U. S. Steel ownsrepurchased 7.1 million shares of its common stock for approximately $175 million during the year ended December 31, 2023, and there is approximately $126 million remaining under the current stock repurchase authorization. In addition, the Board of Directors declared quarterly dividends of five cents per common share for each of the quarters in 2023. We do not expect to utilize the remainder of this authorization. The Merger Agreement contains a Researchcustomary prohibition on U. S. Steel's ability to engage in additional share repurchases without the consent of Purchaser.
U. S. Steel participates in a number of joint ventures that are included in Flat-Rolled, most of which are conducted through subsidiaries. All of these joint ventures are accounted for under the equity method. The significant joint ventures and other investments are described below. For information regarding joint ventures and other investments, see Note 11 to the Consolidated Financial Statements.
Tubular manufactures seamless and welded OCTG, standard pipe, line pipe and mechanical tubing.
Table of 720,000 tons and has historically been supplied with steel rounds from Flat-Rolled’s former Fairfield Works. Subsequent to the shutdown of the hot end at the Fairfield Works in August 2015, the facility is currently purchasing rounds from third parties. At the appropriate time, with continued tubular market improvement, construction of the EAF should be completed and when it is it will be part of the Tubular segment and the Flat-rolled segment will not be supplying Fairfield Tubular Operations with rounds. The Fairfield Tubular Operations has the capability to produce outer diameter (O.D.) sizes from 4.5 to 9.875 inches and has quench and temper, hydrotester, threading and coupling and inspection capabilities. The slab and rounds casters of the former Fairfield Works remain capable of operation and are now part of the Fairfield Tubular Operations. The Lorain plant consists of the #3 facility and has historically consumed steel rounds supplied by Fairfield Works and external sources. Subsequent to the shutdown of the hot end at the Fairfield Works, the Company is sourcing rounds from third parties. Lorain #3 facility has the capability to produce 300,000 tons annually in O.D. sizes from 10.125 to 26 inches and has quench and temper, hydrotester, cutoff and inspection capabilities. In March 2017, U. S. Steel made a strategic decision to permanently shutdown the Lorain No. 6 Quench & Temper Mill and relocate the equipment.Contents Welded products are produced at Lone Star Tubular Operations #2 facility in Lone Star, Texas and it has the capability to produce O.D. sizes from 1.088 to 7.15 inches. It has quench and temper, hydrotester, threading and coupling and inspection capabilities. The Lone Star #2 facility was temporarily idled from April 2016 to April 2017 and has annual production capability of 300,000 tons.
Wheeling Machine Products manufactures couplings used to connect individual sections of oilfield casing and tubing. It produces sizes ranging from 2.375 to 20 inches at two locations: Pine Bluff, Arkansas, and Hughes Springs, Texas.
Tubular Processing, located in Houston, Texas, provides quench and temper and end-finishing services for oilfield production tubing. Offshore Operations, also located in Houston, Texas, provides threading, inspection, accessories and storage services to the OCTG market. Tubular Processing has been temporarily idled since 2015.
We have a Research and Development Laboratory and Test Facility in Houston, Texas where our engineers develop and test new steel products, including premium connections.
Joint Ventures Within Tubular
U. S. Steel and Butch Gilliam Enterprises LLC participate in a 50-50 joint venture, Patriot Premium Threading Services, LLC located in Midland, Texas, which provides oil country threading, accessory threading, repair services and rig site services to exploration and production companies located principally in the Permian Basin. For information regarding joint ventures and other investments, see Note 11 to the Consolidated Financial Statements.
Other Businesses
U. S. Steel’s Other Businesses include railroad services andcategory includes the operating results relating to our real estate operations.
U. S.operations, the previously held equity method investment in Big River Steel, and our former railroad business. The Company owns the Gary Railway Company in Indiana, Lake Terminal Railroad Company and Lorain Northern Company in Ohio, Union Railroad Company, LLC in Pennsylvania, Fairfield Southern Company, Inc. in Alabama, Delray Connecting Railroad Company in Michigan and Texas & Northern Railroad Company in Texas, these entities comprise U. S. Steel’s transportation business.
U. S. Steel owns, develops and manages variousapproximately 40,500 acres of real estate assets, which include approximately 50,000 acres of surface rights primarilyeither held for development or managed, in Alabama, Illinois, Michigan, Minnesota and Michigan, with additional holdings in Pennsylvania and Illinois. In addition, U. S. Steel holds ownership interests in joint ventures that are developing real estate projects in Alabama.Pennsylvania.
Raw Materials and EnergyCommercial Sales of Product
As an integrated producer, U. S. Steel’s primary raw materials are iron units in the form of iron ore pellets and sinter ore, carbon units in the form of coal and coke (which is produced from coking coal) and steel scrap. U. S. Steel’s raw materials supply strategy consists of acquiring and expanding captive sources of certain primary raw materials and entering into flexible supply contracts for certain other raw materials at competitive market prices which are subject to fluctuations based on market conditions at the time.
The amounts of such raw materials needed to produce a ton of steel will fluctuate based upon the specifications of the final steel products, the quality of raw materials and, to a lesser extent, differences among steel producing equipment. In broad terms, U. S. Steel consumescharacterizes sales as contract sales if sold pursuant to an agreement with a defined volume and pricing and a duration of longer than three months, and as spot if sold without a defined volume and pricing agreement, typically three months or less. In 2023, approximately 1.4 tons67 percent, 58 percent, 45 percent and 78 percent of coal to produce one ton of cokesales by Flat-Rolled, Mini Mill, USSE and then it consumes approximately 0.3 tons of coke, 0.3 tonsTubular, respectively, were contract sales. Some contract pricing agreements include fixed prices while others are adjusted periodically based upon published prices of steel scrap (40 percentproducts or cost components.
Human Capital Management
At U. S. Steel, we are focused on attracting and retaining the top talent needed to support our strategic transformation and meet our customers’ evolving needs as a sustainable steel solutions provider. The support and development of our people is foundational to achieving our Best for All strategy. We refer to this strategic talent pillar as “Moving Up the Talent Curve.”
Our focus on people extends to our current and future employees. We aim to have an engaged and diverse workforce to promote new ideas and innovation, reflect the communities where we operate, and deliver exceptional customer service. We seek to build an inclusive environment where people feel free to bring their professional selves to work. To achieve the Best for All strategy, we must have the “Best from All.”
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Active Employees as of December 31, 2023 |
North America | 13,995 | |
Slovakia | 7,808 | |
Total | 21,803 |
Ethics & Compliance
Our culture is based on our S.T.E.E.L. Principles: Safety First; Trust and Respect; Environmental Stewardship; Excellence and Accountability; and Lawful and Ethical Conduct. We expect our employees and members of our board of directors to take personal responsibility to “do what’s right,” and our Code of Ethical Business Conduct serves as the foundation for the actions of our employees and directors. To further ensure that employees understand the Company’s expectations and all applicable rules, we provide annual formal ethics and compliance training to our employees and have frequent communications with information about key compliance topics, which include messages from senior management underscoring the importance of doing business with integrity. Employees also receive summaries of current events that demonstrate the need to do business lawfully and ethically that include reminders of the company’s expectations for all employees. In addition, through our annual policy certification process, employees of USSK, non-represented employees in the United States, and members of our board of directors certify their ongoing compliance with our Code of Ethical Business Conduct.
Employee Health & Safety
At U. S. Steel, we have a long-standing commitment to the safety and health of every person who works in our facilities. Every employee deserves to return home safely at the end of every day, and we are working to eliminate all injuries and incidents. In addition, the psychological safety of all employees is important to us. We have combined physical safety and psychological safety into the construct of 360° safety. Ensuring a safe workplace also improves productivity, quality, reliability and financial performance. By making safety and health a personal responsibility, our employees are making a daily commitment to follow safe work practices, look out for the safety of co-workers and ensure safe working conditions for everyone. A “Safety First” mindset is as essential to our success as the tools and technologies we rely on to do business.
Our objective is to attain a sustainable zero harm culture supported by leadership and owned by an engaged and highly skilled workforce, empowered with the capabilities and resources needed to assess, reduce and eliminate workplace risks and hazards. In support of these objectives, we have developed an enhanced Safety Management System, initiated new safety communication methods and enhanced contractor safety processes. One of our most important safety protocols is our fatality prevention audit program. These proactive assessments of the processes and protocols we have in place, and adherence to them, to avoid fatalities and severe injuries are conducted annually at the enterprise level and more frequently at each of our facilities. We assess our safety performance through a variety of lagging and leading indicators, including OSHA Days Away From Work (DAFW). This measurement allows us to evaluate the frequency of injuries sustained at our facilities requiring an employee to stay at home for more than one day. U. S. Steel has achieved record-safety performance in this measurement in the last several years, routinely achieving performance better than industry benchmarks.
For 2023, we had a corporate DAFW rate of 0.04, which is internally generated)15 times better than the U.S. Bureau of Labor Statistics' Iron and 1.3 tonsSteel benchmark DAFW rate of iron ore pellets0.60.
Diversity, Equity, & Inclusion
Attracting, developing, and retaining a workforce of talented, diverse people is essential to produce one tonhaving high-performing teams that drive results for our Company’s stakeholders. As part of raw steel. At normal operating levels,our commitment to cultivating a culture of caring, we have inclusive benefits available for our U.S. non-represented workforce, including expanded parental leave, back-up dependent care, infertility coverage, gender reassignment coverage and healthcare continuation for the families of employees who suffered work-related or military service fatalities. We also consume approximately 6 mmbtu’ssupport several employee resource groups (ERGs) to enhance employee engagement, promote a culture of natural gas per ton produced. While we believe that these estimated consumption amounts are useful for planning purposes,belonging, foster diversity in the workplace, and are presented to give a general sense of raw material and energy consumptionraise awareness related to steel production, substantial variations may occur.issues of identity and intersectionality. Our ERGs also provide training and education, mentorship and networking opportunities for their members.
Iron OreTalent Attraction, Development and Retention
Iron Ore Production(a)
(a) Includes our share of production from Hibbing through December 31, 2017 and Tilden to September 29, 2017. U. S. Steel's ownership interest in Tilden was sold on September 29, 2017. The decrease in iron ore production from 2014 is primarily related to the idling of our Keetac facility. In 2017, the Keetac facility restarted production.
The iron ore facilities at Minntac and Keetac contain an estimated 860 million short tons of recoverable reserves and our share of recoverable reserves at the Hibbing joint ventures is 8 million short tons. Recoverable reserves are defined as the tons of product that can be used internally or delivered to a customer after considering mining and beneficiation or preparation losses. Minntac and Keetac’s annual capability and our share of annual capability for the Hibbing joint
venture total approximately 23 million tons. Through our wholly owned operations and our share of joint ventures, we have iron ore pellet production capability that exceeds our steelmaking capability in the U.S.
We sold iron ore pellets in 2017, 2016 and 2015 to third parties. The Company has agreements to supply iron ore pellets to third-party customers over the next several years.
Substantially all of USSE’s iron ore requirements are purchased from outside sources, primarily Russian and Ukrainian mining companies. However, in prior years, USSE also received iron ore from U. S. Steel’s iron ore facilities in North America. We believe that suppliesattraction, development and retention of iron ore adequatetalent is essential to our success, especially in today’s competitive labor market. We offer internship programs, partner with universities, community colleges and technical schools, and collaborate with community employment centers and economic development nonprofit organizations to build strong and diverse internal and external sources of potential employees and opportunities for our existing employee's growth and development.
Once at U. S. Steel, we seek to provide opportunities for continuous learning and development. All of our employees at a director-level and above have a formal professional development plan that is assessed at least annually. In addition, we proactively monitor our attrition rates and take targeted actions to ensure our highest potential and performing employees are motivated to remain with the Company. Over the past five years, our regrettable voluntary turnover rate has been at or below 5 percent.
We offer a competitive total rewards package of compensation and benefits that we regularly evaluate and benchmark across the manufacturing industry to ensure that we position U. S. Steel as an employer of choice.
Labor Relations
Approximately 80% of our employees in North America and Slovakia are covered by collective bargaining agreements. We work closely with union representatives to provide safe and productive workplaces that enable our employees to deliver high-quality products and meet USSE’sthe needs are available at competitive market prices.of our customers. Our relationship with the United Steelworkers includes not only a commitment to safety programs, but also a common approach to combating the unfairly traded imports that threaten our industry, our company and ultimately the jobs of our employees.
Coking Coal
AllCertain hourly employees of U. S. Steel’s coalflat-rolled, tubular, cokemaking and iron ore operations in the United States are covered by collective bargaining agreements with the USW entered into effective September 1, 2022, (the 2022 Labor Agreements) that expire on September 1, 2026. The 2022 Labor Agreements include a signing bonus for each eligible USW-represented employee and annual 5% wage increases effective September 1, 2022, 2023, 2024, and 2025. The 2022 Labor Agreements also provide for certain increases to pension and retirement benefits, including increases in our defined benefit pension plan, retiree healthcare contributions, and to the contribution rate to the Steelworkers Pension Trust from $3.50 to $4.00 per hour, effective January 1, 2023. During the fourth quarter of 2022, U. S. Steel recorded a charge of approximately $67 million for the 2022 Labor Agreements signing bonus and related costs.
In addition, as part of the collective bargaining process, U. S. Steel and the USW agreed to leverage the overfunded OPEB plans to support the benefits provided to active represented employees. The OPEB plans were modified to allow the Company to utilize a certain amount of surplus assets to pay additional legally permissible benefits previously paid by the Company. The arrangement permits the Company to utilize a target of $75 million annually for active and retiree employee benefits, with an annual minimum of $50 million, beginning in 2023 and continuing through December 31, 2026. For additional information, see Note 18 to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
Capital Structure, Liquidity and Capital Allocation
Our Best for All strategy's primary financial goal is to enhance stockholder value by utilizing our capital structure, liquidity and enhanced capital allocation priorities to advance the Company's strategic objectives, generate long-term value and reward stockholders. Our cash deployment strategy is aligned with our corporate strategy and includes: executing on strategic projects and portfolio moves; maintaining a strong balance sheet and a healthy pension plan; and delivering sustainable growth with a focus on core values such as safety and environmental stewardship and rewarding stockholders for the continued progress we make. Cash deployment is also performed with a customer-centric focus on improving safety, our environment, quality, delivery and cost.
Our liquidity supports our ability to satisfy short-term obligations, fund working capital requirements forand provides a foundation to execute key strategic priorities. We are focused on maintaining a strong balance sheet and may proactively refinance or repay our cokemaking facilities are purchased from outside sources. Pricing for Flat-Rolled's coking coal contracts are typically negotiated on a yearly basis, anddebt from time to time to protect our capital structure from unforeseen external events and re-financing risks.
On May 18, 2023, U. S. Steel closed on an offering consisting of an aggregate principal amount of $240 million unsecured Arkansas Development Finance Authority environmental improvement revenue bonds, which carry a green bond designation. The bonds, issued through Arkansas Development Finance Authority, have a coupon rate of 5.700% and carry a final maturity of 2053 (2053 ADFA Green Bonds). U. S. Steel received net proceeds of approximately $238 million after fees of approximately $2 million related to the underwriting and third-party expenses and will pay semiannual interest. The net proceeds from the issuance of the 2053 ADFA (Arkansas Development Finance Authority) Green Bonds were used to partially fund work related to BR2, currently under construction near Osceola, Arkansas. The Merger Agreement contains customary limitations on U. S. Steel's ability to incur additional indebtedness without the consent of Purchaser.
In 2023, we have entered into multi-year agreementsrepaid approximately $89 million in debt, and we ended the year with $5.17 billion of total liquidity.
On July 25, 2022, following the completion of previously authorized $800 million share repurchase programs, the Board of Directors authorized a new share repurchase program for the repurchase of up to $500 million of the Company's outstanding common stock from time to time in the open market or privately negotiated transactions at the discretion of management. The Company's share repurchase program does not obligate it to acquire any specific number of shares.
U. S. Steel repurchased 7.1 million shares of its common stock for approximately $175 million during the year ended December 31, 2023, and there is approximately $126 million remaining under the current stock repurchase authorization. In addition, the Board of Directors declared quarterly dividends of five cents per common share for each of the quarters in 2023. We do not expect to utilize the remainder of this authorization. The Merger Agreement contains a portioncustomary prohibition on U. S. Steel's ability to engage in additional share repurchases without the consent of our coking coal requirements.Purchaser.
Prices for European contracts
Facilities and Locations as of December 31, 2023
Flat-Rolled
The operating results of all of U. S. Steel's domestic-integrated steel and sheet plants, coke and iron ore operations and ore and sheet production joint ventures are negotiated at defined intervals, usually quarterly.
We believe that supplies of coking coal adequate to meet our needs are available from outside sources at competitive market prices. The main source of coking coal forincluded in Flat-Rolled. Also, included within Flat-Rolled is the United States,a research and sources for USSE include Poland, the Czech Republic, Russia, Ukraine, Mozambiquetechnology center located in Munhall, Pennsylvania (near Pittsburgh) and the United States.
Coke
Coke Production(a)
(a)a technology center in Troy, Michigan. The decrease in 2016 coke production from 2015 was due to decreased internal steel productionresearch and depletiontechnology center carries out a wide range of existing coke inventory.applied research, development and technical support functions. The decrease in 2015 coke production from 2014 is due to the permanent shutdown of coke operations at Gary Workstechnology center brings automotive sales, service, distribution and Granite City Works. The decrease in 2014 coke production from 2013 is primarily due to the deconsolidation of USSClogistics services, product technology and the permanent shut down of two coke batteries at Gary Works.
In North America, the Flat-Rolled segment operates a cokemaking facility at the Clairton Plant of Mon Valley Works. At our Granite City Works, we also have a 15-year coke supply agreement with Gateway which began in 2009. Blast furnace injection of coal,applications research into one location and self-generated coke oven gas is also used to reduce coke usage.
With Flat-Rolled’s cokemaking facilities and the Gateway long-term supply agreement, it has the capability to be self-sufficient with respect to its annual coke requirements at normal operating levels. Coke is purchased from, sold to, or swapped with suppliers and other end-users to adjust for production needs and reduce transportation costs.
In Europe, the USSE segment operates cokemaking facilities at USSK. While USSE is self-sufficient for coke at normal operating levels, it periodically purchases coke from Polish and Czech coke producers to meet production needs. Volume and price are negotiated quarterly.
Steel Scrap and Other Materials
We believe that supplies of steel scrap, alloys and coating materials adequate to meet our needs to support Flat-Rolled and USSE are readily available from outside sources at competitive market prices. Generally, approximately 40 percent of our steel scrap requirements are internally generated through normal operations.
Limestone
All of Flat-Rolled’s and USSE's limestone requirements are purchased from outside sources. We believe that supplies of limestone adequate to meet our needs are readily available from outside sources at competitive market prices.
Zinc and Tin
We believe that supplies of zinc and tin required to fulfill the requirements for Flat-Rolled and USSE are available from outside sources at competitive market prices. The main sources of tin for Flat-Rolled include Bolivia and China. The main sources of zinc for Flat-Rolled include Canada and Mexico. During 2017, Flat-Rolled protected approximately 80% of its operation's zinc purchases with financial swap derivatives to manage our exposure to zinc price fluctuations. The main sources of tin for USSE include Indonesia, Peru and China. The main sources of zinc for USSE include Sweden, the Slovak Republic and Poland. During 2017, USSE executed approximately 40% of USSE's zinc purchases with forward physical contracts to partially manage our exposure to zinc price fluctuations.
Natural Gas
Allmuch of U. S. Steel’s natural gas requirements are purchased from outside sources.
We believe that adequate supplieswork in developing new grades of steel to meet Flat-Rolled’sthe demands of automakers for high-strength, light-weight and Tubular's needs are availableformable materials is carried out at competitive market prices. For 2017, approximately 70 percent of our natural gas purchasesthis location.
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Flat-Rolled Operations Table |
Operations, (Property Location) | Annual Production Capability | Principal Products and/or Services |
Gary Works, (Gary, Indiana) (a) | 7.5 million tons of raw steel which includes 0.5 million tons of pig iron capability | strip mill plate in coil; hot-rolled, cold-rolled and coated sheets; tin mill products and pig iron |
Midwest, (Portage, Indiana) | finishing facility | hot-rolled, cold-rolled and coated sheets; and tin mill products |
Great Lakes Works(b), (Ecorse, River Rouge and Dearborn, Michigan) | finishing facility | cold-rolled and coated sheets |
Mon Valley Works (c): Edgar Thompson, (Braddock, Pennsylvania), Irvin, (West Mifflin, Pennsylvania), Fairless, (Fairless Hills, Pennsylvania), and Clairton, (Clairton, Pennsylvania) | 2.9 million tons of raw steel and 3.6 million tons of coke | hot-rolled, cold-rolled and coated sheets; and coke and coke by-products |
Granite City Works (d), (Granite City, Illinois) | 2.8 million tons of raw steel | hot-rolled, cold-rolled and coated sheets |
Granite City Works, (Granite City, Illinois); Gateway Energy and Coke Company LLC (Gateway) | coke supply agreement | not applicable |
USS-UPI, LLC (UPI) (e), (Pittsburg, California) | finishing facility | cold-rolled and coated sheets; tin mill products |
Fairfield Works,(Fairfield, Alabama) | finishing facility | coated sheets |
Minnesota Ore Operations: Minntac, (Mt. Iron, Minnesota) and Keetac, (Keewatin, Minnesota) | 22.4 million tons of iron ore pellets which includes 4.0 million tons of DR-grade pellet capability | iron ore pellets and DR (direct reduced) grade pellets |
(a) The majority of tin operations were indefinitely idled as of December 31, 2022. Pig iron is sold on an intercompany basis to Big River Steel. |
(b) The steel and ironmaking production facilities were permanently idled in December of 2021 and June of 2022, respectively. Great Lakes Works' pickle line, cold mill and CGL continue to operate, while the DESCO and electrolytic galvanizing lines are indefinitely idled. |
(c) From time to time, we may swap coke with other domestic steel producers or sell on the open market. Coke by-products are sold to the chemicals and raw materials industries. |
(d) In November 2023, the steel and ironmaking production facilities at Granite City Works were indefinitely idled. The plant continues to process slabs to produce hot-rolled, cold-rolled and coated sheets. |
(e) In December 2023, production at UPI was indefinitely idled. |
Joint Ventures Within Flat-Rolled were based on bids solicited on a monthly basis from various vendors; the remainder were made daily or with term agreements.
We believe that adequate natural gas supplies to meet USSE’s needs are available at competitive market prices. During 2017, we routinely executed fixed-price forward physical purchase contract for natural gas to partially manage our exposure to natural gas price increases. For 2017, approximately 56 percent of our natural gas purchases in USSK were made with fixed-price forward physical purchase contracts; the remainder were based on bids solicited on a quarterly, monthly or a daily basis from various vendors.
Both Flat-Rolled and USSE use self-generated coke oven and blast furnace gas to reduce consumption of natural gas. USSE also captures and consumes converter gas from its four steelmaking vessels.
Industrial Gases
U. S. Steel purchases industrial gasparticipates in a number of joint ventures that are included in Flat-Rolled, most of which are conducted through subsidiaries. All of these joint ventures are accounted for under the U.S. under long-term contractsequity method. The significant joint ventures and other investments are described below.
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Joint Ventures (a) Within Flat-Rolled Table |
Joint Venture, (Property Location) | U. S. Steel's Ownership Percentage | Annual Production Capability |
Hibbing Taconite Company (Hibbing); (Hibbing, Minnesota) | 14.7% | 9 million tons of which U. S. Steel's share is 1.3 million tons |
PRO-TEC Coating Company (PRO-TEC), (Leipsic, Ohio) | 50.0% | 2.0 million tons (b) |
Double G Coatings Company (Double G) (c); Jackson, Mississippi | 50.0% | 315 thousand tons |
Chrome Deposit Corporation (CDC), (six locations near major steel plants) | 50.0% | not applicable |
(a) See further information about our equity investees in Note 12 to the Consolidated Financial Statements. |
(b) U. S. Steel's domestic production facilities supply PRO-TEC with cold-rolled sheets and U. S. Steel markets all of PRO-TEC's products. |
(c) Each partner supplies its own steel to Double G and markets what is processed by Double G. |
Mini Mill
The operations of Big River Steel are included in Mini Mill. Big River Steel, located in Osceola, Arkansas, is an EAF sheet steel production facility.
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Mini Mill Operations Table |
Operations, (Property Location) | Annual Production Capability | Principal Products and/or Services |
Big River Steel, (Osceola, Arkansas) | 3.3 million tons of raw steel | hot-rolled, cold-rolled and coated sheets; and electrical steels |
USSE
USSE operates in Košice, Slovakia an integrated facility and a research laboratory, which, in conjunction with various suppliers. our Research and Technology Center, supports efforts in coke making, electrical steels, other value-added products and design and instrumentation.
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USSE Operations Table |
Operations, (Property Location) | Annual Production Capability | Principal Products and/or Services |
U. S. Steel Košice, (Košice, Slovakia) | 5.0 million tons of raw steel | coke; slabs; strip mill plate: hot, cold and coated sheets; tin mill products; and spiral welded pipe |
Tubular
Tubular manufactures seamless and welded OCTG, standard pipe, line pipe and mechanical tubing.
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Tubular Operations Table |
Operations, (Property Location) | Production Capability | Principal Products and Services |
Fairfield Tubular Operations, (Fairfield, Alabama) | 0.9 million tons of raw steel (a) and 750 thousand tons of tubular | seamless tubular pipe |
Lorain Tubular Operations (b), (Lorain, Ohio) | 380 thousand tons of tubular | seamless tubular pipe |
Lone Star Tubular(b), (Lone Star, Texas) | #1 electric-weld pipe mill (EWPM) 400 thousand tons and #2 EWPM 380 thousand tons of tubular | welded tubular pipe |
Wheeling Machine Products(c), (Pine Bluff, Arkansas and Hughes Springs, Texas) | not applicable | tubular couplings |
Offshore Operations, (Houston, Texas) | not applicable | tubular threading, inspection, accessories and storage services and premium connections |
Tubular Processing (d), (Houston, Texas) | not applicable | tubular processing |
(a) Based on the rounds caster capacity which is its constraining production unit. |
(b) In April 2020, the Lorain Tubular and Lone Star Tubular operations were indefinitely idled. |
(c) In April 2020, the Wheeling Machine Products at Hughes Springs, Texas was indefinitely idled. |
(d) Tubular Processing has been indefinitely idled since 2015. |
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Joint Ventures (a) Within Tubular Table |
Operations, (Property Location) | U. S. Steel's Ownership Percentage | Production Capability | Principal Products and/or Services |
Patriot Premium Threading Services, (Midland, Texas) | 50% | not applicable | Tubular threading, accessories and premium connections |
(a)See further information about our equity investees in Note 12 to the Consolidated Financial Statements. |
Other
U. S. Steel’s Other category includes the operating results relating to our real estate operations, the previously held equity method investment in Big River Steel, and our former railroad business. The Company owns approximately 40,500 acres of real estate assets, either held for development or managed, in Alabama, Illinois, Michigan, Minnesota and operates its own industrial gas facilities, but also may purchase industrial gases from time to time.Pennsylvania.
Commercial Sales of Product
U. S. Steel characterizes sales as contract sales if sold pursuant to an agreement with a defined volume and pricing and a duration of longer than three months, and as spot if sold without a defined volume and pricing agreement.agreement, typically three months or less. In 2017,2023, approximately 7967 percent, 6458 percent, 45 percent and 5378 percent of sales by Flat-Rolled, Mini Mill, USSE and Tubular, respectively, were contract sales. Some contract pricing agreements include fixed prices while others are adjusted periodically based upon published prices of steel products or cost components.
Human Capital Management
At U. S. Steel, we are focused on attracting and retaining the top talent needed to support our strategic transformation and meet our customers’ evolving needs as a sustainable steel solutions provider. The support and development of our people is foundational to achieving our Best for All strategy. We refer to this strategic talent pillar as “Moving Up the Talent Curve.”
Our focus on people extends to our current and future employees. We aim to have an engaged and diverse workforce to promote new ideas and innovation, reflect the communities where we operate, and deliver exceptional customer service. We seek to build an inclusive environment where people feel free to bring their professional selves to work. To achieve the Best for All strategy, we must have the “Best from All.”
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Active Employees as of December 31, 2023 |
North America | 13,995 | |
Slovakia | 7,808 | |
Total | 21,803 |
Ethics & Compliance
Our culture is based on our S.T.E.E.L. Principles: Safety First; Trust and Respect; Environmental Stewardship; Excellence and Accountability; and Lawful and Ethical Conduct. We expect our employees and members of our board of directors to take personal responsibility to “do what’s right,” and our Code of Ethical Business Conduct serves as the foundation for the actions of our employees and directors. To further ensure that employees understand the Company’s expectations and all applicable rules, we provide annual formal ethics and compliance training to our employees and have frequent communications with information about key compliance topics, which include messages from senior management underscoring the importance of doing business with integrity. Employees also receive summaries of current events that demonstrate the need to do business lawfully and ethically that include reminders of the company’s expectations for all employees. In addition, through our annual policy certification process, employees of USSK, non-represented employees in the United States, and members of our board of directors certify their ongoing compliance with our Code of Ethical Business Conduct.
Employee Health & Safety
At U. S. Steel, we have a long-standing commitment to the safety and health of every person who works in our facilities. Every employee deserves to return home safely at the end of every day, and we are working to eliminate all injuries and incidents. In addition, the psychological safety of all employees is important to us. We have combined physical safety and psychological safety into the construct of 360° safety. Ensuring a safe workplace also improves productivity, quality, reliability and financial performance. By making safety and health a personal responsibility, our employees are making a daily commitment to follow safe work practices, look out for the safety of co-workers and ensure safe working conditions for everyone. A “Safety First” mindset is as essential to our success as the tools and technologies we rely on to do business.
Our objective is to attain a sustainable zero harm culture supported by leadership and owned by an engaged and highly skilled workforce, empowered with the capabilities and resources needed to assess, reduce and eliminate workplace risks and hazards. In support of these objectives, we have developed an enhanced Safety Management System, initiated new safety communication methods and enhanced contractor safety processes. One of our most important safety protocols is our fatality prevention audit program. These proactive assessments of the processes and protocols we have in place, and adherence to them, to avoid fatalities and severe injuries are conducted annually at the enterprise level and more frequently at each of our facilities. We assess our safety performance through a variety of lagging and leading indicators, including OSHA Days Away From Work (DAFW). This measurement allows us to evaluate the frequency of injuries sustained at our facilities requiring an employee to stay at home for more than one day. U. S. Steel has achieved record-safety performance in this measurement in the last several years, routinely achieving performance better than industry benchmarks.
For 2023, we had a corporate DAFW rate of 0.04, which is 15 times better than the U.S. Bureau of Labor Statistics' Iron and Steel benchmark DAFW rate of 0.60.
Diversity, Equity, & Inclusion
Attracting, developing, and retaining a workforce of talented, diverse people is essential to having high-performing teams that drive results for our Company’s stakeholders. As part of our commitment to cultivating a culture of caring, we have inclusive benefits available for our U.S. non-represented workforce, including expanded parental leave, back-up dependent care, infertility coverage, gender reassignment coverage and healthcare continuation for the families of employees who suffered work-related or military service fatalities. We also support several employee resource groups (ERGs) to enhance employee engagement, promote a culture of belonging, foster diversity in the workplace, and raise awareness related to issues of identity and intersectionality. Our ERGs also provide training and education, mentorship and networking opportunities for their members.
Talent Attraction, Development and Retention
We believe that attraction, development and retention of talent is essential to our success, especially in today’s competitive labor market. We offer internship programs, partner with universities, community colleges and technical schools, and collaborate with community employment centers and economic development nonprofit organizations to build strong and diverse internal and external sources of potential employees and opportunities for our existing employee's growth and development.
Once at U. S. Steel, we seek to provide opportunities for continuous learning and development. All of our employees at a director-level and above have a formal professional development plan that is assessed at least annually. In addition, we proactively monitor our attrition rates and take targeted actions to ensure our highest potential and performing employees are motivated to remain with the Company. Over the past five years, our regrettable voluntary turnover rate has been at or below 5 percent.
We offer a competitive total rewards package of compensation and benefits that we regularly evaluate and benchmark across the manufacturing industry to ensure that we position U. S. Steel as an employer of choice.
Labor Relations
Approximately 80% of our employees in North America and Slovakia are covered by collective bargaining agreements. We work closely with union representatives to provide safe and productive workplaces that enable our employees to deliver high-quality products and meet the needs of our customers. Our relationship with the United Steelworkers includes not only a commitment to safety programs, but also a common approach to combating the unfairly traded imports that threaten our industry, our company and ultimately the jobs of our employees.
Certain hourly employees of U. S. Steel’s flat-rolled, tubular, cokemaking and iron ore operations in the United States are covered by collective bargaining agreements with the USW entered into effective September 1, 2022, (the 2022 Labor Agreements) that expire on September 1, 2026. The 2022 Labor Agreements include a signing bonus for each eligible USW-represented employee and annual 5% wage increases effective September 1, 2022, 2023, 2024, and 2025. The 2022 Labor Agreements also provide for certain increases to pension and retirement benefits, including increases in our defined benefit pension plan, retiree healthcare contributions, and to the contribution rate to the Steelworkers Pension Trust from $3.50 to $4.00 per hour, effective January 1, 2023. During the fourth quarter of 2022, U. S. Steel recorded a charge of approximately $67 million for the 2022 Labor Agreements signing bonus and related costs.
In addition, as part of the collective bargaining process, U. S. Steel and the USW agreed to leverage the overfunded OPEB plans to support the benefits provided to active represented employees. The OPEB plans were modified to allow the Company to utilize a certain amount of surplus assets to pay additional legally permissible benefits previously paid by the Company. The arrangement permits the Company to utilize a target of $75 million annually for active and retiree employee benefits, with an annual minimum of $50 million, beginning in 2023 and continuing through December 31, 2026. For additional information, see Note 18 to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
Capital Structure, Liquidity and Capital Allocation
Our Best for All strategy's primary financial goal is to enhance stockholder value by utilizing our capital structure, liquidity and enhanced capital allocation priorities to advance the Company's strategic objectives, generate long-term value and reward stockholders. Our cash deployment strategy is aligned with our corporate strategy and includes: executing on strategic projects and portfolio moves; maintaining a strong balance sheet and a healthy pension plan; and delivering sustainable growth with a focus on core values such as safety and environmental stewardship and rewarding stockholders for the continued progress we make. Cash deployment is also performed with a customer-centric focus on improving safety, our environment, quality, delivery and cost.
Our liquidity supports our ability to satisfy short-term obligations, fund working capital requirements and provides a foundation to execute key strategic priorities. We are focused on maintaining a strong balance sheet and may proactively refinance or repay our debt from time to time to protect our capital structure from unforeseen external events and re-financing risks.
