UNITED STATES STEEL CORPORATION RESULTS OF OPERATIONS U. S. Steel's results in the three and six months endedJune 30, 2021 compared to the same periods in 2020 benefited from significantly improved business conditions as certain challenges presented by the COVID-19 pandemic began to subside. Flat- -27- -------------------------------------------------------------------------------- Rolled results improved due to higher steel demand across most consumer and manufacturing industries, pushing both spot and contract prices higher. InMini Mill , with the acquisition ofBig River Steel onJanuary 15, 2021 , results were added for the first time in the first quarter of 2021. USSE results improved due to stronger performance of the manufacturing and construction sectors and higher selling prices though continued high levels of imports persist. In Tubular, net sales increased slightly in the three months endedJune 30, 2021 and decreased in the six months endedJune 30, 2021 as disruptions in the oil and gas industry continue to create significant reductions of drilling activity in theU.S. and continued high levels of tubular imports persist.
Net sales by segment for the three months and six months ended
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in millions, excluding % %
intersegment sales) 2021 2020 Change 2021 2020 Change
Flat-Rolled Products (Flat-Rolled)
100 %$ 5,263 $ 3,471 52 % Mini Mill (a) 759 - n/a 1,209 - n/a U. S. Steel Europe (USSE) 1,078 403 167 % 1,876 908 107 % Tubular Products (Tubular) 184 182 1 % 318 437 (27) % Total sales from reportable segments 5,012 2,082 141 % 8,666 4,816 80 % Other 13 9 44 % 23 23 - % Net sales$ 5,025 $ 2,091 140 %$ 8,689 $ 4,839 80 %
(a)
Management's analysis of the percentage change in net sales for U. S. Steel's reportable business segments for the three months endedJune 30, 2021 versus the three months endedJune 30, 2020 is set forth in the following table: Steel Products (a) Net Volume Price Mix FX (b) Other (c) Change Flat-Rolled 26 % 58 % (1) % - % 17 % 100 % Mini Mill (d) n/a n/a n/a n/a n/a n/a USSE 87 % 77 % (14) % 18 % (1) % 167 % Tubular (20) % 14 % 6 % - % 1 % 1 % (a) Excludes intersegment sales (b) Foreign currency translation effects (c) Primarily of sales of raw materials and coke making by-products (d) Not applicable (n/a),Mini Mill segment added afterJanuary 15, 2021 with the purchase of the remaining equity interest inBig River Steel . Net sales for the three months endedJune 30, 2021 compared to the same period in 2020 were$5,025 million and$2,091 million , respectively. •For the Flat-Rolled segment the increase in sales primarily resulted from higher average realized prices ($357 per ton) and increased shipments (536 thousand tons) across most products. •For the USSE segment the increase in sales primarily resulted from higher average realized prices ($273 per net ton) and increased shipments (557 thousand tons) across all products. •For the Tubular segment the increase in sales primarily resulted from higher average realized prices ($345 per net ton) across all products, partially offset by decreased shipments (27 thousand tons) predominantly for electric resistance welded (ERW) products. -28- -------------------------------------------------------------------------------- Management's analysis of the percentage change in net sales for U. S. Steel's reportable business segments for the six months endedJune 30, 2021 versus the six months endedJune 30, 2020 is set forth in the following table: Steel Products (a) Volume Price Mix FX (b) Other (c) Net Change Flat-Rolled 8 % 34 % 2 % - % 8 % 52 % Mini Mill (d) n/a n/a n/a n/a n/a n/a USSE 55 % 45 % (7) % 15 % (1) % 107 % Tubular (38) % 6 % 4 % - % 1 % (27) % (a) Excludes intersegment sales (b) Foreign currency translation effects (c) Primarily of sales of raw materials and coke making by-products (d) Not applicable (n/a),Mini Mill segment added afterJanuary 15, 2021 with the purchase of the remaining equity interest inBig River Steel . Net sales for the six months endedJune 30, 2021 compared to the same period in 2020 were$8,689 million and$4,839 million , respectively. •For the Flat-Rolled segment the increase in sales primarily resulted from higher average realized prices ($268 per ton) across all products and increased shipments (359 thousand tons) primarily for cold-rolled and coated sheet products. •For the USSE segment the increase in sales primarily resulted from higher average realized prices ($211 per net ton) across all products and increased shipments (799 thousand tons) across most products. •For the Tubular segment the decrease in sales primarily resulted from decreased shipments (125 thousand tons) across all products, partially offset by higher average realized prices ($228 per net ton) predominantly for seamless products.
Selling, general and administrative expenses
Selling, general and administrative expenses were$106 million and$208 million in the three months and six months endedJune 30, 2021 , respectively, compared to$62 million and$134 million in the three months and six months endedJune 30, 2020 , respectively. The increase in expenses in the three and six months endedJune 30, 2021 versus the same periods in 2020 primarily resulted from increased profit based payments and the addition ofBig River Steel with the purchase of its remaining equity interest. Restructuring and other charges During the three months and six months endedJune 30, 2021 , the Company recorded restructuring and other charges of$31 million and$37 million , respectively compared to$89 million and$130 million in the three months and six months endedJune 30, 2020 , respectively. See Note 20 to the Condensed Consolidated Financial Statements for further details.
