year Ended December 31,
(Dollars in millions) 2019 2018
Other employee benefits payments not funded by trusts $ 45 $ 48
Payments to a multiemployer pension plan 77 60
Pension related payments not funded by trusts 8 20


Reductions in cash flows from operating activities $ 130



$ 128




83



--------------------------------------------------------------------------------



Table of Contents



Capital expenditures in 2019 were $1.252 billion compared to $1.001 billion in
2018.



[[Image Removed: a2019capexcolor.jpg]] [[Image Removed: a2018capexcolor.jpg]]




2019 Capital Spending
Total capital expenditures for 2019 were $1.252 billion. Flat-Rolled capital
expenditures were $943 million and included spending for the Mon Valley No. 3
Blast Furnace outage, Mon Valley Endless Casting and Rolling, Gary Hot Strip
Mill
upgrades, Great Lakes B2 Blast Furnace, Midwest Tin Cold Mill upgrades, and
various other infrastructure, environmental and strategic projects. Tubular
capital expenditures were $145 million and included spending for the Fairfield
Electric Arc Furnace (EAF) project, Offshore Operations threading line and swage
extension and various other strategic capital projects. USSE capital
expenditures of $153 million consisted of spending for improved Sinter Strand
Emission control, improved Ore Bridges Emission control, the new Dynamo line and
various other infrastructure and environmental projects.

Capital expenditures for 2020 are expected to total approximately $875 million
and remain focused largely on strategic, infrastructure and environmental
projects, as well as continued reinvestment in our equipment to improve our
operating reliability and efficiency, and product quality and cost by focusing
on investments in our Flat-Rolled segment.


U. S. Steel's contractual commitments to acquire property, plant and equipment
at December 31, 2019, totaled $880 million.



In 2019, U. S. Steel purchased a 49.9% ownership interest in Big River Steel at
a purchase price of approximately $710 million including approximately
$27 million of transaction costs.



In 2018, U. S. Steel sold its 40% ownership interest in Acero Prime, S. R. L. de
CV
for a pretax gain of $20 million.




Revolving credit facilities - borrowings, net of financing costs, totaled $860
million
in 2019, which represents cash received primarily from borrowings under
the Fifth Credit Facility Agreement for the purchase of our 49.9% equity
interest in Big River Steel. In 2018, $228 million was borrowed under the USSK
Credit Agreement.

Issuance of long-term debt, net of financing costs, totaled $702 million in
2019. In 2019, U. S. Steel issued $368 million under two series of environmental
revenue bonds for which it received net proceeds of $362 million after
underwriting fees and estimated offering expenses and issued $350 million
aggregate principal amount of 2026 Senior Convertible Notes for which it
received net proceeds of $340 million after underwriting fees and estimated
offering expenses. In 2018, U. S. Steel issued $650 million of 6.250% Senior
Notes due March 15, 2026. U. S. Steel received net proceeds from the offering of
approximately $640 million after fees of approximately $10 million related to
the underwriting and third-party expenses. For further information see Note 17
to the Consolidated Financial Statements.


Repayment of revolving credit facilities totaled $100 million in 2019 and
represents repayment on our Fifth Credit Facility Agreement.




Repayment of long-term debt totaled $155 million in 2019. In 2019, U. S. Steel
redeemed $148 million in environmental revenue bonds and made principal payments
on finance leases of $7 million. In 2018, through a series of open market
purchases, U. S. Steel repurchased approximately $75 million aggregate principal
amount of its 7.375% Senior Notes due 2020 (7.375% Senior Notes) for an
aggregate cash outflow of $80 million which included $5 million of premiums. U.
S. Steel then redeemed the remaining $357 million aggregate principal amount of
its 7.375% Senior Notes for an aggregate cash outflow of $376 million which
included $19 million of premiums. Also in 2018, the Company tendered and then
redeemed its $780 million 8.375% Senior Secured Notes due 2021 for an aggregate
cash outflow of $840

84



--------------------------------------------------------------------------------



Table of Contents



million which included $60 million of premiums. For further information see Note
17 to the Consolidated Financial Statements.




Common stock repurchased totaled $88 million in 2019. In 2019, U. S. Steel
repurchased 5,289,475 shares under its common stock repurchase program that was
approved in 2018. In December 2019, the common stock repurchase program was
terminated. In 2018, U. S. Steel repurchased 2,760,112 shares under the common
stock repurchase program. See Note 27 to the Consolidated Financial Statements,
"Common Stock Repurchase Program and Common Stock Issuance" for further details.