On May 18, 2023, U. S. Steel closed on an offering consisting of an aggregate principal amount of $240 million unsecured Arkansas Development Finance Authority environmental improvement revenue bonds, which carry a green bond designation. The bonds, issued through Arkansas Development Finance Authority, have a coupon rate of 5.700% and carry a final maturity of 2053 (2053 ADFA Green Bonds). U. S. Steel received net proceeds of approximately $238 million after fees of approximately $2 million related to the underwriting and third-party expenses and will pay semiannual interest. The net proceeds from the issuance of the 2053 ADFA (Arkansas Development Finance Authority) Green Bonds were used to partially fund work related to BR2, currently under construction near Osceola, Arkansas. The Merger Agreement contains customary limitations on U. S. Steel's ability to incur additional indebtedness without the consent of Purchaser.
In 2023, we repaid approximately $89 million in debt, and we ended the year with $5.17 billion of total liquidity.
On July 25, 2022, following the completion of previously authorized $800 million share repurchase programs, the Board of Directors authorized a new share repurchase program for the repurchase of up to $500 million of the Company's outstanding common stock from time to time in the open market or privately negotiated transactions at the discretion of management. The Company's share repurchase program does not obligate it to acquire any specific number of shares.
U. S. Steel repurchased 7.1 million shares of its common stock for approximately $175 million during the year ended December 31, 2023, and there is approximately $126 million remaining under the current stock repurchase authorization. In addition, the Board of Directors declared quarterly dividends of five cents per common share for each of the quarters in 2023. We do not expect to utilize the remainder of this authorization. The Merger Agreement contains a customary prohibition on U. S. Steel's ability to engage in additional share repurchases without the consent of Purchaser.
Facilities and Locations as of December 31, 2023
Flat-Rolled
The operating results of all of U. S. Steel's domestic-integrated steel and sheet plants, coke and iron ore operations and ore and sheet production joint ventures are included in Flat-Rolled. Also, included within Flat-Rolled is a research and technology center located in Munhall, Pennsylvania (near Pittsburgh) and a technology center in Troy, Michigan. The research and technology center carries out a wide range of applied research, development and technical support functions. The technology center brings automotive sales, service, distribution and logistics services, product technology and applications research into one location and much of U. S. Steel’s work in developing new grades of steel to meet the demands of automakers for high-strength, light-weight and formable materials is carried out at this location.
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Flat-Rolled Operations Table |
Operations, (Property Location) | Annual Production Capability | Principal Products and/or Services |
Gary Works, (Gary, Indiana) (a) | 7.5 million tons of raw steel which includes 0.5 million tons of pig iron capability | strip mill plate in coil; hot-rolled, cold-rolled and coated sheets; tin mill products and pig iron |
Midwest, (Portage, Indiana) | finishing facility | hot-rolled, cold-rolled and coated sheets; and tin mill products |
Great Lakes Works(b), (Ecorse, River Rouge and Dearborn, Michigan) | finishing facility | cold-rolled and coated sheets |
Mon Valley Works (c): Edgar Thompson, (Braddock, Pennsylvania), Irvin, (West Mifflin, Pennsylvania), Fairless, (Fairless Hills, Pennsylvania), and Clairton, (Clairton, Pennsylvania) | 2.9 million tons of raw steel and 3.6 million tons of coke | hot-rolled, cold-rolled and coated sheets; and coke and coke by-products |
Granite City Works (d), (Granite City, Illinois) | 2.8 million tons of raw steel | hot-rolled, cold-rolled and coated sheets |
Granite City Works, (Granite City, Illinois); Gateway Energy and Coke Company LLC (Gateway) | coke supply agreement | not applicable |
USS-UPI, LLC (UPI) (e), (Pittsburg, California) | finishing facility | cold-rolled and coated sheets; tin mill products |
Fairfield Works,(Fairfield, Alabama) | finishing facility | coated sheets |
Minnesota Ore Operations: Minntac, (Mt. Iron, Minnesota) and Keetac, (Keewatin, Minnesota) | 22.4 million tons of iron ore pellets which includes 4.0 million tons of DR-grade pellet capability | iron ore pellets and DR (direct reduced) grade pellets |
(a) The majority of tin operations were indefinitely idled as of December 31, 2022. Pig iron is sold on an intercompany basis to Big River Steel. |
(b) The steel and ironmaking production facilities were permanently idled in December of 2021 and June of 2022, respectively. Great Lakes Works' pickle line, cold mill and CGL continue to operate, while the DESCO and electrolytic galvanizing lines are indefinitely idled. |
(c) From time to time, we may swap coke with other domestic steel producers or sell on the open market. Coke by-products are sold to the chemicals and raw materials industries. |
(d) In November 2023, the steel and ironmaking production facilities at Granite City Works were indefinitely idled. The plant continues to process slabs to produce hot-rolled, cold-rolled and coated sheets. |
(e) In December 2023, production at UPI was indefinitely idled. |
Joint Ventures Within Flat-Rolled
U. S. Steel participates in a number of joint ventures that are included in Flat-Rolled, most of which are conducted through subsidiaries. All of these joint ventures are accounted for under the equity method. The significant joint ventures and other investments are described below.
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Joint Ventures (a) Within Flat-Rolled Table |
Joint Venture, (Property Location) | U. S. Steel's Ownership Percentage | Annual Production Capability |
Hibbing Taconite Company (Hibbing); (Hibbing, Minnesota) | 14.7% | 9 million tons of which U. S. Steel's share is 1.3 million tons |
PRO-TEC Coating Company (PRO-TEC), (Leipsic, Ohio) | 50.0% | 2.0 million tons (b) |
Double G Coatings Company (Double G) (c); Jackson, Mississippi | 50.0% | 315 thousand tons |
Chrome Deposit Corporation (CDC), (six locations near major steel plants) | 50.0% | not applicable |
(a) See further information about our equity investees in Note 12 to the Consolidated Financial Statements. |
(b) U. S. Steel's domestic production facilities supply PRO-TEC with cold-rolled sheets and U. S. Steel markets all of PRO-TEC's products. |
(c) Each partner supplies its own steel to Double G and markets what is processed by Double G. |
Mini Mill
The operations of Big River Steel are included in Mini Mill. Big River Steel, located in Osceola, Arkansas, is an EAF sheet steel production facility.
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Mini Mill Operations Table |
Operations, (Property Location) | Annual Production Capability | Principal Products and/or Services |
Big River Steel, (Osceola, Arkansas) | 3.3 million tons of raw steel | hot-rolled, cold-rolled and coated sheets; and electrical steels |
USSE
USSE operates in Košice, Slovakia an integrated facility and a research laboratory, which, in conjunction with our Research and Technology Center, supports efforts in coke making, electrical steels, other value-added products and design and instrumentation.
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USSE Operations Table |
Operations, (Property Location) | Annual Production Capability | Principal Products and/or Services |
U. S. Steel Košice, (Košice, Slovakia) | 5.0 million tons of raw steel | coke; slabs; strip mill plate: hot, cold and coated sheets; tin mill products; and spiral welded pipe |
Tubular
Tubular manufactures seamless and welded OCTG, standard pipe, line pipe and mechanical tubing.
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Tubular Operations Table |
Operations, (Property Location) | Production Capability | Principal Products and Services |
Fairfield Tubular Operations, (Fairfield, Alabama) | 0.9 million tons of raw steel (a) and 750 thousand tons of tubular | seamless tubular pipe |
Lorain Tubular Operations (b), (Lorain, Ohio) | 380 thousand tons of tubular | seamless tubular pipe |
Lone Star Tubular(b), (Lone Star, Texas) | #1 electric-weld pipe mill (EWPM) 400 thousand tons and #2 EWPM 380 thousand tons of tubular | welded tubular pipe |
Wheeling Machine Products(c), (Pine Bluff, Arkansas and Hughes Springs, Texas) | not applicable | tubular couplings |
Offshore Operations, (Houston, Texas) | not applicable | tubular threading, inspection, accessories and storage services and premium connections |
Tubular Processing (d), (Houston, Texas) | not applicable | tubular processing |
(a) Based on the rounds caster capacity which is its constraining production unit. |
(b) In April 2020, the Lorain Tubular and Lone Star Tubular operations were indefinitely idled. |
(c) In April 2020, the Wheeling Machine Products at Hughes Springs, Texas was indefinitely idled. |
(d) Tubular Processing has been indefinitely idled since 2015. |
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Joint Ventures (a) Within Tubular Table |
Operations, (Property Location) | U. S. Steel's Ownership Percentage | Production Capability | Principal Products and/or Services |
Patriot Premium Threading Services, (Midland, Texas) | 50% | not applicable | Tubular threading, accessories and premium connections |
(a)See further information about our equity investees in Note 12 to the Consolidated Financial Statements. |
Other
U. S. Steel’s Other category includes the operating results relating to our real estate operations, the previously held equity method investment in Big River Steel, and our former railroad business. The Company owns approximately 40,500 acres of real estate assets, either held for development or managed, in Alabama, Illinois, Michigan, Minnesota and Pennsylvania.
Raw Materials and Energy
As a predominantly integrated producer, U. S. Steel’s primary raw materials are iron units in the form of iron ore pellets and sinter ore, carbon units in the form of coal and coke (which is produced from coking coal) and steel scrap. For our EAF production, our primary raw material is scrap. U. S. Steel’s raw materials supply strategy consists of acquiring and expanding captive sources of certain primary raw materials and entering into flexible supply contracts for certain other raw materials at competitive market prices that are subject to fluctuations based on market conditions at the time.
The amounts of such raw materials needed to produce a ton of steel will fluctuate based upon the specifications of the final steel products, the quality of raw materials and, to a lesser extent, differences among steel producing equipment. In broad terms, the Company's integrated steel process consumes approximately 1.4 tons of coal to produce one ton of coke and then it consumes approximately 0.3 tons of coke, 0.3 tons of steel scrap (approximately 60 percent of which is internally generated) and 1.3 tons of iron ore pellets to produce one ton of raw steel. In addition, we consume approximately 10 mmbtu’s of natural gas per ton produced. Generally, the Company's mini mill operations consumes approximately 0.8 tons of steel scrap, 0.3 tons of pig iron, and 0.1 tons of HBI to produce one ton of raw steel. In addition, the mini mill operations consume approximately 0.6 MKWH of electricity per ton of raw steel produced. While we believe that these estimated consumption amounts are useful for planning purposes, and are presented to give a general sense of raw material and energy consumption related to steel production, substantial variations may occur.
Iron Ore
(a) Includes our share of production from Hibbing through December 31, 2023.
The iron ore facilities at Minntac and Keetac contain approximately 900 million short tons of indicated resources and probable reserves and our share of recoverable reserves at the Hibbing joint venture is approximately 3 million short tons. Refer to Mining Properties in Item 2 of this Form 10-K for additional information. Recoverable reserves are defined as the tons of product that can be used internally or delivered to a customer after considering mining and beneficiation or preparation losses. Minntac and Keetac’s annual capability and our share of annual capability for the Hibbing joint venture total approximately 23 million tons. We have iron ore pellet production capability that exceeds our steelmaking capability in the U.S.
We historically have sold iron ore pellets to third parties, including in 2023, 2022, and 2021. The Company has agreements to supply iron ore pellets to third-party customers over the next several years.
Substantially all of USSE’s iron ore requirements are purchased from outside sources, primarily Ukrainian mining companies. Prices are determined in long-term contracts with strategic suppliers or as spot prices negotiated monthly or quarterly. USSE also has received iron ore from U. S. Steel’s iron ore facilities in North America. We believe that supplies of iron ore adequate to meet USSE’s needs are available at competitive market prices.
Coking Coal
All of U. S. Steel’s coal requirements for our cokemaking facilities are purchased from outside sources. Pricing for Flat-Rolled's coking coal contracts is typically negotiated on a yearly basis, and from time to time we have entered into multi-year agreements for a portion of our coking coal requirements.
Prices for European contracts are negotiated quarterly, annually or determined as index-based prices.
We believe that supplies of coking coal adequate to meet our needs are available from outside sources at competitive market prices. The main source of coking coal for Flat-Rolled is the United States, and sources for USSE include Poland, Ukraine, Canada, Australia and the United States.
Coke
In North America, the Flat-Rolled segment operates a cokemaking facility at the Clairton Plant of Mon Valley Works. At our Granite City Works, we have a 15-year coke supply agreement with Gateway that expires on December 31, 2024. Blast furnace injection of coal, and self-generated coke oven gas is also used to reduce coke usage.
With Flat-Rolled’s cokemaking facilities and the Gateway long-term supply agreement, it has the capability to be nearly self-sufficient with respect to its annual coke requirements at normal operating levels. Coke from time to time has been purchased from, sold to, or swapped with suppliers and other end-users to adjust for production needs and reduce transportation costs.
In Europe, the USSE segment operates cokemaking facilities at USSK. While USSE is self-sufficient for coke at normal operating levels, it periodically purchases coke from Polish and Czech coke producers to meet production needs. Volume and price are negotiated quarterly.
Steel Scrap and Other Materials
We believe that supplies of steel scrap and alloys that are adequate to meet our needs are readily available from outside sources at competitive market prices for the Flat-Rolled, Mini Mill and USSE segments. Generally, approximately 38 percent of our steel scrap requirements were internally generated through normal operations for these segments.
Limestone
All of Flat-Rolled’s limestone requirements and USSE's lime and limestone requirements are purchased from outside sources. We believe that supplies of limestone and lime adequate to meet our needs are readily available from outside sources at competitive market prices.
Zinc and Tin
We believe that supplies of zinc and tin required to fulfill the requirements for Flat-Rolled, Mini Mill and USSE are available from outside sources at competitive market prices. For Flat-Rolled and Mini Mill the main sources of zinc are Canada, Mexico and the United States and the main sources of tin are Bolivia, Brazil and Peru. For USSE, the main sources of zinc are Finland, Poland, the Netherlands and Slovakia, and the main sources of tin are Peru, Indonesia, China and Brazil.
During 2023, Flat-Rolled protected approximately 40 percent of its operation's zinc and tin requirements with financial swap derivatives to manage exposure to zinc and tin price fluctuations. During 2023, USSE protected approximately 35 percent of its operation's zinc purchases with forward physical contracts to manage our exposure to zinc price fluctuations and protected approximately 66 percent of its operation's tin purchases with financial swaps to manage our exposure to tin price fluctuations. For further information, see Note 16 to the Consolidated Financial Statements.
Natural Gas
All of U. S. Steel’s natural gas requirements are purchased from outside sources.
We believe that adequate supplies to meet Flat-Rolled’s, Mini Mill's and Tubular's needs are available at competitive market prices. For 2023, approximately 70 percent of our natural gas purchases in Flat-Rolled were based on bids solicited on a monthly basis from various vendors; the remainder were made daily or with term agreements.
We believe that adequate natural gas supplies to meet USSE’s needs are available at competitive market prices. During 2023, due to the uncertainty in the energy market, the procurement of natural gas in USSE was based on bids solicited primarily on a quarterly or monthly basis, with the remainder balanced on a daily basis.
Flat-Rolled and USSE use self-generated coke oven and blast furnace gas to reduce consumption of natural gas. USSE uses self-generated coke oven, converter and blast furnace gas to reduce consumption of steam coal that results in lower CO2 emissions production.
Additionally, Russian supply of natural gas to Europe has decreased significantly in response to enacted sanctions. However, Slovakia has natural gas storage and access to additional supply from countries including Norway, the U.S. and Africa. Together, these sources are enough to support the country's expected consumption through the 2024 winter season, which includes demand for natural gas for our USSE segment operations.
Industrial Gases
U. S. Steel purchases industrial gas in the U.S. under long-term contracts with various suppliers, with an exception being at our Fairfield Works where the Company's air separation plant provides for the facility's industrial gas needs. USSE owns and operates its own industrial gas facility, but also may purchase industrial gases from time to time from third parties.
International Trade
U. S. Steel continues to face import competition, much of which is unfairly traded and fueled by massive global steel overcapacity, currently estimated to be over 674 million net tons per year—more than six times the entire U.S. steel market and over twenty times total U.S. steel imports. These imports and overcapacity negatively impact the Company’s operational and financial performance. U. S. Steel continues to lead efforts to address these challenges that threaten the Company, our workers, our stockholders and our country’s national and economic security.
As of the date of this filing, pursuant to a series of Presidential Proclamations issued in accordance with Section 232 of the Trade Expansion Act of 1962, U.S. imports of certain steel products are subject to a 25 percent tariff, except imports from: (1) Argentina, Brazil, and South Korea, which are subject to restrictive quotas; (2) the European Union (EU), Japan and the United Kingdom (UK) that are melted and poured in the EU/Japan/UK, within quarterly tariff-rate quota (TRQ) limits; (3) Canada and Mexico, which are not subject to tariffs or quotas, but tariffs could be re-imposed on surging product groups after consultations; (4) Ukraine and, if melted and poured in Ukraine, the EU, which are exempt from tariffs until June 1, 2024; and (5) Australia, which are not subject to tariffs, quotas or an anti-surge mechanism.
The U.S. Department of Commerce (DOC) is managing a process in which U.S. companies may request and/or oppose temporary product exclusions from the Section 232 tariffs and quotas. U. S. Steel opposes exclusion requests for imported products that are the same as, or substitutes for, products manufactured by U. S. Steel.
Multiple legal challenges to the Section 232 action continue before the U.S. Court of International Trade (CIT) and the U.S. Court of Appeals for the Federal Circuit (CAFC), the latter which has consistently rejected constitutional and statutory challenges to the Section 232 action. Several challenges to the Section 232 action and retaliation thereto continue at the World Trade Organization (WTO).
Since its implementation in March 2018, the Section 232 action has supported the U.S. steel industry's and U. S. Steel’s investments in advanced steel production capabilities, technology, and skills, strengthening U.S. national and economic security. The Company continues to actively defend the Section 232 action.
In February 2019, the European Commission (EC) implemented a definitive safeguard on global steel imports in the form of TRQs that impose 25 percent tariffs on steel imports that exceed the TRQ limit. The EC’s safeguard is currently set to expire in June 2024.
Antidumping duties (AD) and countervailing duties (CVD or antisubsidy duties) apply in addition to the Section 232 tariffs, quotas, TRQs and the EC’s safeguard, and AD/CVD (antidumping and countervailing duty) orders may continue beyond the Section 232 action and the EC’s safeguard. U. S. Steel continues to actively defend and maintain the 61 U.S. AD/CVD orders and 14 EU AD/
CVD orders covering U. S. Steel products in multiple proceedings before the DOC, U.S. International Trade Commission (ITC), CIT, CAFC, the EC and European courts, and the WTO.
In January 2023, Cleveland-Cliffs, Inc. and the USW filed new AD/CVD petitions on U.S. imports of tin mill products from eight countries. In January 2024, DOC issued affirmative final AD/CVD determinations regarding tin mill products from Canada, China, Germany, and Korea, but negative determinations for tin mill products from Netherlands, Taiwan, Turkey, and the UK. The ITC held its final phase hearing on January 4, 2024, and is scheduled to vote in February 2024.
In February 2023, President Biden announced additional increases to normal tariffs of up to 70 percent on certain products from Russia, including pig iron, certain steel products and ferroalloys, effective April 1, 2023.
Additional tariffs of 7.5 to 25 percent continue to apply to certain U.S. imports from China, including certain raw materials used in steel production, semi-finished and finished steel products, and downstream steel-intensive products, pursuant to Section 301 of the Trade Act of 1974. The Office of the United States Trade Representative (USTR) is currently conducting a statutory review of the Section 301 tariffs.
The United States and EU are currently negotiating a global sustainable steel arrangement to restore market-oriented conditions and address carbon intensity. In June 2023, to inform these ongoing discussions with the EU, USTR requested that the ITC conduct a Section 332 investigation to assess greenhouse gas emissions intensity of steel produced in the United States. The ITC initiated the Section 332 proceeding in July 2023, held a hearing on December 7, 2023, will collect information from domestic producers through mid-2024 and will issue a report in January 2025. U. S. Steel is actively participating in this Section 332 investigation. In the fourth quarter of 2023, the U.S. agreed to continue the Section 232 TRQs on U.S. imports from Europe through December 2025 and the EU agreed to continue to suspend retaliation on U.S. exports through March 2025.
U. S. Steel will continue to execute a broad, global strategy to maximize opportunities and navigate challenges presented by imports, global steel overcapacity, and international trade law and policy developments.
Environmental Stewardship
U. S. Steel is committed to effective environmental stewardship. We have implemented and continue to develop business practices that are designed to reduce negative environmental impacts. We believe part of being a good corporate citizen requires a dedicated focus on how our industry affects the environment. We have taken the actions described below in furtherance of that goal. U. S. Steel's environmental expenditures totaled $345 million in 2023, $334 million in 2022, and $302 million in 2021. Overall, environmental compliance expenditures represent approximately 2 percent of U. S. Steel’s total costs and expenses in 2023, 2022, and 2021. For further information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Environmental Matters.”
We continue to work on the promotion of cost-effective environmental strategies by supporting the development of appropriate air, water and waste laws and regulations at the local, state, national and international levels. We are committed to reducing our emissions and are investigating, creating and implementing innovative, best practice solutions throughout our operations to improve our environmental performance and to manage and reduce energy consumption.
U. S. Steel’s North America operations recycled 4.9 million and 4.8 million tons of purchased and produced steel scrap annually in 2023 and 2022, respectively. USSK recycled approximately 895 thousand tons and 754 thousand tons of produced steel scrap in 2023 and 2022, respectively. Because of steel’s physical properties, our products can be recycled at the end of their useful life without loss of quality, contributing to steel’s high recycling rate and affordability. In 2023, our North America operations recycled approximately 2.6 million tons of blast furnace slag, 107 thousand tons of Basic Oxygen Process steel slag, and 168 thousand tons of electric arc furnace slag by selling it for use as aggregate and in highway and other construction. In 2023, USSK recycled approximately 1.1 million tons of blast furnace slag, and 168 thousand tons of Basic Oxygen Process steel slag.
Many of our major production facilities have Environmental Management Systems that are certified to the ISO 14001 Standard. This standard, published by the International Organization for Standardization (ISO), provides the framework for the measurement and improvement of environmental impacts of the certified facility.
In 2019, and in each succeeding year since, we published the Clairton Operating and Environmental Report related to our Clairton Plant of Mon Valley Works. While U. S. Steel agreed to publish an annual report as part of the 2019 Allegheny County Health Department Settlement Order and Agreement, we took the opportunity to enhance the report by including detailed descriptions of our operations, our safety and environmental performance and community involvement in order to provide easily accessible information for the public. The Report details battery combustion stack and fugitive emission performance at Clairton and Clairton's continued commitment to environmental stewardship. In 2021, we published a similar report for the Edgar Thomson facility.
Reduction of Greenhouse Gas Emissions
In 2019, the Company announced its commitment to reduce greenhouse gas emissions intensity across its global footprint by 20 percent, as measured by the rate of CO2 equivalents emitted per ton of finished steel shipped, by 2030 based on 2018 baseline levels. Then, in 2021, the Company announced its goal to achieve net-zero emissions by 2050, as measured by the rate of CO2 equivalents emitted per ton of finished steel shipped. These targets apply to U. S. Steel’s global operations.
U. S. Steel plans to achieve its greenhouse gas emissions intensity reduction goals through the execution of multiple initiatives. These include the use of EAF steelmaking technology at U. S. Steel’s Fairfield Works and at Big River Steel, the first LEED-certified steel mill in the United States and the first steel mill in North America to receive ResponsibleSteel™ site certification. EAF steelmaking primarily relies on recycled scrap, rather than iron ore, to produce new steel products, which is a less carbon intensive process and leverages the ability to continuously recycle steel. Further carbon intensity reductions are expected to come from the implementation of ongoing energy efficiency measures, continued use of renewable energy sources and other process improvements to be developed.
The carbon reduction targets reflect our continued commitment to improvement in production efficiency and the manufacture of products that are environmentally friendly. In addition to a commitment to reduce its own greenhouse gas emissions intensity, U. S. Steel is committed to helping its customers achieve their environmental goals. Our industry-leading XG3™ advanced high-strength steel enables automakers to manufacture lighter weight vehicles that meet federal Corporate Average Fuel Economy (CAFE) standards with reduced carbon emissions. As part of our innovation efforts, we continue to look at new steelmaking technologies so that we can produce steels made with low greenhouse gas emissions intensity (green steels) and further reduce carbon emissions.
Environmental Matters,
Litigation and Contingencies
Some of U. S. Steel’s facilities were in operation before 1900. Although managementthe Company believes that U. S. Steel’sits environmental practices have either led the industry or at least been consistent with prevailing industry practices, hazardous materials may have been and may continue to be released at current or former operating sites or delivered to sites operated by third parties.
Our U.S. facilities are subject to environmental laws applicable in the U.S., including the Clean Air Act (CAA), the Clean Water Act (CWA), the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as well as state and local laws and regulations.
U. S. Steel has incurred and will continue to incur substantial capital, operating and maintenance and remediation expenditures as a result of environmental laws and regulations, related to release of hazardous materials, which in recent years have been mainly for process changes to meet CAA obligations and similar obligations in Europe.
Midwest Plant IncidentEU Environmental Requirements and Slovak Operations
On April 11, 2017, there was a process waste water release at our Midwest Plant (Midwest) in Portage, Indiana that impacted a water outfall that discharges to Burns Waterway near Lake Michigan. U. S. Steel identified the sourcePhase IV of the releaseEU Emissions Trading System (EU ETS) commenced on January 1, 2021, and madewill finish on December 31, 2030. The European Commission issued final approval of the necessary repairs. We determined that all repairs were safely working as intended and, on April 14, 2017, resumed operationsupdated 2021-2025 Slovak National Allocation table in a controlled, phased and highly monitored approach with extensive input from participating government agencies.February 2022. The Company has since implemented substantial operational, process and notification improvements at Midwest. The Company has been presented with cost reimbursements, lossSlovak Ministry of use and penalty requests from the involved governmental agencies and intends to amicably resolve the matter with those agencies. Separately, the Company was placed on noticeEnvironment allocated 6.2 million metric tons of potential citizens’ enforcement suits regarding the April 2017 incident and other historical alleged Clean Water Act and Permit violations at Midwest. In January of 2018, The Surfrider Foundation and the City of Chicago initiated suits in the Northern District of Indiana alleging such violations. The Company intends to defend against those actions.
Slovak Operations
A Memorandum of Understanding (MOU) was signed in March 2013 between U. S. Steel and the government of Slovakia. The MOU outlines areas in which the government and U. S. Steel will work together to help create a more competitive environment and conditions for USSK. Incentives the government of Slovakia agreed to provide include potential participation in a renewable energy program that provides the opportunity to reduce electricity costs, as well as the potential for government grants and other support concerning investments in environmental control technology. Although there are many conditions and uncertainties regarding the grants, including matters controlled by the European Union (EU), the valueEmission Allowances (EUA) at no charge (free allowances or free allocation) to USSE in April 2023. As of these incentives as stated in the MOU could be as much as €75December 31, 2023, we have pre-purchased and settled approximately 1.8 million EUA totaling €147 million (approximately $90$163 million). U. S. Steel also agreed to paycover the governmentexpected 2023 shortfall of Slovakia specified declining amounts should U. S. Steel sell USSK within five yearsemission allowances and a portion of the date2024 shortfall. In September and October 2023, we entered into forward agreements to purchase and settle €56.5 million of EUA in January and February 2024, for the MOU. We expect the total amount of EU funds will be as much as €85 million (approximately $102 million). The final grant value will depend on public procurement results. The MOU is set to expire in March 2018.anticipated 2024 shortfall.
Slovakia adopted a new waste code in March 2015 that became effective January 1, 2016. This legislation implements the EU Waste Framework Directive that strictly regulates waste disposal and encourages recycling, among other provisions, by increasing fees for waste disposed of in landfills, including privately owned landfills. The impact of this legislation is estimated to be €2 million (approximately $2 million) annually due to waste stabilization requirements and increased fees for packaging materials recycling fees. Slovakia is considering legislation implementing an EU Directive, which is expected to increase existing fees upon USSK for use of its landfills. Because the legislation has not yet been adopted, the impact on operations at USSK facilities cannot be estimated at this time.
The EU’s Industry EmissionEU's Industrial Emissions Directive requires implementation of EU determined best available techniques (BAT) for Iron and Steel production to reduce environmental impacts as well as compliance with BAT associated emission levels. This directive includes operational requirements for air emissions, wastewater discharges, solid waste disposal and energy conservation, dictates certain operating practices and imposes stricter emission limits. Producers were required to be in compliance with the iron and steel BAT by March 8, 2016, unless specific exceptions or extensions were granted by the Slovak environmental authority. USSK updated existing operating permits for different facilities involved in producing iron and steel in the plant in accordance with the new BAT requirements. Through this process for some facilities, USSK has obtained extensions from the 2016 compliance deadline in order to meet or exceed the BAT requirements. Compliance with stricter emission limits going beyond BAT requirements makes us eligible for EU funding support and prepares us for any further tightening of environmental protection standards. Our most recent broad estimate of likelyTotal capital expenditures for projects to comply with or go beyond the BAT requirements iswere €138 million (approximately $166$153 million). These costs were partially offset by the EU funding received and may be mitigated over the 2017 to 2020 time period.
The EU has various programs under which funds are allocated to member states to implement broad public policiesnext measurement periods if USSK complies with certain financial covenants, which are then awardedassessed annually. If we are unable to meet these covenants in the future, USSK might be required to provide additional collateral (e.g., bank guarantee) to secure 50 percent of the EU funding received. USSK complied with these covenants as of December 31, 2023, and no additional collateral will be required by the member states to publicend of June 30, 2024. By this next assessment date, we expect that two of the fifteen total projects will pass the sustainability monitoring and private entities on a competitive basis. The funding intensity under these programs currently ranges from 55 percent of defined eligible costs on a project under the standard state scheme to 90 percent on an approved ad hoc scheme to improve the air quality in the Košice region of Slovakia. Based on our list of projects that comprise the approximate €138 million (approximately $166 million) of spending
noted, we currently believe we will be eligibleexcluded from further assessment to receive up to €85 million (approximately $102 million)provide additional collateral if the covenants are not met. The last assessment of incentive grants. This could potentially reduce our net cash expenditures to approximately €53 million (approximately $64 million). The actual amount of capital spendingfinancial covenants will be dependent upon, among other things, the actual amountperformed as of incentive grants received.
We also believe there will be increased operating costs associated with these projects, such as increased energy and maintenance costs. We are currently unable to reliably estimate what the increase in operating costs will be as many projects are still in the development stage.
On March 28, 2017, the Regional Court in Košice issued an ex parte judicial lien on USSK's real property to plaintiffs in an ongoing legal case. Following a decision of the Supreme Court, which reversed and remanded the lien petition to the Regional Court, the lien has been removed. The case is still ongoing. We do not expect this matter to have an impact on the eligibility of USSK to obtain EU funding support for BAT projects.
June 30, 2026.
For further discussion of laws applicable in Slovakia and the EU and their impact on USSK,USSE, see Note 2526 to the Consolidated Financial Statements, “Contingencies and Commitments, - Environmental Matters, EU Environmental Requirements.”
Minnesota Mining Operations - Water
The State of Minnesota has a sulfate wild rice water quality standard (WQS) set at 10mg/L, which was established in 1973. Since then, industry has been working with the legislature and the Minnesota Pollution Control Agency (MPCA) to reevaluate the environmental protection and science behind the 10 mg/L standard. In 2011, the legislature passed a law requiring MPCA to revise the sulfate standard. MPCA started the process to revise the rulemaking for the sulfate WQS, but it was never completed. During the interim the Keetac National Pollutant Discharge Elimination System (NPDES) permit was issued in November 2011, with a sulfate standard of 14 mg/L and a compliance schedule. Then in 2015, the Minnesota legislature passed a law that MPCA
could not require businesses to expend funds to comply with the sulfate limit until the rulemaking was revised by MPCA as directed by the legislature in 2011. To date the sulfate WQS rulemaking has not been revised. During this time Minntac has also received a NPDES permit with a sulfate limit and compliance schedule.
Both Minntac and Keetac have been working to determine the best options to address sulfate. One of the options in process is that both sites have submitted and even renewed site-specific standard (SSS) requests to MPCA. The SSSs present plans specific to each location and explain the actual impact on sulfate from the facilities. To date MPCA has not taken any action on the SSS plans. Minntac also submitted a compliance plan to MPCA. Discussions related to that plan are continuing. The United States Environmental Protection Agency (the U.S. EPA) partially rejected the CWA 303(d) list for impaired waters submitted by MPCA for 2021. The MPCA's impaired waters list was in part rejected to add Hay Lake as being impaired for wild rice sulfate. In February 2022, the U.S. EPA Region V sent a letter to MPCA recognizing the conflict between state law and the CWA. In October 2023, MPCA indicated that Dark River is now a designated Wild Rice Water, carrying a 10 mg/L sulfate limit. Also in October, MPCA and U. S. Steel entered into a voluntary Sulfate Monitoring Plan related to operational changes with the Keetac DR pellet project.
U. S. Steel is continuing to work to determine the most efficient and effective options to meet the applicable sulfate standards. However, if MPCA does not revise the sulfate standard of 10mg/L for the receiving waters of Minntac and Keetac or approve the SSSs, an impact on mining operations is likely as a result of extensive changes to water collection and treatment that will be required.
New and Emerging Environmental Regulations
United States and European Greenhouse Gas Emissions Regulations
Future compliance with carbon dioxide (CO2) emission requirementsThe Phase IV EU ETS period spans 2021-2030 and began on January 1, 2021.The Phase IV period is divided into two sub periods (2021-2025 and 2026-2030), rules for the first subperiod are finalized, however we expect that rules for the second subperiod may include substantial costsbe more stringent than those for emissionthe first one. Once approved, the rules may impact subperiod 2026-2030. Currently, the overall EU ETS target is a 40 percent reduction of 1990 emissions by 2030. Free allocation of CO2 allowances restrictionis based on reduced benchmark values which have been published in the first quarter of 2021 and historical levels of production from 2014-2018. Allocations to individual installations may be adjusted annually to reflect relevant increases and higher pricesdecreases in production. The threshold for coking coal, natural gasadjustments is set at 15 percent and electricity generatedwill be assessed on the basis of a rolling average of two precedent years. Production data verified by an external auditor shows that USSE's rolling average for 2021-2022 returned to the base limit for hot metal production resulting in an increase to the free allocation for 2023 compared to 2021, however the 2023 free allocation was still slightly reduced due to missing the 15 percent threshold for sinter production. Additionally, lower production in 2019 through 2023 will have an impact on the future free allocation for 2026-2030, where the historical production average for years 2019-2023 will be assessed. Based on actual production data for 2023, we expect that the free allocation for hot metal will remain unchanged for 2024, however allocations for sinter will be lower.