Strategic projects and technology investments
We are delivering on our customer-centric and world-competitive, Best of BothSM strategy, by combining the best of the integrated steelmaking model with the best of the mini mill steelmaking model. We are reshaping U. S. Steel to be Best for AllSM by providing customers with profitable steel solutions for all of our stakeholders. We will continue to expand our capabilities to deliver product and process innovation to create unmatched value for our customers while enhancing our earnings profile and delivering long-term cash flow through industry cycles. OnJanuary 15, 2021 , the Company completed a significant strategic step with the acquisition of the remaining equity interest inBig River Steel for approximately$625 million in cash net of$36 million and$62 million in cash and restricted cash received, respectively, and the assumption of liabilities of approximately$50 million . The results ofBig River Steel are reflected within the newMini Mill segment. The acquisition ofBig River Steel increased U. S. Steel's annual raw steel production capability by 3.3 million net tons to 26.2 million net tons.The Mini Mill segment has two electric arc furnaces (EAFs), two ladle metallurgical furnace stations (LMFs), a Ruhrstahl Heraeus degasser, two continuous slab casters, a pickle line tandem cold mill, batch annealing, a temper mill and a galvanizing line.Big River Steel commenced commercial production on the second EAF during the fourth quarter of 2020, doubling its raw steel production capacity. In the second quarter, the Company announced plans to build a non-grain oriented (NGO) electrical steel line atBig River Steel . The Company expects this investment to makeBig River Steel a leader in NGO electric steels by delivering product capabilities unmatched in today's market. The approximately$450 million investment is expected to be funded by cash generated fromBig River Steel's robust profitability and cash flow. The 200,000 ton NGO electrical steel line is expected to deliver first coil inSeptember 2023 and be available to meet the growing electric vehicle demand expected inthe United States over the coming years.
In addition to the investments at
-29-
--------------------------------------------------------------------------------Operating configuration adjustments
The Company also adjusted its operating configuration in response to changing market conditions including global overcapacity, unfair trade practices and increases in domestic demand as a result of tariffs on imports by indefinitely and temporarily idling and then re-starting production at certain of its facilities. U. S. Steel will continue to adjust its operating configuration in order to maximize its strategy of combining the Best of Both leading integrated and mini mill technology.
In
InDecember 2019 , the Company completed the indefinite idling of its East Chicago Tin (ECT) operations within its Flat-Rolled segment. ECT was indefinitely idled primarily due to increased tin import levels in theU.S. Additionally, U. S. Steel indefinitely idled its finishing facility inDearborn, Michigan (which operates an electrolytic galvanizing line), during the fourth quarter of 2019. The carrying value of these facilities was approximately$15 million as ofJune 30, 2021 . In 2020, we took actions to adjust our footprint by temporarily idling certain operations for an indefinite period to better align production with customer demand and respond to the impacts from the COVID-19 pandemic. The operations that were initially idled in 2020 and remained idle as ofJune 30, 2021 included: •Blast Furnace A at Granite City Works •Lone Star Tubular Operations •Lorain Tubular Operations •Wheeling Machine Products coupling production facility atHughes Springs, Texas
As of
-30---------------------------------------------------------------------------------
Earnings (loss) before interest and income taxes by segment is set forth in the following table:
Three months ended June Six months ended June
30, % 30, %
(Dollars in millions) 2021 2020 Change 2021 2020 Change
Flat-Rolled $ 579 $ (329) 276 % $ 725 $ (364) 299 %
Mini Mill (a) 284 - n/a 416 - n/a
USSE 207 (26) 896 % 312 (40) 880 %
Tubular - (47) 100 % (29) (95) 69 %Total earnings (loss) from reportable
segments 1,070 (402) 366 % 1,424 (499) 385 %
Other 14 (21) 167 % 22 (20) 210 %
Segment earnings (loss) before interest
and income taxes 1,084 (423) 356 % 1,446 (519) 379 %
Items not allocated to segments:
Big River Steel - inventory step-up
amortization - - (24) -
Big River Steel - unrealized losses (6) - (15) -
Big River Steel - acquisition costs - - (9) -
Restructuring and other charges (31) (89) (37) (130)
Gain on previously held investment in Big
River Steel - 111
Asset impairment charge (28) - (28) (263)
Property sale 15 - 15 -
Tubular inventory impairment - (24) - (24)
Gain on previously held investment in UPI - - - 25
December 24, 2018 Clairton coke making
facility fire $ - $ 4 $ - $ 4
Total earnings (loss) before interest and income
taxes $ 1,034 $ (532) 294 %
Segment results for Flat-Rolled
Three months ended June 30 ,
% Six months ended
2021 2020 Change 2021 2020 Change
Earnings (loss) before interest and
taxes ($ millions) $ 579 $ (329) 276 % $ 725 $ (364) 299 %
Gross margin 25 % (10) % 35 % 21 % - % 21 %
Raw steel production (mnt) 2,485 1,468 69 % 5,066 4,616 10 %
Capability utilization 59 % 35 % 24 % 60 % 54 % 6 %
Steel shipments (mnt) 2,326 1,790 30 % 4,658 4,299 8 %
Average realized steel price per ton
50 %$ 983 $ 715 37 % The increase in Flat-Rolled results for the three months endedJune 30, 2021 compared to the same period in 2020 was primarily due to: •increased average realized prices (approximately$850 million ) •increased shipments (approximately$10 million ) •increased mining sales (approximately$105 million ) •increased coke sales (approximately$30 million ), this change was partially offset by: •higher raw material costs (approximately$15 million ) •higher other costs, primarily variable compensation partially offset by favorable equity investee income, (approximately$70 million ).
