Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2019
Or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
ussclogosignature2955.jpg
United States Steel Corporation
(Exact name of registrant as specified in its charter)
Delaware
 
1-16811
 
25-1897152
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
600 Grant Street
Pittsburgh
PA
 
15219-2800
 
(Address of principal executive offices)
 
(Zip Code)
(412) 433-1121
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
United States Steel Corporation Common Stock
X
New York Stock Exchange
United States Steel Corporation Common Stock
X
Chicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No x
Common stock outstanding at July 29, 2019170,743,333 shares




INDEX

 
Page
PART I – FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
Item 1.
 
Item 4.
 
Item 5.
 
Item 6.



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains information that may constitute ”forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in those sections. Generally, we have identified such forward-looking statements by using the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “target,” “forecast,” “aim,” "should," “will” and similar expressions or by using future dates in connection with any discussion of, among other things, operating performance, trends, events or developments that we expect or anticipate will occur in the future, statements relating to volume changes, share of sales and earnings per share changes, and statements expressing general views about future operating results. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements are not historical facts, but instead represent only the Company’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that the Company’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Management believes that these forward-looking statements are reasonable as of the time made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to the risks and uncertainties described in this report and in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

References in this Quarterly Report on Form 10-Q to "U. S. Steel," "the Company," "we," "us," and "our" refer to United States Steel Corporation and its consolidated subsidiaries unless otherwise indicated by the context.







UNITED STATES STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

 
 
Three Months Ended 
 June 30,
 
Six Months Ended June 30,
(Dollars in millions, except per share amounts)
 
2019
 
2018
 
2019
 
2018
Net sales:
 
 
 
 
 
 
 
 
Net sales
 
$
3,175

 
$
3,242

 
$
6,299

 
$
6,063

Net sales to related parties (Note 21)
 
370

 
367

 
745

 
695

Total (Note 5)
 
3,545

 
3,609

 
7,044

 
6,758

Operating expenses (income):
 
 
 
 
 
 
 
 
Cost of sales (excludes items shown below)
 
3,227

 
3,121

 
6,399

 
5,929

Selling, general and administrative expenses
 
82

 
92

 
160

 
170

Depreciation, depletion and amortization
 
150

 
130

 
293

 
258

Earnings from investees
 
(28
)
 
(19
)
 
(37
)
 
(22
)
Gain on equity investee transactions (Note 25)
 

 
(18
)
 

 
(18
)
Net loss on disposal of assets
 

 
1

 
4

 
2

Other (income) expense, net
 
(1
)
 
1

 
(1
)
 
1

Total
 
3,430

 
3,308

 
6,818

 
6,320

Earnings before interest and income taxes
 
115

 
301

 
226

 
438

Interest expense
 
31

 
43

 
65

 
93

Interest income
 
(5
)
 
(5
)
 
(10
)
 
(10
)
Loss on debt extinguishment (Note 11)
 

 
28

 

 
74

Other financial costs (benefits)
 
5

 
(8
)
 
2

 
2

Net periodic benefit cost (other than service cost)
 
23

 
17

 
46

 
34

     Net interest and other financial costs (Note 11)
 
54

 
75

 
103

 
193

Earnings before income taxes
 
61

 
226

 
123

 
245

Income tax (benefit) provision (Note 13)
 
(7
)
 
12

 
1

 
13

Net earnings
 
68

 
214

 
122

 
232

Less: Net earnings attributable to noncontrolling interests
 

 

 

 

Net earnings attributable to United States Steel Corporation
 
$
68

 
$
214

 
$
122

 
$
232

Earnings per common share (Note 14):
 
 
 
 
 

 

Earnings per share attributable to United States Steel Corporation stockholders:
 
 
 
 
 

 

-Basic
 
$
0.39

 
$
1.21

 
$
0.71

 
$
1.32

-Diluted
 
$
0.39

 
$
1.20

 
$
0.70

 
$
1.30








The accompanying notes are an integral part of these condensed consolidated financial statements.