In order to achieve the EU political goal of carbon based systems. Becauseemissions neutrality by 2050, on July 14, 2021, the European Commission released a package of legislative proposals called Fit for 55. The proposals contain significant changes to current EU ETS functions and requirements, including: a new carbon border adjustment mechanism (CBAM) to impose carbon fees on EU imports, further reduction of free CO2 allowance allocation to heavy industry and measures to strengthen the supply of carbon allowances. The initial phase started on October 1, 2023, imposing only a reporting obligation without financial impact. The full scale of CBAM will commence on January 1, 2026. CBAM will have an impact on USSK's free allocation starting in 2026 where initial reduction to 97.5% starts until 2035 with no free allocation. Another implication of CBAM is the customs duty that will require USSK to cover all its imports from third parties with CBAM Certificates representing embedded emissions in goods imported. The legislative process is being impacted by the ongoing Russia-Ukraine crisis. The proposals are subject to the EU legislative process, and we cannot predict what requirements ultimately will be imposed in the U.S. and Europe, it is difficult to estimate the likely impact on their future impact.
U. S. Steel continues to monitor emerging regulations on Per- and Polyfluoroalkyl Substances (PFAS). The U.S. EPA has issued regulations on PFAS under several environmental statutes and continues to introduce additional regulations. Thus far, those regulations do not directly impact U. S. Steel because the company does not knowingly introduce PFAS in its manufacturing processes, but it could be substantial. On March 28, 2017, President Trump signed Executive Order 13783 instructing the Environmental Protection Agency (EPA)U. S. Steel continues to review new regulations related to PFAS and their potential impact on the Clean Power Plan. On October 16, 2017, the EPA proposed to repeal the Clean Power Plan after reviewing the plan pursuant to President Trump’s executive order. Any repeal and/or replacement of the Clean Power Plan is likely to be challenged by various proponents of the plan, such as environmental groups and certain states. Any impacts to our operations as a result of any future greenhouse gas regulations are not estimable at this time since the matter is unsettled. In any case, to the extent expenditures associated with any greenhouse gas regulation, as with all costs, are not ultimately reflected in the prices of U. S. Steel's products and services, operating results will be reduced. There were no material changes in U. S. Steel’s exposure to European Greenhouse Gas Emissions regulations since December 31, 2016.company.
United States - Air
The CAA imposes stringent limits on air emissions with a federally mandated operating permit program and civil and criminal enforcement sanctions. The CAA requires, among other things, the regulation of hazardous air pollutants through the development and promulgation of National Emission Standards for Hazardous Air Pollutants (NESHAP) and Maximum Achievable Control Technology (MACT) Standards. The U.S. EPA has developed various industry-specific MACT standards pursuant to this requirement. The CAA requires the U.S. EPA to promulgate regulations establishing emission standards for each category of Hazardous Air Pollutants. The U.S. EPA also must conduct risk assessments on each source category that is already subject to MACT standards and determine if additional standards are needed to reduce residual risks.
While our operations are subject to several different CAA rules and categories of NESHAP and MACT standards, the principal impact of these standards on U. S. SteelSteel's operations includes those that are specific to coke making, iron making, steel making and iron ore processing.
The U.S. EPA is currentlyhas several rules under consideration that will impact our operations, as described in the processsections below. While many of completingthese rules are not finalized and the impacts are not estimable at this time, the overall cumulative impact could be material.
On July 13, 2020, the U.S. EPA published a Residual Risk and Technology Review ofrule for the Integrated Iron and Steel MACT category in the Federal Register. Based on the results of the U.S. EPA’s risk review, the agency determined that risks due to emissions of air toxics from the Integrated Iron and Steel category are acceptable and that the current regulations provided an ample margin of safety to protect public health. Under the technology review, the U.S. EPA determined that there are no developments in practices, processes or control technologies that necessitate revision of the standards. In September 2020, several petitions for review of the rule, including those filed by the Company, the American Iron and Steel Institute (the AISI), Clean Air Council and others, were filed with the United States Court of Appeals for the D.C. Circuit. The cases were consolidated and are being held in abeyance until the U.S. EPA reviews and responds to administrative petitions for review. The U.S. EPA is required by court order to issue a final rule by March 11, 2024. The U.S. EPA proposed a revised iron and steel rule on July 31, 2023. U. S. Steel and other entities submitted extensive comments to the U.S. EPA on September 28, 2023. Since the revisions to the iron and steel rule are not final, any impacts are not estimable at this time.
For the Taconite Iron Ore Processing category, based on the results of the U.S. EPA's risk review, the agency promulgated a final rule on July 28, 2020, in which the U.S. EPA determined that risks from emissions of air toxics from this source category are acceptable and that the existing standards provide an ample margin of safety. Furthermore, under the technology review, the agency identified no cost-effective developments in controls, practices, or processes to achieve further emissions reductions. Petitions for review of the rule were filed in the United States Court of Appeals for the D.C. Circuit, in which the Company and the AISI intervened. The U.S. EPA is required by court order to issue a final rule by January 31, 2024. The U.S. EPA proposed the Taconite Rule on May 15, 2023, and comments were submitted on July 7, 2023. Since the revised taconite rule is not final, any impacts are not estimable at this time.
The U.S. EPA is in the process of conducting its statutorily obligated residual risk and technology review of coke oven standards. The U.S. EPA completed its review of the Coke MACT regulations as required byand published the CAA. Becauseproposed rule on August 15, 2023, and U. S. Steel and other entities submitted extensive comments to the U.S. EPA hason October 2, 2023. Since the rule is not completed its review,final any impacts related to the U.S. EPA’s review of thesethe coke standards cannot be estimated at this time. The U.S. EPA is under a court-ordered deadline to complete the residual risk and technology rulemaking by May 23, 2024.
In response to Court orders that invalidated prior U.S. EPA determinations regarding ozone attainment interference, on April 6, 2022, the U.S. EPA proposed a Federal Implementation Plan (that would replace several pending or disapproved State Implementation Plans) for Regional Ozone Transport for the 2015 Ozone National Ambient Air Quality Standard. The proposed rule would affect electric generating units (EGUs) in 26 states and certain non-EGU industries, including, among several others, coke ovens, taconite production kilns, boilers, blast furnaces, basic oxygen furnaces, reheating furnaces, and annealing furnaces in 23 states, including those where U. S. Steel has operations. The U.S. EPA announced the final rule on March 15, 2023. The final rule only included regulation of boilers and reheat furnaces for the iron and steel industry limiting the potential impacts on the Company. U. S. Steel filed an administrative petition for review and a petition for judicial review to the rule on August 4, 2023. The matter remains before the U.S. EPA Administrator (administrative) and the United States Court of Appeals for the D.C. Circuit (judicial). While U. S. Steel's and others' petitions to stay the effectiveness of the rule were denied by the United States Court of Appeals for the D.C. Circuit, the Company, as well as other petitioners, have filed applications to stay the effectiveness of the rule with the Supreme Court of the United States. Oral arguments regarding the applications to stay are scheduled for February 21, 2024.
The CAA also requires the U.S. EPA to develop and implement National Ambient Air Quality Standards (NAAQS) for criteria pollutants, which include, among others, particulate matter (PM) - consisting of PM10 and PM2.5, lead, carbon monoxide, nitrogen dioxide, sulfur dioxide (SO2) and ozone. Sulfur dioxide is the NAAQS criteria pollutant of most concern to the Company at this time.
In June 2010, the EPA significantly lowered the primary NAAQS for sulfur dioxide (SO2) from 140 parts per billion (ppb) on a 24-hour basis to an hourly standard of 75 ppb. Subsequently, the EPA designated the areas in which Great Lakes Works and Mon Valley Works facilities are located as nonattainment with the 2010 standard for the SO2 NAAQS. The non-attainment designation will require the facilities to implement operational and/or capital improvements to demonstrate attainment with the 2010 standard. In addition, the EPA is currently evaluating the attainment status for all other areas as required by a Consent Decree that the EPA entered with the Sierra Club and the Natural Resources Defense Council in March 2015 pursuant to a lawsuit filed by the non-governmental organizations. U. S. Steel is working with the relevant regulatory agencies in completing the evaluation process as required by the Consent Decree. While U. S. Steel has determined that it will face increased capital, operating and compliance costs, the operational and financial impact of the SO2 NAAQS is not estimated to be material at this time.
In October 2015, the U.S. EPA lowered the NAAQS for ozone from 75 ppbparts per billion (ppb) to 70 ppb. TheOn November 6, 2017, the U.S. EPA has designated certainmost areas in which we operate as nonattainmentattainment with the 2008 ozone2015 standard. In addition, somea separate ruling, on June 4, 2018, the U.S. EPA designated other areas in which we operate have been recommended as nonattainment“marginal nonattainment” with the 2015 ozone standard bystandard. On December 6, 2018, the respective states. TheU.S. EPA has yet to act on the recommendations. In June 2017, the EPA had published a notice extendingfinal rule regarding implementation of the deadline to promulgate initial designations by one year, extending the deadline from October 1, 2017 to October 1, 2018. However, in August 2017, the EPA withdrew the notice; and therefore, the designation deadline remained October 1, 2017. On November 16, 2017, the EPA published its initial designations for areas that the EPA is designating as attainment/unclassifiable. The rule lists most areas in which U. S. Steel operates as attainment/unclassifiable. The EPA has yet to publish a notice regarding areas that it is designating as nonattainment.2015 ozone standard. Because nonattainment designations and any implementation plansno state regulatory or permitting actions to bring the ozone nonattainment areas into attainment have yet to be proposed or developed for U. S. Steel facilities, the operational and financial impact of the ozone NAAQS cannot be reasonably estimated at this time.
On December 14, 2012,31, 2020, the U.S. EPA loweredpublished a final rule pursuant to its statutorily required review of NAAQS that retains the annual standardozone NAAQS at 70 ppb. In January 2021, New York, along with several states and non-governmental organizations filed petitions for PM2.5 from 15 micrograms per cubic meter (ug/m3) to 12 ug/m3,judicial review of the action with the United States Court of Appeals for the D.C. Circuit. Several other states and retainedindustry trade groups intervened in support of the PM2.5 24-hour and PM10 NAAQS rules. In December 2014, the EPA designated some areas in which U. S. Steel operatesEPA’s action. The case remains in abeyance before the court as nonattainment with the 2012 annual PM2.5 standard. Because it is early inU.S. EPA voluntarily reconsiders the State Implementation Plan development stages, any impacts toozone NAAQS. On January 3, 2024, U. S. Steel cannot be reasonably estimated at this time.EPA filed an unopposed motion to voluntarily remand without vacatur the 2020 rulemaking. In its motion, EPA advised the court that it intends to conduct the voluntary remand simultaneously as it conducts an entirely new review of the ozone standard; and that it intends to complete the new review
In 2010,(which is already underway) "as expeditiously as possible". Any impacts related to EPA's consideration to revise the EPA retained the annual nitrogen dioxideozone NAAQS standard, but created a new 1-hour NAAQS and established new data reduction and monitoring requirements. While the EPA has classified all areas as being in attainment or unclassifiable, it is requiring implementation of a network of monitoring stations to assess air quality. Until the network is implemented and further designations are made, the impact on operations at U. S. Steel facilities cannot be reasonably estimatednot estimable at this time.
United States - CERCLA 108(b) Financial Assurance
InOn December 2016,18, 2020, the U.S. EPA published a proposedfinal rule focused on developing financial assurancepursuant to its statutorily required review of NAAQS that retains the existing PM2.5 standards without revision. In early 2021, several states and non-governmental organizations filed petitions for managing hazardous substances in the hard rock, mining industry, in accordance with CERCLA Section 108(b). The EPA had a court-mandated deadline for publicationjudicial review of the final rule by December 1, 2017. The draft form of the proposed rule was commented upon by the public and the regulated community. Based on information provided by the comments, EPA decided that a new financial assurance rule was not necessary for the hard rock mining industry. EPA’s decision may be challenged in court and a possible result of such a challenge may be a new proposed rule at some point in the future that could have a material impact on the Company’s liquidity.
Environmental Remediation
Inaction with the United States U. S. Steel has been identifiedCourt of Appeals for the D.C. Circuit. Several industry trade groups intervened in support of the U.S. EPA’s action. The case remains in abeyance before the court as the U.S. EPA voluntarily reconsiders the PM2.5 NAAQS. On January 6, 2023, the U.S. EPA proposed to lower the annual PM2.5 NAAQS from the current 12 ug/m3 standard to within the range of 9.0 to 10.0 ug/m3. The U.S. EPA expects to finalize a potentially responsible party (PRP) at seven sites under CERCLA as of December 31, 2017. Of these, there are two sites where information requests have been received or there are other indications that U. S. Steel may be a PRP under CERCLA, but where sufficient information is not presently available to confirmrule on the existence of liability or to make a reasonable estimate with respect to any potential liabilities. There are also 19 additional sites where U. S. Steel may be liable for remediation costsreconsideration 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,early 2024. U. S. Steel is onecurrently reviewing the proposal and comments to determine the potential impacts on the Company. Because the U.S. EPA has proposed the rule without specificity, any impacts are not estimable at this time.
United States – Water
The definition of Waters of the United States (WOTUS) has had many changes and legal challenges over the last several years. In January 2023, the U.S. EPA issued a numberfinal rule redefining WOTUS that became effective March 1, 2023. The new WOTUS rule would have expanded the definition of parties involvedwhat waters would be considered to be a WOTUS. However, in May 2023, the U.S. Supreme court issued a decision in Sackett v. EPA that significantly narrowed the definition of WOTUS, specifically as that definition relates to wetlands under the Clean Water Act. On August 29, 2023, the U.S. EPA re-issued its WOTUS rule, revised in accordance with the Sackett decision, as a final rule with no public notice and comment. As a result of ongoing litigation regarding the January 2023 Rule, the U.S. EPA and the total costArmy Corps of remediation, as well as U. S. Steel’s share, is frequently dependent uponEngineers are implementing the outcomedefinition of ongoing investigationsWOTUS set forth in the August 2023 rule in 23 states, the District of Columbia, and remedial studies.the U.S. Territories. In the other 27 states and for certain parties, the agencies are interpreting WOTUS consistent with the pre-2015 regulatory regime and the Sackett decision until further notice. U. S. Steel accrueswill continue to review and follow the final WOTUS definition and associated litigation for environmental remediation activities whenits potential impact on 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.Company.
Environmental Remediation
For further discussion of relevant environmental matters, including environmental remediation obligations, see "Item 3. Legal Proceedings, - Environmental Proceedings."
Property, Plant and Equipment Additions
For property, plant and equipment additions, including capitalfinance leases, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Cash FlowsLiquidity and Liquidity – Cash Flows”Capital Resources” and Note 1213 to the Consolidated Financial Statements.
Employees
As of December 31, 2017, U. S. Steel had approximately 17,200 employees in the U.S. and approximately 12,000 in Europe.
Most hourly employees of U. S. Steel’s flat-rolled, tubular, cokemaking and iron ore pellet facilities in the United States are covered by the 2015 Labor Agreements. Our U.S. collective bargaining agreements contain no-strike provisions which are applicable during the term of the respective agreements.
In Europe, excluding U.S. expatriates, most employees at USSK are represented by the OZ KOVO union and all employees are covered by an agreement that expires at the end of March 2020.
A small number of workers at some of our North American facilities and at our transportation operations are covered by agreements with the USW or other unions that have varying expiration dates.
Available Information
U. S. Steel’s Internet address is www.ussteel.com. We post our annual reportAnnual Report on Form 10-K, our quarterly reports on Form 10-Q, our proxy statement, our current reports on Form 8-K, amendments to those reports and our interactive data files to our website free of charge as soon as reasonably practicable after such reports are filed, or furnished to, with the Securities and Exchange Commission (SEC). We also post all press releases and earnings releases to our website.
All other filings with the SEC are available via a direct link on the U. S. Steel website to the SEC’s website, www.sec.gov.
Also available on the U. S. Steel website are U. S. Steel’s Corporate Governance Principles, Code of Ethical Business Conduct and the charters of the Audit Committee, the Compensation & Organization Committee and the Corporate Governance & Public PolicySustainability Committee of the Board of Directors. These documents and the Annual Report on Form 10-K and proxy statement are also available in print to any stockholder who requests them. Such requests should be sent to the Office of the Corporate Secretary, United States Steel Corporation, 600 Grant Street, Suite 1500,1844, Pittsburgh, Pennsylvania, 15219-2800 (telephone: 412-433-1121).
U. S. Steel does not incorporate into this document the contents of any website or the documents referred to in the immediately preceding paragraph.paragraphs.
Other Information
Information on net sales, depreciation, capital expenditures, earnings (loss) before interest and income taxes and assets by reportable segment and for business in the Other Businessescategory and on net sales and assets by geographic area are set forth in Note 4 to the Consolidated Financial Statements.
For significant operating data for U. S. Steel for each of the last five years, see “Five-Year Operating Summary (Unaudited)” on pages F-59 and F-60.within this document.
Item 1A. RISK FACTORS
Operational
Merger-Related Risk Factors
Our reduced operational footprint, unplanned equipment outages and other unforeseen disruptions may adverselyFailure to complete the Merger on a timely basis, or at all, would negatively impact our resultsbusiness and financial condition, as well as the price of operations.our common stock.
Over the past three years, U. S. Steel has adjusted its operating configuration in response to challenging market conditions as a result of global overcapacity and unfair trade practices by indefinitely, permanently and temporarily idling production at certain facilities. Due to our reduced operational footprint, the CompanyWe may not be able to respond in an efficient manner when restarting certain ofcomplete the Merger on a timely basis, or at all. If the Merger is not completed, our temporarily idled facilities to fully realize the benefits from changing market conditions that are favorable to integrated steel producers.
Our steel production depends on the operation of critical structures and pieces of equipment, suchongoing business may be adversely affected as blast furnaces, casters, hot strip mills and various structures and operations that support them. While we are implementing asset revitalization and a reliability centered maintenance initiative focusing on proactive maintenance of key machinery and equipment at our production facilities,follows: (i) we may experience negative reactions from the financial markets, including negative impacts on the market price of our common stock; (ii) some of management's attention will have been directed to the Merger instead of being directed to our own operations and the pursuit of other opportunities that could have been beneficial to us; (iii) the manner in which customers, suppliers and other third parties perceive us may be negatively impacted, which in turn could affect our ability to compete for business; (iv) we may experience negative reactions from employees; (v) we will have expended time and resources that could otherwise have been spent on our business; and (vi) we may be required, in certain circumstances, to pay a termination fee of $565 million, as provided in the Merger Agreement. In addition, any significant delay in consummating the Merger could have an adverse effect on our operating results and adversely affect our relationships with customers and suppliers and would likely lead to a significant diversion of management and employee attention.
Additionally, in approving the Merger Agreement, the Board of Directors considered a number of factors and potential benefits, including the fact that the merger consideration to be received by holders of common stock represented a significant premium over the unaffected trading price, including a premium of 142% to the Company’s unaffected closing stock price of $22.72 on August 11, 2023, the last trading day before the Company's announcement of the strategic review process and a premium of 40% to the Company’s closing stock price of $39.33 on December 15, 2023, the last trading day before public announcement of the Merger Agreement. If the Merger is not completed, neither the Company nor the holders of our common stock will realize this benefit of the Merger. Moreover, we would also have nevertheless incurred substantial transaction-related fees and costs and the loss of management time and resources.
Expenses related to the pending Merger are significant and will adversely affect our operating results.
We have incurred and expect to continue to incur significant expenses in connection with the pending Merger, including legal and investment banking fees. We expect these costs to have an adverse effect on our operating results. If the Merger is not consummated, we may under certain circumstances be required to pay to Purchaser a termination fee of $565 million. Our financial position and results of operations may be adversely affected if we were required to pay the termination fee.
We are subject to business uncertainties and contractual restrictions while the Merger is pending, which could adversely affect our business.
The Merger Agreement requires us to operate in the ordinary course of business and restricts us, without the consent of Purchaser, from taking certain specified actions agreed by the parties to be outside the ordinary course of business until the pending Merger occurs or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Merger or, if the Merger is not completed, termination of the Merger Agreement. In addition, matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by our management, which could divert their time and attention.
Litigation and union grievances and disputes could result in substantial costs and may delay or prevent the Merger from being completed.
In connection with the announcement of the Merger, we (along with our directors and officers) may face lawsuits, disputes and/or other actions (including union grievances or actions, several of which have been initiated against the Company by the United Steelworkers union under its Basic Labor Agreement with the Company). We may face additional lawsuits, disputes and/or other actions, including those brought by stockholders of the Company, in each case, seeking to enjoin, prevent, and/or delay us from consummating the Merger.
One of the conditions to the closing of the Merger is the absence of any injunction or similar order issued by any government entity in the U.S. or other specified jurisdiction or law in the U.S. or other specified jurisdiction that has the effect of prohibiting the consummation of the Merger or that makes consummation of the Merger illegal. Accordingly, if any plaintiff is successful in obtaining an injunction prohibiting the consummation of the Merger, then such injunction may prevent the Merger from becoming effective, or delay its becoming effective within the expected time frame. The ultimate resolution of any such proceedings cannot be predicted, and defending against such claims, even those without merit, could result in substantial costs (including costs in connection with the defense or settlement of stockholder litigation in connection with the Merger and costs associated with our indemnification obligations to our directors and officers), delay, and diversion of management’s time and resources, which may negatively impact our financial condition and adversely affect our business and results of operations. We may also file actions to assert our rights in connection with the Merger.
The announcement and pendency of the proposed Merger may adversely affect our business, financial condition and results of operations.
Whether or not the proposed Merger is consummated, the proposed Merger may disrupt our current plans and operations, which could have an adverse effect on our business and financial results. We cannot predict how our customers, distributors, suppliers and strategic partners will view or react to the proposed Merger upon consummation. If we are unable to reassure our, customers, distributors, suppliers and strategic partners to continue transacting business with us, our sales, financial condition, results of operations, cash flows and stock price may be adversely affected.
In addition, uncertainty about the effect of the Merger on our employees may have an adverse effect on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter. Employee retention may be particularly challenging during the pendency of the Merger. If key employees depart and as we face additional uncertainties relating to the Merger, our business relationships may be subject to disruption as customers, suppliers and other third parties attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company. If key employees depart or if our existing business relationships suffer, our results of operations may be adversely affected. The adverse effects of such disruptions could be further exacerbated by any delay in the completion of the Merger.
The Merger Agreement contains provisions that could discourage a potential competing acquirer of us.
The Merger Agreement contains non-solicitation provisions that, subject to limited exceptions, restrict our ability to solicit, initiate, or knowingly encourage or induce competing third-party proposals (or engage in, continue or otherwise participate in negotiations or discussions regarding such third-party proposals) for the acquisition of our stock or assets. Under certain limited circumstances, our Board of Directors may (i) withdraw, qualify or modify its recommendation that our stockholders adopt the Merger Agreement and/or (ii) terminate the Merger Agreement to enter into a definitive agreement with respect to a third-party acquisition proposal. However, before doing so, our Board of Directors must abide by certain procedures described in the Merger Agreement that give Purchaser an opportunity to negotiate in good faith to modify the terms of the Merger Agreement in a manner that any such third-party acquisition proposal would not constitute a superior proposal. In some circumstances, upon termination of the Merger Agreement, we will be required to pay a termination fee to Purchaser of $565 million.
These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of us from considering or proposing that acquisition, even if the acquirer was prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Merger, or might otherwise result in a potential third-party acquirer proposing to pay a lower price to our stockholders than they might otherwise have proposed to pay due to the added expense of the termination fee that may become payable in certain circumstances.
If the Merger Agreement is terminated and we decide to seek another business combination, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.
All of the matters described above, alone or in combination, could materially and adversely affect our business, financial condition, results of operations and stock price.
Economic and Market Risk Factors
The changing global economic climate is having adverse impacts on our business, which may create new risks and exacerbate certain other risks set forth below.
Changes in the global economic environment, inflation, elevated interest rates, recessions or prolonged periods of reduced productionslow economic growth, and increased maintenanceglobal instability and repair costs due to equipment failures atactual and threatened geopolitical conflict, could have an adverse effect on our facilities orindustry and business, as well as those of our keycustomers and suppliers.
It is also possible that operations may be disrupted due to other unforeseen circumstancesOverall economic conditions in the U.S. and globally, including in Europe, including adverse factors such as power outages, explosions, fires, floods, accidentsinflation, rising or sustained elevated interest rates, supply chain disruptions and severe weather conditions. Wegeopolitical conflicts, including the impacts of the war in Ukraine, significantly impact our business. Periods of economic downturn or continued uncertainty could result in difficulty increasing or maintaining our level of sales or profitability and we may experience an adverse effect on our business, results of operations, financial condition and cash flows.
Our U.S. operations are subject to economic conditions, including credit and capital market conditions, inflation, prevailing interest rates, and political factors, which if changed could negatively affect our results of operations, cash flows and liquidity. Political factors include, but are not limited to, changes to tax laws and regulations resulting in increased income tax liability, increased regulation, such as carbon emissions limitations or trading mechanisms, limitations on exports of energy and raw
materials, and trade remedies. Actions taken by the U.S. government could affect our results of operations, cash flows and liquidity.
USSE is subject to economic conditions and political factors associated with the EU, Slovakia and neighboring countries, and the euro currency. Changes in any of these economic conditions or political factors could negatively affect our results of operations, cash flows and liquidity. Political factors include, but are not limited to, taxation, nationalization, inflation, government instability, regional conflict, civil unrest, increased regulation and quotas, tariffs, sanctions and other market-distorting measures. The ongoing war in Ukraine has had a broad range of adverse impacts on global economic conditions, some of which have had and are likely to continue to have adverse impacts on our business, including increased raw material and energy costs, softer customer demand and lower steel prices. USSE purchases a significant portion of its iron ore and coal from suppliers based in Ukraine.
Additionally, we are also exposed to similar risks involving majorassociated with the business success and creditworthiness of our suppliers and customers. If our customers andor suppliers such as force majeure eventsare negatively impacted by a slowdown in economic markets, we may face the reduction, delay or cancellation of raw materials suppliers that have occurred and may occur incustomer orders, delays or interruptions of the future. Availabilitysupply of raw materials, and deliveryincreased risk of productsinsolvency and other credit related issues of customers or suppliers, which could delay payments from customers, result in increased customer defaults and cause our suppliers to customers coulddelay filling, or to be affected by logistical disruptions, such as shortagesunable to fill, our needs at all or on a timely or cost-effective basis. The occurrence of barges, ocean vessels, rail cars or trucks, or unavailabilityany of rail lines orthese events may adversely affect our business, results of locks on the Great Lakes or other bodies of water. To the extent that lost production could not be compensated for at unaffected facilitiesoperations, financial condition and depending on the length of the outage, our sales and our unit production costs could be adversely affected.cash flows.
U. S. Steel continues to incur certain costs when production capacity is idled, increased costs to resume production at idled facilities, or costs to idle facilities.
Our decisions concerning which facilities to operate and at what levels are made based upon our customers’ orders for productsThe steel industry, as well as the capabilities and cost performanceindustries of our locations. During periods of depressed market conditions,customers and suppliers upon whom we may concentrate production operations at several plant locations and not operate others in response to customer demand, and as a result we will incur idle facility costs.
When we restart idled facilities, we incur certain costs to replenish raw material inventories, prepare the previously idled facilities for operation, perform the required repair and maintenance activities and prepare employees to return to work safely and resume production responsibilities. The amount of any such costs can be material, depending on a variety of factors, such as the period of time during which the facilities remained idle, necessary repairs and available employees, and is difficult to project.
U. S. Steel has been and continues to be adversely affected by worldwide overcapacity and high levels of imports, which may negatively affect steel prices and demand levels, reducing profitability.
An increase in global capacity and new or expanded production capacity in the United States, China and other countries in recent years has resulted in capacity significantly in excess of global demand, as well as in the Company's primary markets in North America and Europe.
Worldwide overcapacity continues to result in high levels of dumped and subsidized steel products in the markets we serve. Domestic and international trade laws provide mechanisms to address the injury caused by such imports to domestic industries. While in some cases, U. S. Steel is successful in obtaining relief under U.S. and international trade laws, in other circumstances, relief has been denied. When received, such relief is generally subject to annual automatic or discretionary review, which can result in rescission or reduction. There can be no assurance that any relief will be obtained or continued in the future or that such relief will adequately combat the surge in imports. There is also a risk that international bodies such as the World Trade Organization or other judicial bodies in the United States or the EU may change their interpretations of their respective trade laws in ways that are unfavorable to U. S. Steel.
Faced with overcapacity in various markets, we will continue to evaluate potential strategic and organizational opportunities, which may include exiting lines of business and the sale of certain assets, temporary shutdowns or closures of facilities.
The steel industryreliant, is highly cyclical, which may have an adverse effect on our customer demand and results of operations.
Steel consumption is highly cyclical and generally follows economic and industrial conditions both worldwide and in regional markets. Price fluctuations are impacted by the timing, magnitude and duration of these cycles, and are difficult to predict. This volatility makes it difficult to balance the procurement of raw materials and energy with global steel prices, our steel production and customer product demand. U. S. Steel has implemented strategic initiatives to produce more stable and consistent results, even during periods of economic and market downturns, but this may not be enough to mitigate the effect that the volatility inherent in the steel industry has on our results of operations.
Additionally, our business is reliant on certain other industries that are cyclical in nature. We sell to the automotive, service center, converter, energy and appliance and construction-related industries. Some of these industries are highly sensitive to general economic conditions and may also face meaningful fluctuations in demand based on a number of factors outside of our control, including regulatory factors, supply chain disruptions, changing customer demand, economic conditions and raw material and energy costs. As a result, downturns or volatility in any of the markets we serve could adversely affect our financial position, results of operations and cash flows.
U. S. Steel has been and continues to be adversely affected by unfairly traded imports and globalovercapacity, which may cause downward pricing pressure, lost sales and revenue and decreased market share, production, investment, and profitability.
Currently, global steel production capacity significantly exceeds global steel demand, which adversely affects U.S. and global steel prices. Global overcapacity continues to result in high levels of dumped and subsidized steel imports into the markets we serve. Domestic and international trade laws provide mechanisms to address the injury caused by such imports to domestic industries. Excessive steel imports have resulted and may continue to result in downward pricing pressure and lost sales and revenue, which adversely impacts our business, operations, financial condition and cash flows.
Although U. S. Steel currently benefits from 61 U.S. AD and CVD or anti-subsidy duty orders and 14 EU AD/CVD orders, petitions for trade relief are not always successful or effective. When implemented, such relief is generally subject to periodic reviews and challenges, which can result in revocation of AD/CVD orders or reduction of effective duty rates. There can be no assurance that any relief will be obtained or continued in the future or that such relief will adequately combat unfairly traded imports.
As of the date of this filing, pursuant to a series of Presidential Proclamations issued in accordance with Section 232 of the Trade Expansion Act of 1962, U.S. imports of certain steel products are subject to a 25 percent tariff, except imports from: (1) Argentina, Brazil, and South Korea, which are subject to restrictive quotas; (2) the EU, Japan, and UK that are melted and poured in the EU/Japan/UK, within quarterly TRQ limits; (3) Canada and Mexico, which are not subject to tariffs or quotas, but tariffs could be re-imposed on surging product groups after consultations; (4) Ukraine, which are exempt from tariffs until June 1, 2024; and (5) Australia, which are not subject to tariffs, quotas, or an anti-surge mechanism. The Section 232 national security action on steel imports currently provides U. S. Steel and other domestic steel producers critical relief from imports. With no scheduled end date, the future coverage and duration of the Section 232 action is not known. Further, the U.S. government may negotiate alternatives to the Section 232 tariffs for certain countries, similar to TRQ agreements with the EU, Japan, and the UK.
USTR's review of additional imports tariffs of 7.5 to 25 percent on certain U.S. imports from China, including certain raw materials used in steel production, semi-finished and finished steel products, and downstream steel-intensive products, pursuant to Section 301 of the Trade Act of 1974 could change the coverage and levels of such tariffs.
In February 2019, the EC implemented a definitive safeguard on global steel imports in the form of TRQs. The TRQs, which impose 25 percent tariffs on steel imports that exceed the TRQ limit, are currently effective through June 2024.
All of the above factors present a degree of uncertainty to our financial and operational performance, our customers, and overall economic conditions, all of which could impact steel demand and our performance. Faced with significant import competition and overcapacity in various markets, we will continue to evaluate potential strategic and organizational opportunities, which may include exiting lines of business and the sale of certain assets, temporary shutdowns or closures of facilities.
Shortages of skilled labor, increased labor costs or our failure to attract and retain other highly qualified personnel in the future could disrupt our operations and adversely affect our financial results.
We depend on skilled labor for the manufacture of our products. Some of our facilities are located in areas where demand for skilled labor often exceeds supply. Shortages of some types of skilled labor, such as electricians and qualified maintenance technicians, could restrict our ability to maintain or increase production rates, lead to production inefficiencies and increase our labor costs. Ourshift to the Best for All strategy will also require a set of job skills that is different from our prior needs. Our continued success depends on the active participation of our key employees. We have recently observed an overall tightening and increasingly competitive labor market. The competitive nature of the labor markets in which we operate, the cyclical nature of the steel industry and our resulting needs for skilled employees increase our risk of not being able to recruit, train and retain the employees we require at efficient costs and on reasonable terms, and could lead to increased costs, such as increased overtime to meet demand and increased compensation to attract and retain employees. In addition, many companies, including U. S. Steel, have had employee layoffs as a result of reduced business activities during industry downturns. The loss of our key people or our inability to attract new key employees could adversely affect our operations. Additionally, layoffs or other adverse actions could result in an adverse relationship with our workforce or third-party labor providers. If we are unable to recruit, train and retain adequate numbers of qualified employees and third-party labor providers on a timely basis or at a reasonable cost or on reasonable terms, our business and results of operations could be adversely affected. Additionally, an overall labor shortage, lack of skilled labor, increased turnover, labor strikes or labor inflation as a result of general macroeconomic factors that affect our customers or suppliers could have a material adverse impact on the company’s operations, results of operations, liquidity or cash flows.
Strategic Risk Factors
Our investments in new technologies and products may not be fully successful.
Execution of our Best for All® strategy depends, in part, on the success of a number of investments we have made and plan to make in new facilities, technologies and products and successfully transitioning our footprint to a lower-cost, carbon and capital intensive model. Our Best for All strategy is centered around expanding our competitive advantages in low-cost iron ore mini mill steelmaking, and best-in-class finishing capabilities. These competitive advantages are built on a foundation of research, innovation and deep customer relationships. We are expanding our low-cost iron ore competitive advantage by investing in ways to translate the advantage to feed our growing EAF footprint. This includes investments in a pig iron caster at the Gary Works facility, which began production in the fourth quarter of 2022, and DR-grade pellet capabilities in Keetac, Minnesota, completed in December 2023. We are expanding our mini mill steelmaking capabilities through the construction of a second mini mill facility in Osceola, Arkansas. We are also expanding our best-in-class finishing capabilities through investments in a non-grain oriented electrical steel line and galvanizing construction line at Big River Steel. In executing our strategy, we aim to enhance our earnings profile, deliver long-term cash flow through industry cycles and reduce our cost, capital, and carbon intensity. By offering the product capabilities, including the more sustainable steels (steels made with lower greenhouse gas emissions) our customers are increasingly demanding, we believe that we can achieve more competitive positioning in strategic, high-margin end markets, and deliver high-quality, sustainable, value-added products and innovative solutions.