The increase in Flat-Rolled results for the six months ended
-31-
--------------------------------------------------------------------------------
•increased coke sales (approximately $30 million ),
this change was partially offset by:
•higher raw material costs (approximately $35 million )
•higher energy costs (approximately $15 million )
•higher other costs, primarily variable compensation (approximately $160
million ).
Gross margin for the three and six months ended June 30, 2021 compared to the
same period in 2020 increased primarily as a result of higher sales volume and
average realized prices.
Segment results for Mini Mill (a)
Three Months Ended June 30 ,
% Six Months Ended
2021 2020 Change 2021 2020 Change
Earnings before interest and taxes ($
millions) $ 284 $ - n/a $ 416 $ - n/a
Gross margin 45 % - % n/a 41 % - % n/a
Raw steel production (mnt) 747 - n/a 1,257 - n/a
Capability utilization 91 % - % n/a 84 % - % n/a
Steel shipments (mnt) 616 - n/a 1,063 - n/a
Average realized steel price per ton
n/a
Segment results for USSE
Three Months Ended June 30, % Six Months Ended June 30, %
2021 2020 Change 2021 2020 Change
Earnings (loss) before interest and
taxes ($ millions) $ 207 $ (26) 896 % $ 312 $ (40) 880 %
Gross margin 22 % 2 % 20 % 20 % 3 % 17 %
Raw steel production (mnt) 1,279 645 98 % 2,476 1,527 62 %
Capability utilization 103 % 52 % 51 % 100 % 61 % 39 %
Steel shipments (mnt) 1,167 610 91 % 2,210 1,411 57 %
Average realized steel price per ($/ton)
43 %$ 831 $ 620 34 %
Average realized steel price per (€/ton) € 750 € 575
30 % € 689 € 563 22 %
The increase in USSE results for the three months ended June 30, 2021 compared
to the same period in 2020 was primarily due to:
•increased average realized prices (approximately $300 million )
•increased shipments, including volume efficiencies (approximately $30 million )
•strengthening of the Euro versus the U.S. dollar (approximately $30 million )
•increased energy efficiencies (approximately $5 million ),
these changes were partially offset by:
•higher raw material costs (approximately $120 million )
•increased operating costs (approximately $5 million )
•higher other costs (approximately $10 million ).
The increase in USSE results for the six months ended June 30, 2021 compared to
the same period in 2020 was primarily due to:
•increased average realized prices (approximately $400 million )
•increased shipments, including volume efficiencies (approximately $30 million )
•strengthening of the Euro versus the U.S. dollar (approximately $45 million )
•increased energy efficiencies (approximately $15 million ),
these changes were partially offset by:
•higher raw material costs (approximately $120 million )
•increased operating costs (approximately $10 million )
•higher other costs (approximately $10 million ).
Gross margin for the three and six months ended June 30, 2021 compared to the
same periods in 2020 increased primarily as a result of higher sales volume and
higher average realized prices.
-32-
--------------------------------------------------------------------------------
Segment results for Tubular
Three Months Ended June 30, % Six Months Ended June 30, %
2021 2020 Change 2021 2020 Change
Loss before interest and taxes ($
millions) $ - $ (47) 100 % $ (29) $ (95) 69 %
Gross margin 7 % (21) % 28 % (1) % (16) % 15 %
Raw steel production (mnt) (a) 114 - n/a 207 - n/a
Capability utilization (a) 51 % - % 51 % 46 % - % 46 %
Steel shipments (mnt) 105 132 (20) % 194 319 (39) %
Average realized steel price per ton
27 %$ 1,513 $ 1,285 18 %
(a) Tubular segment raw steel added in
The increase in Tubular results for the three months endedJune 30, 2021 as compared to the same period in 2020 occurred despite continued high levels of imports and was primarily due to: •increased average realized prices (approximately$35 million ) •lower other costs, primarily idled plant carrying costs, (approximately$20 million ), these changes were partially offset by: •higher raw material costs (approximately$5 million ) •higher energy costs (approximately$5 million ). The increase in Tubular results for the six months endedJune 30, 2021 as compared to the same period in 2020 occurred despite continued high levels of imports and was primarily due to: •increased average realized prices (approximately$35 million ) •lower operating costs (approximately$10 million ) •lower other costs, primarily idled plant carrying costs, (approximately$40 million ), these changes were partially offset by: •decreased shipments (approximately$5 million ) •higher raw material costs (approximately$10 million ) •higher energy costs (approximately$5 million ). Gross margin for the three and six months endedJune 30, 2021 compared to the same periods in 2020 increased primarily as a result of higher average realized prices and positive cost improvements from the new EAF and plant idlings, partially offset by increased raw material costs.