-1-



UNITED STATES STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(Dollars in millions)
 
2019
 
2018
 
2019
 
2018
Net earnings
 
$
68

 
$
214

 
$
122

 
$
232

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Changes in foreign currency translation adjustments
 
12

 
(87
)
 
(5
)
 
(47
)
Changes in pension and other employee benefit accounts
 
32

 
47

 
64

 
93

Changes in derivative financial instruments
 
(11
)
 
(3
)
 
4

 
(19
)
Total other comprehensive income (loss), net of tax
 
33

 
(43
)
 
63

 
27

Comprehensive income including noncontrolling interest
 
101

 
171

 
185

 
259

Comprehensive income attributable to noncontrolling interest
 

 

 

 

Comprehensive income attributable to United States Steel
Corporation
 
$
101

 
$
171

 
$
185

 
$
259






































The accompanying notes are an integral part of these condensed consolidated financial statements.

-2-



UNITED STATES STEEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions)
 
 
 June 30, 
 2019
 
December 31,  
 2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents (Note 6)
 
$
651

 
$
1,000

Receivables, less allowance of $28 and $29
 
1,420

 
1,435

Receivables from related parties (Note 21)
 
218

 
224

Inventories (Note 7)
 
2,166

 
2,092

Other current assets
 
92

 
79

Total current assets
 
4,547

 
4,830

Operating lease assets (Note 8)
 
237

 

Property, plant and equipment
 
16,584

 
16,008

Less accumulated depreciation and depletion
 
11,351

 
11,143

Total property, plant and equipment, net
 
5,233

 
4,865

Investments and long-term receivables, less allowance of $5 in both periods
 
550

 
513

Intangibles – net (Note 9)
 
154

 
158

Deferred income tax benefits (Note 13)
 
433

 
445

Other noncurrent assets
 
137

 
171

Total assets
 
$
11,291

 
$
10,982

Liabilities
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and other accrued liabilities
 
$
2,498

 
$
2,454

Accounts payable to related parties (Note 21)
 
117

 
81

Payroll and benefits payable
 
334

 
440

Accrued taxes
 
111

 
118

Accrued interest
 
39

 
39

Current operating lease liabilities (Note 8)
 
54

 

Current portion of long-term debt (Note 16)
 
70

 
65

Total current liabilities
 
3,223

 
3,197

Noncurrent operating lease liabilities (Note 8)
 
188

 

Long-term debt, less unamortized discount and debt issuance costs (Note 16)
 
2,345

 
2,316

Employee benefits
 
926

 
980

Deferred income tax liabilities (Note 13)
 
18

 
14

Deferred credits and other noncurrent liabilities
 
279

 
272

Total liabilities
 
6,979

 
6,779

Contingencies and commitments (Note 22)
 

 

Stockholders’ Equity (Note 19):
 
 
 
 
Common stock (178,533,023 and 177,386,430 shares issued) (Note 14)
 
179

 
177

Treasury stock, at cost (7,176,841 shares and 2,857,578 shares)
 
(155
)
 
(78
)
Additional paid-in capital
 
3,936

 
3,917

Retained earnings
 
1,314

 
1,212

Accumulated other comprehensive loss (Note 20)
 
(963
)
 
(1,026
)
Total United States Steel Corporation stockholders’ equity
 
4,311

 
4,202

Noncontrolling interests
 
1

 
1

Total liabilities and stockholders’ equity
 
$
11,291

 
$
10,982


The accompanying notes are an integral part of these condensed consolidated financial statements.