Construction and commissioning of our strategic projects are subject to changing market conditions and demand for our completed projects, delays, inflation and cost overruns, work stoppages, labor shortages, engineering issues, weather interferences, supply chain delays, changes required by governmental authorities, delays or the inability to acquire required permits or licenses, changes in the ability to finance the projects or disruption of existing operations, any of which could have an adverse impact on our operational and financial results. Furthermore, new product development or modification is costly, may be restricted by regulatory requirements, involves significant research, development, time, expense and human capital and may not necessarily result in the successful commercialization of new products, customer adoption of new technologies or products or new technologies may not perform as intended or expected. Unsuccessful execution of these strategic projects, underperformance of any of these assets or failure of new products to gain market acceptance could adversely affect our business, results of operations and financial condition and may limit the benefits of our stockholder value creation strategy.
From time to time, we engage in acquisitions, divestitures and joint ventures and may encounter difficulties in integrating and separating these businesses and therefore we may not realize the anticipated benefits.
As we pursue our Best for All® strategy, we may seek growth opportunities through strategic acquisitions as well as evaluate our portfolio for potential divestitures to optimize our business footprint and portfolio. The success of these transactions will depend on our ability to integrate or separate, as applicable, assets and personnel in these transactions and to cooperate with our strategic partners. We may encounter difficulties in integrating acquisitions with our operations as well as separating divested businesses, and in managing strategic investments. Furthermore, we may not realize the degree, or timing, of benefits we anticipate when we first enter into a transaction.
Additionally, we seek opportunities to monetize non-core and excess iron assets, including through real estate sales, third party agreements and option agreements. These opportunities may not materialize or generate the financial benefits expected. For example, Stelco Inc. holds an option (Option) to acquire an undivided 25 percent interest in a to-be-formed entity that will own the Company’s current iron ore mine located in Mt. Iron, Minnesota. There is a possibility that Stelco may not exercise its Option in the anticipated timeframe or at all. If the proposed joint venture with Stelco is not successful, fails to provide the benefits we expect, or is not created at all, we may in the future have more iron ore than we need to support the business. Additionally, the existence of the Option may deter future potential opportunities to monetize the iron ore assets. Any of the foregoing could adversely affect our business and results of operations.
Operational and Commercial Risk Factors
Our operational footprint, unplanned equipment outages and other unforeseen disruptions may adversely impact our results of operations or result in idle facility costs or impairment charges.
U. S. Steel has adjusted its operating configuration to advance its Best for All® strategy, in response to market conditions, including global economic volatility, declining steel prices, oil and gas industry disruption, global overcapacity and unfairly traded imports, and to optimize capability and cost performance, by idling and restarting production at certain facilities. Due to our existing operational footprint, the Company may not be able to respond in an efficient manner to fully realize the benefits from changing market conditions that are favorable to integrated steel producers or most efficiently mitigate the negative impacts of such changes. Our decisions concerning which facilities to operate and at what levels are made based upon execution of our Best for All strategy, market conditions, our customers’ orders for products as well as the capabilities and cost performance of our locations. We may concentrate production operations at several plant locations and not operate others, and as a result we may incur idle facility costs or impairment charges.
Our steel production depends on the operation of critical structures and pieces of equipment, such as blast furnaces, electric arc furnaces, steel shops, casters, hot strip mills and various structures and operations, including information technology systems, that support them, as well as finishing lines at our facilities and certain of our joint ventures. While we invested in operational and reliability enhancements to our assets through the asset revitalization program, launched in 2017, and continue to implement initiatives focused on proactive maintenance of key machinery and equipment at our production facilities, we may experience prolonged periods of reduced production and increased maintenance and repair costs due to equipment failures at our facilities or those of our key suppliers.
It is also possible that operations may be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, earthquakes, pandemics, terrorism, accidents, severe weather conditions, changes in U.S., European Union and other foreign tariffs, free trade agreements, trade regulations, laws and policies. We are also exposed to similar risks involving major customers and suppliers such as force majeure events of raw materials suppliers that have occurred and may occur in the future. Availability of raw materials and delivery of products to customers could be affected by logistical disruptions, such as shortages of barges, ocean vessels, rail cars or trucks or unavailability of rail lines or of the locks on the Great Lakes or other bodies of water. To the extent that lost production could not be compensated for at unaffected facilities and depending on the length of the outage, our sales and our unit production costs could be adversely affected.
We are subject to outbreaks of infectious disease, such as risks related to the global COVID-19 pandemic, which had adverse impacts on economic and market conditions and our business. Public health crises, including COVID-19, have created and may create significant volatility, uncertainty and economic disruption in the regions in which we operate.
The physical impacts of climate change may also have a material adverse effect on our results of operations. Climate change may be associated with increased occurrence of extreme weather conditions, which could include, among other things, increased risk of flooding, extreme cold or potential heat stress at facilities and other natural disasters that may lead our customers to curtail or shut down production or to supply chain and operational disruptions.
We face increased competition within our industry and from alternative materials and risks concerning innovation, new technologies, products and increasing customer requirements.demand for lower-carbon products.
As a result of increasingly stringent regulatory requirements and increased market and technological changes driven by broader trends such as decarbonization and electrification efforts in response to climate change, designers, engineers and industrial manufacturers, especially those in the automotive industry, are increasing their use of lighter weight, less carbon intense and alternative materials, such as aluminum, composites, plastics and carbon fiber. Use of such materials could reduce the demand for our steel products or steel products generally, which may reduce our profitability and cash flow. Additionally, the trend toward light weighting in the automotive industry, which requires lighter gauges of steel at higher strengths, could result in lower steel volumes required by that industry over time.
Additionally, technologies such as direct iron reduction, EAF production, oxygen-coal injection and experimental technologies such as molten oxide electrolysis and hydrogen flash smelting may be more cost effective than our current production methods. However, we may not have sufficient capital to invest in such technologies and may incur difficulties adapting and fully integrating these technologies into our existing operations. We may also encounter production restrictions, or not realize the cost benefit from such capital intensive technology adaptations to our current production processes. Customers,
Finally, we may face increased competition due to the rapid development and rising use of digital, artificial intelligence (AI) and machine learning technologies. Failure to early adopt and incorporate such as those in the automotive industry, are demanding stronger and lighter products. Tubular customers are increasingly requesting pipe producerstechnologies to supply connections and other ancillary parts as well as inspection and other services. Weimprove productivity, yields, manufacturing technology or support functional teams may not be successful in meeting these technological challenges.put us at a long-term competitive disadvantage.
Limited availability, or volatility in prices of raw materials, scrap and energy may constrain operating levels and reduce profit margins.
U. S. Steel and other steel producers have periodically been faced with problems in obtaining sufficient raw materials and energy in a timely manner due to delays, defaults, severe weather conditions, or force majeure events, by suppliers, shortages or transportation problems (such as shortages of barges, ore vessels, rail cars or trucks, or disruption of rail lines, waterways, or natural gas transmission lines), resulting in production curtailments. As a result, we may be exposed to risks concerning pricing and availability of raw materials and energy resources from third parties.parties as well as logistics constraints moving our own raw materials and scrap to our plants. USSE purchases substantially all of its iron ore and coking coal requirements from outside sources. USSE is also dependent upon availability of natural gas produced in Russia and transported through Ukraine. Any curtailments or escalated costs may further reduce profit margins.
Changes in the global economic environment may lead to declines in the production levels of our customers.
We sell to the automotive, service center, converter, energy and appliance and construction-related industries. Some of these industries are cyclical and exhibit a great deal of sensitivity to general economic conditions. Low demand from customers in these key industries may adversely impact our financial position, results of operations and cash flows.
Our Flat-Rolled and Tubular segments may be particularly impacted by unfavorable market conditions in the oil and gas industries. Declines in oil prices, and the correlating reduction in drilling activity, as well as high levels of inventory in the supply chain, may reduce demand for tubular products and could have adverse impacts on our results of operations and cash flows.
We may be adversely impacted by volatility in prices for raw materials, energy, and steel.
U. S. Steel has agreed, and may be faced with having agreedcontinue to agree, to purchase raw materials and energy at prices that arehave been, and may be, above the then currentfuture market priceprices or in greater volumes than required.required in the future. Additionally, any future decreases in iron ore, scrap, natural gas, electricity and oil prices may place downward pressure on steel prices. If steel prices decline, our profit margins on market-based indexed contracts and spot business willcould be reduced.
Our operations expose us to uncertainties and risks in the countries in which we operate, which may negatively affect our results of operations, cash flows and liquidity.
Our U.S. operations are subject to economic conditions, including credit and capital market conditions, and political factors in the United States, which if changed could negatively affect our results of operations, cash flows and liquidity. Political factors include, but are not limited to, taxation, inflation, increased regulation, limitations on exports of energy and raw materials, and trade remedies. Actions taken by the U.S. government could affect our results of operations, cash flows and liquidity.
USSE is subject to economic conditions and political factors associated with the EU, Slovakia and neighboring countries, and the euro currency. Changes in any of these economic conditions or political factors could negatively affect our results of operations, cash flows and liquidity. Political factors include, but are not limited to, taxation, nationalization, inflation, government instability, civil unrest, increased regulation and quotas, tariffs and other protectionist measures.
Our collective bargaining agreements with the USW may limit certain business flexibility. These agreements expire on September 1, 2018, which creates a potential risk of labor disruption.
Our master collective bargaining agreements with the USW contain provisions that may limit us from pursuing some North American transactions involving steel or steel-related assets without the consent of the USW, grant the USW a right to bid on any sale of one or more facilities covered by the 2015 Labor Agreements, and require us to make a minimum level of capital expenditures (subject to approval of the Board of Directors) to maintain the competitive status of our domestic facilities. These agreements may also restrict our ability to operate our facilities at less than full capacity and replace the product which could have been produced in such facilities with foreign products (excluding the United States or Canada), and further require that the ratio of non-represented employees to USW represented employees at our domestic facilities not exceed one to four. These provisions may limit our ability to acquire or sell steel or steel related assets at favorable prices, increase our operating costs and reduce our margins and otherwise adversely affect our competitiveness in the marketplace. These master agreements expire on September 1, 2018 and to the extent that good faith negotiations for successor agreements would reach legal impasse after this date, there exists a potential risk of labor disruption at covered plants.
A failure of our information technology infrastructure and cybersecurity threats may adversely affect our business operations.
Increasingly sophisticated attacks against rapidly evolving computer technologies pose a risk to the security of our systems, networks and data. Despite efforts to protect confidential business information, personal data of employees and contractors,personally identifiable information (PII), and the control systems of manufacturing plants, U. S. Steel systems and those of our joint ventures and third-party service providers have been and may be subject to cyberattacks or system breaches. System breaches can lead to theft, unauthorized disclosure, modification andor destruction of proprietary business data, personally identifiable information (PII),PII, or other sensitive information, to defective products, production downtime and damage to production assets, and the inaccessibility of key systems, with a resulting impact to our reputation, competitiveness and operations. Of special note is our risk when implementing new capabilities. As we implement new systems, many times both new and old systems run in parallel until all processesWe have successfully transferred to the new system and thorough testing has been performed.
Historically, U. S. Steel has experienced cybersecurity attacks including a high profile breach ofthat have resulted in unauthorized persons gaining access to our information technology systems and networks, and we could in which proprietary information was compromised. On May 19, 2014, the U.S. Departmentfuture experience similar attacks. To date, no cybersecurity attack has had a material impact on our financial condition, results of Justice unsealed an indictment against certain individuals in connection with cyber crimes committed againstoperations or liquidity.
While the Company and other entities. We cooperated with the U.S. government on this matter and have implemented enhancements and improvementscontinually works to safeguard our systems and mitigate potential risks, there can be no assurance that such actions will be sufficient to prevent cyberattacks or security breaches or mitigate all potential risks to our systems, networks and data, particularly with the recent proliferation and sophistication of cyberattacks and cyber intrusions around the world. The potential consequences of a material cybersecurity attack include reputational damage, investigations and/or adverse proceedings with government regulators or enforcement agencies, litigation with third parties, disruption to our systems, including production capabilities, unauthorized release of confidential, personally identifiable or otherwise protected information, technology enterprise against future attacks. Somecorruption of these enhancements include planning for and taking initial steps to implement a risk management framework based on security standards written bydata, diminution in the National Institute of Standards and Technology. Other enhancements include implementing additional security monitoringvalue of our systems by advanced technologies. However, there is no assurance the Company'sinvestment in research, development and engineering and increased cybersecurity protection and remediation efforts willcosts, which in turn could adversely affect our competitiveness, results of operations and financial condition. The amount of insurance coverage we maintain may be successful in safeguarding informationinadequate to cover claims or liabilities resulting from future attacks, which likely will increase in frequency and sophistication. Based on information known to date, the Company is currently unable to determine the materiality, if any, of these events.a cybersecurity attack.
We depend on third parties for transportation services and increases in costs or the availability of transportation may adversely affect our business and operations.
Our business depends on the transportation of a large number of products, both domestically and internationally. We rely primarily on third parties, including the recently divested Transtar business, for transportation of the products we manufacture as well as delivery of our raw materials.Any increase in the cost of the transportation of our raw materials or products, as a result of
increases in fuel or labor costs, higher demand for logistics services, consolidation in the transportation industry or otherwise, may adversely affect our results of operations as we may not be able to pass such cost increases on to our customers.
Our transportation service providers may face disruptions due to weather conditions or events, strikes, labor shortages or other constraints. If any of these providers were to fail to deliver raw materials to us or deliver our products in a timely manner, we may be unable to manufacture and deliver our products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with us, we may be unable to replace them at a reasonable cost.
In addition, such Such failure of a third-party transportation provider could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our financial position and results of operations.
Benefits from our stockholder value creation strategy and asset revitalization programOur 2022 Labor Agreements with the USW contain provisions that may beimpact certain business activities.
Our 2022 Labor Agreements with the USW contain provisions that grant the USW a limited right to bid on the Company’s sale of a facility (or sale of a controlling interest in an entity owning a facility) covered by the 2022 Labor Agreements, excluding public equity offerings and/or may not be fully realized.
the transfer of assets between U. S. Steel initiatedand its wholly owned subsidiaries. The 2022 Labor Agreements also require a stockholder value creation strategy pursuantminimum level of capital expenditures (subject to which we focus on strengthening our balance sheet and cash flow generation. We continue to work on a series of initiatives that we believe will enable us to add value, right size the Company, and improve our performance across our core business processes, including commercial, supply chain, manufacturing, procurement, innovation, and operational and functional support. Additionally, in 2017 we implemented an asset revitalization program, which covers investments in our existing assets, and involves investments beyond routine capital and maintenance spending. These asset revitalization projects are expected to deliver both operational and commercial benefits, with mostapproval of the benefits coming from operational improvement. Business conditions,Board of Directors) to maintain the competitive status of the covered facilities, and place certain limited restrictions on our ability to implement such initiatives, and factors beyond our control may limitreplace product produced at a covered facility with product produced at other than Company facilities or affiliates or U.S. or Canadian facilities with employee protections similar to the benefits associated with certain identified projects and limit the economic benefits of our stockholder value creation strategy or asset revitalization program.
We participate in joint ventures, which may not be successful.
We participate in a number of joint ventures and we may enter into additional joint ventures or other similar arrangementsprotections found in the future. Our joint venture partners,2022 Labor Agreements when the Company is operating covered facilities below capacity. The provisions in the 2022 Labor Agreements, as well as anycurrent or future partners, may have interests that are different from ours which may result in conflicting views as to the conduct of theproposed labor legislation or regulations, could unfavorably impact certain business of the joint venture. In the event that we have a disagreement with a joint venture partner as to the resolution of a particular issue, activities including pricing, operating costs, margins and/or as to the management or conduct of the business of the joint venture in general, we may not be able to resolve such disagreement in our favor. In addition, our joint venture partners may, as a result of financial or other difficulties or because of other reasons, be unable or unwilling to fulfill their obligations under the joint venture, such as contributing capital to expansion or maintenance projects or approving dividends or other distributions or payments to us. Any significant downturn or deteriorationcompetitiveness in the business, financial condition or results of operations of a joint venture could adversely affect our results of operations in a particular period. There can be no assurance that our joint ventures will be beneficial to us.marketplace.
Financial Risk Factors
Our business requiresand execution of our strategy require substantial expenditures for capital investments, debt service obligations, capital investments, operating leases and maintenance that we may be unable to fund.fund, which may require other actions to satisfy our obligations under our debt.
While weWe have refinanced the near-term maturitiesapproximately $4.1 billion of our long-term debt we have approximately $1.2 billion of debt maturing in 2020 and 2021 (see Note 1617 to the Consolidated Financial Statements). If our cash flows and capital resources are insufficient to fund our planned capital expenditures or debt service obligations, we may face substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, terminate strategic projects, or to dispose of material assets or operations or issue additional debt or equity. We may not be able to take such actions, if necessary, on commercially reasonable terms or at all. The Credit Facility Agreement, the documents governing the USSK Credit Facility, the documents governing the Big River Steel ABL (Asset Based Loan) Facility and Big River Steel notes, and the indentures governing our existing senior unsecured notes may restrict our ability to dispose of assets and may also restrict our ability to raise debt or equity capital to be used to repay other debt when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results or operations.operations and may place us at a competitive disadvantage with competitors who may have less indebtedness and other obligations or greater access to financing. In addition, the availability under our Credit Facility Agreement and Big River ABL Facility may be reduced if we have insufficient collateral, or if we do not meet a fixed charge coverage ratio test. Availability under the USSK Credit Agreement could be limited if USSK does not meet certain financial covenants.
Our ability to service or refinance our debt or fund investments and capital expenditures required to maintain or expand our business operations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control.control, such as supply and demand conditions, inflation, prevailing interest rates, supply chain disruptions and the impacts of the war in Ukraine. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to satisfy our liquidity needs. In addition, the limitationsavailability under certain of our Thirddebt instruments may be limited if we do not meet certain financial covenants. Furthermore, the agreements governing the BRS (Big River Steel) ABL Facility and other outstanding indebtedness of Big River Steel LLC and its subsidiaries limit their ability, subject to certain exceptions, to pay dividends or distributions or make other restricted payments, such that we may not be able to access the cash generated by these subsidiaries to fund our other expenditures.
If we cannot make scheduled payments on our debt, we will be in default and holders of our senior unsecured notes could declare all outstanding principal and interest to be due and payable, the lenders under the Sixth Amended and Restated Credit Agreement, suchthe USSK Credit Facility and the Export Credit Agreement could terminate their commitments to loan money, accelerate full repayment of any or all amounts outstanding (which may result in the cross acceleration of certain of our other debt obligations) and the lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation. All of these events would materially and adversely affect our financial position and results of operations.
Furthermore, ratings agencies could downgrade our ratings either due to factors specific to our business, a prolonged cyclical downturn in the steel industry, macroeconomic trends such as insufficient collateralglobal or not being ableregional recessions and trends in credit and capital markets more generally. Ratings agencies also may lower, suspend or withdraw ratings on the outstanding securities of U. S. Steel or Big River Steel. Any lowering, suspension or withdrawal of such ratings may have an adverse effect on the market prices of such securities.
Any decline in our operating results or downgrades in our credit ratings may make raising capital or entering into any business transaction more difficult, lead to meetreductions in the fixed charge coverage ratio,availability of credit or increased cost of credit, adversely affect the terms of future borrowings, may limit our ability to take advantage of potential business opportunities, may have an adverse effect on the terms under which we purchase goods and services, and lead to reductions in the availability to draw upon this facility. See the Liquidity section in "Item 7. Management's Discussion and Analysis" for further details.of credit.
We have significant retiree health care, retiree life insurance and pension plan costs, which may negatively affect our results of operations and cash flows.
We maintain retiree health care and life insurance and defined benefit pension plans covering many of our domestic employees and former employees upon their retirement. TheseSome of these benefit plans have significant liabilities that are not fully funded, whichand thus will require additional cash funding in future years. Minimum contributions to domestic qualified pension plans (other than contributions to the Steelworkers Pension Trust (SPT) described below) are regulated under the Employee Retirement Income Security Act of 1974 (ERISA) and the Pension Protection Act of 2006 (PPA).
The level of cash funding for our defined benefit pension plans in future years depends upon various factors, including voluntary contributions that we may make, future pension plan asset performance, actual interest rates under the law, and the impactsimpact of business acquisitions or divestitures, union negotiated benefit changes and future government regulations, many of which are not within our control. In addition, assets held by the trusts for our pension plan and our trust for retiree health care and life insurance benefits are subject to the risks, uncertainties and variability of the financial markets. Future funding requirements could also be materially affected by differences between expected and actual returns on plan assets, actuarial data and assumptions relating to plan participants, the discount rate used to measure the pension obligations and changes to regulatory funding requirements. See "Item 7. Management's Discussion and Analysis"Analysis of Financial Condition and Results of Operations" and Note 1718 to the Consolidated Financial Statements for a discussion of assumptions and further information associated with these benefit plans.
U. S. Steel contributes to a domestic multiemployer defined benefit pension plan, the SPT, for USW-represented employees formerly employed by National Steel and represented employees hired after May 2003. We have legal requirements for future funding of this plan should the SPT become significantly underfunded or we decide to withdraw from the plan. Either of these scenarios may negatively impact our future cash flows. The 20152022 Labor Agreements require aincreased the contribution rate of $2.65 per hour for most steelworker employees. Collectively bargained company contributions to the plan could increase further as a result of future changes agreed to by the Company and the USW.
ProductThe accounting treatment of goodwill, equity method investments and other long-lived assets could result in future asset impairments, which would reduce our earnings.
We periodically test our goodwill, equity method investments and other long-lived assets to determine whether their estimated fair value is less than their value recorded on our balance sheet. The results of this testing for potential impairment may be adversely affected by uncertain market conditions for the global steel industry and general economic conditions. If we determine that the fair value of any of these assets is less than the value recorded on our balance sheet, and, in the case of equity method investments the decline is other than temporary, we would likely incur a non-cash impairment loss that would negatively impact our results of operations. We have incurred asset impairment charges in recent years, including during the year ended December 31, 2023, and there can be no assurances that continued market dynamics or other factors may not result in future impairment charges.
We are subject to foreign currency risks, which may negatively impact our profitability and cash flows.
The financial condition and results of operations of USSE are reported in euros and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. The appreciation of the U.S. dollar against the euro negatively affects our Consolidated Results of Operations. International cash requirements have been and in the future may be funded by intercompany loans, which may create intercompany monetary assets and liabilities in currencies other than the functional currencies of the entities involved, which can have a non-cash impact on income when they are remeasured at the end of each period. Procurement of equipment of announced strategic projects may be denominated in foreign currencies, which could adversely affect the costs of these projects.
In addition, foreign producers, including foreign producers of subsidized or unfairly traded steel with foreign currency denominated costs may gain additional competitive advantages or target our home markets if the U.S. dollar or euro exchange rates strengthen relative to those producers' currencies. Volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported financial results and condition.
Financial regulatory frameworks introduced by U.S. and EU regulators may limit our financial flexibility or increase our costs.
We use swaps, forward contracts and similar agreements to mitigate our exposure to volatility, which entails a variety of risks. The Commodity Future Trading Commission’s Dodd Frank and the EU’s European Market Infrastructure Regulation and other government agencies' regulatory frameworks can limit the Company’s ability to hedge interest rate, foreign exchange (FX), or commodity pricing exposures, which could expose us to increased economic risk. These frameworks may introduce additional compliance costs or liquidity requirements. Some counterparties may cease hedging as a result of increased regulatory cost burdens, which in turn may reduce U. S. Steel’s ability to hedge its interest rate, FX or commodity exposures.
We are a party to various legal proceedings, the resolution of which could negatively affect our profitability and cash flows in a particular period.
We are involved at any given time in various litigation matters, including administrative and regulatory proceedings, governmental investigations, environmental matters and commercial disputes. Our profitability and cash flows in a particular period could be negatively affected by an adverse ruling or settlement in any legal proceeding or investigation. While we believe that we have taken appropriate actions to mitigate and effectively manage these risks, due to the nature of our operations, these risks will continue to exist and additional legal proceedings or investigations may arise from time to time.
Additionally, we may be subject to product liability claims that may have an adverse effect on our financial position, results of operations and cash flows.
Events such as well failures, line pipe leaks, blowouts, bursts, fires and product recalls could result in claims that our products or services were defective and caused death, personal injury, property damage or environmental pollution. The insurance we maintain may not be adequate, available to protect us in the event of a claim, or its coverage may be limited, canceled or otherwise terminated, or the amount of our insurance may be less than the related impact on our enterprise value after a loss.
Rating agencies We establish reserves based on our assessment of contingencies, including contingencies for claims asserted against us in connection with litigation, arbitrations and environmental issues. Adverse developments in litigation, arbitrations, environmental issues or other legal proceedings may downgradeaffect our credit ratings, which would make it more difficult forassessment and estimates of the loss contingency recorded as a reserve and require us to raise capital and would increasemake payments in excess of our financial costs.
Any downgrades in our credit ratings may make raising capital more difficult, may increase the cost and adversely affect the terms of future borrowings, may adversely affect the terms under which we purchase goods and services and may limit our ability to take advantage of potential business opportunities.
We are subject to foreign currency risks, which may negatively impact our profitability and cash flows.
The financial condition and results of operations of USSE are reported in euros and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. The appreciation of the U.S. dollar against the euro negatively affects our Consolidated Results of Operations.
In addition, international cash requirements have been and in the future may be funded by intercompany loans, creating intercompany monetary assets and liabilities in currencies other than the functional currencies of the entities involved, which can have a non-cash impact on income when they are remeasured at the end of each period.
Financial regulatory frameworks introduced by U.S. and EU regulators may limit our financial flexibility or increase our costs.
The Commodity Future Trading Commission’s Dodd Frank and the EU’s EMIR regulatory frameworks can limit the Company’s ability to hedge interest rate, foreign exchange (FX), or commodity pricing exposures, which could expose us to increased economic risk. These frameworks may introduce additional compliance costs or liquidity requirements.
Some counterparties may cease hedging as a result of increased regulatory cost burdens, which in turn may reduce U. S. Steel’s ability to hedge its interest rate, FX, or commodity exposures.
We may be subject to legal proceedings or investigations, the resolution ofreserves, which could negatively affect our profitabilityoperations, financial results and cash flows in a particular period.
We may be involved at any given time in various litigation matters, including administrativeflows.See "Item 3. Legal Proceedings" and regulatory proceedings, governmental investigations, environmental matters, and commercial disputes. Our profitability and cash flows in a particular period could be negatively affected by an adverse ruling in any legal proceeding or investigation that may be pending against us or filed against us in the future. While we believe that we have taken appropriate actions to mitigate and reduce these risks, dueNote 26 to the nature of our operations, these risks will continue to exist and additional legal proceedings or investigations may arise from time to time.Consolidated Financial Statements for further details.
RegulatoryRisk Factors
Compliance with existing and new environmental regulations, environmental permitting and approval requirements may result in delays or other adverse impacts on planned projects, our results of operations and cash flows.
Steel producers in the United States,U.S., along with their customers and suppliers, are subject to numerous federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations concern the generation, storage, transportation, treatment, disposal, release, emission or discharge of pollutants, contaminants, petroleum, and hazardous substances into the environment, the reporting of such matters, and the general protection of public health and safety, natural resources, wildlife and the environment. Steel producers in the EU are subject to similar laws. These laws and regulations continue to evolve and are becoming increasingly stringent. For example, the U.S. EPA has proposed to lower the NAAQS for fine particular matter (PM2.5), which would result in stringent and costly requirements to control emissions from existing operations and restrictions on new projects. The ultimate impact of complying with such laws and regulations is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated, and the subject of ongoing litigation or are undergoing revision. Compliancerevision, and new versions or interpretations of existing laws may take effect. Additionally, compliance with environmentalcertain of these laws and regulations, such as the Clean Air Act,CAA and state and local requirements governing GHG and sulfur dioxideair emissions, could result in substantially increased capital requirements and operating costs. In addition,costs and could require changes to the integrated steel process involves a series of chemical reactions that create carbon dioxide. Accordingly,equipment or facilities we are subject to regulations adopted by the EPA, the EU and various state agencies regulating GHG emissions.operate. Compliance with current or future laws and regulations could entail substantial costs for emission based systems, and could have a negative impact on our results of operations and cash flows. The amount and timing of environmental expenditures is difficult to predict.
ConstructionIn addition, the Company must obtain, maintain and comply with numerous permits, leases, approvals, consents and certificates from various governmental authorities in connection with the construction and operation of new production facilities andor modifications to existing facilitiesfacilities. In connection with such activities, the Company may requireneed to make significant capital and operating expenditures to detect, repair and/or control air emissions, to control water discharges or to perform certain corrective actions to meet the conditions of the permits issued pursuant to applicable environmental permitslaws and approvals from the appropriate regulatory agencies. regulations.
There can be no assurance that future approvals, licenses and permits will be granted or that we will be able to maintain and renew the approvals, licenses and permits we currently hold. Failure to do so could have a material adverse effect on our results of operations and cash flows. Furthermore, compliance with the environmental permitting and approval requirements may be costly and time consuming and could result in delays or other adverse impacts on planned projects, our results of operations and cash flows.
Failure to comply with legal requirements, including permits, leases, approvals, consents and certificates, may result in administrative, civil and criminal penalties, and revocation of permits and our authority to conduct business or construct certain facilities, substantial fines or sanctions, or citizens' suits or enforcement actions (including orders limiting our operations or requiring corrective measures), among other consequences.
We have significant environmental remediation costs that may negatively affect our results of operations and cash flows.
Various environmental laws impose liability on a current or former owner or operator of real property for investigation or cleanup of hazardous substances or petroleum products at, on under or migrating from our currently or formerly owned or leased real property. Some of U. S. Steel's current and former facilities were in operation before 1900.such environmental regulations were in place. Hazardous materials associated with those facilities may have been releasedand may continue to be encountered at current or former operating sites or delivered to sites operated by third parties.
In some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the release of hazardous substances. Liability under these laws may be joint and several, meaning that we could be required to bear 100% of the liability even if other parties are also liable. U. S. Steel is involved in numerous remediation projects at currently operating facilities, facilities that have been closed or sold to unrelated parties and other sites where material generated by U. S. Steel was deposited. In addition, there are numerous other former operating or disposal sites that could become the subject ofto remediation, which may negatively affect our results of operations and cash flows.
Our operations are subject to complex regulatory and compliance frameworks.
Complex foreign and U.S. laws and regulations that apply Contamination at our current properties could result in limitations on or interruptions to our international operations including but not limited to U.S. laws such asand liens in favor of the Foreign Corrupt Practices Act, regulations related to import-export controls,government for costs the Officegovernment incurs in cleaning up contamination. In addition, we may be liable for the costs of Foreign Assets Control sanctions program, antiboycott provisions, and changes in transportation and logistics regulations may increase our cost of doing business in international jurisdictions and expose the Company and its employees to elevated risk. The Company's subsidiaries and joint ventures face similar risks. Althoughinvestigating or remediating contamination at off-site waste facilities where we have implemented policies and processes designedarranged for the disposal, or treatment of hazardous substances, without regard to whether we complied with environmental laws in doing so.
Reducing greenhouse gas (GHG) emissions from steelmaking operations to meet corporate targets or comply with these laws andnew regulations failure by our employees, contractors, or agents to
comply with these laws and regulations can result in possible administrative, civil, or criminal liability, as well as reputational harmstakeholder expectations and mitigate potential physical impacts of climate change could significantly increase costs to the Company and its employees.
The IRS may disallow all or part of a worthless stock loss and bad debt deduction taken in 2013.
U. S. Steel made an election effective December 31, 2013 to liquidate for U.S. income tax purposes a foreign subsidiary that holds most of the Company’s international operations. The tax liquidation allowed the Company to claim a worthless stock loss and bad debt deduction in its 2013 U.S. income tax return, resulting in a net income tax benefit in 2013 of $419 million. The worthless stock loss and bad debt deduction are subject to audit and possible adjustment by the IRS, which could result in the reversal of all or part of the income tax benefit. In 2015, the IRS began its audit of the worthless stock loss and bad debt deduction taken in 2013. We expect resolution in amanufacture future period. While we believe we have adequate legal and factual support for the tax position taken, the IRS could rejectmaterials or reduce the amount of materials being manufactured.
Iron and steel producers around the income tax benefitworld are facing mounting pressure to reduce greenhouse gas emissions from operations. The majority of greenhouse gas emissions from the production of iron and steel are caused by the combustion of fossil fuels, the use of electrical energy, and the use of coal, lime, and iron ore as feedstock. The two main production processes are the integrated route of blast furnace ironmaking in combination with basic oxygen furnace steelmaking (BOF) and the alternative route of electric arc furnace steelmaking. Both routes generate greenhouse gas emissions with the latter process, involving the electric arc melting of a majority of steel scrap, generating less than half that of the traditional integrated steelmaking process.
Federal, state and local governmental agencies within the United States may introduce regulatory changes in response to the potential impacts of climate change, including the introduction of carbon emissions limitations or trading mechanisms. Any such regulation regarding climate change and GHG emissions could impose significant costs on our operations and on the operations of our customers and suppliers, including increased energy, capital equipment, emissions controls, environmental monitoring and reporting and other costs in order to comply with current or future laws or regulations concerning climate change and GHG emissions. Any adopted future climate change and GHG regulations could negatively impact our ability, and that of our customers and suppliers, to compete with companies situated in areas not subject to or not complying with such limitations. Inconsistency of regulations may also change the attractiveness of the locations of some of the Company's assets and investments. In addition, changes in certain environmental regulations, including those that may impose output limitations or higher costs associated with climate change or greenhouse gas emissions, could substantially increase the cost of manufacturing and raw materials to us and other steel producers. For additional details, see “Part I – Item 1, Business – New and Emerging Environmental Regulations – United States and European Greenhouse Gas Emissions Regulations” above.
Additionally, the European Union has established aggressive CO2 reduction targets of 40 percent by 2030, against a 1990 baseline, and full carbon neutrality by 2050. As part of the European Green Deal the Commission proposed in September 2020 to raise the 2030 reduction target to at least 55 percent compared to 1990. The new target has since been endorsed by the European Parliament. An emission trading system (ETS) was established to encourage compliance with set emissions reduction targets. These aggressive targets require drastic measures within the steel industry to comply. The transition to EAF technology, as well as incremental gains in energy reduction, use of renewable energy, hydrogen-based steelmaking and continued asset and process improvements are expected to reduce our GHG footprint. However, the development of breakthrough technologies is likely required to continue the path of low to no carbon footprint in the steel industry. Implementation of new technologies will most likely require significant amounts of capital and an abundant source of low-cost hydrogen and/or green power, most likely leading to an increase in the cost of future steelmaking. In addition, the cost of emission allowances is forecast to increase, along with the number of allowances decreasing in the next several years.The price of CO2 emission allowances was 77 euro per metric ton as of December 31, 2023, and forecasts call for potential prices exceeding 100 euro per metric ton in future years.
Environmental, social and governance matters may impact our business and reputation.