Items not allocated to segments
•We recordedBig River Steel - inventory step-up amortization charge of$24 million in the six months endedJune 30, 2021 . See Note 5 to the Condensed Consolidated Financial Statements for further details. •We recordedBig River Steel - unrealized losses of$6 million and$15 million in the three months and six months endedJune 30, 2021 , respectively for the post-acquisition mark-to-market impacts of hedging instruments acquired with the purchase of the remaining equity interest inBig River Steel . See Note 14 to the Condensed Consolidated Financial Statements for further details. •We recordedBig River Steel - acquisition costs of$9 million in the six months endedJune 30, 2021 . See Note 5 to the Condensed Consolidated Financial Statements for further details. •We recorded restructuring and other charges of$31 million and$37 million in the three months and six months endedJune 30, 2021 , respectively. See Note 20 to the Condensed Consolidated Financial Statements for further details. •We recorded a gain on previously held equity investment inBig River Steel of$111 million in the six months endedJune 30, 2021 . See Note 5 to the Condensed Consolidated Financial Statements for further details. •We recorded an impairment of$28 million for the Mon Valley Works endless casting and rolling project. See Note 1 to the Condensed Consolidated Financial Statement for further details. •We recorded a property sale gain of$15 million on the sale of a non-core real estate asset. -33-
--------------------------------------------------------------------------------
Net interest and other financial costs
Three Months Ended June 30, % Six Months Ended June 30, %
(Dollars in millions) 2021 2020 Change 2021 2020 Change
Interest expense $ 84 $ 64 (31) % $ 176 $ 114 (54) %
Interest income (1) (1) - % (2) (5) (60) %
Loss on debt extinguishment 1 - (100) % 256 - (100) %
Other financial costs 4 7 43 % 22 4 (450) %
Net periodic benefit income (29) (8) 263 % (60) (16) 275 %
Total net interest and other financial costs $ 59 $ 62 5 % $ 392
Net interest and other financial costs decreased in the three months ended
Net interest and other financial costs increased in the six months ended
The net periodic benefit income components of pension and other benefit costs are reflected in the table above, and increased in the three months and six months endedJune 30, 2021 as compared to the same periods last year primarily due to better than expected asset performance and lower amortization of prior service costs. Income taxes The income tax benefit was$(37) million and$(36) million in the three and six months endedJune 30, 2021 , respectively compared to$(5) million and$(24) million in the three and six months endedJune 30, 2020 , respectively. AtJune 30, 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, which resulted in a$262 million non-cash net benefit to earnings. That determination was based, in part, on U. S. Steel's cumulative income from the past three years and projections of income in future years. The release of the valuation allowance contains discrete and current year impacts that are recorded in the income tax benefit and will be remeasured in upcoming 2021 periods. The tax benefit for the six months endedJune 30, 2020 includes a$14 million benefit related to recording a loss from continuing operations and income from other comprehensive income categories. Net earnings attributable toUnited States Steel Corporation were$1,012 million and$1,103 million in the three and six months endedJune 30, 2021 , respectively, compared to a net loss of$(589) million and$(980) million in the three and six months endedJune 30, 2020 , respectively. The changes primarily reflect the factors discussed above. -34- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was$1,103 million for the six months endedJune 30, 2021 compared to net cash used by operating activities of$362 million in the same period last year. The increase in cash from operations is primarily due to stronger financial results, partially offset by changes in working capital period over period. 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 cash conversion cycle for the second quarter of 2021 improved by ten days as compared to the fourth quarter of 2020 as shown below: Cash Conversion Cycle
2021 2020
$ millions Days $ millions Days
Accounts receivable, net (a) $2,010 33 $994 38
+ Inventories (b) $1,914 45 $1,402 54
- Accounts Payable and Other Accrued
Liabilities (c) $2,684 64 $1,861 68
= Cash Conversion Cycle (d) 14 24
(a) Calculated as Average Accounts Receivable, net divided by total Net Sales
multiplied by the number of days in the period.
(b) Calculated as Average Inventory divided by total Cost of Sales multiplied by
the number of days in the period.
(c) Calculated as Average Accounts Payable and Other Accrued Liabilities less
bank checks outstanding and other current liabilities divided by total Cost of
Sales multiplied by the number of days in the period.
(d) Calculated as Accounts Receivable Days plus Inventory Days less Accounts
Payable Days.
The cash conversion cycle is a non-generally accepted accounting principles
(non-GAAP) financial measure. We believe the cash conversion cycle is a useful
measure in providing investors with information regarding our cash management
performance and is a widely accepted measure of working capital management
efficiency. The cash conversion cycle should not be considered in isolation or
as an alternative to other GAAP metrics as an indicator of performance.
The last-in, first-out (LIFO) inventory method is the predominant method of
inventory costing in the United States . Based on the Company's latest internal
forecasts and its inventory requirements, management does not believe there will
be significant permanent LIFO liquidations that would impact earnings for the
remainder of 2021.
Capital expenditures for the six months ended June 30, 2021 , were $284 million ,
compared with $455 million in the same period in 2020. Flat-Rolled capital
expenditures were $167 million and included spending for Mon Valley Works
Endless Casting and Rolling, Gary Hot Strip Mill upgrades, Mining Equipment and
various other infrastructure, environmental, and strategic projects. Mini Mill
capital expenditures were $56 million and primarily included spending for Phase
II expansion. USSE capital expenditures of $26 million consisted of spending for
Degasser improvements, Dynamo Line and various other infrastructure, and
environmental projects. Tubular capital expenditures were $34 million and
included spending for the Fairfield Electric Arc Furnace (EAF) project and
various other infrastructure, and environmental projects.
U. S. Steel's contractual commitments to acquire property, plant and equipment
at June 30, 2021 , totaled $573 million .
Net cash used by financing activities was $855 million for the six months ended
June 30, 2021 compared to net cash provided of $2,306 million in the same period
last year. The decrease was primarily due to the repayment of debt, partially
offset by the issuance of common stock.