-3-



UNITED STATES STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

 
 
Six Months Ended 
 June 30,
(Dollars in millions)
 
2019
 
2018
Increase (decrease) in cash, cash equivalents and restricted cash
 
 
 
 
Operating activities:
 
 
 
 
Net earnings
 
$
122

 
$
232

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
 
293

 
258

Gain on equity investee transactions (Note 25)
 

 
(18
)
Loss on debt extinguishment (Note 11)
 

 
74

Provision for doubtful accounts
 

 
1

Pensions and other postretirement benefits
 
55

 
37

Deferred income taxes (Note 13)
 
(3
)
 
(1
)
Net loss on disposal of assets
 
4

 
2

Equity investee earnings, net of distributions received
 
(35
)
 
(19
)
Changes in:
 
 
 
 
Current receivables
 
(28
)
 
(294
)
Inventories
 
(77
)
 
(123
)
Current accounts payable and accrued expenses
 
(28
)
 
146

Income taxes receivable/payable
 
39

 
(3
)
Bank checks outstanding
 
5

 
8

All other, net
 
19

 
(7
)
Net cash provided by operating activities
 
366

 
293

Investing activities:
 
 
 
 
Capital expenditures
 
(628
)
 
(381
)
Disposal of assets
 
1

 
1

Investments, net
 

 
(1
)
Net cash used in investing activities
 
(627
)
 
(381
)
Financing activities:
 
 
 
 
Issuance of long-term debt, net of financing costs (Note 16)
 

 
640

Repayment of long-term debt (Note 16)
 
(1
)
 
(874
)
Common stock repurchased (Note 24)
 
(70
)
 

Dividends paid
 
(18
)
 
(18
)
Receipt from exercise of stock options
 

 
33

Taxes paid for equity compensation plans (Note 12)
 
(7
)
 
(8
)
Net cash used in financing activities
 
(96
)
 
(227
)
Effect of exchange rate changes on cash
 
(1
)
 
(10
)
Net decrease in cash, cash equivalents and restricted cash
 
(358
)
 
(325
)
Cash, cash equivalents and restricted cash at beginning of year (Note 6)
 
1,040

 
1,597

Cash, cash equivalents and restricted cash at end of period (Note 6)
 
$
682

 
$
1,272



The accompanying notes are an integral part of these condensed consolidated financial statements.

-4-



Notes to Condensed Consolidated Financial Statements (Unaudited)
1.     Basis of Presentation and Significant Accounting Policies
United States Steel Corporation (U. S. Steel, or the Company) produces and sells steel products, including flat-rolled and tubular products, in North America and Europe. Operations in North America also include iron ore and coke production facilities, railroad services and real estate operations. Operations in Europe also include coke production facilities.
The year-end Consolidated Balance Sheet data was derived from audited statements but does not include all disclosures required for complete financial statements by accounting principles generally accepted in the United States of America (U.S. GAAP). The other information in these condensed financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair statement of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. Additional information is contained in the United States Steel Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which should be read in conjunction with these condensed financial statements.
2.    New Accounting Standards
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). ASU 2018-14 removes certain disclosures that the FASB no longer considers cost beneficial, adds certain disclosure requirements and clarifies others. ASU 2018-14 is effective for public companies for fiscal years beginning after December 15, 2020, with early adoption permitted. U. S. Steel is currently assessing the impact of the ASU on its defined benefit plan disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which adds an impairment model that is based on expected losses rather than incurred losses. Under ASU 2016-13, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 is effective for public companies for fiscal years beginning after December 15, 2019 including interim reporting periods, with early adoption permitted. U. S. Steel is currently assessing the impact of the ASU, but does not believe this ASU will have a material impact on its overall Condensed Consolidated Financial Statements.
3.    Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02). Under ASU 2016-02, for operating leases, a lessee should recognize in its statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term; recognize a single lease cost, which is allocated over the lease term, generally on a straight line basis, and classify all cash payments within operating activities in the statement of cash flows. For finance leases, a lessee is required to recognize a right-of-use asset and a lease liability; recognize interest on the lease liability separately from amortization of the right-of-use asset, and classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability within operating activities in the statement of cash flows. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) -Targeted Improvements (ASU 2018-11), which provides an option to use a modified retrospective transition method at the adoption date. U. S. Steel adopted the new lease accounting standard effective January 1, 2019 using the optional modified retrospective transition method outlined in ASU 2018-11. As a result of the adoption, an operating lease asset and current and noncurrent liabilities for operating leases were recorded, and there was an insignificant reduction in prior year retained earnings for the cumulative effect of adoption for operating leases where payment started after lease commencement. See Note 8 for further details.