In addition to the changing rules and regulations related to environmental, social and governance (ESG) matters imposed by governmental and self-regulatory organizations such as the worthless stock lossSEC and bad debt deduction. If this occurs, U. S. Steel would incur additional current tax expense, which couldthe New York Stock Exchange, a variety of third-party organizations and institutional investors evaluate the performance of companies on ESG topics, and the results of these
assessments are widely publicized. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, additional income tax payments.increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. Reduced access to or increased cost of capital may occur as financial institutions and investors increase expectations related to ESG matters.
ChangesDeveloping and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to globalevolving reporting standards. We may also communicate certain initiatives and goals, regarding environmental matters, diversity, social investments and other ESG-related matters, in our SEC filings or in other public disclosures. These initiatives and goals within the scope of ESG could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. Furthermore, statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals, including our previously announced commitments to reduce greenhouse gas emissions, within the scope of ESG on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.
New and changing data privacy laws and cross-border transfer requirements could adversely affecthave a negative impact on our business and operations.
Our business depends on the processing and transfer of data between our affiliated entities, to and from our business partners, and with third-party service providers, and of our employees, which may be subject to global data privacy laws andand/or cross-border transfer restrictions. While U. S. Steel takes steps to comply with these legal requirements, the volatilityIn North America and Europe, new legislation and changes to the requirements or applicability of thoseexisting laws, as well as evolving standards and judicial and regulatory interpretations of such laws, may impact U. S. Steel’s ability to effectively process and transfer data both within the United States and across borders in support of our business operations and/or keep pace with specific requirements regarding processing and safeguarding personal information. While U. S. Steel takes steps to comply with these legal requirements, non-compliance could lead to possible administrative, civil, or criminal liability, as well as reputational harm to the Company and its employees. For example, the European Union’s General Data Protection Regulation (GDPR), which comes into effect in May 2018, creates a range of new compliance obligations for subject companies and increases financial penalties for non-compliance. The costs of compliance with the GDPRprivacy laws and the potential for fines and penalties in the event of a breach of the GDPR may have an adverse effecta negative impact on our business and operations.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1C. CYBERSECURITY
Risk Management and Strategy
U. S. Steel maintains robust processes for assessing, identifying and managing material risks from cybersecurity threats. U. S. Steel’s cybersecurity program is based on the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework, and the risk of cybersecurity threats is integrated into the Company’s Enterprise Risk Management (“ERM”) program, led by the Chief Risk Officer. The ERM program includes an annual risk prioritization process to identify key enterprise risks. Each key risk is assigned risk owners to establish action plans and implement risk mitigation strategies. The cybersecurity threat risk action plan is managed at the enterprise level by the Senior Vice President – Global Information Technology and President, USSE (the “CIO”) and the Chief Information Security Officer (the “CISO”). Each quarter, the risk owners review and update the cybersecurity threat risk action plan to provide the status on specific risk mitigation actions and to identify new threats. U. S. Steel works closely with its internal and external auditors to assess, plan for, prevent and mitigate cybersecurity risks.
The Company maintains a Cybersecurity Incident Response Plan (CSIRP), which establishes an organizational framework and guidelines intended to facilitate an effective response and handling of cybersecurity incidents that could jeopardize the availability, integrity, or confidentiality of U. S. Steel’s assets. The CSIRP outlines roles and responsibilities, criteria for measuring the severity of a cybersecurity incident, and an escalation framework. The CSIRP also addresses senior management responsibility with respect to disclosure determinations related to a cybersecurity incident and provides for Audit Committee and Board briefings as appropriate. Along with the CSIRP, management sustains numerous programs and processes to stay informed about and monitor the prevention, detection, mitigation and remediation of cybersecurity incidents. The list of cybersecurity programs and processes described below is not meant to be exhaustive, but to provide examples of such programs and processes.
The Company engages with third party cybersecurity specialists to provide an independent assessment of U. S. Steel’s cybersecurity programs and to prepare a 5-year plan to maintain compliance and operational excellence. Management periodically reviews the 5-year plan and modifies it in response to changes in the threat landscape and otherwise as needed. Management employs in-depth defense mechanisms throughout the enterprise, including, but not limited to, employee training, vulnerability management, multi-factor authentication, cybersecurity insurance and table top exercises to mitigate and/or prevent cybersecurity incidents. Management also assesses the cybersecurity proficiency of potential third party cloud suppliers before
utilizing their services. The assessment identifies cybersecurity-related risks and makes recommendations to enhance the security of new cloud computing services. The Company reassesses cloud suppliers on a regular interval.
A cybersecurity incident may be detected in a number of ways, including, but not limited to, through automated reporting mechanisms, network and system indicators, intrusion detection systems, internal investigations, employee reports, law enforcement reports, or other third party notification. To oversee and identify cybersecurity threat risks on a day-to-day basis, including from third party service providers, the Company maintains a security operations center with round-the-clock monitoring, and the CIO receives regular reports on industry activity.
Upon receiving notification of a cybersecurity incident, the cybersecurity operations team acts to isolate and contain the threat. The CISO, along with the Chief Safety & Security Officer, will consult and determine the incident severity level, which determines whether the incident should be escalated. Critical and high severity incidents must be reported to the General Counsel. The Company may engage third party experts for assistance with crisis management, including forensic investigations, ransom negotiation, or crisis communication. During this process, the cybersecurity operations team will take steps to preserve evidence as soon as possible, including, but not limited to, memory dumps, log preservation and forensic hard drive collection. In addition, the General Counsel, in consultation with the CISO and others as necessary and appropriate, will promptly evaluate whether the incident requires legal notifications or disclosure, including whether the incident requires disclosure under the U. S. securities laws.
Following a cybersecurity incident, the General Counsel will direct the development of documentation regarding lessons learned in the response, including evaluation of preparedness capability, to continuously strengthen the cybersecurity posture of the Corporation.
Management has not identified risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect U. S. Steel, including its business strategy, results of operations or financial condition. See “Item 1A. Risk Factors, A failure of our information technology infrastructure and cybersecurity threats may adversely affect our business operations.” above for more information. While we continually work to safeguard the information systems we use, and the proprietary, confidential and personal information residing therein, and mitigate potential risks, there can be no assurance that such actions will be sufficient to prevent cybersecurity incidents or mitigate all potential risks to such systems, networks and data or those of our third party providers.
Governance
The Board of Directors is responsible for overseeing the assessment and management of enterprise-level risks that may impact U. S. Steel. The Audit Committee has primary responsibility for overseeing risk management, including oversight of risks from cybersecurity threats. Management, including the CIO and CISO, reports on cybersecurity matters regularly to the Board, primarily through the Audit Committee, including an annual report regarding specific risks and mitigation efforts within U. S. Steel and a 5-year cybersecurity threat assessment conducted by third party experts. Management provides benchmarking information and updates on key operational and compliance metrics to the Board. In addition, cybersecurity training is provided to the full Board of Directors, including training by third party experts, to educate directors on the current cybersecurity threat environment and measures companies can take to mitigate risk and impact of cyberattacks.
As described above, management is actively involved in assessing and managing U. S. Steel’s material cybersecurity risks. The CIO and the CISO primarily lead these efforts. The CIO is responsible for the oversight of U. S. Steel’s entire global IT operation, including the cybersecurity program, and holds a Bachelor of Science in electrical engineering technology from Purdue University and a Master of Business Administration from Wayne State University. The CISO reports directly to the CIO and has responsibility for leadership of U. S. Steel’s global cybersecurity program. She holds a bachelor’s degree in Information Systems Management, a master’s degree in Internet Information Systems, and a doctorate in Instructional Management and Leadership. The CISO also completed the Chief Information Security Officer Certificate program at Carnegie Mellon University, where she now serves as a coach for the program, and holds a Certified Information Systems Security Professional (CISSP) certification. She is an active member of the Greater Pittsburgh CISO Group and the Steel City OTSEC Information Sharing Group, and serves on the Editorial Review Board for two peer-reviewed journals (International Journal of Cyber Research and International Journal of Information and Communication Technology Education).
Item 2. PROPERTIES
The following tables listSee Item 1. Business, Facilities and Locations for listings of U. S. Steel’s main properties, their locations and their products and services:services.
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| | | | |
North American Operations | | | | |
| | |
Property | | Location | | Products and Services |
Gary Works | | Gary, Indiana | | Slabs; Sheets; Tin mill; Strip mill plate |
Midwest Plant | | Portage, Indiana | | Sheets; Tin mill |
East Chicago Tin | | East Chicago, Indiana | | Sheets; Tin mill |
Great Lakes Works | | Ecorse and River Rouge, Michigan | | Slabs; Sheets |
Great Lakes Works EGL at Dearborn | | Dearborn, Michigan | | Galvanized sheets |
Mon Valley Works | | | | |
Irvin Plant | | West Mifflin, Pennsylvania | | Sheets |
Edgar Thomson Plant | | Braddock, Pennsylvania | | Slabs |
Fairless Plant | | Fairless Hills, Pennsylvania | | Galvanized sheets |
Clairton Plant | | Clairton, Pennsylvania | | Coke |
Granite City Works(a)
| | Granite City, Illinois | | Slabs; Sheets |
Southern Coatings | | | | |
Fairfield Sheet | | Fairfield, Alabama | | Galvanized Sheets |
Double G Coatings Company, L.P.(b)
| | Jackson, Mississippi | | Galvanized and Galvalume® sheets
|
USS-POSCO Industries(b)
| | Pittsburg, California | | Sheets; Tin mill |
PRO-TEC Coating Company(b)
| | Leipsic, Ohio | | Galvanized and high strength annealed sheets |
Fairfield Tubular Operations | | Fairfield, Alabama | | Seamless Tubular Pipe |
Worthington Specialty Processing(b)
| | Jackson, Canton and Taylor, Michigan | | Steel processing |
Feralloy Processing Company(b)
| | Portage, Indiana | | Steel processing |
Chrome Deposit Corporation(b)
| | Various | | Roll processing |
Acero Prime, S.R.L. de C.V.(b)
| | Monterrey, Ramos Arizpe, San Luis Potosi, and Toluca, Mexico | | Steel processing; warehousing; logistical services |
Lorain Tubular Operations | | Lorain, Ohio | | Seamless Tubular Pipe |
Lone Star Tubular | | Lone Star, Texas | | Welded Tubular Pipe |
Wheeling Machine Products | | Pine Bluff, Arkansas and Hughes Springs, Texas | | Tubular couplings |
Tubular Processing(c)
| | Houston, Texas | | Tubular processing |
Offshore Operations | | Houston, Texas | | Tubular threading, inspection, accessories and storage services |
Patriot Premium Threading Services(b)
| | Midland, Texas | | Tubular threading, accessories and premium connections |
Minntac Iron Ore Operations | | Mt. Iron, Minnesota | | Iron ore pellets |
Keetac Iron Ore Operations(d)
| | Keewatin, Minnesota | | Iron ore pellets |
| |
(a) | Hot end temporarily idled |
(c) Temporarily Idled
(d) Idled in 2015, restarted in the 1st quarter of 2017
|
| | | | |
North American Operations (Continued) | | |
| | |
Property | | Location | | Products and Services |
Hibbing Taconite Company(b)
| | Hibbing, Minnesota | | Iron ore pellets |
Transtar, LLC | | Alabama, Indiana, Michigan, Ohio, Pennsylvania, Texas | | Railroad operations
|
(b) Equity Investee
|
| | | | |
Other Operations |
| | |
Property | | Location | | Products and Services |
U. S. Steel Košice | | Košice, Slovakia | | Slabs; Sheets; Tin mill; Strip mill plate; Tubular; Coke; Radiators; Refractories |
U. S. Steel and its predecessors (including Lone Star) have owned their properties for many years with no material adverse title claims asserted. In the case of Great Lakes Works, Granite City Works, the Midwest Plant and Keetac iron ore operations, U. S. Steel or its subsidiaries are the beneficiaries of bankruptcy laws and orders providing that properties are held free and clear of past liens and liabilities. In addition, U. S. Steel or its predecessors obtained title insurance, local counsel opinions or similar protections when significant properties were initially acquired or since acquisition.
At the Midwest Plant in Indiana, U. S. Steel has a supply agreement for various utility services with a company that owns a cogeneration facility located on U. S. Steel property. The Midwest Plant agreement expires in 2028.
U. S. Steel leases its headquarters office space in Pittsburgh, Pennsylvania.
For property, plant and equipment additions, including capitalfinance leases, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, – Financial Condition, Cash FlowsLiquidity and Liquidity – Cash Flows”Capital Resources” and Note 1213 to the Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS
Mining Properties
Summary Overview of Mining Operations
U. S. Steel isoperates two surface iron ore mining complexes in Minnesota consisting of the subject of, or a party to, a number of threatened or pending legal actions, contingenciesMinntac Mine and commitments involving a variety of matters, including lawsPellet Plant and regulations relating to the environment, certain ofKeetac Mine and Pellet Plant, which are discussedwholly owned by the Company. As of December 31, 2023, U. S. Steel owns a minority interest in the iron ore mining assets of Hibbing Taconite Company.
The following table provides a summary of the net book value of the land and PP&E at the Minntac and Keetac mines as of December 31, 2023:
| | | | | | | | | | | |
| Gross | Accumulated | Net Book |
(in millions) | Value | Depreciation | Value |
Minntac Mine and Pellet Plant | | | |
Land | $ | 34 | | $ | — | | $ | 34 | |
Other property, plant and equipment | 1,681 | | 1,289 | | 392 | |
Total | $ | 1,715 | | $ | 1,289 | | $ | 426 | |
Keetac Mine and Pellet Plant | | | |
Land | $ | 7 | | $ | — | | $ | 7 | |
Other property, plant and equipment | 449 | | 195 | | 254 | |
Total | $ | 456 | | $ | 195 | | $ | 261 | |
The following table provides a summary of our mineral production by mining complex for each reportable period:
| | | | | | | | | | | |
Iron Ore Pellets | Production |
(Millions of short tons) | 2023 | 2022 | 2021 |
Iron Ore Pellets | | | |
Minntac Mine and Pellet Plant | 15.5 | 15.1 | 16.1 |
Keetac Mine and Pellet Plant | 5.5 | 5.9 | 6.0 |
Hibbing Taconite Company (1) | 1.1 | 0.9 | 1.3 |
Total | 22.1 | 21.9 | 23.4 |
(1) Represents U. S. Steel's proportionate share of production as these investments are unconsolidated equity affiliates.
We engaged DRA Global and Barr Engineering Co. ("DRA") to provide feasibility studies and technical report summaries for our material mining operations at Minntac and Keetac. Indicated and inferred mineral resources and probable mineral reserve information for 2023 for the Minntac and Keetac mines have been updated based on a recent DRA estimations. Changes as result of this study were due to improved resource and reserve estimation methodology. The majority shareholders of the Hibbing Taconite Company separately engaged qualified persons to perform the same procedures at the Hibbing Taconite Mine in 2021. Accordingly, the figures below for the Hibbing Taconite Mine were provided by the majority shareholders using the reports provided by the qualified persons. The tables showing resources and reserves by mining property were prepared using the results of the procedures performed by the qualified persons designated by each organization, which have no affiliation with or interest in our material mining properties.
Minntac Mine and Pellet Plant
The Minntac Mine and Pellet Plant is located in Mountain Iron, Minnesota and is wholly owned and operated by U. S. Steel. On April 30, 2020, the Company granted Stelco Inc. (Stelco) a purchase option to acquire a 25 percent interest in the Minntac mining operations. The option can be exercised at any time before January 31, 2027. For more information regarding the purchase option, please see Note 2520 to the Consolidated Financial Statements. The ultimate resolutionMinntac Mine has 25,420 acres of these contingencies could, individually orsurface rights. The surface mine in the aggregate, be material toproduction stage whereby taconite iron ore is mined using the Truck-Shovel method. The mine is approximately 56 years old and has been operated by U. S. Steel financial statements. However, management believes thatsince 1967. For discussions regarding encumbrances, violations, fines, etc. related to the Minntac Mine, see Item 3. Legal Proceedings.
The following table provides details of our iron ore resources and reserves at Minntac as of December 31, 2023, and December 31, 2022. Resources below are stated exclusive of reserves.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Minntac Mine and Pellet Plant |
| | Amount | | Grades/Qualities | | Cut-off Grades | | Metallurgical Recovery |
(Millions of short tons) | | Pellets 2023 | Pellets 2022 | Change (%) | | MagFe% | Concentrate Silica % | | Min MagFe % | Max Concentrate Silica % | | Weight Recovery % |
Measured mineral resources | | — | | — | | — | % | | — | | — | | | — | | — | | | — | |
Indicated mineral resources | | 234.2 | | 251.0 | | (7) | % | | 18.19 | | 5.82 | | 14.00 | | 9.99 | | 26.98 |
Measured + indicated mineral resources | | 234.2 | | 251.0 | | (7) | % | | 18.19 | | 5.82 | | 14.00 | | 9.99 | | 26.98 |
Inferred mineral resources | | 96.7 | | 149.1 | | (35) | % | | 18.29 | | 6.22 | | 14.00 | | 9.99 | | 27.31 |
| | | | | | | | | | | | |
Proven mineral reserves | | — | | — | | — | % | | — | | — | | | — | | — | | | — | |
Probable mineral reserves | | 280.5 | | 266.1 | | 5 | % | | 19.11 | | 6.20 | | 14.00 | | 9.99 | | 28.55 |
Total mineral reserves | | 280.5 | | 266.1 | | 5 | % | | 19.11 | | 6.20 | | 14.00 | | 9.99 | | 28.55 |
Keetac Mine and Pellet Plant
The Keetac Mine and Pellet Plant is located in Keewatin, Minnesota and is wholly owned and operated by U. S. Steel. The Keetac Mine has 18,020 acres of surface rights. The surface mine is in the production stage whereby taconite iron ore is mined using the Truck-Shovel method. The mine is approximately 56 years old and has been operated by U. S. Steel will remain a viablesince 2003, when it was acquired as part of the Company's purchase of National Steel Corporation. For discussions regarding encumbrances, violations, fines, etc. related to the Keetac Mine, see Item 3. Legal Proceedings.
The following table provides details of our iron ore resources and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably to reserves at Keetac as of December 31, 2023, and December 31, 2022. Resources below are stated exclusive of reserves.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Keetac Mine and Pellet Plant |
| | Amount | | Grades/Qualities | | Cut-off Grades | | Metallurgical Recovery |
(Millions of short tons) | | DR Grade Pellets 2023 | Pellets 2023 | Pellets 2022 | Change (%) | | MagFe% | Concentrate Silica % | | Min MagFe % | Max Concentrate Silica % | | Weight Recovery % |
Measured mineral resources | | — | | — | | — | | — | % | | — | | — | | | — | | — | | | | — | |
Indicated mineral resources | | 153.3 | | 214.7 | | 192.90 | | 11 | % | | 18.88 | | 3.45 | | | 14.00 | | 9.99 | | | | 27.31 | |
Measured + indicated mineral resources | | 153.3 | | 214.7 | | 192.90 | | 11 | % | | 18.88 | | 3.45 | | | 14.00 | | 9.99 | | | | 27.31 | |
Inferred mineral resources | | 108.9 | | 163.2 | | 160.50 | | 2 | % | | 18.39 | | 4.37 | | | 14.00 | | 9.99 | | | | 26.83 | |
| | | | | | | | | | | | | | |
Proven mineral reserves | | — | | — | | — | | — | % | | — | | — | | | — | | — | | | | — | |
Probable mineral reserves | | 126.4 | | 180.6 | | 179.30 | | 1 | % | | 19.36 | | 3.82 | | | 14.00 | | 9.99 | | | | 28.00 | |
Total mineral reserves | | 126.4 | | 180.6 | | 179.30 | | 1 | % | | 19.36 | | 3.82 | | | 14.00 | | 9.99 | | | | 28.00 | |
Hibbing Taconite Mine
U. S. Steel.Steel maintains a minority interest in the Hibbing Taconite Mine, which is majority-owned by Cleveland-Cliffs, Inc. and located in Hibbing, Minnesota. The Hibbing Mine has 30,760 acres of surface rights, of which 1,150 acres are associated with mineral leases. The majority of the mineral rights are leased. 6,640 acres of mineral leases are expiring between 2024 and 2056. The taconite iron ore mine is currently in the production stage.
The following table provides details of our proportionate share of iron ore pellet resources and reserves at Hibbing as of December 31, 2023, and December 31, 2022. Resources below are stated exclusive of reserves.
| | | | | | | | | | | | | | | | | | | | |
Hibbing Taconite Company (1) |
| | Amount | | Grades/Qualities |
(Millions of short tons) | | Pellets 2023 | Pellets 2022 | Change (%) | | MagFe% |
Measured mineral resources | | 0.40 | | 0.40 | | — | % | | 19.20 | |
Indicated mineral resources | | — | | — | | — | % | | 18.70 | |
Measured + indicated mineral resources | | 0.40 | | 0.40 | | — | % | | 19.20 | |
Inferred mineral resources | | — | | — | | — | % | | — | |
| | | | | | |
Proven mineral reserves | | 2.20 | | 3.30 | | (33.33) | % | | 18.70 | |
Probable mineral reserves | | 0.40 | | 0.40 | | — | % | | 18.70 | |
Total mineral reserves | | 2.60 | | 3.70 | | (29.73) | % | | 18.70 | |
(1) Represents U. S. Steel’s proportionate share of proven and probable reserves and production as these investments are unconsolidated equity affiliates.
Internal Controls
U. S. Steel estimates its iron ore resources and reserves using exploration drill holes, physical inspections, sampling, laboratory testing, 3-D computer models, economic pit analysis and fully-developed pit designs for its operating mines. Estimates for our share of unconsolidated equity affiliates are based upon information supplied by the joint ventures. Refer to sections 2 and 3 of the technical report summaries filed as Exhibit 96.1 to this Form 10-K for further details.
Item 3. LEGAL PROCEEDINGS
General Litigation
On April 26, 2016,June 8, 2021, JSW Steel (USA) Inc. and JSW Steel USA Ohio, Inc. (collectively, JSW), U.S. based subsidiaries of Indian steelmaker JSW Steel, filed suit in the Company filed a complaint withUnited States District Court for the U.S. International Trade Commission (USITC) to initiate an investigation under Section 337Southern District of the Tariff Act of 1930Texas against Chinese steel producers and their distributors. All but seven of the producers did not respond and are considered to be in default. The complaint alleges three causes of action: 1) illegal conspiracy to fix prices and control output and export volumes; 2) the theft of trade secrets through industrial espionage; and 3) circumvention of duties by false designation of origin (FDO). In February 2017,Nucor, U. S. Steel, voluntarily withdrew its trade secrets claim, but preservedAK Steel Holding Group and Cleveland-Cliffs (collectively, the rightJSW Defendants) alleging that the Defendants operated as a cartel and formed a conspiracy to refileboycott JSW from obtaining semi-finished steel slabs. JSW alleges that the claim when additional information becomes available. On October 2, 2017,JSW Defendants acted in violation of Section 1 of the Administrative Law judge (ALJ) assignedSherman Act and the Clayton Act (federal antitrust), and violation of the Texas Free Enterprise and Antitrust Act. JSW also alleges that the JSW Defendants formed a civil conspiracy in violation of Texas common law, and that the JSW Defendants tortiously interfered with JSW’s business relationships. The basis for JSW’s allegations relate to the case terminatedJSW Defendants participation in the FDO claim. The Company has elected not to pursue an appealDOC's Section 232 process, including the JSW Defendants’ support of that claim leaving the price fixing claimenactment of the President’s Section 232 proclamation, statements made by the JSW Defendants after the enactment of Section 232, and the JSW Defendants’ participation in the Section 232 exclusion process. Plaintiffs seek monetary damages including $45 million for payment of Section 232 tariffs and unspecified amounts for financial penalties, termination fees and lost profits as the remaining claim. That claim is pending before the USITC. The remedy sought bywell as other damages. U. S. Steel, in that claim isalong with the barringother JSW Defendants, filed a Motion to Dismiss the case on August 17, 2021. On February 17, 2022, the Court issued an opinion dismissing JSW’s antitrust complaint with prejudice. JSW filed a timely notice of all Chinese carbon alloy steelappeal with the United States Court of Appeals for the Fifth Circuit. The Fifth Circuit held oral argument on the appeal on February 6, 2023, and we are awaiting a ruling from the U.S. market.Court. The Company continues to vigorously defend the matter.
On December 24, 2018, U. S. Steel's Clairton Plant experienced a fire, affecting portions of the facility involved in desulfurization of the coke oven gas generated during the coking process. With the desulfurization process out of operation as a result of the fire, U. S. Steel v. Minnesota Pollution Control Agency (MPCA) and Commissioner John Linc Stine: On February 21, 2017,was not able to certify compliance with Clairton Plant’s Title V permit levels for sulfur emissions. U. S. Steel promptly notified ACHD (Allegheny County Health Department), which has regulatory jurisdiction for the Title V permit, and updated the ACHD regularly on efforts to mitigate any potential environmental impacts until the desulfurization process was returned to normal operations. Of the approximately 2,400 hours between the date of the fire and April 4, 2019, when the Company resumed desulfurization, there were ten intermittent hours where average SO2 emissions exceeded the hourly NAAQS for SO2 at the Allegheny County regional air quality monitors located in Liberty and North Braddock boroughs, which are near U. S. Steel's Mon Valley Works facilities. On April 29, 2019, PennEnvironment and Clean Air Council, both environmental, non-governmental organizations filed a Verified Complaint and Writ of Mandamus against the MPCA for failure to act on U. S. Steel’s request for revisions to water quality standards which will affect the draft National Pollutant Discharge Elimination System (water) permit at Minntac. MPCA filed an Answer and Counterclaim and U. S. Steel responded to the Counterclaim. Three citizen groups, Minnesota Center for Environmental Advocacy, Save Lake Superior Association and Save Our Sky Blue Waters (collectively MCEA), then intervened in the lawsuit. All parties have filed cross-motions for summary judgment, which remained outstanding pending a court-ordered mediation. The parties have now settled all claims and counterclaims and the case has been dismissed. U. S. Steel will now proceed through the Administrative regulatory process to address the outstanding water quality standards issues.
On August 9, 2017, the MPCA issued rulemaking proposals to replace the current sulfate standard with an equation-based standard. As part of the rulemaking process, an ALJ was appointed to preside over public hearings and comments. The Company and others challenged the standards and presented evidence that the standards were unsupported by science and that the MPCA failed to consider associated costs as part of the rulemaking process. On January 9, 2018, the ALJ rejected the MPCA’s proposals, concluding that the MPCA failed to comply with state law requirements for drafting and adopting a new standard, that portions of the rule were unsupported by the MPCA’s evidence and that the MPCA proposal was unconstitutional due to vagueness.
On October 2, 2017, an Amended Shareholder Class Action Complaint was filed in Federal Court in the Western District of Pennsylvania consolidating previously-filed actions. Separately, four related shareholder derivative lawsuits were filedPennsylvania. The ACHD was subsequently granted intervenor status. Collectively the parties seek injunctive relief and civil penalties regarding the alleged Permit violations following the fire. Discovery has concluded. The court denied the parties’ respective Motions for Summary Judgment. A non-jury trial which was scheduled to take place in PennsylvaniaApril and Federal courtsMay of 2023 is being held in Pittsburgh.abeyance as the parties reached a tentative settlement agreement, signed a term sheet, and advised the Court accordingly. The underlying consolidated class action lawsuit alleges thatparties have signed a Consent Decree which is subject to Court approval. Pursuant to the proposed Consent Decree U. S. Steel certain currentwill undertake operational improvements at Clairton Works, permanently idle Coke Battery #15 and former officers, an upper level manager ofpay a $500,000 penalty to the Company and the financial Underwriters who participated in the August 2016 secondary public offering violated federal securities laws in making false statements and/or failing to discover and disclose material information regarding the financial condition of the Company. The lawsuit claims that this conduct caused a prospective class of plaintiffs to sustain damages during the period of January 27, 2016 and April 25, 2017 as a result of the prospective class purchasing the Company's common stock at artificially inflated prices and/or suffering losses when the price of the common stock dropped. The derivative lawsuits generally make the same allegations against the same officers and also allege that certain members of the Board of Directors failed to exercise appropriate control and oversight over the Company and were unjustly compensated. They seek to recover losses that were allegedly sustained. The Company is vigorously defending these matters.
On April 11, 2017, there was a process waste water release at our Midwest Plant (Midwest) in Portage, Indiana that impacted a water outfall that discharges to Burns Waterway near Lake Michigan.ACHD. In addition, U. S. Steel identifiedwill fund community-beneficial projects throughout the sourceMon Valley over a period of five years through contributions which total $4.5 million and pay counsel fees in the release and made the necessary repairs. We determined that all repairs were safely working as intended and, on April 14, 2017, resumed operations inamount of $3.0 million. The Consent Decree also establishes a controlled, phased and highly monitored approach with extensive input from participating government agencies. The Company has since implemented substantial operational, process and
notification improvements at Midwest. The Companynew H2S Coke Oven Gas standard for Clairton Works. Separately, a class action has been presented with cost reimbursements,filed in the Court of Common Pleas of Allegheny County on behalf of approximately 123,000 persons who claim that the impacts from the fire created a nuisance and seek damages for loss of use and penalty requests from the involved governmental agencies and intends to amicably resolve the matter with those agencies. Separately, the Company was placed on noticeenjoyment of potential citizens’ enforcement suits regarding the April 2017 incident and other historical alleged Clean Water Act and Permit violations at Midwest. In January of 2018, The Surfrider Foundationproperties. That action has been certified as a class action and the City of Chicago initiated suits in the Northern District of Indiana alleging such violations. The Company intends to vigorously defend against those actions.it.
Asbestos Litigation
As of December 31, 2017, U. S. Steel was a defendant in approximately 820 active cases involving approximately 3,315 plaintiffs. The vast majority of these cases involve multiple defendants. As of December 31, 2016, U. S. Steel was a defendant in approximately 845 cases involving approximately 3,340 plaintiffs. About 2,500, or approximately 75 percent, of these plaintiff claims are currently pending in jurisdictions which permit filings with massive numbers of plaintiffs. Based upon U. S. Steel’s experience in such cases, it believes that the actual number of plaintiffs who ultimately assert claims against U. S. Steel will likely be a small fraction of the total number of plaintiffs.
The following table shows the activity with respectSee Note 26 to asbestos litigation:
|
| | | | | | | | |
Period ended | | Opening Number of Claims | | Claims Dismissed, Settled and Resolved | | New Claims | | Closing Number of Claims |
December 31, 2015 | | 3,455 | | 415 | | 275 | | 3,315 |
December 31, 2016 | | 3,315 | | 225 | | 250 | | 3,340 |
December 31, 2017 | | 3,340 | | 275 | | 250 | | 3,315 |
Historically, asbestos-related claims against U. S. Steel fall into three groups: (1) claims made by persons who allegedly were exposed to asbestos on the premises of U. S. Steel facilities; (2) claims made by persons allegedly exposed to products manufactured by U. S. Steel;our Consolidated Financial Statements, Contingencies and (3) claims made under certain federal and maritime laws by employees of former operations of U. S. Steel.
The amount U. S. Steel accrues for pending asbestos claims is not material to U. S. Steel’s financial condition. However, U. S. Steel is unable to estimate the ultimate outcome of asbestos-related claims due to a number of uncertainties, including: (1) the rates at which new claims are filed, (2) the number of and effect of bankruptcies of other companies traditionally defending asbestos claims, (3) uncertainties associated with the variations in the litigation process from jurisdiction to jurisdiction, (4) uncertainties regarding the facts, circumstances and disease process with each claim, and (5) any new legislation enacted to address asbestos-related claims. Despite these uncertainties, management believes that the ultimate resolution of these matters will not have a material adverse effect on U. S. Steel’s financial condition, although the resolution of such matters could significantly impact results of operationsCommitments for a particular quarter.description of our asbestos litigation.
Environmental ProceedingsENVIRONMENTAL PROCEEDINGS
The following is a summary of the proceedings of U. S. Steel that were pending or contemplated as of December 31, 2017,2023, under federal and state environmental laws.laws, and which U. S. Steel reasonably believes may result in monetary sanctions of at least $1 million (the threshold chosen by U. S. Steel as permitted by Item 103 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended). Information about specific sites where U. S. Steel is or has been engaged in significant clean up or remediation activities is also summarized below. Except as described herein, it is not possible to accurately predict the ultimate outcome of these matters.
CERCLA Remediation Sites
Claims under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) have been raised with respect to the cleanup of various waste disposal and other sites. Under CERCLA, potentially responsible parties (PRPs)(each, a PRP) for a site include current owners and operators, past owners and operators at the time of disposal, persons who arranged for disposal of a hazardous substance at a site and persons who transported a hazardous substance to a site. CERCLA imposes strict and joint and several liabilities. Because of various factors, including the ambiguity of the regulations, the difficulty of identifying the responsible parties for any particular site, the complexity
of determining the relative liability among them, the
uncertainty as to the most desirable remediation techniques, and the amount of damages and cleanup costs and the time period during which such costs may be incurred, we are unable to reasonably estimate U. S. Steel’s ultimate liabilities under CERCLA.
As of December 31, 2017,2023, U. S. Steel has received information requests or been identified as a PRP at a total of sevenfive CERCLA sites, twothree of which have liabilities that have not been resolved. Based on currently available information, which is in many cases preliminary and incomplete, management believes that U. S. Steel’s liability for CERCLA cleanup and remediation costs at one of the other five sites will be between $100,000 and $1 million for four of the sites, and over $5 million for one site as described below.
Duluth Works
The former U. S. Steel Duluth Works site was placed on the National Priorities List under CERCLA in 1983 and on the State of Minnesota’s Superfund list in 1984. Liability for environmental remediation at the site is governed by a Response Order by Consent executed with the MPCA in 1985 and a Record of Decision signed by MPCA in 1989. U. S. Steel has submitted a feasibility study that includes remedial measurespartnered with the Great Lakes National Program Office (GLNPO) of the U.S. EPA Region 5 to address contaminated sediments in the St. Louis River Estuary and several other Operable Unitsoperable units that could impact the Estuaryestuary if not addressed. An amendment to the Project Agreement between U. S. Steel and GLNPO was executed during the second quarter of 2018 to recognize the initial costs associated with implementing the first two phases of the proposed remedial plan at the site.
WhileRemediation contracts were issued by both U. S. Steel and GLNPO for the first phase of the remedial work continues on completionat the site during the fourth quarter of 2020. U. S. Steel and GLNPO have completed the second phase of work at the site which extended through early 2022. The final phase of the remedial design and educating the public and key stakeholders on the details of the plan, there has been no material changedefined and another amendment to the Project Agreement between U.S. Steel and GLNPO was executed in the statusDecember 2021. Execution of the project during the twelve months ended December 31, 2017. Additional study, investigation,this final phase is in progress and is expected to extend through 2024 for habitat restoration. U. S. Steel's portion of additional, design, oversight costs, and implementation of U. S. Steel'sall three phases of the preferred remedial alternativesalternative on the upland property and Estuary are currently estimated as of December 31, 20172023, at approximately $47$11 million.
