Net Sales by Product (In millions):
| | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2023 | Flat-Rolled | Mini Mill | USSE | Tubular | Other | Total |
Semi-finished | $ | 59 | | $ | — | | $ | 32 | | $ | — | | $ | — | | $ | 91 | |
Hot-rolled sheets | 554 | | 332 | | 348 | | — | | — | | 1,234 | |
Cold-rolled sheets | 901 | | 72 | | 71 | | — | | — | | 1,044 | |
Coated sheets | 853 | | 148 | | 340 | | — | | — | | 1,341 | |
Tubular products | — | | — | | 12 | | 500 | | — | | 512 | |
All Other (a) | 203 | | 1 | | 35 | | 5 | | 4 | | 248 | |
Total | $ | 2,570 | | $ | 553 | | $ | 838 | | $ | 505 | | $ | 4 | | $ | 4,470 | |
(a) Consists primarily of sales of raw materials and coke making by-products. |
| | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 | Flat-Rolled | Mini Mill | USSE | Tubular | Other | Total |
Semi-finished | $ | 49 | | $ | — | | $ | 1 | | $ | — | | $ | — | | $ | 50 | |
Hot-rolled sheets | 514 | | 399 | | 593 | | — | | — | | 1,506 | |
Cold-rolled sheets | 971 | | 92 | | 139 | | — | | — | | 1,202 | |
Coated sheets | 1,196 | | 224 | | 483 | | — | | — | | 1,903 | |
Tubular products | — | | — | | 15 | | 306 | | — | | 321 | |
All Other (a) | 224 | | 3 | | 20 | | 3 | | 2 | | 252 | |
Total | $ | 2,954 | | $ | 718 | | $ | 1,251 | | $ | 309 | | $ | 2 | | $ | 5,234 | |
(a) Consists primarily of sales of raw materials and coke making by-products. |
7. Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within U. S. Steel's Condensed Consolidated Balance Sheets that sum to the total of the same amounts shown in the Condensed Consolidated Statement of Cash Flows:
| | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | March 31, 2023 | | | | December 31, 2022 | | March 31, 2022 |
Cash and cash equivalents | | $ | 2,837 | | | | | $ | 3,504 | | | $ | 2,866 | |
Restricted cash in other current assets | | 4 | | | | | 4 | | | 17 | |
Restricted cash in other noncurrent assets | | 32 | | | | | 31 | | | 58 | |
| | | | | | | | |
Total cash, cash equivalents and restricted cash | | $ | 2,873 | | | | | $ | 3,539 | | | $ | 2,941 | |
Amounts included in restricted cash represent cash balances which are legally or contractually restricted, primarily for electric arc furnace construction, environmental liabilities and other capital projects and insurance purposes.
8. Inventories
The last-in, first-out (LIFO) method is the predominant method of inventory costing for our Flat-Rolled and Tubular segments. The first-in, first-out (FIFO) and moving average methods are the predominant inventory costing methods for our Mini Mill segment and the FIFO method is the predominant inventory costing method for our USSE segment. At March 31, 2023 and December 31, 2022, the LIFO method accounted for 41 percent and 43 percent of total inventory values, respectively.
| | | | | | | | | | | |
(In millions) | March 31, 2023 | | December 31, 2022 |
Raw materials | $ | 1,213 | | | $ | 1,098 | |
Semi-finished products | 900 | | | 811 | |
Finished products | 386 | | | 398 | |
Supplies and sundry items | 42 | | | 52 | |
Total | $ | 2,541 | | | $ | 2,359 | |
Current acquisition costs were estimated to exceed the above inventory values by $1.6 billion and $1.2 billion at March 31, 2023 and December 31, 2022, respectively. As a result of the liquidation of LIFO inventories, cost of sales decreased and earnings before interest and income taxes increased by $9 million and $8 million for the three months ended March 31, 2023 and 2022, respectively.
9. Intangible Assets and Goodwill
Intangible assets that are being amortized on a straight-line basis over their estimated useful lives are detailed below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of March 31, 2023 | | As of December 31, 2022 |
(In millions) | Useful Lives | | Gross Carrying Amount | Accumulated Amortization | Net Amount | | Gross Carrying Amount | Accumulated Amortization | Net Amount |
Customer relationships | 22 Years | | $ | 413 | | $ | 42 | | $ | 371 | | | $ | 413 | | $ | 37 | | $ | 376 | |
Patents | 5-15 Years | | 17 | | 12 | | 5 | | | 17 | | 12 | | 5 | |
Energy Contract | 2 Years | | 54 | | 38 | | 16 | | | 54 | | 32 | | 22 | |
Total amortizable intangible assets | | | $ | 484 | | $ | 92 | | $ | 392 | | | $ | 484 | | $ | 81 | | $ | 403 | |
Amortization expense was $11 million and $10 million for the three months ended March 31, 2023 and 2022, respectively.
Total estimated amortization expense for the remainder of 2023 is $31 million. We expect approximately $98 million in total amortization expense from 2024 through 2028 and approximately $263 million in remaining amortization expense thereafter.
The carrying amount of acquired water rights with indefinite lives as of March 31, 2023 and December 31, 2022 totaled $75 million.