-5-



U. S. Steel's adoption of the following ASU's effective January 1, 2019 did not have a material impact on U. S. Steel's financial position, results of operations or cash flows:
Accounting Standard Update
2018-07
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
2018-15
Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs in a Cloud Computing Arrangement That is a Service Contract

4.    Segment Information
U. S. Steel has three reportable segments: (1) Flat-Rolled Products (Flat-Rolled), which consists of the following three commercial entities that directly interact with our customers and service their needs: (i) automotive solutions, (ii) consumer solutions, and (iii) industrial, service center and mining solutions; (2) U. S. Steel Europe (USSE); and (3) Tubular Products (Tubular). The results of our railroad and real estate businesses that do not constitute reportable segments are combined and disclosed in the Other Businesses category.
The chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being earnings (loss) before interest and income taxes. Earnings (loss) before interest and income taxes for reportable segments and Other Businesses does not include net interest and other financial costs (income), income taxes, and certain other items that management believes are not indicative of future results.
The accounting principles applied at the operating segment level in determining earnings (loss) before interest and income taxes are generally the same as those applied at the consolidated financial statement level. Intersegment sales and transfers are accounted for at market-based prices and are eliminated at the corporate consolidation level. Corporate-level selling, general and administrative expenses and costs related to certain former businesses are allocated to the reportable segments and Other Businesses based on measures of activity that management believes are reasonable.
The results of segment operations for the three months ended June 30, 2019 and 2018 are:
(In millions) Three Months Ended June 30, 2019
 
Customer
Sales
 
Intersegment
Sales
 
Net
Sales
 
Earnings
from
investees
 
Earnings (loss) before interest and income taxes
Flat-Rolled
 
$
2,539

 
$
95

 
$
2,634

 
$
26

 
$
134

USSE
 
678

 
3

 
681

 

 
(10
)
Tubular
 
316

 
1

 
317

 
2

 
(6
)
Total reportable segments
 
3,533

 
99

 
3,632

 
28

 
118

Other Businesses
 
12

 
30

 
42

 

 
10

Reconciling Items and Eliminations
 

 
(129
)
 
(129
)
 

 
(13
)
Total
 
$
3,545

 
$

 
$
3,545

 
$
28

 
$
115


 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Flat-Rolled
 
$
2,435

 
$
59

 
$
2,494

 
$
17

 
$
224

USSE
 
848

 
15

 
863

 

 
115

Tubular
 
309

 
2

 
311

 
2

 
(35
)
Total reportable segments
 
3,592

 
76

 
3,668

 
19

 
304

Other Businesses
 
17

 
32

 
49

 

 
17

Reconciling Items and Eliminations
 

 
(108
)
 
(108
)
 

 
(20
)
Total
 
$
3,609

 
$

 
$
3,609

 
$
19

 
$
301



-6-



The results of segment operations for the six months ended June 30, 2019 and 2018 are:
(In millions) Six Months Ended June 30, 2019
 
Customer
Sales
 
Intersegment
Sales
 
Net
Sales
 
Earnings
from
investees
 
Earnings (loss) before interest and income taxes
Flat-Rolled
 
$
4,944

 
$
164

 
$
5,108

 
$
33

 
$
229

USSE
 
1,415

 
6

 
1,421

 

 
19

Tubular
 
659

 
3

 
662

 
4

 
4

Total reportable segments
 
7,018

 
173

 
7,191

 
37

 
252

Other Businesses
 
26

 
60

 
86

 

 
18

Reconciling Items and Eliminations
 

 
(233
)
 
(233
)
 