RCRAResource Conservation Recovery Act and Other Remediation Sites
U. S. Steel may be liable for remediation costs under other environmental statutes, both federal and state, or where private parties are seeking to impose liability on U. S. Steel for remediation costs through discussions or litigation. There are 19eight such sites where remediation is being sought involving amounts in excess of $100,000.$1 million. Based on currently available information, which is in many cases preliminary and incomplete, management believes that liability for cleanup and remediation costs in connection with 9 sites have potential costs between $100,000 and $1 million per site, 5four sites may involve remediation costs between $1 million and $5 million per site and 5four sites are estimated to, or could have, costs for remediation, investigation, restoration or compensation in excess of $5 million per site.
For more information on the status of remediation activities at U. S. Steel’s significant sites, see the discussions related to each site below.
Gary Works
On October 23, 1998, the Environmental Protection Agency (EPA)U.S. EPA issued a final Administrative Order on Consent (Order) addressing Corrective Action for Solid Waste Management Units (SWMU) throughout Gary Works. This Order requires U. S. Steel to perform a Resource Conservation and Recovery Act (RCRA)an RCRA Facility Investigation, (RFI), a Corrective Measures Study (CMS) and Corrective Measure Implementation. While work continuesEvaluations are underway at six groundwater areas on several items, therethe east side of the facility. A remedial groundwater treatment system has been no material change in the statusoperating at one of the project duringsix areas since 2021. An Interim Stabilization Measure work plan was approved by the twelve months ended December 31, 2017.U.S. EPA for a second area and a contractor has completed installation and start-up of the remedial system. Until the remaining Phase I work and Phase II field investigations are completed, it is not possible to assess what additional expenditures will be necessary for Corrective Action projects at Gary Works. In total, the accrued liability for Corrective Action projects is approximately $25$23 million as of December 31, 2017,2023, based on our current estimate of known remaining costs.
Geneva Works
At U. S. Steel’s former Geneva Works, liability for environmental remediation, including the closure of three hazardous waste impoundments and facility-wide corrective action, has been allocated between U. S. Steel and the current property owner pursuant to an agreement and a permit issued by the Utah Department of Environmental Quality (UDEQ). Having completed the investigation on a majority of the remaining areas identified in the permit, U. S. Steel hashad determined the most effective means to address the remaining impacted material iswas to manage those materials in a previously approved on-site Corrective Action Management Unit (CAMU). While preliminary approvalU. S. Steel awarded a contract for the implementation of the conceptual CAMU design has been granted by the UDEQ, there has been no material change in the status of the
project during the twelve months ended December 31, 2017.fourth quarter of 2018. Construction, waste stabilization and placement, along with closure of the CAMU, were substantially completed in the fourth quarter of 2020. U. S. Steel has an accrued liability of approximately $63$18 million as of December 31, 2017,2023, for our estimated share of the remaining costs of remediation.remediation at the site.
USS-UPI LLC (UPI)
In February 2020, U. S. Steel purchased the remaining 50 percent interest in USS-POSCO Industries, (UPI)
Aa former joint venture that is located in Pittsburg, California between subsidiaries of U. S. Steel and POSCO, now known as USS-UPI, LLC. Prior to formation of the joint venture, UPI's facilities were previously owned and operated solely by U. S. Steel, which retains primary assumed
responsibility for the existing environmental conditions. During 2016, U. S. Steel implemented its preferredcontinues to monitor the impacts of the remedial plan implemented in 2016 to address groundwater impacts from trichloroethylene at Solid Waste Management Unit (SWMU)SWMU 4. EvaluationsWork will begin in early 2024 to complete removal of hazardous materials and decommission the northwest portion of Building A (SWMU 4.1) and the 54” and 66” Pickle Lines. Additionally, evaluations continue for the three SWMUs, known as the Northern Boundary Group, and it is likely that corrective measures will be required, but it is not possible at this time to define a scope or estimate costs for what may be required by the California Department of Toxic Substances Control. As such, there has been no material change in the status of the project during the twelve monthsyear ended December 31, 2017.2023. As of December 31, 2017,2023, approximately $1$4 million has been accrued for ongoing environmental studies, investigations, remedial work and remedy monitoring. Significant additional costs associated with this site are possible and are referenced in Note 2526 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”
Fairfield Works
A consent decree was signed by U. S. Steel, the U.S. EPA and the U.S. Department of Justice and filed with the United States District Court for the Northern District of Alabama (United States of America v. USX Corporation) in December 1997. In accordance with the consent decree, U. S. Steel initiated a RCRA corrective action program at the Fairfield Works facility. The Alabama Department of Environmental Management (ADEM), with the approval of the U.S. EPA, assumed primary responsibility for regulation and oversight of the RCRA corrective action program at Fairfield Works. WhileCorrective Measure Implementation Plans (CMIPs) have been submitted to and approved by ADEM for the last two areas on site where impacts to soil and sediments are required to be addressed. Plans are being finalized for contracting the work continues on different aspects of the program, there has been no material change in the status of the project during the twelve months ended December 31, 2017. In total, the accrued liability for remaining workrequired under the Corrective Action Program, was approximately $325,000 at December 31, 2017. Significant additional costs associated with this site are possible and are referenced in Note 25 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”
Fairless Plant
In April 1993, U. S. Steel entered into a consent order with the EPA pursuant to RCRA, under which U. S. Steel would perform Interim Measures (IM), an RFI and CMS at our Fairless Plant. A Phase I RFI Final Report was submitted in September of 1997. With EPA’s agreement, in lieu of conducting subsequent phases of the RFI and the CMS, U. S. Steel has been working through the Pennsylvania Department of Environmental Protection Act 2 Program to characterize and remediate facility parcels for redevelopment. While work continues on these items, there has been no material change in the status of the project during the twelve months ended December 31, 2017. As of December 31, 2017, the accrued liability to maintain the interim measures, and clear properties through the Act 2 process is approximately $49,000. Significant additional costs associated with this site are possible and are referenced in Note 25 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”
Lorain Tubular Operations
In September 2006, U. S. Steel and the Ohio Environmental Protection Agency (OEPA) commenced discussions about RCRA Corrective Action at Lorain Tubular Operations. A Phase I RFI on the identified SWMUs and Areas of Contamination was submitted in March 2012. While discussions continue with OEPA on the Phase II RFI report that addresses additional investigations of soil, site wide groundwater and the pipe mill lagoon, there has been no material change in the status of the project during the twelve months ended December 31, 2017. As of December 31, 2017, costs to complete additional projects are estimated to be approximately $108,000. Significant additional costs associated with this site are possible and are referenced in Note 25 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”
Joliet Works
The 50-acre parcel at the former Joliet Works is enrolled in the Illinois Environmental Protection Agency’s (IEPA) voluntary Site Remediation Program (the Program). The Program requires investigation and establishment of cleanup
objectives followed by submission/approval of a Remedial Action Plan to meet those objectives. The 50-acre parcel was divided into four (4) subareas with remedial activities completed in 2015 for three (3) of the subareas. While work continues to define the requirements for further investigation of the remaining subarea, there has been no material change in the status of the project during the twelve months ended December 31, 2017.CMIPs. U. S. Steel has an accrued liability of $294,000 as ofapproximately $8 million at December 31, 2017. Significant additional2023 for the estimated remaining costs associated with this site are possible and are referenced in Note 25 toof remediation at the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”site.
Cherryvale (KS) Zinc
In April 2003, U. S. Steel and Salomon Smith Barney Holdings, Inc. (SSB) entered into a Consent Order with the Kansas Department of Health & Environment (KDHE) concerning a former zinc smelting operation in Cherryvale, Kansas. Remediation of the site proper was essentially completed in 2007. The Consent Order was amended on May 3, 2013, to require investigation (but not remediation) of potential contamination beyond the boundary of the former zinc smelting operation. On November 22, 2016, KDHE approved a State Cooperative Final Agency Decision Statement that identified the remedy selected to address potential contamination beyond the boundary of the former zinc smelting site. Work continues on finalizing the Removal Action Design Plan. As of December 31, 2017, an accrual of approximately $351,000 remains available for addressing these outstanding issues. Significant additional costs associated with this site are possible and are referenced in Note 25 to the Consolidated Financial Statements “Contingencies and Commitments - Environmental Matters - Remediation Projects - Projects with Ongoing Study and Scope Development.”
South Works
On August 29, 2017, U. S. Steel was notified by the U.S. Coast Guard of a sheen on the water in the North Vessel Slip at our former South Works in Chicago, Illinois. U. S. Steel has been working with the IEPA under their voluntary Site Remediation Program since 1993 to evaluate the condition of the property including the North Vessel Slip. The result of this cooperative effort has been the issuance of a series of “No Further Remediation” (NFR) notices to U. S. Steel including one specific to the North Vessel Slip. U. S. Steel has notified the IEPA of the potential changed condition and is working closely with the IEPA and the U. S. Coast Guard to determine the source of the sheen and options to address the issue. U. S. Steel has an accrued liability of $82,000 as of December 31, 2017.
Air Related Matters
Great Lakes Works
In June 2010, the EPA significantly lowered the primary National Ambient Air Quality Standards (NAAQS) for sulfur dioxide (SO2) from 140 parts per billion (ppb) on a 24-hour basis to an hourly standard of 75 ppb. Based upon the 2009-2011 ambient air monitoring data, the EPA designated the area in which Great Lakes Works is located as nonattainment with the 2010 SO2 NAAQS.
As result, the Michigan Department of Environmental Quality (MDEQ) must submit a State Implementation Plan (SIP) to the EPA that demonstrates that the entire nonattainment area (and not just the monitor) will be in attainment by October 2018 by using conservative air dispersion modeling. U. S. Steel met with MDEQ on multiple occasions and had offered reduction plans to MDEQ but the parties could not agree to a plan. MDEQ, instead promulgated Rule 430 which was solely directed at U. S. Steel. The Company challenged Rule 430 before the Michigan Court of Claims who by Order dated October 4, 2017, granted the Company’s motion for summary disposition voiding Rule 430 finding that it violated rule-making provisions of the Michigan Administrative Procedures Act and Michigan Constitution. Since Rule 430 has been invalidated, EPA has indicated that it would promulgate a Federal Implementation Plan (FIP). Because development of the FIP is in the early stages, the impacts of the nonattainment designation to the Company are not estimable at this time.
On May 27, 2015, Great Lakes Works received a Violation Notice in which MDEQ alleged that U. S. Steel did not obtain a required permit to install a BOP vessel replacement that occurred in November 2014. U. S. Steel responded to MDEQ on June 17, 2015. While the resolution of the matter is uncertain at this time, it is not anticipated that the resolution will be material to U. S. Steel.
Granite City Works
In October 2015, Granite City Works received a Notice of Violation Notice(NOV) from IEPA in which the IEPA allegesIllinois Environmental Protection Agency (IEPA) alleging that U. S. Steel violated the emission limits for nitrogen oxides (NOx) and volatile organic compounds from the Basic Oxygen Furnace Electrostatic Precipitator Stack. In addition, the IEPA alleges that U. S. Steel exceeded its natural gas usage limit at its CoGeneration Boiler. U. S. Steel respondedcontinues to the notice and is currently discussingnegotiate resolution of the matterNOV with IEPA.
On December 18, 2017, Granite City Works received a Violation Notice from IEPA in which the IEPA alleges that U. S. Steel violated certain air operating, maintenance and recordkeeping requirements related to a coke conveyance system, pickle line scrubbers and hydrochloric acid storage tanks. U. S. Steel is currently discussing resolution of the matter with IEPA.
Although discussions with IEPA regarding the foregoing alleged violations are ongoing and the resolution of these matters is uncertain at this time, it is not anticipated that the result of those discussions will be material to U. S. Steel.
Minnesota Ore Operations
On February 6, 2013, the U.S. EPA published a FIP that applies to taconite facilities in Minnesota. The FIP establishes and requires emission limits and the use of low NOx reduction technology on indurating furnaces as Best Available Retrofit Technology.Technology (BART). While U. S. Steel installed low NOx burners on three furnaces at Minntac and is currently obligated to install low NOx burners on the two other furnaces at Minntac pursuant to existing agreements and permits, the rule would require the installation of a low NOx burner on the one furnace at Keetac for which U. S. Steel did not have an otherwise existing obligation. U. S. Steel estimates expenditures associated with the installation of low NOx burners of as much as $25 million to $30 million. In 2013, U. S. Steel filed a petition for administrative reconsideration to the U.S. EPA and a petition for judicial review of the 2013 FIP and denial of the Minnesota State Implementation Planstate implementation plan (SIP) to the Eighth Circuit of the 2013 FIP.Circuit. In April 2016, the U.S. EPA promulgated a revised FIP with the same substantive requirements for U. S. Steel. In June 2016, U. S. Steel filed a petition for administrative reconsideration of the 2016 FIP to the U.S. EPA and a petition for judicial review of the 2016 FIP before the Eighth Circuit Court of Appeals. While the proceedings regarding the petition for judicial review of the 2013 FIP remained stayed, oral arguments regarding the petition for judicial review of the 2016 FIP were heard by the Eighth Circuit Court of Appeals on November 15, 2017. Thus, both petitions for judicial review remain with the Eighth Circuit. On December 4, 2017, the U.S. EPA published a notification in the Federal Register in which the U.S. EPA denied U. S. Steel’s administrative petitions for reconsideration and stay of the 2013 FIP and 2016 FIP. On February 1, 2018, U. S. Steel filed a petition for judicial review of the U.S. EPA’s denial of the administrative petitions for reconsideration to the 8thEighth Circuit Court of Appeals. The U.S. EPA and U. S. Steel continuesreached a settlement regarding the five indurating lines at Minntac. After proposing a revised FIP and responding to defend its petitions while pursuingpublic comments, on March 2, 2021, the U.S. EPA promulgated a final revised FIP incorporating the conditions and limits for Minntac to which the parties agreed. U. S. Steel and the U.S. EPA continue to negotiate resolution that would include an equitable revision to the FIP.for Keetac.
Mon Valley Works
On November 9, 2017, EPA Region IIIMarch 7, 2022, the Company received an enforcement order from the ACHD that includes a civil penalty demand for $1.8 million. In the Order, the ACHD alleges that the Company’s Clairton plant is solely and Allegheny County Health Department (ACHD) jointly issuedentirely culpable for 153 alleged exceedances of the Pennsylvania hydrogen sulfide ambient air standard that are reported to have occurred during January 1, 2020 through March 1, 2022. The Company disagrees with the bases for the demand. On April 5, 2022, the Company appealed the Order and is vigorously defending the matter. The ACHD Hearing Officer has scheduled a Noticehearing on the appeal for July 8, 2024.
On March 24, 2022, the Company received an enforcement order from the ACHD that includes a civil penalty demand for $4.6 million for alleged air permit violations occurring between January 1, 2020 through March 15, 2022 regarding the Company’s Edgar Thomson facility in Braddock, PA. In addition,Clairton plant’s coke oven pushing emission control systems. The Company disagrees with the bases for the demand and has appealed the Order. The ACHD Hearing Officer has scheduled a hearing on November 20, 2017, ACHD issued a separate, but related NOV tothe appeal for July 15, 2024.
On December 29, 2023, the Company regardingreceived an enforcement order from the Edgar Thomson facility.ACHD that includes a civil penalty demand for $2.2 million. In the NOVs, based upon their inspections and review of documents collected throughoutOrder, the last two years, the agencies allegeACHD alleges that the Company has violatedCompany’s Clairton plant was the Clean Air Act by exceeding the allowable visible emission standards from certain operations during isolated events. In addition, the agencies allege that the Company has violated certain maintenance, reporting, and recordkeeping requirements. U. S. Steel met with EPA Region III and ACHD on December 18, 2017, and continues to negotiate a potential resolutioncause for 159 alleged exceedances of the matter.Pennsylvania hydrogen sulfide ambient air standard that are reported to have occurred from March 2, 2022 through November 30, 2023. The Company disagrees with the bases for the demand and intends to appeal the Order.
Item 4. MINE SAFETY DISCLOSURE
The information concerning mine safety violations and other regulatory matters required by Section 1501503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-K.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of U. S. Steel and their ages as of February 1, 2018,2024, are as follows:
| | | | | | | | | | | |
Name | Age | Title | Executive Officer Since |
Daniel R. Brown | 51 | Senior Vice President - Advanced Technology Steelmaking & Chief Operating Officer, Big River Steel | | | | February 1, 2022 |
NameJames E. Bruno | 58 | AgeSenior Vice President - Global Information Technology and President, USSE | | Title | | Executive Officer
Since December 1, 2014 |
Kevin P. BradleyScott D. Buckiso | 56 | 55Senior Vice President and Chief Manufacturing Officer North American Flat-Rolled | May 31, 2015 |
David B. Burritt | 68 | President & Chief Executive Officer | September 1, 2013 |
Jessica T. Graziano | 50 | Senior Vice President & Chief Financial Officer | | July 27, 2017August 8, 2022 |
ChristineManpreet S. BrevesGrewal | 44 | 61Vice President, Controller & Chief Accounting Officer | March 30, 2020 |
Duane D. Holloway | 51 | Senior Vice President, Manufacturing SupportGeneral Counsel and Chief Ethics & Chief Supply ChainCompliance Officer | | April 27, 201716, 2018 |
JamesKenneth E. BrunoJaycox | 56 | 52 | | Senior Vice President - Automotive Solutions (a) and Chief Commercial Officer | | December 1, 2014 |
Scott D. Buckiso | | 50 | | Senior Vice President - European Solutions and President - USSK (b)
| | May 31, 2015 |
David B. Burritt | | 62 | | President & Chief Executive Officer | | September 1, 2013 |
Colleen M. Darragh | | 48 | | Vice President & Controller | | July 17, 2014 |
Richard L. Fruehauf | | 50 | | Deputy General Counsel - Corporate; Interim General Counsel | | November 7, 2017 |
Sara A. Greenstein | | 43 | | Senior Vice President - Consumer Solutions (a)
| | December 1, 2014 |
Douglas R. Matthews | | 52 | | Senior Vice President - Industrial, Service Center and Mining Solutions (a)
| | July 2, 2012 |
David J. Rintoul | | 60 | | Senior Vice President - Tubular Business (c)
| | May 1, 2014 |
Pipasu Soni | | 45 | | Vice President - Finance | | February 1, 201728, 2020 |
(a) Automotive Solutions, Consumer Solutions,
Messrs. Brown, Bruno, Buckiso, Burritt, and Industrial, Service Center and Mining Solutions commercial entities are contained within the Flat-Rolled segment.
(b) European Solutions commercial entity is contained within the USSE segment.
(c) Tubular Business commercial entity is contained within the Tubular segment. David J. Rintoul has elected to retire on February 28, 2018. Douglas R. Matthews will assume responsibilities for the Company's Tubular Segment on an interim basis.
All of the executive officers mentioned aboveHolloway have held responsible management or professional positions with U. S. Steel or ourits subsidiaries for more than the past five years, with the exception of Mr. Bradley, Ms. Breves, Mr. Bruno, Mr. Burritt, Ms. Greenstein, Mr. Soni and Mr. Fruehauf.years. Prior to joining U. S. Steel Mr. Bruno wasin 2022, Ms. Graziano spent eight years with TRW Automotive, a global leaderUnited Rentals, Inc, culminating in automotive safetyher position as Executive Vice President and oneChief Financial Officer. Prior to her work with United Rentals, Ms. Graziano spent five years at Revlon, Inc. where she advanced through positions of the world's largest automotive suppliers, for 20 years, most recently serving as vice president – North American braking operationsincreasing responsibility culminating in her being named Senior Vice President, Chief Accounting Officer and global slip control portfolio.Corporate Controller. Prior to joining U. S. Steel in 2020, Mr. BradleyGrewal served as senior vice president, business finance, controller and chief financialaccounting officer at Terex Corporation, a U.S.-based global manufacturer of liftingCovanta since February 2017. Prior to Covanta, Mr. Grewal spent fourteen years at Johnson Controls Incorporated (formerly Tyco International) in increasingly responsible roles, including internal audit, accounting, controllership, and material processing products such as cranes, aerial work platforms,financial planning and mobile crushing and screening equipment used in industries ranging from construction and mining to utilities.analysis. Prior to joining U. S. Steel Ms. Brevesin 2020, Mr. Jaycox served as chief procurement officer at Alcoa Inc., where she served since 2004 with responsibility for strategic materials, indirect materials and services, non-smelter energy, transportation and capital. Ms. Greenstein joined U. S. Steel from Underwriters Laboratories, Inc. (UL) where she was employed for 12 years and most recently held the position of president, UL Supply Chain and Sustainability. Mr. Soni joined U. S. Steel in 2016. Previously he was with Pentair for six years, most recently serving as Vice President, Business Analysis and Planning from 2012 - 2015. Mr. Soni also held various roles in international and business unit finance, corporateTransformation at Sysco Corporation where during his seven-year tenure, he progressed through a series of executive responsibilities including transformation, sales development and controllership at Honeywell. Mr. Fruehauf joined the Company in 2014 as Assistant General Counsel,support, and was subsequently promoted to Associate General Counsel and Deputy General Counsel. He was named Interim General Counsel in November 2017. Prior to joining U. S. Steel, Mr. Fruehauf served as Senior Counsel and then Assistant General Counsel during his six years at Westinghouse Electric Company LLC. Throughout his career, he has also worked as an attorney at several law firms and other manufacturing companies, and as a national security analyst for several U.S. government agencies.revenue management.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock Information
The principal market on which United States Steel Corporation (U. S. Steel) common stock is traded is the New York Stock Exchange.Exchange, where the common stock trades under trading symbol "X". U. S. Steel common stock is also traded on the Chicago Stock Exchange. Information concerningExchange under the high and low sales price for the common stock as reported in the consolidated transaction reporting system and the frequency and amount of dividends paid during the last two years is set forth in “Selected Quarterly Financial Data (Unaudited)” on page F-57.symbol "X".
As of February 15, 2018,January 29, 2024, there were 13,63210,072 registered holders of U. S. Steel common stock.
The Board of Directors currently intends to declare and pay dividends on shares of U. S. Steel common stock based on the financial condition and results of operations of U. S. Steel out of legally available funds and in accordance with the requirements set forth by applicable law. Quarterly dividends were declared by U. S. Steel in 20172023 and 20162022 in the amount of $0.05five cents per share.
ShareholderPurchases of Equity Securities by the Issuer and the Affiliated Purchasers
There were no share repurchases in the fourth quarter of fiscal 2023. There is approximately $126 million remaining under the Company's share repurchase program.
Stockholder Return Performance
The graph below assumes $100 invested on December 31, 2018, and compares the yearly change in cumulative total shareholderstockholder return of our common stock with the cumulative total return of the Standard & Poor’s (S&P’s)&P) 500 Stock Index and the S&P 600 Steel Index.Index, and assumes that all dividends were reinvested. U. S. Steel is not included in either the S&P 500 Stock Index or S&P 600 Steel Index as to provide a clearer comparison to the selected indices.
Comparison of Cumulative Total Return
on $100 Invested in U.S.U. S. Steel Stock on December 31, 20122018
vs
S&P 500 and S&P 600 Steel Index
(a) U. S. Steel was removed from the S&P 500 Index effective July 1, 2014. Consequently, U. S. Steel is now part of the S&P 600 Steel Index instead of the S&P 500 Steel Index, which is a subset of the S&P 500. Therefore, current year results may not be comparable to prior years.
For information on securities authorized for issuance under our equity compensation plans, see "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."
RecentUnregistered Sales of UnregisteredEquity Securities
U. S. Steel had no sales of unregistered equity securities during the period covered by this report.
Item 6. SELECTED FINANCIAL DATARESERVED
|
| | | | | | | | | | | | | | | | | | | | |
Dollars in millions (except per share data)(a) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Statement of Operations Data: | | | | | | | | | | |
Net sales | | $ | 12,250 |
| | $ | 10,261 |
| | $ | 11,574 |
| | $ | 17,507 |
| | $ | 17,424 |
|
Earnings (loss) before interest and income taxes | | 608 |
| | (165 | ) | | (1,202 | ) | | 413 |
| | (1,900 | ) |
Net earnings (loss) attributable to United States Steel Corporation | | 387 |
| | (440 | ) | | (1,642 | ) | | 102 |
| | (1,645 | ) |
Per Common Share Data: | | | | | | | | | | |
Net earnings (loss) attributable to United States Steel Corporation(b) | | | | | | | | | | |
– basic | | 2.21 |
| | (2.81 | ) | | $ | (11.24 | ) | | $ | 0.71 |
| | $ | (11.37 | ) |
– diluted | | 2.19 |
| | (2.81 | ) | | (11.24 | ) | | 0.69 |
| | (11.37 | ) |
Dividends per share declared and paid | | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
| | 0.20 |
|
Balance Sheet Data – December 31: | | | | | | | | | | |
Total assets (c) (d) | | $ | 9,862 |
| | $ | 9,160 |
| | $ | 9,167 |
| | $ | 11,975 |
| | $ | 12,679 |
|
Capitalization: | | | | | | | | | | |
Debt (d) | | $ | 2,703 |
| | $ | 3,031 |
| | $ | 3,138 |
| | $ | 3,460 |
| | $ | 3,892 |
|
United States Steel Corporation stockholders’ equity | | 3,320 |
| | 2,274 |
| | 2,436 |
| | 3,799 |
| | 3,375 |
|
Total capitalization | | $ | 6,023 |
| | $ | 5,305 |
| | $ | 5,574 |
| | $ | 7,259 |
| | $ | 7,267 |
|
| |
(a) | For discussion of changes between the years, see Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." |
| |
(b) | See Note 8 to the Consolidated Financial Statements for the basis of calculating earnings per share. |
| |
(c) | 2014 and 2013 amounts have been adjusted to retroactively adopt Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet.
|
| |
(d) | 2015, 2014 and 2013 amounts have been adjusted to retroactively adopt Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability.
|
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notesNotes that appear elsewhere in this document. Please refer to Item 7 of our 2022 Form 10-K for further discussion and analysis of our 2021 financial condition and results of operations.
Overview
AccordingIn 2023, the Company continued to World Steel Association’s latest published statistics, execute on its strategy, investing in its future by progressing on key strategic projects, and rewarding stockholders with direct returns, including a quarterly dividend and share repurchases. In the second half of 2023, we quickly responded to changing market dynamics by temporarily idling certain operations, including the indefinite idling of the iron and steel assets at Granite City Works, to better balance steel supply with customer demand.
U. S. Steel's results in 2023 generally declined compared to the previous year for the four reportable segments, except for Tubular Products, due to lower sales prices for products and other challenging business conditions:
•North American Flat-Rolled: Flat-Rolled results declined primarily due to lower sales prices across most product categories.
•Mini Mill: Mini Mill results declined primarily due to lower sales prices across all product categories.
•U. S. Steel was the twenty-fourth largest steel producerEurope: USSE results declined primarily due to lower sales prices across all product categories.
•Tubular: Tubular results improved primarily due to lower variable compensation, increased equity investee earnings, and higher sales prices.
Fluctuations in the world in 2016. Also in 2016 accordingmarket price of raw materials and other inflationary impacts have affected the results of each of our reportable segments, and fluctuations going-forward are reasonably likely to World Steel Association’s latest published statistics, U. S. Steel was the third largest steel producerhave a material impact on future results. We may continue to experience inflation related headwinds for certain raw materials and other costs.
In February 2022, Russia invaded Ukraine and active conflict continues in the United States. U. S. Steelcountry. The war in Ukraine has caused disruptions and instability in Russia, Ukraine, as well as the markets in which we operate. The Company is constantly monitoring the situation for impacts and risks to the business and is implementing risk mitigating strategies where possible. As a broadresult of the invasion, governments around the world, including the European Union and diverse mix of products and customers. We use iron ore, coal, coke, steel scrap, zinc, tin, and other metallic additions to produce a wide range of flat-rolled and tubular steel products, concentrating on value-added steel products for customers with demanding technical applications in the automotive, 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)of America (U.S.), located in Slovakia.
have enacted sanctions against Russia and Russian interests. We are proudcomplying with all applicable sanctions that impact our business.
Since the onset of the war, and before, USSE has been procuring iron ore and coal through alternate sources than Russia, which previously supplied some of USSE's raw materials. With the EU prohibiting purchases of coal from suppliers in Russia, new purchases of coal originating from Russia have stopped. The Company has built up sufficient inventory on site or in-transit to report the following highlightsmeet current customer demand and accomplishments achievedalternate supply chains have been fully implemented.
Additionally, Russian supply of natural gas to Europe has decreased significantly in 2017:
Implemented comprehensive safety program enhancements for employeesresponse to enacted sanctions. However, Slovakia has natural gas storage and contractors,access to help achieve our goal of a safe return home every day
Outperformed the Bureau of Labor Statistics and AISI industry safety benchmarks in both OSHA Recordable Days and Days Away From Work
Reported net earnings of $387 million in 2017
Finished 2017 with adjusted EBITDA of $1.087 billion and positive operating cash flow of $802 million
Strong year-end liquidity of approximately $3.350 billion,additional supply from countries including $1.553 billion of cash, which supports our goal of maintaining a healthy balance sheet
Reduced total debt by $328 million in 2017 as compared to 2016
Successfully completed a $750 million debt offering, providing for future financial flexibility
Improved our cash conversion cycle by 13 days
Made a $75 million voluntary contribution to our defined benefit pension plan, further improving the funded status
| |
• | Launched a new proprietary tubular connection - USS-EAGLE SFHTM and sold our first order of USS-LIBERTY LDTM
|
Began construction of a new continuous galvanizing line at our PRO-TEC joint venture to efficiently produce advanced high strength steels
Initiated a multi-year asset revitalization program that includes $1.5 billion of capital investments in our Flat-Rolled assets
Continue to leadNorway, the U.S. steel industry's effortsand Africa. Together, these sources are enough to strengthen and enforce trade laws against unfairly traded imports
Our management team took several critical actions in recent years, including: idling facilities; right-sizingsupport the organization; and exiting parts ofcountry's expected consumption through the business where it is not possible to earn an economic profit. These were tough decisions and, despite the challenging economic circumstances, U. S. Steel ended 2017 as a more streamlined organization focused on generating economic profit across all business cycles.
We continue to take steps to improve our position2024 winter season, which includes demand for the long-term. The focus on improving the balance sheet and strategically accessing the capital markets enables the Company to move forward and open avenues to future growth and investment.
We have taken these actions as part of our strategy to return to profitable growth and deliver sustainable value creationnatural gas for our stockholders as market conditions improve.USSE segment operations.
Critical Accounting Estimates
Management’s discussion and analysis of U. S. Steel’s financial condition and results of operations is based upon U. S. Steel’s financial statements, which have been prepared in accordance with accounting standards generally accepted in the United States (U.S. GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amount of revenues and expenses during the year. Management regularly evaluates these estimates, including those related to employee benefits liabilities and assets held in trust relating to such liabilities; the carrying value of property, plant and equipment; intangible assets; valuation allowances for receivables, inventories and deferred income tax assets; liabilities for deferred income taxes,taxes; potential tax deficiencies,deficiencies; environmental obligations andobligations; potential litigation claims and settlements.settlements and put and call option assets and liabilities. Management’s estimates are based on historical experience, current business and market conditions, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from current expectations under different assumptions or conditions.
Management believes that the following are the more significant judgments and estimates used in the preparation of the financial statements.
Identifiable
Goodwill and intangible assets - – Goodwill represents the excess of the cost over the fair value of acquired identifiable tangible and intangible assets and liabilities assumed from businesses acquired. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment testing annually, or more frequently if events or changes in circumstances indicate the asset might be impaired. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. Application of the goodwill impairment test requires judgment.
We review goodwill for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. If we choose to perform a qualitative assessment and we determine that the fair value of the reporting unit more likely than not
exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the quantitative goodwill impairment test, we compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, we do not consider the goodwill impaired. If the carrying value is higher than the fair value, we recognize the difference as an impairment loss.
A quantitative goodwill impairment testing process requires valuation of the respective reporting unit, which we primarily determine using an income approach based on a discounted cash flow forecast covering discrete periods of time including a terminal value. We compute the terminal value using the constant growth method, which values the forecasted cash flows in perpetuity. The assumptions about future cash flows and growth rates are based on the respective reporting unit's long-term forecast and are subject to review and approval by senior management. A reporting unit's discount rate is a significant assumption and is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. We categorize the fair value determination as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
Our Mini Mill reporting unit holds the goodwill recognized as a result of the Company's acquisition of Big River Steel and currently is our only reporting unit that has a significant amount of goodwill. This goodwill is primarily attributable to Big River Steel's operational abilities, workforce and the anticipated benefits from their recent expansion. U. S. Steel completed its annual goodwill impairment test using a qualitative assessment during the fourth quarter of 2023 and determined there was no impairment of goodwill.
Intangible assets with indefinite lives are also subject to at least annual impairment testing, which compares the fair value of the intangible assets with their carrying amounts. U. S. Steel has determined that certain of its acquired intangible assets have indefinite useful lives. These assets are also reviewed for impairment annually in the thirdfourth quarter and whenever events or circumstances indicate the carrying value may not be recoverable. U. S. Steel performed a quantitative impairmentcompleted its annual evaluation of its indefinite-lived intangible assets, which consist of its water rights during the third quarterusing a qualitative assessment and determined there was no indication of 2017. Based on the results of the evaluation, U. S. Steel's indefinite-lived intangible assets were not impaired. Based on the results of the quantitative impairment evaluation performed during 2016, the water rights were not impaired. Priorimpairment. Key assumptions included in this test relate to the fourth quarterrelevant market rate of 2016, U. S. Steel hadan acre foot of water.
If business conditions deteriorate or other factors have an adverse effect on our qualitative and quantitative estimates, inclusive of discounted future cash flows or assumed growth rates, or if we experience a sustained decline in process research and development patents that had indefinite useful lives. Based on the resultsour market capitalization, future assessments of thegoodwill for impairment evaluation, the estimated fair value of the patents had decreased below their carrying value. As amay result anin impairment charge of approximately $14 million was recorded in the third quarter of 2016. The research and development activities of the Company's acquired indefinite lived in-process research and development patents was completed during the fourth quarter of 2016 and the carrying amount of the patents is being amortized over the useful lives of the patents (approximately 10 years).charges.
Identifiable
Finite-lived intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are reviewedtested for impairment wheneverwhen events or circumstancesoccur that indicate that the carryingnet book value maywill not be recoverable. During 2016,recovered over future cash flows.
Business combinations – We account for business combinations under the permanent shutdownacquisition method of certain Lorain, Lone Staraccounting in accordance with ASC Topic 805, Business Combinations, which requires an allocation of the consideration we paid to the identifiable assets, intangible assets and Bellville tubularliabilities based on the estimated fair values as of the closing date of the acquisition. The excess of the fair value of the purchase price over the fair values of these identifiable assets, was considered a triggering event for our weldedintangible assets and seamless tubular asset groups. U. S. Steel completed a reviewliabilities is recorded as goodwill.