For all four quarters in 2019 and 2018, dividends paid per share of U. S. Steel
common stock was $0.05. In December 2019, U. S. Steel announced an adjustment to
the quarterly dividend amount to $0.01 per share beginning with dividends
declared in 2020.


Liquidity



The following table summarizes U. S. Steel's liquidity as of December 31, 2019:




(Dollars in millions)
Cash and cash equivalents $ 749


Amount available under $2.0 Billion Credit Facility 1,380
Amounts available under USSK credit facilities 155
Total estimated liquidity


$ 2,284


[[Image Removed: chart-3f10cf4f4cf051b9915.jpg]]

As of December 31, 2019, $255 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 $2.0 billion asset-backed revolving credit facility
(Fifth Credit Facility Agreement). As of December 31, 2019, there was
$600 million drawn on the Fifth Credit Facility Agreement. U. S. Steel must
maintain a fixed charge negative covenant test of at least 1.00 to 1.00 for the
most recent four consecutive quarters when availability under the Fifth Credit
Facility Agreement is less than the greater of 10% of the total aggregate
commitments and $200 million. Based on the four quarters as of December 31,
2019
, we would have met this covenant. If we are unable to meet this covenant in
future periods, the amount available to the Company under this facility would be
reduced by $200 million. On October 30, 2019, we drew $700 million on the Fifth
Credit Facility Agreement and on November 14, 2019 repaid $100 million on the
facility. On January 26, 2020, U. S. Steel made another payment of $50 million
on this facility.

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). On December 23, 2019 USSK

85



--------------------------------------------------------------------------------



Table of Contents




entered into a supplemental agreement that amended the USSK Credit Agreement
leverage covenant and pledged certain USSK trade receivables and inventory as
collateral in support of USSK's obligations. If USSK does not comply with the
financial covenants it may not be able to draw on the facility until the next
measurement date. At December 31, 2019, USSK had availability of €110 million
(approximately $124 million) under the USSK Credit Agreement. See Note 17 to the
Consolidated Financial Statements, "Debt" for further details.

At December 31, 2019, USSK had no borrowings under its €20 million and €10
million credit facilities (collectively approximately $33 million) and the
aggregate availability was approximately $31 million due to approximately $2
million
of customs and other guarantees outstanding. These facilities expire in
December 2021.
On December 10, 2019, U. S. Steel entered into an Export Credit Agreement (ECA)
with KfW IPEX-Bank GMBH and certain other lenders. Funding of the ECA is
expected to occur during the first quarter of 2020. The purpose of the ECA is to
finance equipment purchased for the endless casting and rolling facility under
construction at our Mon Valley Works facility in Braddock, Pennsylvania. Loans
available under the ECA total approximately $288 million and are made up of a
Commercial Facility of approximately $38 million and a Covered Facility of
approximately $250 million. See Note 17 to the Consolidated Financial
Statements, "Debt" for further details.
In March 2018, U. S. Steel issued $650 million aggregate principal amount of
6.250% Senior Notes due March 15, 2026 (2026 Senior Notes). U. S. Steel received
net proceeds from the offering of approximately $640 million after fees of
approximately $10 million related to the underwriting and third-party expenses.
The net proceeds from the issuance of the 2026 Senior Notes, together with cash
on hand, were used to tender or otherwise redeem all of our outstanding 2021
Senior Secured Notes. U. S. Steel will pay interest on the notes semi-annually
in arrears on March 15th and September 15th of each year, commencing on
September 15, 2018.
We may from time to time seek to retire or repurchase our outstanding long-term
debt through open market purchases, privately negotiated transactions, exchange
transactions, redemptions or otherwise. Such purchases or exchanges, if any,
will depend on prevailing market conditions, our liquidity requirements, and
other factors and may be commenced or suspended at any time. The amounts
involved may be material.

We use surety bonds, trusts and letters of credit to provide financial assurance
for certain transactions and business activities. The use of some forms of
financial assurance and cash collateral have a negative impact on liquidity.
U. S. Steel has committed $164 million of liquidity sources for financial
assurance purposes as of December 31, 2019. Increases in certain of these
commitments which use collateral are reflected in restricted cash on the
Consolidated Statement of Cash Flows.

At December 31, 2019, in the event of a change in control of U. S. Steel: (a)
debt obligations totaling $3,093 million as of December 31, 2019 may be declared
due and payable; (b) the Credit Facility Agreement and the USSK credit
facilities may be terminated and any amounts outstanding declared due and
payable; and (c) U. S. Steel may be required to either repurchase the leased
Fairfield slab caster for $19 million or provide a cash collateralized letter of
credit to secure the remaining obligation.