The following table summarizes U. S. Steel's liquidity as of June 30, 2021 :
(Dollars in millions)
Cash and cash equivalents $
1,329
Amount available under Credit Facility Agreement
1,918
Amount available under
350
Amount available under USSK credit facilities 579 Total estimated liquidity$ 4,176 -35-
-------------------------------------------------------------------------------- In the first half of 2021, we issued 48,300,000 shares of common stock for net proceeds of approximately$790 million and issued$750 million in aggregate principal amount of 6.875% Senior Notes due 2029 (2029 Senior Notes) for net proceeds of$739 million after transaction costs. With the common stock and 2029 Senior Notes issuance proceeds and cash on hand we fully redeemed our 12.000% Senior Secured Notes due 2025 in the aggregate principal amount of$1.056 billion plus premiums of$181 million , repaid in full our Export-Import Credit Agreement in the amount of$180 million and reduced the borrowing under our Credit Facility Agreement and USSK Facility Agreement by$500 million and$368 million , respectively. See Note 15 to the Condensed Consolidated Financial Statements for further details. OnJune 17, 2021 , U. S. Steel issued an irrevocable notice of redemption to redeem the entirety of its approximately$718 million aggregate principal amount of outstanding 6.875% Senior Notes due 2025 (2025 Senior Notes). The Company expects the total payment to the holders including the redemption premium to be approximately$730 million (reflecting a redemption price of 101.719% of the aggregate principal amount), plus accrued and unpaid interest to, but excluding, the redemption date ofAugust 15, 2021 . The 2025 Senior Notes will be redeemed with cash on hand. The 2025 Senior Notes are reflected in short-term debt and current maturities of long-term debt on the Condensed Consolidated Balance Sheet as ofJune 30, 2021 . With the acquisition ofBig River Steel onJanuary 15, 2021 we assumed additional indebtedness. Below is a summary of the most significant debt acquired as ofJune 30, 2021 . See Note 15 to the Condensed Consolidated Financial Statements for further details. •6.625% Senior Secured Notes in the aggregate principal amount of$900 million that mature inJanuary 2029 ; •4.50% Arkansas Development Finance Authority Bonds in the aggregate principal amount of$487 million that have a final maturity inSeptember 2049 ; •4.75% Arkansas Development Finance Authority Bonds Tax Exempt Series 2020 (Green Bonds) in the aggregate principal amount of$265 million that have a final maturity inSeptember 2049 ; •Arkansas Teacher Retirement System Notes Payable in the amount of$106 million that mature in 2023. As ofJune 30, 2021 ,$107 million of the total cash and cash equivalents was held by foreign subsidiaries. Substantially all of the liquidity attributable to our foreign subsidiaries can be accessed without the imposition of income taxes as a result of the election effectiveDecember 31, 2013 to liquidate forU.S. income tax purposes a foreign subsidiary that holds most of our international operations. OnApril 12, 2021 ,United States Steel Corporation entered into a Notice and Acknowledgement with the Export Credit Agreement (ECA) lender, facility agent and ECA agent,KFW IPEX-BANK GMBH to acknowledge that the previously announced endless casting and rolling project at Mon Valley Works would no longer be pursued and the associated equipment for the project is now being evaluated for other uses. Use of the Export-Credit Agreement for further equipment purchases is also being evaluated. As ofJune 30, 2021 ,$136 million was owed on the ECA. Certain of our credit facilities, including the Credit Facility Agreement, the Big River Steel ABL Facility, the USSK Credit Agreement and the Export Credit Agreement, contain standard terms and conditions including customary material adverse change clauses. If a material adverse change was to occur, our ability to fund future operating and capital requirements could be negatively impacted. We may from time to time seek to retire or repurchase our outstanding long-term debt through open market purchases, privately negotiated transactions, exchange transactions, redemptions or otherwise. Such purchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, and other factors and may be commenced or suspended at any time. The amounts involved may be material. See Note 15 to the Condensed Consolidated Financial Statements for further details regarding U. S. Steel's debt. We use surety bonds, trusts and letters of credit to provide financial assurance for certain transactions and business activities. The use of some forms of financial assurance and cash collateral have a negative impact on liquidity. U. S. Steel has committed$215 million of liquidity sources for financial assurance purposes as ofJune 30, 2021 . Increases in certain of these commitments which use collateral are reflected within cash, cash equivalents and restricted cash on the Condensed Consolidated Statement of Cash Flows. InOctober 2020 , the Company entered into a supply chain finance agreement with a third-party administrator with an initial term of one year which is guaranteed by theExport Import Bank of the United States (Ex-Im Guarantee). See our Annual Report on Form 10-K for the year-endedDecember 31, 2020 for further details. As ofJune 30, 2021 , accounts payable and accrued expenses included$75 million of outstanding payment obligations which suppliers elected to sell to participating financial institutions. Access to supply chain financing could be curtailed in the future if the terms of the Ex-Im Guarantee are modified or if our credit ratings are downgraded. If access to supply chain financing is curtailed, working capital could be negatively impacted which may necessitate additional borrowing. We finished the second quarter of 2021 with$1,329 million of cash and cash equivalents and$4,176 million of total liquidity. Available cash is left on deposit with financial institutions or invested in highly liquid securities with parties we believe to be creditworthy. U. S. Steel management believes that our liquidity will be adequate to fund our requirements based on our current assumptions