Purchased intangibles are initially recognized at fair value and amortized over their useful lives unless those lives are determined to be indefinite. The valuation of certainacquired assets will impact future operating results. The fair value of its identifiable intangible assets is determined using an income approach on an individual asset with finite lives, primarily customer relationships with a carrying value of $73 million at December 31, 2016, and determinedbasis. Specifically, we use the assets were not impaired. There were no triggering events that indicatedmulti-period excess earnings method to estimate the carryingfair value of the customer relationships may not be recoverable in 2017.intangible asset. Determining the fair value of the customer relationships intangible asset involves significant judgements and assumptions, including expected realized price, base year metallic costs, contributory asset charges, and customer attrition rate.
Inventories – Inventories are carried at the lower of cost or market for last-in, first-out (LIFO) inventories, moving average and lower of cost and net realizable value for first-in, first-out (FIFO) method inventories. LIFO is theThe predominant method of inventory costing for inventories in the United StatesFlat-Rolled and Tubular is LIFO. The Mini Mill segment uses FIFO for raw materials and a moving average costing method to account for semi-finished and finished products. FIFO is the predominant inventory costing method used in Europe.by the USSE segment. The LIFO method of inventory costing was used on 7553 percent and 43 percent of consolidated inventories at both December 31, 20172023, and 2016.2022, 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 endyear-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. During the fourth quarter of 2016, the Company completed a review of its equity method investments and determined there was an other than temporary impairment of its Apolo equity investment due to the intent to sell its ownership interest at an amount less than the carrying value of the investment. Accordingly, U. S. Steel recorded an impairment charge of $12 million, which reduced the carrying value of the investment to $18 million at December 31, 2016. U. S. Steel sold its ownership interest in this equity investment in 2017. During the fourth quarter of 2015, U. S. Steel completed a review of its equity method investments and determined there was an other than temporary impairment of an equity investee within a non-core operating segment of U. S. Steel. The other than temporary impairment resulted from a decision to cease the funding of the long-term development plans of the equity investment, due to our intent to sell the particular investment, thereby inhibiting sufficient recovery of the market value. Accordingly, U. S. Steel recorded an impairment charge of $18 million, which reduced the carrying amount of the equity investment to $3 million, in the fourth quarter of 2015. U. S. Steel's ownership interest in this investment was sold in 2017.
Pensions and other benefitsOther Benefits – The recording of net periodic benefit costs for defined benefit pensions and other benefitsOther Benefits is based on, among other things, assumptions of the expected annual return on plan assets, discount rate, mortality, escalation or other changes in retiree health care costs and plan participation levels. Changes in the assumptions or differences between actual and expected changes in the present value of liabilities or assets of U. S. Steel’s plans could cause net periodic benefit costs to increase or decrease materially from year to year as discussed below.
U. S. Steel’s investment strategy for its U.S. pension and Other Benefits plan assets provides for a diversified mix of high-quality bonds, public equities high quality bonds and selected smaller investments in private equities, investment trusts and partnerships,private credit, timber and mineral interests. For its U.S. pension, plan, U. S. Steel has a target allocation for plan assets of 5569 percent in equities (inclusive offixed income investments. The balance is invested in equity securities, timber, private equity and investment trusts). The balance is primarily invested in corporate bonds, Treasury bonds and government-backed mortgages.real estate partnerships. U. S. Steel believes that returns on equities over the long term will be higher than returns from fixed-income securities as actual historical returns from U. S. Steel’s trusts have shown. Returns on bonds tend to offset some of the short-term volatility of stocks. Both equity and fixed-income investments are made across a broad range of industries and companies (both domestic and foreign) to provide protection against the impact of volatility in any single industry as well as company specific developments. U. S. Steel will use a 6.856.90 percent assumed rate of return on assets for the development of net periodic cost for the main defined benefit pension plan in 2018. The 2018 assumed rate of return is lower than the rate of return used for 2017 domestic expense and was determined by taking into account the intended asset mix and some moderation of the historical premiums that fixed-income and equity investments have yielded above government bonds.2024. Actual returns since the inception of the plansplan have exceeded this 6.856.90 percent rate and while recent annual returns have been volatile, it is U. S. Steel’s expectation that rates will achieve this level in future periods.
For its other benefitsOther Benefits plan, assets, U. S. Steel employsis employing a liability driven investment strategy. The plan assets are allocated to match the plan cash flows with maturing investments. To achieve this strategy, U. S. Steel has a target allocation for plan assets of 9080 percent in high quality domestic bonds with thefixed income and private credit. The balance is primarily invested in equity securities.securities, timber, private equity and real estate partnerships. U. S. Steel will use a 4.256.00 percent assumed rate of return on assets for the development of net periodic cost for its other benefits plans.Other Benefit plans for 2024. The 20182024 assumed rate of return has been conservatively set, taking into accountwas updated after a review of capital market forecasted returns based on target allocations. Therefore, the intendedexpected asset mix.return for 2024 will be 6.00 percent.
The expected long-term rate of return on plan assets is applied to the market value of assets as of the beginning of the period less expected benefit payments and considering any planned contributions.
To determine the discount rate used to measure our pension and other benefitOther Benefit obligations in 2016 and prior years, the discount rate for our U.S. plans was determined by utilizing several AAA and AA corporate bond indices as an indication of interest rate movements and levels. In 2017, we refined our discount rate determination process for our U.S. plans by usingutilize a bond matching approach to select specific bonds that would satisfy our projected benefit payments. At December 31, 2017,2023, the weighted average discount rate used for our pension and other benefitOther Benefit obligations was determined to be 4.005.49 percent and 4.035.58 percent, respectively, compared to the weighted average discount rate used of 4.005.55 percent and 4.005.66 percent, respectively,
at December 31, 2016.2022. The discount rate reflects the current rate at which we estimate the pension and other benefitsOther Benefits liabilities could be effectively settled at the measurement date.
At December 31, 2017, due to recent experience study on plan retirees, the Company updated the mortality assumptions used to calculate its main U.S. defined benefit pension and other post-employment benefit liabilities. As a result of this change in mortality assumptions, our projected benefit obligations have increased by $194 million and $42 million for pension and other benefits, respectively. However, this increase was more than offset by strong asset returns and a voluntary contribution of $75 million to our main domestic pension plan in 2017. As a result, the funded status of our pension and other benefit plans improved by $357 million and $111 million, respectively.
U. S. Steel reviews its actual historical rate experience and expectations of future health care cost trends to determine the escalation of per capita health care costs under U. S. Steel’s benefit plans. Approximately three quarters80 percent of our costs for the domestic United Steelworkers (USW) participants’ retiree health benefits in the Company’s main domestic benefit plan are limited to a per capita dollar maximum calculation based on 2006 base year actual costs incurred under the main U. S. Steel benefit plan for USW participants (cost cap). The full effect of the cost cap is expected to be realized around 2024.2030. After 2024,2030, 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(see Note 1718 to the Consolidated Financial Statements). For measurement of its domestic retiree medical plans where health care cost escalation is applicable, U. S. Steel has assumed an initial escalation rate of 7.05.90 percent for 2018.2024. This rate is assumed to decrease gradually to an ultimate rate of 5.04.50 percent in 20222038 and remain at that level thereafter.
Net periodic pension benefit cost (credit), including multiemployer plans, is expected to total approximately $135$88 million in 20182024 compared to $109$51 million in 2017.2023. Excluding the settlement termination and curtailmentspecial termination losses totaling $7$13 million in 2017,2023, the increase in expected expensenet periodic pension benefit cost in 20182024 is primarily due to lower expected return on assets and updates to the mortality assumption, partially offset by the impactdelayed recognition of above expectedprior year asset returns for 2017. Totallosses. Net periodic other benefits costsbenefit (credit) in 2018 are2024 is expected to be approximately $60$(102) million, compared to $78$(83) million in 2017.2023. The decreaseexpected increase in expense in 2018the 2024 net periodic other benefit (credit) is primarily a result ofdue to the higher expected return on assets assumption.in 2024. See Note 18 to the Consolidated Financial Statements, “Pensions and Other Benefits.”
A sensitivity analysis ofThe table below projects the projected incremental effect of a hypothetical one percentage point change in the significant assumptions used in determining the funded status and net periodic benefit cost for pension and other benefits calculations is provided in the following table:benefits:
| | | | | | | | | | | | | | |
| | Hypothetical Rate Change Increase (Decrease) |
(In millions) | | 1% | | (1)% |
Expected return on plan assets | | | | |
Incremental (decrease) increase in: | | | | |
Net periodic pension and other benefits costs for 2024 | | $ | (55) | | | $ | 55 | |
Discount rate | | | | |
Incremental (decrease) increase in: | | | | |
Net periodic pension and other benefits costs for 2024 | | $ | (9) | | | $ | 11 | |
Pension & other benefits obligations at December 31, 2023 | | $ | (390) | | | $ | 455 | |
|
| | | | | | | | |
| | Hypothetical Rate Increase (Decrease) |
(In millions) | | 1% | | (1)% |
Expected return on plan assets | | | | |
Incremental (decrease) increase in: | | | | |
Net periodic pension costs for 2018 | | $ | (72 | ) | | $ | 72 |
|
Discount rate | | | | |
Incremental (decrease) increase in: | | | | |
Net periodic pension & other benefits costs for 2018 | | $ | (8 | ) | | $ | 6 |
|
Pension & other benefits obligations at December 31, 2017 | | $ | (743 | ) | | $ | 885 |
|
Health care cost escalation trend rates | | | | |
Incremental increase (decrease) in: | | | | |
Other post-employment benefit obligations | | $ | 99 |
| | $ | (85 | ) |
Service and interest costs components for 2018 | | $ | 5 |
| | $ | (4 | ) |
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. (SeeSee Note 1718 to the Consolidated Financial Statements for a discussion regarding legislation enacted in NovemberMarch of 20152021 that impacts the discount rate used for funding purposes.) For further cash flow discussion see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, – Financial Condition, Cash FlowsLiquidity and Liquidity – Liquidity.Capital Resources.”
Long-lived assets – U. S. Steel evaluates long-lived assets, primarily property, plant and equipment for impairment whenever changes in circumstances indicate that the carrying amounts of those productive assets exceed their recoverable amount as determined by the asset group's projected undiscounted cash flows. We evaluate the impairment of long-lived assets at the asset group level. Our primary asset groups are Flat-Rolled, Mini Mill, USSE, welded tubular and seamless tubulartubular.
In the fourth quarter 2023, the Company recognized charges of approximately $123 million for impairment of indefinitely idled iron and U. S. Steel Europe (USSE). During 2017,steel making assets at Granite City Works. Impairment charges of approximately $151 million and $128 million were recognized for the write-off of iron making and steel making assets at Great Lakes Works in 2022 and 2021, respectively. The coil finishing processes at Granite City Works and Great Lakes Works continue to operate and remain components of the Company's operating plans. In 2021, there were additional impairments of $88 million and $56 million for equipment at Gary Works related to steel production intended for petroleum conveying pipe and the transfer of endless casting and rolling equipment from Mon Valley Works to BR2, respectively.
There were no other triggering events that required long-lived assets to be evaluated for impairment. During 2016, the permanent shutdownan impairment evaluation of certain Lorain, Lone Star and Bellville tubular assets was considered a triggering event for our welded and seamless tubular asset groups. U. S. Steel completed a quantitative analysis of its long-lived assets for these asset groups withinduring the Tubular segment, and determined that the remaining assets were not impaired. The welded tubular asset group had a carrying value of $410 million atyears ended December 31, 20162023, 2022 and the recoverable amount exceeded this carrying value by approximately $93 million, or 23 percent. The seamless tubular asset group had a carrying value of $210 million at December 31, 2016 and the recoverable amount exceeded this carrying value by $220 million, or 106 percent. The key assumption used to estimate the recoverable amounts for both the welded and seamless tubular asset groups was the forecasted price of oil over the 11-year average remaining useful lives of the assets within the asset groups. Management will continue to monitor market and economic conditions for triggering events that may warrant further review of long-lived assets.2021.
Taxes –-U. S. Steel records a valuation allowance, related to certain state net operating losses, state tax credits and unused capital losses, to reduce deferred tax assets to the amount that is more likely than not to be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Each quarter U. S. Steel analyzes the likelihood that our deferred tax assets will be realized.
At December 31, 2015, it was determined that a valuation allowance against our entire net domestic deferred tax asset was required. As a result, U. S. Steel recorded a non-cash charge to tax expense. This determination, which is evaluated each quarter, was based upon the following forms of negative evidence concerning U. S. Steel's ability to use some or all of its domestic deferred tax assets:
U. S. Steel's domestic operations had generated significant losses in recent years and there was uncertainty regarding the Company's ability to generate domestic income in the near term,
some of our domestic deferred tax assets were carryforwards, which have expiration dates, and
the global steel industry was experiencing global overcapacity, which was driving adverse economic conditions,
including depressed selling prices for steel products and increased foreign steel imports into the U.S.
Most positive evidence can be categorized into one of the four sources of taxable income sequentially. These are (from least to most subjective):
taxable income in prior carryback years, if carryback is permitted
future reversal of existing taxable temporary differences
tax planning strategies, and
future taxable income exclusive of reversing temporary differences and carryforwards
U. S. Steel utilized all available carrybacks, and therefore, our analysis at December 31, 2015 focused on the other sources of taxable income. Our projection of the reversal of our existing temporary differences generated significant taxable income. This source of taxable income, however, was not sufficient to project full utilization of U. S. Steel’s domestic deferred tax assets. To assess the realizability of the remaining domestic deferred tax assets, U. S. Steel analyzed its prudent and feasible tax planning strategies.
At December 31, 2015, after weighing all the positive and negative evidence, U. S. Steel determined that it was more likely than not that the net domestic deferred tax asset (excluding a deferred tax liability with an indefinite life) may not be realized. As a result, U. S. Steel recorded a valuation allowance of $804 million.
At December 31, 2016, the valuation allowance was increased by $305 million due to an increase in the net domestic deferred tax asset.
At December 31, 2017, after weighing all the positive and negative evidence, U. S. Steel determined that it was still more likely than not that the net domestic deferred tax asset (excluding a deferred tax asset related to refundable alternative minimum tax (AMT) credits and a deferred tax liability related to an asset with an indefinite life) may not be realized. The valuation allowance was decreased by $505 million due to the reduction in the corporate income tax rate pursuant to the Tax Cut and Jobs Act of 2017 (the 2017 Act) and current year activity. U. S. Steel will continue to monitor the realizability of its deferred tax assets on a quarterly basis. In the future, if we determine that realizationit is
more likely than not forthat we will be able to realize all or a portion of our deferred tax assets, with a valuation allowance, the related valuation allowance will be reduced, and we will record a non-cash net benefit to earnings.
In 2021, U. S. Steel determined, based upon weighing all positive and negative evidence, that a full valuation allowance for the domestic deferred tax assets was no longer required. Accordingly, we reversed all of the domestic valuation allowance except for a portion of the domestic valuation allowance related to certain state net operating losses and state tax credits. During the year ended December 31, 2021, we realized a non-cash net benefit of $715 million related to the valuation allowance release, which was partially offset by the addition of a valuation allowance of $82 million, the majority of which relates to an unused capital loss generated in the fourth quarter of 2021.
At the end of both 20172023 and 2016,2022, 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
For further information 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 adjustmentincome taxes see Note 11 to the liability would be recorded through income in the period such determination was made.Consolidated Financial Statements.
Environmental remediation– U. S. Steel has been identified as a potentially responsible party (PRP)PRP at sevenfive sites under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA)CERCLA as of December 31, 2017.2023. Of these, there are twothree sites where information requests have been received or there are other indications that U. S. Steel may be a PRP under CERCLA, but where sufficient information is not presently available to confirm the existence of liability or to make a reasonable estimate with respect to any potential liabilities. There are also 19eight additional sites where U. S. Steel may be liable for remediation costs in excess of $100,000$1 million under other environmental statutes, both federal and state, or where private parties are seeking to impose liability on U. S. Steel for remediation costs through discussions or litigation. At many of these sites, U. S. Steel is one of a number of parties involved and the total cost of remediation, as well as U. S. Steel’s share, is frequently dependent upon the outcome of ongoing investigations and remedial studies. U. S. Steel accrues for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. As environmental remediation matters proceed toward ultimate resolution or as remediation obligations arise, charges in excess of those previously accrued may be required.
Consistent with the prior year,
U. S. Steel's accrual for environmental liabilities for U.S. and international facilities as of December 31, 20172023, and 2022 was $179 million.$107 million and $126 million, respectively. These amounts exclude liabilities related to asset retirement obligations, disclosed in Note 1819 to the Consolidated Financial Statements.
U. S. Steel is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the Consolidated Financial Statements.
For discussion of relevant environmental items, see “Part I. Item 3. Legal Proceedings—Environmental Proceedings.”
Segments
U. S. Steel has threefour reportable segments: North American Flat-Rolled, Products (Flat-Rolled),Mini Mill, USSE and 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 Flat-Rolled segment includes the operating results of U. S. Steel’s integrated steel plants and equity investees in North America involved in the production of slabs, strip mill plates, sheets and tin mill products, as well as all iron ore and coke production facilities in the United States. These operations primarily serve North American customers in the service center, conversion, transportation (including automotive), construction, container, and appliance and electrical markets. Additionally, the Flat-Rolled segment consists of the following three commercial entities to specifically address our customers and service their needs: (1) automotive solutions, (2) consumer solutions, and (3) industrial, service center and mining solutions.
Flat-Rolled has historically supplied steel rounds and hot-rolled bands to Tubular. In the third quarter of 2015, the blast furnace and associated steelmaking operations, along with most of the flat-rolled finishing operations at Fairfield Works were shutdown. Therefore, Flat-Rolled is currently not supplying rounds to Tubular, and will not in the future.
The USSE segment includes the operating results of U. S. Steel Košice (USSK), U. S. Steel’s integrated steel plant and coke production facilities in Slovakia, and its subsidiaries. USSE primarily serves customers in the Eastern European construction, service center, conversion, container, transportation (including automotive), appliance and electrical, and oil, gas and petrochemical markets. USSE produces and sells slabs, sheet, strip mill plate, tin mill products and spiral welded pipe, as well as heating radiators and refractory ceramic materials.
The Tubular segment includes the operating results of U. S. Steel’s tubular production facilities, in the United States, and equity investees in the United States and Brazil. Our ownership interest in the equity investment in Brazil was sold in December of 2017. 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. In March 2017, U. S. Steel made the strategic decision to permanently shutdown the Lorain No. 6 Quench & Temper Mill and relocate the equipment. During the fourth quarter of 2016, certain of our tubular assets within the Tubular segment were permanently shut down, including Pipe Mill #1 at our Lone Star facility, Pipe Mill #4 at our Lorain facility and our Bellville facility, as a result of the challenging market conditions for tubular products. Additionally, we sold the assets at our McKeesport tubular operations in 2016.
Products. For further description of segment operations and information see Item 1 Segments and Note 4 to the Consolidated Financial Statements.Statements, respectively.
Net Sales
Net Sales by Segment
|
| | | | | | | | | | | | |
(Dollars in millions, excluding intersegment sales) | | 2017 | | 2016 | | 2015 |
Flat-Rolled | | $ | 8,297 |
| | $ | 7,507 |
| | $ | 8,293 |
|
USSE | | 2,949 |
| | 2,243 |
| | 2,323 |
|
Tubular | | 944 |
| | 449 |
| | 898 |
|
Total sales from reportable segments | | 12,190 |
| | 10,199 |
| | 11,514 |
|
Other Businesses | | 60 |
| | 62 |
| | 60 |
|
Net sales | | $ | 12,250 |
| | $ | 10,261 |
| | $ | 11,574 |
|
Net sales by segment for the years ended December 31, 2023, and 2022 are set forth in the following table:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | |
(Dollars in millions, excluding intersegment sales) | 2023 | | 2022 | | % Change |
Flat-Rolled | $ | 10,744 | | | $ | 12,522 | | | (14) | % |
Mini Mill | 2,223 | | | 2,681 | | | (17) | % |
USSE | 3,525 | | | 4,243 | | | (17) | % |
Tubular | 1,551 | | | 1,611 | | | (4) | % |
Total sales from reportable segments | 18,043 | | | 21,057 | | | (14) | % |
Other | 10 | | | 8 | | | 25 | % |
Net Sales | $ | 18,053 | | | $ | 21,065 | | | (14) | % |
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:table:
Year Ended December 31, 2017 versus Year December 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| Steel Products(a) | | |
Year Ended December 31, 2023 versus Year Ended December 31, 2022 | Volume | Price | Mix | FX(b) | Other(c) | Net Change |
Flat-Rolled | 3 | % | (15) | % | (1) | % | — | % | (1) | % | (14) | % |
Mini Mill | 6 | % | (26) | % | 3 | % | — | % | — | % | (17) | % |
USSE | 3 | % | (20) | % | (3) | % | 3 | % | — | % | (17) | % |
Tubular | (9) | % | 5 | % | (1) | % | — | % | 1 | % | (4) | % |
(a) Excludes intersegment sales. |
(b) Foreign currency translation effects. |
(c) Primarily consists of sales of raw material and coke making by-products |
|
| | | | | | | | | | | | | | | | | | |
| | Steel Products(a) | | | | |
Volume | | Price | | Mix | | FX(b) | | Coke, Pellets & Other(c) | | Net Change |
Flat-Rolled | | (3 | )% | | 26 | % | | (16 | )% | | — | % | | 4 | % | | 11 | % |
USSE | | 2 | % | | 26 | % | | — | % | | 2 | % | | 1 | % | | 31 | % |
Tubular | | 74 | % | | 13 | % | | 17 | % | | — | % | | 6 | % | | 110 | % |
| |
(a) | Excludes intersegment sales |
| |
(b) | Foreign currency translation effects |
| |
(c) | Includes sales of scrap inventory |
The increase inNet sales for the year ended December 31, 2023, compared to the same period in 2022 were $18,053 million and $21,065 million, respectively.
•For the Flat-Rolled segment, the decrease in sales primarily reflectedresulted from lower average realized prices ($231 per ton) across most products, partially offset by increased shipments (333 thousand tons) from a mix of product values.
•For the Mini Mill segment, the decrease in sales primarily resulted from lower average realized prices ($259 per ton)
across all products, partially offset by increased shipments (137 thousand tons) from higher value products.
•For the USSE segment, the decrease in sales primarily resulted from lower average realized prices ($217 per ton)
across all products, partially offset by increased shipments (140 thousand tons) from lower value products.
•For the Tubular segment, the decrease in sales primarily resulted from decreased shipments (45 thousand tons), partially offset by higher average realized prices (increase of $60($159 per net ton) as a result of improved market conditions, notably for hot-rolled products, that resulted in spot price increases in 2017 as well as price increases for both market-based and firm priced contracts from 2016 to 2017, and sales also increased due to a favorable impact from higher third-party pellet sales. These increases were partially offset by a lower value product mix and decreased shipments (decrease of 207 thousand net tons).
The increase in sales for the USSE segment was primarily due to higher average realized euro-based prices (increase of €115 per net ton) as a result of lower imports and increased shipments (increase of 89 thousand net tons).
The increase in sales from 2016 to 2017 for the Tubular segment primarily reflected increased shipments (increase of 288 thousand net tons), a favorable impact on product mix as a result of increased shipments of seamless tubular products, and higher average realized prices (increase of $182 per net ton) as a result of improved market conditions.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
|
| | | | | | | | | | | | | | | | | | |
| | Steel Products(a) | | | | |
Volume | | Price | | Mix | | FX(b) | | Coke, Pellets & Other(c) | | Net Change |
Flat-Rolled | | (4 | )% | | (3 | )% | | — | % | | — | % | | (2 | )% | | (9 | )% |
USSE | | 3 | % | | (5 | )% | | (1 | )% | | — | % | | — | % | | (3 | )% |
Tubular | | (27 | )% | | (24 | )% | | 2 | % | | — | % | | (1 | )% | | (50 | )% |
| |
(a) | Excludes intersegment sales |
| |
(b) | Foreign currency translation effects |
| |
(c) | Includes sales of scrap inventory |
The decrease in sales for the Flat-Rolled segment primarily reflected lower shipments (decrease of 501 thousand net tons, which includes the reduction in shipments due to the permanent shutdown of Fairfield Flat-Rolled Operations, as well as operational issues across our Flat-Rolled facilities) and lower average realized prices (decrease of $29 per net ton) as a result of market conditions, including high import levels, which have served to reduce shipment volumes and depress both spot and contract prices. In the second half of 2016 we experienced unplanned outages at several of our steelmaking and finishing facilities and our operating configuration in 2016 extended the time it took to recover volumes from unplanned outages.
The decrease in sales for the USSE segment was primarily due to lower average realized euro-based prices (decrease of €28 per net ton), partially offset by an increase in shipments (increase of 139 thousand net tons).
The decrease in sales from 2015 to 2016 for the Tubular segment primarily reflected lower shipments (decrease of 193 thousand net tons) and lower average realized prices (decrease of $393 per net ton) as a result of reduced drilling activity caused by low crude oil prices and continued high import levels.
Operating Expenses
Union profit-sharing costs
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
(Dollars in millions) | | 2023 | | 2022 |
Allocated to segment results | | $ | 149 | | | $ | 442 | |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
(Dollars in millions) | | 2017 | | 2016 | | 2015 |
Allocated to segment results | | $ | 35 |
| | $ | 3 |
| | $ | — |
|
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.
Effective January 1, 2016, profit-based
Profit-based amounts per the 2015 Labor Agreements are calculated and paid on a quarterly basis as a percentage of consolidated earnings (loss) before interest and income taxes based on 7.5 percent of profit between $10 and $50 per ton and 15 percent of profit above $50 per ton (10 percent of profit above $50 per ton in prior periods).ton.
The amounts above represent profit-sharing amounts paid to active USW-represented employees and are included in cost of sales on the Consolidated Statement of Operations.
PensionNet periodic pension and other benefits costs
Pension and other benefit costs (other than service cost) are reflected within net interest and other financial (benefits) costs and the service cost component is reflected within cost of sales in the Consolidated Statements of Operations.
Defined benefit and multiemployer pension plan costs included in cost of sales totaled $109$116 million in 2017, $1062023 and $119 million in 20162022.
Other benefit service cost included in cost of sales totaled $6 million in 2023 and $291 million during 2015. Plan costs in 2017, 2016 and 2015 included $7 million, $13 million and $35 million of settlement and curtailment costs, respectively. Excluding these costs, the $9 million increase from 2016 to 2017 is primarily due to lower expected return on assets, updates to the mortality assumption and unfavorable retirement experience. U. S. Steel calculates its market-related value of assets such that investment gains or losses as compared to expected returns are recognized over a three-year period. To the extent that deferred gains and losses on plan assets are not yet reflected in this calculated value, the amounts do not impact expected asset returns or the net actuarial gains or losses subject to amortization within the net periodic pension expense calculation. (See Note 17 to the Consolidated Financial Statements.)2022.
In November 2015, pension stabilization legislation further extended a revised interest rate formula to be used to measure defined benefit pension obligations for calculating minimum annual contributions. The new interest rate formula results in higher interest rates for minimum funding calculations as compared to prior law over the next few years, which will improve the funded status of our main defined benefit pension plan and reduce minimum required contributions. In 2017, the Company made a voluntary contribution of $75 million to the U. S. Steel Retirement Plan Trust, which is the funding vehicle for the Company's main defined benefit pension plan. Historically, U. S. Steel has made voluntary contributions to our main U.S. defined benefit plan, including a voluntary stock contribution of $100 million in 2016. U. S. Steel will monitor the status of the plan to determine when voluntary contributions may be prudent to mitigate potentially larger mandatory contributions in later years.
Costs related to defined contribution plans totaled $42 million during 2017, 2016 and 2015.
Other benefits (income), which are included in earnings (loss) before interest and income taxes, totaled $78$50 million in 2017, $(5)2023 and $47 million in 2016 and $(40) million in 2015. The $83 million increase in expense from 2016 to 2017 is primarily due to lower return on assets assumptions as a result of actions taken in 2016 to de-risk the OPEB plan. For additional information on pensions and other benefits, see Note 17 to the Consolidated Financial Statements.2022.
Selling, general and administrative expenses
Selling, general and administrative expenses were $375$501 million in 2017, $255and $422 million in 2016for the years ended December 31, 2023, and $415 million in 2015.December 31, 2022, respectively. The increase from 2016 to 2017 is primarily related to higher pension and other benefit costs, as discussed above. The decrease from 2015 to 2016 is primarily related to lower pension costs,change between periods was primarily due to increased costs related to the freezing of benefit accruals for non-represented participants effective December 31, 2015 and the natural maturation of our pension plans, offset by better asset performance, as well as impacts from Company-wide headcount reductions.Company's strategic alternatives review process.
Operating configuration adjustments
Over the past three years, the
The Company has adjustedadjusts its operating configuration in response to challengingchanges in market conditions, as a result of global overcapacity, andimport competition arising from unfair trade practices, byand changes in customer demand. These operating configuration adjustments can include indefinitely and temporarily idling certain of its facilities as well as restarting production at certain of its facilities.
Idled Operations
In the fourth quarter of 2023, the Company indefinitely idled its subsidiary in Pittsburg, California, USS-UPI, LLC ("UPI"), resulting in restructuring and other charges in 2023 of $3 million and $30 million and $89 million in 2022 and 2021, respectively. Also, in the fourth quarter of 2023, the Company indefinitely idled the iron and steel making assets at Granite City Works which resulted in a non-cash asset impairment of $123 million and additional charges of $107 million primarily for take-or-pay commitments and employee-related costs. The hot-strip mill, cold mill and coating lines at Granite City Works continue to operate.
In the first quarter of 2023, the Company completed the previously announced permanent shutdown of coke batteries numbers 1 through 3 at the Mon Valley Works.
In 2022, U. S. Steel indefinitely idled the majority of the tin mill operations at Gary Works. This included the Tin Line #5 and the Tin Line #6. As of December 31, 2017,2023, the following facilities are temporarily idled:carrying value of the indefinitely idled tin mill operations assets at Gary Works is $70 million. Tin mill operations continue to operate at the Midwest plant.
Temporarily Idled:At Great Lakes Works, the Company permanently idled the steelmaking operations in 2021, and the ironmaking operations in 2022, which resulted in non-cash impairments of $128 million and $151 million, respectively. The coil finishing process at Great Lakes Works continues to operate and remains a component of the Company's operating plans.
The Company's Lorain Tubular Processing (idledOperations, Lone Star Tubular Operations and the Wheeling Machine Products coupling production facility at Hughes Springs, Texas were initially idled in April 2015)
Granite City Works - Steelmaking Operations (idled in2020 and remained indefinitely idled as of December 2015)
31, 2023. The carrying value of the long-lived assets associated with the temporarily idled facilities listed above total approximately $160 million.
Other Strategic Decisions
In March 2017, U. S. Steel made the strategic decision to permanently shutdown the Lorain No. 6 Quench & Temper Mill and relocate the equipment.
In December 2016, U. S. Steel made the strategic decision to permanently shutdown the Lorain #4 and Lone Star #1 pipe mills and the Bellville Tubular Operations after considering a numberassets is $55 million as of factors, including challenging market conditions for tubular products, reduced rig counts, and high levelsDecember 31, 2023.
U. S. Steel will continue to evaluate potential strategic and organizational opportunities, which may include the acquisition, divestiture or consolidation of assets. Given recent market conditions, the cyclicality of our industry, and the continued challenges faced by the Company, we are focused on strategically maintaining and spending cash (including capital investments under our asset revitalization program), in order to invest in areas consistent with our long-term strategy, and are considering various possibilities, including exiting lines of business and the sale of certain assets, that we believe would ultimately result in a stronger balance sheet and greater stockholder value. The Company will pursue opportunities based on its long-term strategy, and what the Board of Directors determines to be in the best interests of the Company's stockholders at the time.
Better operating performance in our Flat-Rolled segment, coupled with relatively stable market conditions during 2017, have resulted in improved segment results in recent quarters. As we continue with the implementation of our asset revitalization program, described below, and increase investment in our facilities, we expect the sustainable improvements in safety, quality, delivery and costs we are targeting to position us to succeed over the long term, and support future growth initiatives.
Asset Revitalization
As part of our long-term strategy, the Board of Directors has approved a $2 billion multi-year asset revitalization program focused on our Flat-Rolled segment. The program is structured over four years, and involves capital investments totaling approximately $1.5 billion. Management evaluated performance in the key industries we serve, and developed projects across multiple Flat-Rolled segment assets with a focus on continuous improvement in safety, quality, delivery and cost. The Company views this program as essential to improving predictability and our ability to compete effectively in the industry. As we revitalize our assets, we expect to increase profitability, productivity, and operational stability, and reduce volatility.
The asset revitalization program includes projects to address short-term operational and maintenance enhancements as well as larger initiatives. The projects vary in scope and cost. The investments specifically address issues that are critical to delivering quality products to our customers in a timely manner.
The identified projects and schedule may change to address our customers’ needs, current and future economic operating conditions, and risks identified in the production cycle. Through the multi-year asset revitalization program, we expect to make total capital investments of $1.5 billion, which consist of capital investments in our iron making facilities, steel making facilities, hot rolling facilities, and finishing facilities. The Company plans to fund the program through cash generated from operations and cash on hand.
Our total capital expenditures for 2017 were $505 million, which includes $249 million for the Company’s asset revitalization program.
Depreciation, depletion and amortization
Depreciation, depletion and amortization expenses were $501$916 million in 2017, $5072023 and $791 million in 20162022. The increase in 2023 from the prior year is due to accelerated depreciation resulting from operational decisions at facilities in the Flat-Rolled segment, primarily UPI and $547 million in 2015. Depreciation expense in 2017 was consistent with 2016 depreciation expense. The decrease from 2015 to 2016 is primarily related to the write-off of assets as a result of the permanent shutdown of the Fairfield Flat-Rolled Operations in 2015.Granite City Works.
Earnings from investees
Earnings from investees was $44were $115 million in 2017, $982023 compared to $243 million in 2016 and $38 million in 2015.2022. The decrease in 2023 from 2016 to 2017the prior year is primarily due to decreased current year earnings from our PRO-TEC joint venture finishing and mining affiliates. The increase from 2015 to 2016 is primarily due to increased earnings from our joint venture mining affiliates, partially offset by a $12 million impairment charge for an equity investee.higher input costs.
Restructuring and Other Charges
During 2017, U. S. Steel2023, the Company recorded net restructuring and other charges of approximately $31$36 million, which consists of charges of $37 millionrelate primarily related to the permanent shutdown and relocation of the No. 6 Quench & Temper Mill at Lorain Tubular Operations and a favorable adjustment of $6 million primarily associated with a change in estimate for previously recorded costs for environmental obligations and Company-wide headcount reductions. Cash payments were made related to severance and exit costs of $32 million.
During 2016, U. S. Steel recorded net restructuring charges of approximately $122 million, which consists of: (1) charges of $124 million related to the permanent shutdown of the Lorain #4, Lone Star #1 and Bellville pipe mills within our Tubular segment; (2) charges of $24 million for Company-wide headcount reductions, including within our Flat-Rolled, Tubular and USSE segments; and (3) a favorable adjustment of $26 million primarily associated with a change in estimate for previously recorded costs for Company-wide headcount reductions. Cash payments were made related to severance and exit costs of $79 million.