 
(44
)
Total
 
$
7,044

 
$

 
$
7,044

 
$
37

 
$
226

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Flat-Rolled
 
$
4,482

 
$
116

 
$
4,598

 
$
19

 
$
257

USSE
 
1,671

 
16

 
1,687

 

 
225

Tubular
 
575

 
2

 
577

 
3

 
(62
)
Total reportable segments
 
6,728

 
134

 
6,862

 
22

 
420

Other Businesses
 
30

 
63

 
93

 

 
28

Reconciling Items and Eliminations
 

 
(197
)
 
(197
)
 

 
(10
)
Total
 
$
6,758

 
$

 
$
6,758

 
$
22

 
$
438


The following is a schedule of reconciling items to consolidated earnings before interest and income taxes:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
 
2019
 
2018
 
2019
 
2018
Items not allocated to segments:
 

 

 

 

December 24, 2018 Clairton coke making facility fire
 
$
(13
)
 
$

 
$
(44
)
 
$

Gain on equity investee transactions
 

 
18

 

 
18

Granite City Works restart costs
 

 
(36
)
 

 
(36
)
Granite City Works adjustment to temporary idling charges
 

 
(2
)
 

 
8

Total reconciling items
 
$
(13
)
 
$
(20
)
 
$
(44
)
 
$
(10
)



-7-



5.     Revenue

Revenue is generated primarily from contracts to produce, ship and deliver steel products, and to a lesser extent, to deliver raw materials such as iron ore pellets, to deliver coke by-products and for railroad services and real estate sales. Generally, U. S. Steel’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time, when title transfers to our customer for product shipped or services are provided. Revenues are recorded net of any sales incentives. Shipping and other transportation costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Costs related to obtaining sales contracts are incidental and are expensed when incurred. Because customers are invoiced at the time title transfers and U. S. Steel’s right to consideration is unconditional at that time, U. S. Steel does not maintain contract asset balances. Additionally, U. S. Steel does not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. U. S. Steel offers industry standard payment terms.
 
U. S. Steel has three reportable segments: Flat-Rolled, USSE and Tubular. Flat-Rolled primarily generates revenue from sheet and coated product sales to North American customers. Flat-Rolled also sells slabs, iron ore pellets and coke making by-products. USSE sells slabs, sheet, strip mill plate, coated products and spiral welded pipe to customers primarily in the Eastern European market. Tubular sells seamless and electric resistance welded (ERW) steel casing and tubing (commonly known as oil country tubular goods or OCTG), standard and line pipe and mechanical tubing and primarily serves customers in the oil, gas and petrochemical markets. Revenue from our railroad and real estate businesses is reported in the Other Businesses category in our segment reporting structure. The following tables disaggregate our revenue by product for each of our reportable business segments for the three months and six months ended June 30, 2019 and 2018, respectively:

Net Sales by Product (In millions):
Three Months Ended June 30, 2019
 
Flat-Rolled
USSE
Tubular
Other Businesses
Total
Semi-finished
 
$
121

$
5

$

$

$
126

Hot-rolled sheets
 
682

287



969

Cold-rolled sheets
 
643

82



725

Coated sheets
 
816

269



1,085

Tubular products
 

11

311


322

All Other (a)
 
277

24

5

12

318

Total
 
$
2,539

$
678

$
316

$
12

$
3,545

(a) Consists primarily of sales of raw materials and coke making by-products.
Three Months Ended June 30, 2018
 
Flat-Rolled
USSE
Tubular
Other Businesses
Total
Semi-finished
 
$
1

$
52

$

$

$
53

Hot-rolled sheets
 
640

339



979

Cold-rolled sheets
 
735

104



839

Coated sheets
 
797

310



1,107

Tubular products
 

13

299


312

All Other (a)
 
262

30

10

17

319

Total
 
$
2,435

$
848

$
309

$
17

$
3,609

(a) Consists primarily of sales of raw materials and coke making by-products.