with respect to our results of operations and financial condition. -36- -------------------------------------------------------------------------------- We expect that our estimated liquidity requirements will consist primarily of the remaining portion of our 2021 planned strategic and sustaining capital expenditures, additional debt repayment, working capital requirements, interest expense, and operating costs and employee benefits for our operations after taking into account recent footprint actions and cost reductions at our plants and headquarters. Our available liquidity atJune 30, 2021 consists principally of our cash and cash equivalents and available borrowings under the Credit Facility Agreement, Big River Steel ABL Facility and the USSK Credit Facilities. Management continues to evaluate market conditions in our industry and our global liquidity position, and may consider additional actions to further strengthen our balance sheet and optimize liquidity, including but not limited to, repayment or refinancing of outstanding debt, the incurrence of additional debt or the issuance of additional debt or equity securities, drawing on available capacity under the Credit Facility Agreement, Big River Steel ABL Facility and/or the USSK Credit Facilities, or reducing outstanding borrowings under those facilities from time to time if deemed appropriate by management. Environmental Matters, Litigation and Contingencies Some of U. S. Steel's facilities were in operation before 1900. Although the Company believes that its environmental practices have either led the industry or at least been consistent with prevailing industry practices, hazardous materials have been and may continue to be released at current or former operating sites or delivered to sites operated by third parties. OurU.S. facilities are subject to environmental laws applicable in theU.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
EU Environmental Requirements and Slovak Operations Phase IV of the EU Emissions Trading System (EU ETS ) commenced onJanuary 1, 2021 and will finish onDecember 31, 2030 . TheEuropean Commission issued final approval of the Slovak National Allocation table inJuly 2021 .The Slovak Ministry of Environment's decision on USSE's free allocation for the first five years of the Phase IV period is expected by the end ofSeptember 2021 . In the fourth quarter of 2020 USSE started purchasing EUA for the Phase IV period. As ofJune 31, 2021 , we have pre-purchased approximately 2.0 million EUA totaling €67 million (approximately$79 million ).The EU'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. Total capital expenditures for projects to comply with or go beyond BAT requirements were €138 million (approximately$164 million ) over the actual program period. These costs were partially offset by the EU funding received and may be mitigated over the next measurement periods if USSK complies with certain financial covenants, which are assessed annually. USSK complied with these covenants as ofJune 30, 2021 . 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.
For further discussion of laws applicable in
New and Emerging Environmental Regulations
Future compliance with CO2 emission requirements may include substantial costs for emission allowances, restriction of production and higher prices for coking coal, natural gas and electricity generated by carbon-based systems. Because we cannot predict what requirements ultimately will be imposed in theU.S. andEurope , it is difficult to estimate the likely impact on U. S. Steel, but it could be substantial. OnMarch 28, 2017 ,President Trump signed Executive Order 13783 instructing theUnited States Environmental Protection Agency (U.S. EPA ) to review the Clean Power Plan (CPP). As a result, inJune 2019 , theU.S. EPA published a final rule, the "Affordable Clean Energy (ACE) Rule" that replaced the CPP. Twenty-three states, theDistrict of Columbia , and seven municipalities are challenging the CPP repeal and ACE rule in theU.S. Court of Appeals for the D.C. Circuit . A coalition of 21 states has intervened in the litigation in support of theU.S. EPA . Various other public interest organizations, industry groups, and Members ofCongress are also participating in the litigation. OnJanuary 19, 2021 , theDistrict of Columbia Circuit vacated and remanded the ACE to theU.S. EPA , while the CPP remains stayed. It is unclear as to how the new Biden administration will proceed with the remand. Any impacts to our operations as a result of any future greenhouse gas regulations are not estimable at this time since the matter is unsettled. In any case, to the extent expenditures associated with any greenhouse gas regulation, as with all costs, are not ultimately reflected in the prices of U. S. Steel's products and services, operating results will be reduced. -37- -------------------------------------------------------------------------------- The PhaseIV EU ETS period spans 2021-2030 and began onJanuary 1 , 2021.The Phase IV period is divided into two sub periods (2021-2025 and 2026-2030), rules are still being finalized and may differ between the periods. Currently, the overall EU target is a 40 percent reduction of 1990 emissions by 2030. Free allocation of CO2 allowances is 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 decreases in production. The threshold for adjustments is set at 15 percent and will be assessed on the basis of a rolling average of two precedent years. Production data verified by an external auditor shows that USSE missed the 15 percent threshold in 2019-20; therefore, the free allocation for 2021 will be decreased. Additionally, lower production in 2019 and 2020 will have an impact on the future free allocation for 2026-2030, where the historical production average for years 2019-2023 will be assessed. In order to achieve the EU political goal of carbon emissions neutrality by 2050, onJuly 14, 2021 , theEuropean Commission released a package of legislative proposals called Fit for 55. The proposals contain significant changes to currentEU 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 proposals are subject to the EU legislative process and we cannot predict their future impact.