Charges for restructuring and ongoing cost reduction initiatives are recorded in the period U. S. Steel commits to a restructuring or cost reduction plan, or executes specific actions contemplated by the plan and all criteria for liability recognition have been met. Charges related to the restructuring and cost reductions are reported in restructuringRestructuring and other charges in the Consolidated Statements of Operations.
The Company has realized actual cash savings of approximately $300 million related to restructuring efforts through December 31, 2017. | | | | | | | | | | | | | | |
Earnings (loss) before interest and income taxes by segment (a) | | Year Ended December 31, |
(Dollars in Millions) | | 2023 | | 2022 |
Flat-Rolled | | $ | 418 | | | $ | 2,008 | |
Mini Mill | | 215 | | | 481 | |
USSE | | 4 | | | 444 | |
Tubular | | 589 | | | 544 | |
Total earnings from reportable segments | | 1,226 | | | 3,477 | |
Other | | $ | (3) | | | 22 | |
Segment earnings before interest and income taxes | | 1,223 | | | 3,499 | |
Other items not allocated to segments: | | | | |
Restructuring and other charges (b) | | (36) | | | (48) | |
Stock-based compensation expense (c) | | (51) | | | (57) | |
Asset impairment charges (d) | | (127) | | | (163) | |
Environmental remediation charges | | (11) | | | (13) | |
Strategic alternatives review process costs | | (79) | | | — | |
Granite City idling costs | | (121) | | | — | |
United Steelworkers labor agreement signing bonus and related costs | | — | | | (64) | |
Gains on assets sold & previously held investments | | — | | | 6 | |
Other items, net | | 1 | | | — | |
Total earnings before interest and income taxes | | $ | 799 | | | $ | 3,160 | |
(a) See Note 4 to the Consolidated Financial Statements for reconciliations and other details. |
(b) Included in restructuring and other charges on the Consolidated Statements of Operations. See Note 25 to the Consolidated Financial Statements for further details. |
(c) The prior year was retroactively adjusted to reflect the reclassification of stock-based compensation expense. |
(d) See Note 1 to the Consolidated Financial Statements for further details. |
Gain and loss associated with U. S. Steel Canada Inc.
USSC, an indirect wholly owned subsidiary of U. S. Steel, applied for relief from its creditors pursuant to CCAA in September of 2014. Subsequent to the CCAA filing, U. S. Steel's management continued to assess the recoverability of the Company's retained interest in USSC. During 2015, management's estimate of the recoverable retained interest was updated as a result of economic conditions impacting the steel industry in North America such as lower prices, elevated levels of imports, the strength of the U.S. dollar and depressed steel company valuations as well as the uncertainty of the ultimate outcome of USSC’s CCAA filing. As a result, a pre-tax charge was recognized during the fourth quarter of 2015, bringing the total charge to $392 million for the fiscal year ended December 31, 2015.
On June 30, 2017, U. S. Steel completed the restructuring and disposition of USSC through a sale and transfer of all of the issued and outstanding shares in USSC to an affiliate of Bedrock. In accordance with the Second Amended and Restated Plan of Compromise, Arrangement and Reorganization, approved by the Ontario Superior Court of Justice on June 9, 2017, U. S. Steel received approximately $127 million in satisfaction of its secured claims, including interest, which resulted in a gain of $72 million on the Company's retained interest in USSC. U. S. Steel also agreed to the discharge and cancellation of its unsecured claims for nominal consideration. The terms of the settlement also included mutual releases among key stakeholders, including a release of all claims against the Company regarding environmental, pension and other liabilities.
Earnings (loss) before interest and income taxes by Segment (a)
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
(Dollars in Millions) | | 2017 | | 2016 | | 2015 |
Flat-Rolled | | $ | 380 |
| | $ | (3 | ) | | $ | (237 | ) |
USSE | | 327 |
| | 185 |
| | 81 |
|
Tubular | | (99 | ) | | (304 | ) | | (179 | ) |
Total earnings (loss) from reportable segments | | 608 |
| | (122 | ) | | (335 | ) |
Other Businesses | | 44 |
| | 63 |
| | 33 |
|
Segment earnings (loss) before interest and income taxes | | 652 |
| | (59 | ) | | (302 | ) |
Items not allocated to segments: | | | | | | |
Post-employment benefit (expense) income (b) | | (66 | ) | | 62 |
| | (43 | ) |
Other items not allocated to segments: | | | | | | |
Loss on shutdown of certain tubular pipe mill assets (c) | | (35 | ) | | (126 | ) | | — |
|
Gain (loss) associated with U. S. Steel Canada Inc. (Note 5) | | 72 |
| | — |
| | (392 | ) |
Loss on shutdown of Fairfield Flat-Rolled Operations (c) (d) | | — |
| | — |
| | (91 | ) |
Loss on shutdown of coke production facilities (c) | | — |
| | — |
| | (153 | ) |
Restructuring and other charges (c) | | — |
| | 2 |
| | (78 | ) |
Granite City Works temporary idling charges | | (17 | ) | | (18 | ) | | (99 | ) |
Post-employment benefit actuarial adjustment | | — |
| | — |
| | (26 | ) |
Gain (loss) on equity investee transactions (Note 11) | | 2 |
| | (12 | ) | | (18 | ) |
Impairment of intangible assets (Note 13) | | — |
| | (14 | ) | | — |
|
Total earnings (loss) before interest and income taxes | | $ | 608 |
| | $ | (165 | ) | | $ | (1,202 | ) |
| |
(a) | See Note 4 to the Consolidated Financial Statements for reconciliations and other disclosures required by Accounting Standards Codification Topic 280. |
| |
(b) | Consists of the net periodic benefit cost elements, other than service cost and amortization of prior service cost for active employees, associated with our defined pension, retiree health care and life insurance benefit plans. |
| |
(c) | Included in Restructuring and other charges on the Consolidated Statements of Operations. See Note 24 to the Consolidated Financial Statements. |
| |
(d) | Fairfield Flat-Rolled Operations includes the blast furnace and associated steelmaking operations, along with most of the flat-rolled finishing operations at Fairfield Works. The #5 coating line continues to operate. |
Gross Margin by Segment
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Flat-Rolled | | 11 | % | | 6 | % | | 2 | % |
USSE | | 15 | % | | 14 | % | | 9 | % |
Tubular | | (2 | )% | | (43 | )% | | (6 | )% |
Segment results for Flat-Rolled
(Excludes the results of USSC beginning September 16, 2014)
| | | | | | | | | | | |
| Year Ended December 31, | % Change |
| 2023 | 2022 |
Earnings before interest and taxes ($ in millions) | $ | 418 | | $ | 2,008 | | (79) | % |
Gross margin | 11 | % | 20 | % | (9) | % |
Raw steel production (mnt) | 9,399 | | 8,846 | | 6 | % |
Capability utilization | 71 | % | 67 | % | 4 | % |
Steel shipments (mnt) | 8,706 | | 8,373 | | 4 | % |
Average realized steel price per ton | 1,030 | | 1,261 | | (18) | % |
|
| | | |
| Average Realized Price Per Ton | | Segment Earnings (Loss) before Interest and Income Taxes |
The Flat-Rolled segment had earnings of $380 million for the year ended December 31, 2017 compared to a loss of $3 million for the year ended December 31, 2016. The increasedecrease in Flat-Rolled results for 20172023 compared to 2016 resulted from higher2022 was primarily due to:
•lower average realized prices, including mix (approximately $695$1,925 million) as a result
•unfavorable equity investees income and equipmentother impacts (approximately $150$200 million), higher results from our mining operations
•lower non-prime and other sales (approximately $80$25 million) including benefits from the restart of our Keetac facility to support third-party pellet sales, and increased shipments to our Tubular segment (approximately $50 million). These,
these changes were partially offset by by:
•increased maintenance and asset revitalization spending and othershipments, including volume efficiencies (approximately $95 million)
•lower raw material costs, including inventory revaluations (approximately $215 million)
•lower energy costs (approximately $100 million)
•lower operating costs (approximately $330$45 million) and higher raw materials
•lower other costs, primarily scrap and coalvariable compensation (approximately $275$105 million).
The Flat-Rolled segment had a loss of $3 million for the year ended December 31, 2016 compared to a loss of $237 million for the year ended December 31, 2015. The increase in Flat-Rolled results for 2016 compared to 2015 was primarily due to lower raw materials costs (approximately $275 million), reduced losses in 2016 after the shutdown of the blast furnace and associated steel making assets and most of the finishing operations at Fairfield Works in the third quarter of 2015 (approximately $145 million), decreased spending for repairs and maintenance and other operating costs (approximately $145 million), reduced costs associated with lower operating rates at our mining operations (approximately $70 million) and lower energy costs, primarily natural gas costs (approximately $55 million). These changes were partially offset by lower average realized prices (approximately $390 million) as a result of market conditions and higher levels of imports and higher costs for profit based payments (approximately $75 million).
Gross margin for 20172023 as compared to 2016 increased2022 decreased primarily as a result of higherlower average realized prices, partially offset by higher sales volume.
Segment results for Mini Mill
| | | | | | | | | | | |
| Year Ended December 31, | % Change |
| 2023 | 2022 |
Earnings before interest and taxes ($ in millions) | $ | 215 | | $ | 481 | | (55) | % |
Gross margin | 19 | % | 25 | % | (6) | % |
Raw steel production (mnt) | 2,953 | | 2,650 | | 11 | % |
Capability utilization | 89 | % | 80 | % | 9 | % |
Steel shipments (mnt) | 2,424 | | 2,287 | | 6 | % |
Average realized steel price per ton | 875 | | 1,134 | | (23) | % |
The decrease in Mini Mill results for 2023 compared to 2022 was primarily due to improved contract and spot marketto:
•lower average realized prices, in addition to the favorable impact on cost of goods sold related to our change in accounting method for property, plant and equipment. Grossincluding mix (approximately $660 million),
these changes were partially offset by:
•increased shipments (approximately $220 million)
•lower raw material costs (approximately $145 million)
•lower energy costs (approximately $15 million)
•lower other costs (approximately $10 million).
Gross margin for 20162023 as compared to 2015 increased2022 decreased primarily due toas a result of lower raw materials costs and our lower and more flexible cost structure.average realized sales prices, partially offset by higher sales volume.
Segment results for USSE
| | | | | | | | | | | |
| Year Ended December 31, | % Change |
| 2023 | 2022 |
Earnings before interest and taxes ($ in millions) | $ | 4 | | $ | 444 | | (99) | % |
Gross margin | 4 | % | 13 | % | (9) | % |
Raw steel production (mnt) | 4,395 | | 3,839 | | 14 | % |
Capability utilization | 88 | % | 77 | % | 11 | % |
Steel shipments (mnt) | 3,899 | | 3,759 | | 4 | % |
Average realized steel price per ton | 873 | | 1,090 | | (20) | % |
The USSE segment had earnings of $327 million for the year ended December 31, 2017 compared to earnings of $185 million for the year ended December 31, 2016. The increasedecrease in USSE results in 2017for 2023 compared to 20162022 was primarily due to higherto:
•lower average realized euro-based prices, including mix (approximately $600$840 million)
•lower other sales (approximately $20 million), the
these changes were partially offset by:
•increased shipments (approximately $15 million)
•lower raw material costs, including inventory revaluations (approximately $285 million)
•lower operating costs (approximately $35 million)
•lower energy costs (approximately $30 million)
•strengthening of the euro versus the U.S. dollar in 2017(approximately $15 million)
•lower other costs, primarily variable compensation (approximately $40 million).
Gross margin for 2023 as compared to the prior year2022 decreased primarily as a result of lower average realized prices, partially offset by higher sales volume and lower material costs.
Segment results for Tubular
| | | | | | | | | | | |
| Year ended December 31, | % Change |
| 2023 | 2022 |
Earnings before interest and taxes ($ in millions) | $ | 589 | | $ | 544 | | 8 | % |
Gross margin | 40 | % | 37 | % | 3 | % |
Raw steel production (mnt) | 568 | | 634 | | (10) | % |
Capability utilization | 63 | % | 70 | % | (7) | % |
Steel shipments (mnt) | 478 | | 523 | | (9) | % |
Average realized steel price per ton | 3,137 | | 2,978 | | 5 | % |
The increase in Tubular results for 2023 compared to 2022 was primarily due to:
•higher average realized prices (approximately $15$70 million)
•lower raw material costs (approximately $20 million)
•lower energy costs (approximately $5 million)
•improved other, primarily consisting of reduced variable compensation and increased shipmentsequity investee income (approximately $10$75 million). These,
these changes were partially offset by by:
•decreased shipments, including volume inefficiencies (approximately $115 million)
•higher operating costs (approximately $10 million).
Gross margin for 2023 as compared to 2022 increased primarily as a result of lower variable compensation and raw materials costs, primarily coal and iron ore (approximately $475 million).material costs.
Results for Other
The USSE segmentOther category had earningsa loss of $185$3 million for the year ended December 31, 20162023, compared to earnings of $81$22 million for the year ended December 31, 2015. The increase in USSE results in 2016 compared to 2015 was primarily due to lower raw materials costs (approximately $145 million), reduced costs due to operating efficiencies (approximately $60 million) and decreased energy costs (approximately $20 million). These changes were partially offset by lower average realized euro-based prices (approximately $130 million), as selling prices reached a 5-year low in early 2016.2022.
Gross margin for 2017 as compared to 2016 increased primarily due to higher average realized euro-based prices, partially offset by higher raw materials costs. Gross margin for 2016 as compared to 2015 increased primarily due to lower raw materials costs and operating efficiencies.
Segment results for Tubular
The Tubular segment had a loss of $99 million for the year ended December 31, 2017 compared to a loss of $304 million for the year ended December 31, 2016. The increase in Tubular results in 2017 as compared to 2016 was primarily due to higher average realized prices and shipment volumes as a result of improving market conditions (approximately $105 million), decreased labor and other operating costs (approximately $95 million), favorable impacts from changes to our operating footprint (approximately $35 million) and favorable lower of cost or market (LCM) adjustments (approximately $30 million). These changes were partially offset by higher substrate costs (approximately $60 million).
The Tubular segment had a loss of $304 million for the year ended December 31, 2016 compared to a loss of $179 million for the year ended December 31, 2015. The decrease in Tubular results in 2016 as compared to 2015 was primarily due to lower average realized prices (approximately $135 million), decreased shipment volumes (approximately $25 million) as a result of high import levels, lower energy pricing and a continued decline in drilling activity and lower of cost or market (LCM) adjustments for obsolete inventory related to the prolonged downturn in the energy markets (approximately $45 million). These changes were partially offset by decreased repairs and maintenance and other operating costs (approximately $45 million) and lower raw materials costs (approximately $30 million).
Gross margin for 2017 as compared to 2016 increased primarily due to increased average realized prices and shipment volumes and operating efficiencies. Gross margin for 2016 as compared to 2015 decreased as a result of production cost inefficiencies driven by the decrease in shipments.
Results for Other Businesses
Other Businesses had earnings of $44 million, $63 million and $33 million for 2017, 2016 and 2015, respectively.
Items not allocated to segments:
The increase in post-employment benefit expense in 2017 as compared to 2016 resulted from lower return on asset assumptions as a result of actions taken in 2016 to de-risk the OPEB plan. The decrease in expense in 2016 as compared to 2015 resulted from lower pension expenses as a result of the freezing of benefit accruals for non-represented participants effective December 31, 2015.
We recorded a $35 million loss on the shutdown of certain tubular assets in 2017 as a result of the permanent shutdown and relocation of the No. 6 Quench & Temper Mill at Lorain Tubular Operations. We recorded a loss on shutdown of certain tubular pipe mill assets of $126 million in 2016 as a result of the permanent closure of the Lorain #4 and Lone Star #1 pipe mills and the Bellville Tubular Operations.
We recognized a $72 million gain associated with U. S. Steel Canada Inc. (USSC) as a result of the restructuring and disposition of USSC on June 30, 2017. We recorded a $392 million loss associated with U. S. Steel Canada Inc.in 2015 as a result of a change in our assessment of the recoverability of the Company's retained interest in USSC and other charges.
We recorded $17 million, $18 million and $99 million of Granite City Works temporary idling charges during 2017, 2016 and 2015, respectively.
We recognized a gain on equity investee transactions of $2 million in 2017 primarily as a result of a gain on sale of our 15% ownership interest in Tilden Mining Company, L.C., partially offset by a loss on sale of our 50% ownership interest in Apolo Tubulars, S.A. In 2016, the Company determined there was an other than temporary impairment of its Apolo equity investment due to the intent to sell its ownership interest at an amount less than the carrying value of the investment. Accordingly, an impairment charge of $12 million was recorded in 2016. The Company sold its ownership interest in this equity investment in 2017. During 2015, U. S. Steel determined there was an other than temporary impairment of an equity investee within a non-core operating segment of U. S. Steel, due to our intent to sell the particular investment, thereby inhibiting sufficient recovery of the market value. As a result, an impairment charge of $18 million was recorded in 2015 and during the first quarter of 2017, this investment was sold.
We recorded a net favorable adjustment of $2 million in restructuring and other charges in 2016 primarily due to changes in estimates associated with supplemental unemployment and severance cost accruals with respect to our actions to adjust our operating configuration, streamline our operational processes, and reduce costs. We recorded restructuring and other charges of $78 million during 2015 as a result of further actions to adjust our operational footprint.
We recorded an impairment charge of $14 million on our indefinite lived intangible assets related to certain of our patents in our Tubular segment as a result of an annual quantitative evaluation that was performed during the third quarter of 2016.
We recorded a $91 million loss on shutdown of Fairfield Flat-Rolled Operations during 2015 as a result of the permanent closure of those operations.
We recorded a $153 million loss on shutdown of coke production facilities during 2015 as a result of the permanent closure of our Gary Works and Granite City Works coke facilities.
We recorded a $26 million post-employment benefit actuarial adjustment in 2015 related to workers' compensation and black lung benefit obligations.
Net Interest and Other Financial Costs
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
(Dollars in millions) | | 2023 | | 2022 |
Interest expense | | 72 | | | 159 | |
Interest income | | (141) | | | (44) | |
| | | | |
Other financial costs | | 18 | | | 32 | |
Net periodic benefit income | | (154) | | | (246) | |
Net gain from investments related to active employee benefits | | (43) | | | — | |
Net interest and other financial benefits | | $ | (248) | | | $ | (99) | |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
(Dollars in millions) | | 2017 | | 2016 | | 2015 |
Interest income | | $ | (17 | ) | | $ | (5 | ) | | $ | (3 | ) |
Interest expense | | 226 |
| | 230 |
| | 214 |
|
Loss on debt extinguishment | | 54 |
| | 22 |
| | 36 |
|
Other financial costs | | 44 |
| | 4 |
| | 10 |
|
Net interest and other financial costs | | $ | 307 |
| | $ | 251 |
| | $ | 257 |
|
During 2017,Net interest and other financial benefits improved in 2023 compared to 2022 primarily due to increased interest income on cash deposits, lower interest expense as a result of increased capitalized interest and gains on investments related to active employee benefits from the initial asset base increase from the transfer of certain VEBA investments previously reported under net periodic benefit income. These changes were partially offset by reduced net periodic benefit income due to 2022 plan asset performance, a reduced asset base from the transfer of certain VEBA investments to the active employee benefits subaccount and increased prior service cost. For additional information on U. S. Steel issued $750 million of 6.875% Senior Notes due August 2025 (2025 Senior Notes) and redeemed $161 million of 7.00% Senior Notes due 2018, $200 million of 6.875% Senior Notes due 2021, and $400 million of 7.50% Senior Notes due 2022 for an aggregate redemption cost of approximately $808 million, which included $761 million for the remaining principal balances, $21 million in accrued and unpaid interest and $26 million in redemption premiums which have been reflected within the loss on debt extinguishment line in the table above. Additionally, U. S. Steel redeemed $200 million of its 8.375% Senior Secured Notes due 2021 for an aggregate redemption cost of approximately $227 million, which included $200 million for the remaining principal balance, $8 million in accrued and unpaid interest and $19 million in redemption premiums which have been reflected within the loss on debt extinguishment line in the table above. For further informationindebtedness see Note 1617 to the Consolidated Financial Statements.
During 2016, U. S. Steel issued $980 million of 8.375% Senior Secured Notes due July 2021 (2021 Senior Secured Notes) and repurchased several tranches of its outstanding senior notes through various tender offers, redemptions and open market purchases, including the redemption of the remaining 6.05% Senior Notes due 2017 for an aggregate principal amount of approximately $444 million plus a total make whole premium of approximately $22 million, which has been reflected within the loss on debt extinguishment line in the table above. During 2015, U. S. Steel incurred a $36 million charge related to the retirement of the 2.75% Senior Convertible Notes due 2019, which has also been reflected within the loss on debt extinguishment line in the table above.
The increase in net interest and other financial costs from 2016 to 2017 is primarily due to an increase in loss on debt extinguishment (as described above) and decreased foreign currency gains, partially offset by an increase in interest income as a result of increased cash balances and interest rates in 2017 as compared to 2016.
The increase in net interest and other financial costs from 2015 to 2016 is primarily due to a decrease in loss on debt extinguishment (as described above) and decreased other financing costs, partially offset by increased interest expense associated with the 2021 Senior Secured Notes.
For additional information on U. S. Steel’s foreign currency exchange activity see Note 1516 to the Consolidated Financial Statements and Item 7A. "Quantitative and Qualitative Disclosures about Market Risk – Foreign Currency Exchange Rate Risk.”
Income TaxesTax
The Tax Cutincome tax expense for the year ended December 31, 2023, was $152 million compared to an income tax expense of $735 million in 2022. The change from the prior year period was primarily due to a decrease in earnings before taxes. In addition, the current year period includes a benefit of $43 million related to the 2022 federal income tax return, as well as an additional benefit of $12 million related to the adjustment of prior years’ federal income taxes. Also included in the 2023 provision is a benefit of $23 million related to the recognition of a deferred tax asset on unrecognized currency losses in branch operations pursuant to proposed regulations under Internal Revenue Code Section 987.
The Organization for Economic Co-operation and Jobs ActDevelopment (the "OECD"), an international association of 2017 (the 2017 Act)38 countries including the U.S., has proposed changes to numerous long-standing tax principles, including a global minimum tax initiative. On December 12, 2022, the European Union member states agreed to implement the OECD's Pillar 2 global corporate minimum tax
rate of 15% on companies with revenues of at least $790,000, which would go into effect in 2024. The law on minimum top-up tax for multinational enterprise groups and large-scale domestic groups in Slovakia was approved by the parliament on December 8, 2023 with the effective date of December 31, 2023. The law was signed by the President on December 22, 2017 and most of21, 2023. The Company will continue to analyze the provisions are effective for tax years beginning January 1, 2018. The corporate rate reductionlaw to 21% provided a small benefit todetermine potential impacts. At this time, the Company indoes not expect the fourth quarter of 2017 and should provide a material benefit in future years, once the Company has fully utilized its domestic net operating losses (NOLs). The limitation of NOLsPillar 2 legislation to 80% of taxable income and the change to an unlimited carryforward period for NOLs generated in years after December 31, 2017 will not impact the Company’s current NOLs, which were generated in 2013, 2015, and 2016. As the Company’s NOLs still have a carryforward period of 20 years from the year they were generated, the 2017 Act had no impact on the valuation allowance for those NOLs. The repeal of the corporate Alternative Minimum Tax (AMT), with AMT credits refundable beginning with the filing of the 2018 return through the 2021 return, caused the release of the valuation allowance associated with the Company’s AMT credits in the fourth quarter of 2017.
The one-time transition tax (imposed as part of the change to a territorial system) had an immaterial impact to the Company’s effective tax rate (ETR) in the fourth quarter of 2017 and will have an immaterial impact to cash taxes paid, as the Company had minimal unrepatriated foreign earnings. The allowance of a 100% deduction for dividends from
foreign corporations, the Basis Erosion Anti-Avoidance Tax (BEAT) and the Global Intangible Low-Taxed Income (GILTI) tax should not have a material impact on the Company’s ETR in future years, based on our current structure. The Company has elected to record taxes associated with any GILTI inclusions in the period any such amounts are determined. The Company does not currently assert indefinite reinvestment and does not plan to change that position. Some of the other changes to the taxation of foreign earnings may impact the Company’s ability to fully utilize foreign tax credits (FTCs) generated in future years, thereby impacting the ETR.its consolidated financial statements.
The new limitation on the deductibility of interest should not adversely affect the Company in the near term. The deduction for full expensing for assets acquired and placed in service after September 27, 2017 should not provide any benefit in the near term because of the Company’s NOL position.
The income tax benefit for the year ended December 31, 2017 was $86 million compared to an income tax provision of $24 million in 2016 and $183 million in 2015. Included in the 2017 tax benefit is a benefit of $10 million related to the corporate rate reduction provided by the 2017 Act, as well as a benefit of $71 million related to the reversal of the valuation allowance recorded against the remaining balance of the Company’s AMT credits, which became fully refundable pursuant to the 2017 Act. Also included in the 2017 tax benefit is a benefit of $48 million related to the Company’s election to claim a refund of AMT credits pursuant to a provision in the Protecting Americans from Tax Hikes Act (PATH Act).
Included in the 2016 tax provision is a benefit of $18 million related to the Company's election to claim a refund of AMT credits pursuant to a provision in the PATH Act. The 2016 provision also reflects a write-off of certain deferred tax assets and liabilities related to branch operations pursuant to new regulations. However, the write-off does not impact the total provision because of the valuation allowance on the net domestic deferred tax asset. Included in the 2015 tax provision is a net tax benefit of $31 million relating to adjustments to tax reserves related to the conclusion of certain audits.
The net domestic deferred tax asset was $53 million at December 31, 2017, net of an established valuation allowance of $604 million, compared to a net domestic deferred tax liability of $28 million at December 31, 2016, net of an established valuation allowance of $1,109 million.
At December 31, 2017, the net foreign deferred tax liability was $3 million, net of an established valuation allowance of $4 million. At December 31, 2016, the net foreign deferred tax asset was $6 million, net of an established valuation allowance of $4 million.
For further information on income taxes see Note 1011 to the Consolidated Financial Statements.
Net earnings/(loss)earnings attributable to U. S. Steel
Net earnings attributable to U. S. Steel in 20172023 was $387$895 million compared to a net lossearnings of $(440)$2,524 million in 2016 and a net loss of $(1,642) million in 2015, respectively.2022. The changesdecrease was primarily reflectedattributable to the factors discussed above.
Financial Condition, Liquidity and Capital Resources
Cash Flows and LiquidityCapital Requirements
Financial ConditionNet Cash Provided by Operating Activities
Accounts receivable increased by $131 million from year-end 2016 primarily due to higher average realized prices, as well as increased shipment volumes in our Flat-Rolled and Tubular segments in the fourth quarter of 2017 compared to the fourth quarter of 2016.
Inventories increased by $165 million from December 31, 2016 primarily as a result of increased operating levels and higher raw materials prices across all of our segments.
Other current assets increased by $65 million from December 31, 2016 primarily due to purchases of emission allowances by our USSE segment.
Accounts payable and other accrued liabilities increased by $502 million from year-end 2016 primarily as a result of increased operating levels and higher raw materials prices across all of our segments.
Payroll and benefits payable decreased by $53 million from year-end 2016 primarily due to incentive payments related to 2016 financial performance that we paid in March 2017.
Short-term debt and current maturities of long-term debt decreased by $47 million from year-end 2016 primarily due to the repayment of environmental bonds.
Long-term debt decreased by $281 million from year-end 2016 primarily due to the redemption of $200 million of our 8.375% Senior Secured Notes due 2021 in December 2017. Also contributing to the decrease from year-end 2016 was the repayment of the Recovery Zone Bonds, for which an "Extraordinary Mandatory Redemption" was triggered under the applicable indenture as a result of the permanent shutdown of the No. 6 Quench & Temper Mill at Lorain Tubular Operations during the first quarter of 2017 and decision to relocate the equipment.
Employee benefits decreased by $457 million from year-end 2016 primarily due to a strong return on plan assets and the voluntary contribution of $75 million to the U. S. Steel Retirement Plan during 2017 partially offset by the natural maturation of our pension plans and an improved mortality assumption.
Cash Flows
Net cash provided by operating activities was $802$2,100 million in 20172023 compared to $731$3,505 million in 2016 and $360 million2022. The decrease in 2015. The increase in 20172023 compared to 2016 is2022 was primarily due to stronger financial results,decreased net earnings partially offset by changes in working capital period over period. The increase in 2016 compared to 2015 is primarily due to stronger financial results partially offset by changes in working capital period over period.and distributions from equity investees. Changes in working capital can vary significantly depending on factors such as the timing of inventory production and purchases, which is affected by the length of our business cycles as well as our captive raw materials position, customer payments of accounts receivable and payments to vendors in the regular course of business.
Our keycash conversion cycle decreased by 10 days in the fourth quarter of 2023 from the fourth quarter of 2022 as shown below:
| | | | | | | | | | | | | | | | | |
Cash Conversion Cycle | 2023 | | 2022 |
| $ millions | Days | | $ millions | Days |
Accounts receivable, net (a) | $ | 1,549 | | 34 | | $ | 1,634 | | 39 |
| | | | | |
+ Inventories (b) | $ | 2,128 | | 53 | | $ | 2,359 | | 60 |
| | | | | |
- Accounts Payable and Other Accrued Liabilities (c) | $ | 2,867 | | 68 | | $ | 2,831 | | 70 |
| | | | | |
= Cash Conversion Cycle (d) | | 19 | | | 29 |
(a) Calculated as Average Accounts Receivable, net divided by total Net Sales multiplied by the number of days in the period.
(b) Calculated as Average Inventory divided by total Cost of Sales multiplied by the number of days in the period.
(c) Calculated as Average Accounts Payable and Other Accrued Liabilities less bank checks outstanding and other current liabilities divided by total Cost of Sales multiplied by the number of days in the period.
(d) Calculated as Accounts Receivable Days plus Inventory Days less Accounts Payable Days.
The cash conversion cycle is a non-GAAP financial measure. We believe the cash conversion cycle is a useful measure in providing investors with information regarding our cash management performance and is a widely accepted measure of working capital components include accounts receivable and inventory.management efficiency. The accounts receivable and inventory turnover ratios for the years ended December 31, 2017 and 2016 arecash conversion cycle should not be considered in isolation or as follows:an alternative to other GAAP metrics as an indicator of performance.
|
| | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 |
Accounts Receivable Turnover | | 9.3 |
| | 8.8 |
|
Inventory Turnover | | 6.6 |
| | 5.3 |
|
The increase in the accounts receivable turnover approximates two days for 2017 as compared to 2016 and is primarily due to increased sales as a result of increased shipments in our Tubular and USSE segments as well as higher average realized prices across all of our segments in 2017 as compared to 2016. The increase in the inventory turnover approximates 14 days for 2017 as compared to 2016 and is primarily due to an increase in cost of goods sold mainly attributable to higher raw materials costs across all of our segments.
The last-in, first-out (LIFO)LIFO inventory method is the predominant method of inventory costing infor our Flat-Rolled and Tubular segments. The first-in, first-out FIFO and moving average methods are the United States. At December 31, 2017predominant inventory costing methods for our Mini Mill segment and 2016, the LIFOFIFO method accountedis the predominant inventory costing method for 75 percent of total inventory values.our USSE segment. 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, 20172023, and 2016,2022, the replacement cost of the LIFO inventory was higher by approximately $802$1,248 million and $489$1,154 million, respectively.
Our cash conversion cycle improved 13 days in the fourth quarter of 2017 from the fourth quarter of 2016 as shown below:
|
| | | | | | | | | | | | |
Cash Conversion Cycle
| 2017 | | | 2016 |
| $ millions | | Days | | | $ millions | | Days |
Accounts receivable, net (a) | $ | 1,379 |
| | 43 | | | $ | 1,248 |
| | 42 |
| | | | | | | | |
+ Inventories (b) | $ | 1,738 |
| | 58 | | | $ | 1,573 |
| | 63 |
| | | | | | | | |
- Accounts Payable and Other Accrued Liabilities (c) | $ | 2,163 |
| | 71 | | | $ | 1,665 |
| | 62 |
| | | | | | | | |
| | | | | | | | |
= Cash Conversion Cycle (d) | | | 30 | | | | | 43 |
(a) Calculated as Average Accounts Receivable, net divided by total Net Sales multiplied by the number of days in the period.
(b) Calculated as Average Inventory divided by total Cost of Sales multiplied by the number of days in the period.
(c) Calculated as Average Accounts Payable and Other Accrued Liabilities less bank checks outstanding and other current liabilities divided by total Cost of Sales multiplied by the number of days in the period.
(d) Calculated as Accounts Receivable Days plus Inventory Days less Accounts Payable Days.
Net cash provided by operating activities for 2017, 20162023 and 20152022 reflects employee benefits payments as shown in the following table.
Employee Benefits Payments
| | | | Year Ended December 31, |
Benefits Payments for Employees | | Benefits Payments for Employees | | Year Ended December 31, |
(Dollars in millions) | | 2017 | | 2016 | | 2015 | (Dollars in millions) | | 2023 | | 2022 |
Voluntary contributions to main defined benefit pension plan (b) | | $ | 75 |
| | $ | 13 |
| (a) | $ | — |
|
Other employee benefits payments not funded by trusts | | 59 |
| | 61 |
| | 75 |
|
Contributions to trusts for retiree health care and life insurance | | — |
| | — |
| | 10 |
|
Payments to a multiemployer pension plan | | 59 |
| | 63 |
| | 66 |
|
Pension related payments not funded by trusts | | 13 |
| | 26 |
| | 38 |
|
Reductions in cash flows from operating activities | | $ | 206 |
| | $ | 163 |
| | $ | 189 |
|
U. S. Steel management believes that U. S. Steel’s liquidity will be adequate to satisfy our cash requirements and obligations for the next twelve months and for the foreseeable future, including obligations to complete currently authorized capital spending programs. Future requirements for U. S. Steel’s business needs, including the funding of acquisitions and capital expenditures, scheduled debt maturities, repurchase of debt, share buyback,buybacks, dividends, contributions to employee benefit plans and any amounts that may ultimately be paid in connection with contingencies, are expected to be funded by a combination of internally generated funds (including asset sales), proceeds from the sale of stock, borrowings, refinancings and other external financing sources.
U. S. Steel has invested in several joint ventures that are reported as equity investments. Several of these investments involved a transfer of assets in exchange for an equity interest. U. S. Steel has supply arrangements with several of these joint ventures. In some cases, a portion of the labor force used by the investees is provided by U. S. Steel, the cost of which is reimbursed; however, failing reimbursement, U. S. Steel is ultimately responsible for the cost of these employees. The terms of these arrangements were a result of negotiations in arms-length transactions with the other joint venture participants, who are not affiliates of U. S. Steel.
U. S. Steel’s other off-balance sheet arrangements include guarantees, indemnifications, unconditional purchase obligations, surety bonds, trusts and letters of credit disclosed in Note 25 to the Consolidated Financial Statements as well as operating leases disclosed in Note 2326 to the Consolidated Financial Statements.
See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for discussion of derivative instruments and associated market risk for U. S. Steel.