-8-



Six Months Ended June 30, 2019
 
Flat-Rolled
USSE
Tubular
Other Businesses
Total
Semi-finished
 
$
209

$
9

$

$

$
218

Hot-rolled sheets
 
1,445

619



2,064

Cold-rolled sheets
 
1,304

170



1,474

Coated sheets
 
1,544

548



2,092

Tubular products
 

20

646


666

All Other (a)
 
442

49

13

26

530

Total
 
$
4,944

$
1,415

$
659

$
26

$
7,044

(a) Consists primarily of sales of raw materials and coke making by-products.
Six Months Ended June 30, 2018
 
Flat-Rolled
USSE
Tubular
Other Businesses
Total
Semi-finished
 
$
10

$
89

$

$

$
99

Hot-rolled sheets
 
1,212

692



1,904

Cold-rolled sheets
 
1,374

202



1,576

Coated sheets
 
1,503

607



2,110

Tubular products
 

25

558


583

All Other (a)
 
383

56

17

30

486

Total
 
$
4,482

$
1,671

$
575

$
30

$
6,758

(a) Consists primarily of sales of raw materials and coke making by-products.
6.     Cash, Cash Equivalents and Restricted Cash
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within U. S. Steel's Condensed Consolidated Balance Sheets that sum to the total of the same amounts shown in the Condensed Consolidated Statement of Cash Flows:
 
(In millions)
 
June 30, 2019
 
June 30, 2018
Cash and cash equivalents
 
$
651

 
$
1,231

Restricted cash in other current assets
 
1

 
5

Restricted cash in other noncurrent assets
 
30

 
36

      Total cash, cash equivalents and restricted cash
 
$
682

 
$
1,272



Amounts included in restricted cash represent cash balances which are legally or contractually restricted, primarily for environmental capital expenditure projects and insurance purposes.
7.    Inventories
Inventories are carried at the lower of cost or market for last-in, first-out (LIFO) inventories and lower of cost and net realizable value for first-in, first-out (FIFO) method inventories. The LIFO method is the predominant method of inventory costing in the United States. The FIFO method is the predominant inventory costing method in Europe. At June 30, 2019 and December 31, 2018, the LIFO method accounted for 70 percent and 74 percent of total inventory values, respectively.

-9-



(In millions)
 