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. TheU.S. EPA has developed various industry-specific MACT standards pursuant to this requirement. The CAA requires theU.S. EPA to promulgate regulations establishing emission standards for each category ofHazardous Air Pollutants. TheU.S. EPA also must conduct risk assessments on each source category that is already subject to MACT standards and determine if additional standards are needed to reduce residual risks. While our operations are subject to several different categories of NESHAP and MACT standards, the principal impact of these standards on U. S. Steel's operations includes those that are specific to coke making, iron making, steel making and iron ore processing. OnJuly 13, 2020 , theU.S. EPA published a Residual Risk andTechnology Review (RTR) rule for the Integrated Iron and Steel MACT category in theFederal Register . Based on the results of theU.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, theU.S. EPA determined that there are no developments in practices, processes or control technologies that necessitate revision of the standards. InSeptember 2020 , several petitions for review of the rule, including those filed by the Company, theAmerican Iron and Steel Institute (AISI),Clean Air Council and others, were filed with theUnited States Court of Appeals for the District of Columbia Circuit . The cases were consolidated and are being held in abeyance until theU.S. EPA reviews and responds to administrative petitions for review. For the Taconite Iron Ore Processing category, based on the results of theU.S. EPA's risk review, the agency promulgated a final rule onJuly 28, 2020 , in which theU.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. Based upon our analysis of the proposed taconite rule, the Company does not expect any material impact as a result of the rule. However, petitions for review of the rule were filed in theUnited States Court of Appeals for the District of Columbia Circuit , in which the Company and AISI intervened. Because theU.S. EPA has not completed its review of the Coke MACT regulations, any impacts related to theU.S. EPA's review of the coke standards cannot be estimated at this time. OnMarch 12, 2018 , theNew York State Department of Environmental Conservation (DEC), along with other petitioners, submitted a CAA Section 126(b) petition to theU.S. EPA . In the petition, the DEC asserts that stationary sources from the following nine states are interfering with attainment or maintenance of the 2008 and 2015 ozone National Ambient Air Quality Standards (NAAQS) inNew York :Illinois ,Indiana ,Kentucky ,Maryland ,Michigan ,Ohio ,Pennsylvania ,Virginia , andWest Virginia . DEC is requesting theU.S. EPA to require sources of nitrogen oxides in the nine states to reduce such emissions. In a final rule promulgated in theOctober 18, 2019 ,Federal Register , theU.S. EPA denied the petition. OnOctober 29, 2019 ,New York ,New Jersey , and theCity of New York petitioned theUnited States Court of Appeals for the District of Columbia Circuit for review of theU.S. EPA's denial of the petition. InJuly 2020 , the Court vacated theU.S. EPA's determination and remanded it back to theU.S. EPA to reconsider the 126(b) petition in a manner consistent with the Court's opinion. At this time, since theU.S. EPA's decision after its reconsideration is unknown, the impacts of any reconsideration are indeterminable and inestimable. The CAA also requires theU.S. EPA to develop and implement NAAQS for criteria pollutants, which include, among others, particulate matter (PM) - consisting of PM10 and PM2.5, lead, carbon monoxide, nitrogen dioxide, sulfur dioxide (SO2), and ozone. InOctober 2015 , theU.S. EPA lowered the NAAQS for ozone from 75 parts per billion (ppb) to 70 ppb. OnNovember 6, 2017 , theU.S. EPA designated most areas in which we operate as attainment with the 2015 standard. In a separate ruling, onJune 4, 2018 , theU.S. EPA designated other areas in which we operate as "marginal nonattainment" with the 2015 ozone standard. OnDecember 6, 2018 , theU.S. EPA published a final rule regarding implementation of the 2015 ozone standard. Because no state regulatory or permitting actions to bring the ozone nonattainment areas into attainment have yet to be proposed or developed for -38- -------------------------------------------------------------------------------- U. S. Steel facilities, the operational and financial impact of the ozone NAAQS cannot be reasonably estimated at this time. OnDecember 31, 2020 , theU.S. EPA published a final rule pursuant to its statutorily required review of NAAQS that retains the ozone NAAQS at 70 ppb. InJanuary 2021 ,New York , along with several states and non-governmental organizations filed petitions for judicial review of the action with theUnited States Court of Appeals for the District of Columbia Circuit . Several other states and industry trade groups intervened in support of the U. S.EPA 's action. The case remains before the Court. OnDecember 14, 2012 , theU.S. EPA lowered the annual standard for PM2.5 from 15 micrograms per cubic meter (ug/m3) to 12 ug/m3, and retained the PM2.5 24-hour and PM10 NAAQS rules. InDecember 2014 , theU.S. EPA designated some areas in which U. S. Steel operates as nonattainment with the 2012 annual PM2.5 standard. OnApril 6, 2018 , theU.S. EPA published a notice thatPennsylvania ,California andIdaho failed to submit a SIP to demonstrate attainment with the 2012 fine particulate standard by the deadline established by the CAA. As a result of the notice,Pennsylvania , a state in which we operate, was required to submit a State Implementation Plan (SIP) to theU.S. EPA no later thanNovember 7, 2019 to avoid sanctions. OnApril 29, 2019 , the ACHD published a draft SIP for theAllegheny County nonattainment area which demonstrates that all ofAllegheny County will meet its reasonable further progress requirements and be in attainment with the 2012 PM2.5 annual and 24-hour NAAQS byDecember 31, 2021 with the existing controls that are in place. OnSeptember 12, 2019 , theAllegheny County Board of Health unanimously approved the draft SIP. The draft SIP was then sent to thePennsylvania Department of Environmental Protection (PADEP). PADEP submitted the SIP to theU.S. EPA for approval onNovember 1, 2019 . To date, theU.S. EPA has not taken action on PADEP's submittal. OnDecember 18, 2020 , theU.S. EPA published a final rule pursuant 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 judicial review of the action with theUnited States Court of Appeals for the