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 .
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. Yesx 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). Yesx 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, 2019 – 170,743,333 shares
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): Measurementof 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:
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-productsand 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.