June 30, 2019
 
December 31, 2018
Raw materials
 
$
650

 
$
605

Semi-finished products
 
1,033

 
1,021

Finished products
 
431

 
404

Supplies and sundry items
 
52

 
62

Total
 
$
2,166

 
$
2,092


Current acquisition costs were estimated to exceed the above inventory values by $961 million and $1,038 million at June 30, 2019 and December 31, 2018, respectively. As a result of the liquidation of LIFO inventories, cost of sales decreased and earnings before interest and income taxes increased by $8 million and $7 million for the three and six months ended June 30, 2019, respectively. Cost of sales decreased and earnings before interest and income taxes increased by $2 million and $1 million for the three and six months ended June 30, 2018, respectively, as a result of liquidation of LIFO inventories.
Inventory includes $39 million of land held for residential/commercial development as of both June 30, 2019 and December 31, 2018.
8.    Leases
Effective January 1, 2019, U. S. Steel adopted ASU 2016-02 using the optional modified retrospective transition method outlined in ASU 2018-11 which permitted application of ASU 2016-02 on January 1, 2019 using a cumulative effect adjustment to the opening balance of retained earnings. As of June 30, 2019, an operating lease asset of $237 million and current and noncurrent liabilities for operating leases of $54 million and $188 million, respectively, were recorded (see below tabular disclosure for further details). There was an insignificant cumulative effect of adoption for operating lease liabilities that exceeded their related asset values for leases where payment started after lease commencement.
Operating lease assets consist primarily of office space, heavy mobile equipment used in our mining operations and facilities and equipment under operating service agreements for electricity generation and scrap processing. We also have operating lease assets for light mobile equipment and information technology assets. Significant finance leases include the Fairfield slab caster lease and heavy mobile equipment used in our mining operations (see Note 16 for further details). Variable lease payments are primarily related to operating service agreements where payment is solely dependent on consumption of certain services, such as raw material and by-product processing. Most long-term leases include renewal options and, in certain leases, purchase options. Generally, we are not reasonably certain that these options will be exercised. We have residual value guarantees under certain light mobile equipment leases. There is no impact to our leased assets for residual value guarantees as the potential loss is not probable (see “Other Contingencies” in Note 22 for further details). We do not have material restrictive covenants associated with our leases or material amounts of sublease income. From time to time, U. S. Steel may enter into arrangements for the construction or purchase of an asset and then enter into a financing arrangement to lease the asset. U. S. Steel recognizes leased assets and liabilities under these arrangements when it obtains control of the asset.
U. S. Steel elected the option within ASU 2016-02 to straight-line expense and not record assets or liabilities for leases with an initial term of 12 months or less. For leases beginning in 2019 and later, we separate non-lease components from lease components for leases under operating service agreements. We do not separate non-lease components for other lease types as they are not significant. The Company does not have secured notes outstanding; therefore, we use an estimated secured borrowing rate as the discount rate for most of our leases. In accordance with the practical expedients outlined in ASU 2016-02, we did not use hindsight in determining the lease term for existing leases and elected not to reassess the following for existing leases: whether contracts contain a lease, lease classification, and initial direct costs.

-10-



The following table summarizes the lease amounts included in our Condensed Consolidated Balance Sheet as of June 30, 2019.
(In millions)
Balance Sheet Location
June 30, 2019
Assets


Operating
Operating lease assets (a)
$
237

Finance
Property, plant and equipment (b)
49

  Total Lease Assets

$
286




Liabilities


Current


  Operating
Current operating lease liabilities
$
54

  Finance
Current portion of long-term debt
8

Non-Current


  Operating
Noncurrent operating lease liabilities
188

  Finance
Long-term debt less unamortized discount and issue costs
48

Total Lease Liabilities

$
298

(a) Operating lease assets are recorded net of accumulated amortization of $25 million.
(b) Finance lease assets are recorded net of accumulated depreciation of $23 million.

The following table summarizes lease costs included in our Condensed Consolidated Statement of Operations for the three and six month periods ended June 30, 2019.

(In millions)
Classification
Three Months Ended 
 June 30, 2019
 
Six Months Ended 
 June 30, 2019
Operating Lease Cost (a)
Cost of sales
$
20

 
$
40

Operating Lease Cost
Selling, general and administrative expenses
3

 
6

Finance Lease Cost


 

  Amortization
Depreciation, depletion and amortization
1

 
2

  Interest
Interest expense
1

 
1

Total Lease Cost

$
25

 
$
49

(a) Operating lease cost recorded in cost of sales includes $4 million and $9 million of variable lease cost for the three and six months ended June 30, 2019, respectively. An immaterial amount of variable lease cost is included in selling, general and administrative expenses and immaterial amounts of short-term lease cost are included in cost of sales and selling, general and administrative expenses.

Lease liability maturities as of June 30, 2019 are shown below.
(In millions)
Operating
 
Finance
 
Total
2019
$
38

 
$
6

 
$
44

2020
63

 
11

 
74

2021
51

 
11

 
62

2022
41

 
16

 
57

2023
32

 
5

 
37

After 2023
78

 
17

 
95

  Total Lease Payments
$
303

 
$
66

 
$
369

  Less: Interest
61

 
10

 
71

  Present value of lease liabilities
$
242

 
$
56

 
$
298



-11-



Future minimum commitments for capital and operating leases having non-cancelable lease terms in excess of one year as of the year ended December 31, 2018 were as follows.
(In millions)
 
Capital
Leases
 
Operating
Leases
2019
 
$
5

 
$
66

2020
 
5

 
55

2021
 
5

 
45

2022
 
11

 
37

2023
 

 
28

After 2023
 

 
72

   Total minimum lease payments
 
$
26

 
$
303

Less imputed interest costs
 
4

 

   Present value of net minimum lease payments included in long-term debt
 
$
22

 


Lease terms and discount rates are shown below.