District of Columbia Circuit . Several industry trade groups intervened in support of theU.S. EPA's action. The case remains before the Court. OnJanuary 26, 2021 , ACHD announced that for the first time in history all eight air quality monitors inAllegheny County met the federal air quality standards including particulate matter (PM2.5 and PM10). OnNovember 20, 2020 , ACHD proposed a reduction to the current allowable emissions from coke plant operations, including the hydrogen sulfide content of coke oven gas, that would be more stringent than the Federal Best Available Control Technology and Lowest Achievable Emission Rate requirements. In various meetings with ACHD, U. S. Steel has raised significant objections, in particular, that ACHD has not demonstrated that continuous compliance with the draft rule is economically and technologically feasible. While U. S. Steel continues to meet with ACHD regarding the draft rule, U. S. Steel believes that any rule promulgated by ACHD must comply with its statutory authority. If the draft rule or similar rule is adopted, the financial and operational impacts to U. S. Steel could be material. To assist in developing rules objectively and with adequate technical justification, theJune 27, 2019 , Settlement Agreement, establishes procedures that would be used when developing a new rule. Because U. S. Steel believes ACHD did not follow the procedures prescribed in theJune 27, 2019 Settlement Agreement (Agreement) with ACHD, U. S. Steel has invoked dispute resolution per the terms of the Agreement regarding ACHD's proposed coke rule. U. S. Steel and ACHD are currently negotiating resolution of the disputes. For further discussion of relevant environmental matters, including environmental remediation obligations, see "Item 1. Legal Proceedings - Environmental Proceedings." OFF-BALANCE SHEET ARRANGEMENTS U. S. Steel did not enter into any new material off-balance sheet arrangements during the second quarter of 2021.INTERNATIONAL TRADE U. S. Steel continues to face import competition, much of which is unfairly traded, supported by foreign governments, and fueled by massive global steel overcapacity, currently estimated to be over 625 million metric tons per year-more than seven times the entireU.S. steel market and more than thirty times totalU.S. steel imports. These imports, as well as the underlying policies/practices and overcapacity, impact the Company's operational and financial performance. U. S. Steel continues to lead efforts to address these challenges that threaten the Company, our workers, our stockholders, and our country's national and economic security. As of the date of this filing, pursuant to a series of Presidential Proclamations issued in accordance with Section 232 of the Trade Expansion Act of 1962,U.S. imports of certain steel products are subject to a 25 percent tariff, except for imports from: (1)Argentina ,Brazil , andSouth Korea , which are subject to restrictive quotas; (2)Canada andMexico , which are not subject to either tariffs or quotas but tariffs could be re-imposed on surging product groups after consultations; and (3)Australia , which is not subject to tariffs, quotas, or an anti-surge mechanism. TheU.S. Department of Commerce (DOC) is managing a process in whichU.S. companies may request and/or oppose one-year temporary product exclusions from the Section 232 tariffs and quotas. Over 276,000 temporary exclusions have been requested for steel products. -39- -------------------------------------------------------------------------------- Multiple legal challenges to the Section 232 action continue before the U.S. Court ofInternational Trade (CIT) and U.S. Court of Appeals for the Federal Circuit (CAFC).U.S. courts have consistently rejected constitutional and statutory challenges to the initial steel Section 232 action and overall product exclusion process. Multiple countries have challenged the Section 232 action at theWorld Trade Organization (WTO), imposed retaliatory tariffs, and/or acted to safeguard their domestic steel industries from increased steel imports. In turn,the United States has challenged the retaliation at theWTO . InMay 2021 ,the United States and the EU agreed to begin discussions to address global steel overcapacity and the Section 232 action.The EU suspended the doubling of Section 232 retaliation scheduled forJune 2021 for six months untilDecember 2021 . InJune 2021 ,the United States and the EU issued a joint statement committing to complete discussions on a wide range of trade issues including overcapacity and the Section 232 action and retaliation by the end of 2021. Since its implementation inMarch 2018 , the Section 232 action has supported theU.S. steel industry's and U. S. Steel's investments in advanced steel production capabilities, technology, and skills, thereby strengtheningU.S. national and economic security. The Company continues to actively defend the Section 232 action. InFebruary 2019 , theEuropean Commission (EC) imposed a definitive tariff rate quota safeguard of 25 percent tariffs on certain steel imports that exceed established quotas. InJune 2021 , the EC voted to extend the safeguard for an additional three years, untilJune 2024 . Antidumping duties (AD) and countervailing duties (CVD or anti-subsidy duties) are applied to certain steel product imports in addition to Section 232 measures inthe United States or the steel safeguard in the EU, and AD/CVD orders will continue beyond the Section 232 action and the EC's safeguard. U. S. Steel continues to actively defend and maintain the 55 U.S. AD/CVD orders and 12 EU AD/CVD orders covering products that can be manufactured by U. S. Steel in multiple proceedings before the DOC,U.S. International Trade Commission , CIT, CAFC, EC, European courts, and theWTO . InJune 2021 , the DOC made a final affirmative determination that corrosion-resistant steel (CORE) fromMalaysia made from Chinese and Taiwanese substrate circumvent the AD/CVD orders on CORE fromChina andTaiwan , resulting in AD/CVD between 4 and 248 percent on such imports. In the EU, inApril 2021 , the EC announced definitive 4.7 to 7.3 percent AD duties on EU imports of hot-rolled steel fromTurkey , effectiveJuly 2021 . InJune 2021 , the EC initiated new AD investigations of EU imports of hot-dipped galvanized steel fromTurkey andRussia .
Additional tariffs of 7.5 to 25 percent continue to apply to certain
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.
NEW ACCOUNTING STANDARDS See Notes 2 and 3 to the Condensed Consolidated Financial Statements in Part I
© Edgar Online, source