The maximum guarantees of the indebtedness of unconsolidated entities of
U. S. Steel totaled $4 million at December 31, 2019. If any default related to
the guaranteed indebtedness occurs, U. S. Steel has access to its interest in
the assets of the investees to reduce its potential losses under the guarantees.


The following table summarizes U. S. Steel's contractual obligations at
December 31, 2019, and the effect such obligations are expected to have on our
liquidity and cash flows in future periods.



86



--------------------------------------------------------------------------------



Table of Contents

(Dollars in millions)
Payments Due by Period
2021
through 2023 through Beyond
Contractual Obligations Total 2020 2022 2024 2024
Long-term debt (including
interest) and finance
leases(a) $ 5,751 $ 226 $ 450 $ 1,463 $ 3,612
Operating leases(b) 289 74 104 60 51
Contractual purchase
commitments(c) 4,197 2,400 741 445 611
Capital commitments(d) 880 663 217 - -
Environmental commitments(d) 186 53 - - 133 (e)
Steelworkers Pension Trust(f) 430 79 172 179 -
Pensions(g) 264 - - 101 163
Other benefits(h) 228 48 93 87 -
Total contractual obligations $ 12,225 $ 3,543 $ 1,777 $ 2,335 $ 4,570



(a) See Note 17 to the Consolidated Financial Statements.



(b) See Note 24 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 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 2023 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. After 2023, payments represent minimum contributions that may be



needed over the next five years, and which would fully fund the plan.



(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.



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 24 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 11 to the Consolidated
Financial Statements, are excluded from the above table.

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 18 to the Consolidated Financial Statements.

87



--------------------------------------------------------------------------------



Table of Contents



The following table summarizes U. S. Steel's commercial commitments at
December 31, 2019, and the effect such commitments could have on our liquidity
and cash flows in future periods.




(Dollars in millions)
Scheduled Reductions by Period
2021 2023
through through Beyond
Commercial Commitments Total 2020 2022 2024 2024



Standby letters of credit(a) $ 36 $ 25 $ 1



$ - $ 10 (b)
Surety bonds(a) 109 - - - 109 (b)
Funded Trusts(a) 3 - - - 3 (b)



Total commercial commitments $ 148 $ 25 $ 1



$ - $ 122



(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 2020 are expected to be for capital expenditures,
including strategic priorities and asset revitalization, employee benefits and
operating costs, which includes purchases of raw materials. We ended 2019 with
$749 million of cash and cash equivalents and $2,284 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 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.


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.



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 26 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.







88


--------------------------------------------------------------------------------



Table of Contents



Environmental Matters




U. S. Steel's environmental expenditures were as follows:
(Dollars in millions)
2019 2018 2017
North America:
Capital $ 96 $ 105 $ 6
Compliance
Operating & maintenance 213 198 176
Remediation(a) 22 6 9
Total North America $ 331 $ 309 $ 191
USSE:
Capital $ 27 $ 20 $ 46
Compliance
Operating & maintenance 10 12 11
Remediation(a) 8 9 7
Total USSE $ 45 $ 41 $ 64
Total U. S. Steel $ 376 $ 350 $ 255


(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 10 percent of
total capital expenditures in 2019 and 12 percent in 2018 and 10 percent in
2017.




Environmental compliance expenditures represented 2 percent of U. S. Steel's
total costs and expenses in 2019, 2018 and 2017. Remediation spending during
2017 through 2019 was mainly related to remediation activities at former and
present operating locations.


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, 2019 and December 31, 2018. These
amounts exclude liabilities related to asset retirement obligations accounted
for in accordance with ASC Topic 410. See Note 19 to the Consolidated Financial
Statements.

(Dollars in millions) 2019 2018
Beginning Balance $ 187 $ 179
Plus: Additions 20 14
Less: Obligations settled (21 ) (6 )
Ending Balance $ 186 $ 187



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. U. S. Steel's environmental capital
expenditures are expected to be approximately $66 million in 2020, $5 million of
which is related to projects at USSE. U. S. Steel's environmental expenditures
for 2020 for operating and maintenance and for remediation projects are expected
to be approximately $215 million and $60 million, respectively, of which
approximately $10 million and $5 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 2020 can
only be broad-based estimates, which have varied, and will continue

89



--------------------------------------------------------------------------------



Table of Contents




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.


Accounting Standards



See Notes 2 and 3 to the Consolidated Financial Statements in Part II Item 8 of
this Form 10-K.

© Edgar Online, source Glimpses

Acquiremedia 2020
Envoyer par e-mail