June 30, 2019
Weighted average lease term

  Finance
6 years

  Operating
6 years



Weighted average discount rate

  Finance
6.32
%
  Operating
7.83
%

Supplemental cash flow information related to leases follows.
(In millions)
Three Months Ended 
 June 30, 2019
 
Six Months Ended 
 June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:

 

    Operating cash flows from operating leases
$
18

 
$
36

    Operating cash flows from finance leases
1

 
1

    Financing cash flows from finance leases
1

 
1

Right-of-use assets exchanged for lease liabilities:

 

    Operating leases
16

 
24

    Finance leases
19

 
35




-12-



9.     Intangible Assets
Intangible assets that are being amortized on a straight-line basis over their estimated useful lives are detailed below:
 
 

 
As of June 30, 2019
 
As of December 31, 2018
(In millions)
 
Useful
Lives
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amount
Customer relationships
 
22 Years
 
$
132

 
$
73

 
$
59

 
$
132

 
$
70

 
$
62

Patents
 
10-15 Years

22

 
8

 
14

 
22

 
7

 
15

Other
 
4-20 Years
 
14

 
8

 
6

 
14

 
8

 
6

Total amortizable intangible assets
 

 
$
168

 
$
89

 
$
79

 
$
168

 
$
85

 
$
83


Identifiable intangible assets with finite lives are reviewed for impairment whenever events or circumstances indicate that the carrying values may not be recoverable.
Amortization expense was $2 million in both the three months ended June 30, 2019 and 2018. Amortization expense was $4 million in both the six months ended June 30, 2019 and 2018. The estimated amortization expense for the remainder of 2019 is $4 million. We expect a consistent level of annual amortization expense through 2023.
The carrying amount of acquired water rights with indefinite lives as of June 30, 2019 and December 31, 2018 totaled $75 million. The acquired water rights are tested for impairment annually in the third quarter, or whenever events or circumstances indicate the carrying value may not be recoverable. U. S. Steel performed a qualitative impairment evaluation of its acquired water rights during the third quarter of 2018. Based on the results of the evaluation, the water rights were not impaired.


-13-



10.    Pensions and Other Benefits
The following table reflects the components of net periodic benefit cost for the three months ended June 30, 2019 and 2018:
 
 
Pension
Benefits
 
Other
Benefits
(In millions)
 
2019
 
2018
 
2019
 
2018
Service cost
 
$
11

 
$
12

 
$
3

 
$
4

Interest cost
 
59

 
58

 
23

 
23

Expected return on plan assets
 
(81
)
 
(90
)
 
(20
)
 
(21
)
Amortization of prior service cost
 
1

 

 
7

 
8

Amortization of actuarial net loss
 
33

 
38

 
1

 
1

Net periodic benefit cost, excluding below
 
23

 
18

 
14

 
15

Multiemployer plans
 
19

 
15

 

 

Net periodic benefit cost
 
$
42

 
$
33

 
$
14

 
$
15

The following table reflects the components of net periodic benefit cost for the six months ended June 30, 2019 and 2018:
 
 
Pension
Benefits
 
Other
Benefits
(In millions)
 
2019
 
2018
 
2019
 
2018
Service cost
 
$
22

 
$
25

 
$
6

 
$
8

Interest cost
 
119

 
116

 
46

 
46

Expected return on plan assets
 
(162
)
 
(180
)
 
(40
)
 
(41
)
Amortization of prior service cost
 
1

 

 
14

 
15

Amortization of actuarial net loss
 
66

 
76

 
2

 
2

Net periodic benefit cost, excluding below
 
46

 
37

 
28

 
30