Below is a summary of goodwill by segment for the three months ended March 31, 2023:
| | | | | | | | | | | | | | | | | |
| Flat-Rolled | Mini Mill | USSE | Tubular | Total |
Balance at December 31, 2022 | $ | — | | $ | 916 | | $ | 4 | | $ | — | | $ | 920 | |
Additions | — | | — | | — | | — | | — | |
Balance at March 31, 2023 | $ | — | | $ | 916 | | $ | 4 | | $ | — | | $ | 920 | |
10. Pensions and Other Benefits
The following table reflects the components of net periodic benefit (income) cost for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
(In millions) | 2023 | | 2022 | | 2023 | | 2022 |
Service cost | $ | 8 | | | $ | 11 | | | $ | 1 | | | $ | 2 | |
Interest cost | 55 | | | 39 | | | 17 | | | 12 | |
Expected return on plan assets | (82) | | | (89) | | | (15) | | | (22) | |
Amortization of prior service cost (credit) | 5 | | | — | | | (6) | | | (7) | |
Amortization of actuarial net loss (gain) | 3 | | | 18 | | | (18) | | | (13) | |
Net periodic benefit income, excluding below | (11) | | | (21) | | | (21) | | | (28) | |
Multiemployer plans | 21 | | | 19 | | | — | | | — | |
Settlement, termination and curtailment losses (a) | — | | | 1 | | | — | | | — | |
Net periodic benefit cost (income) | $ | 10 | | | $ | (1) | | | $ | (21) | | | $ | (28) | |
(a) During the three months ended March 31, 2022, pension benefits incurred special termination charges of approximately $1 million due to workforce restructuring. |
Employer Contributions
During the first three months of 2023, U. S. Steel made cash payments of $20 million to the Steelworkers Pension Trust and $2 million of pension payments not funded by trusts.
During the first three months of 2023, cash payments of $9 million were made for other postretirement benefit payments not funded by trusts.
Company contributions to defined contribution plans totaled $12 million and $11 million for the three months ended March 31, 2023 and 2022, respectively.
11. Stock-Based Compensation Plans
U. S. Steel has outstanding stock-based compensation awards that were granted by the Compensation & Organization Committee (the Committee) of the Board of Directors, or its designee, under the 2005 Stock Incentive Plan (the 2005 Plan) and the 2016 Omnibus Incentive Compensation Plan, as amended and restated (the Omnibus Plan). On April 26, 2016, the Company's stockholders approved the Omnibus Plan and, between 2016 and the present, authorized the Company to issue up to 32,700,000 shares in the aggregate of U. S. Steel common stock under the Omnibus Plan. While the awards that were previously granted under the 2005 Plan remain outstanding, all future awards will be granted under the Omnibus Plan. As of March 31, 2023, there were 6,188,771 shares available for future grants under the Omnibus Plan.
Recent grants of stock-based compensation consist of restricted stock units, total stockholder return (TSR) performance awards and return on capital employed (ROCE) performance awards. Shares of common stock under the Omnibus Plan are issued from authorized, but unissued stock. The following table is a summary of the awards made under the Omnibus Plan during the first three months of 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Grant Details | | Shares(a) | Fair Value(b) | | Shares(a) | Fair Value(b) |
| | | | | | |
Restricted Stock Units | | 1,274,520 | | $ | 29.90 | | | 1,169,470 | | $ | 24.27 | |
Performance Awards (c) | | | | | | |
TSR | | 185,120 | | $ | 37.41 | | | 225,030 | | $ | 28.53 | |
ROCE (d) | | 357,020 | | $ | 29.35 | | | 396,280 | | $ | 23.60 | |
| | | | | | |
(a) The share amounts shown in this table do not reflect an adjustment for estimated forfeitures.
(b) Represents the per share weighted average for all grants during the period.
(c) The number of performance awards shown represents the target share grant of the award.
(d) A portion of ROCE awards granted in 2023 and 2022 are not shown in the table because they were granted in cash.
U. S. Steel recognized pretax stock-based compensation expense in the amount of $11 million and $16 million in the three-month periods ended March 31, 2023 and 2022, respectively.
As of March 31, 2023, total future compensation expense related to nonvested stock-based compensation arrangements was $79 million, and the weighted average period over which this expense is expected to be recognized is approximately 26 months.
Stock Options
There have been no stock options granted since 2017 other than the 171,000 performance-based stock options granted in December 2021, which are further described below.
The 171,000 performance-based stock options granted in December 2021, which were valued using a lattice model, do not become vested and exercisable until the Company's 20-trading day average closing stock price meets or exceeds the following stock price hurdles during the seven-year period beginning on the grant date, as follows:
| | | | | | | | |
20-trading day Average Closing Stock Price Achievement During 7-Year Period Beginning on Grant Date(a) | | Percentage of Performance-Based Stock Options Exercisable |
$ | 35.00 | | | 33.33 | % |
$ | 45.00 | | | 33.33 | % |
$ | 55.00 | | | 33.34 | % |
(a) The $35.00 tranche vested in April 2022.
Stock Awards
Restricted stock units awarded as part of annual grants generally vest ratably over three years. Their fair value is the average market price of the underlying common stock on the date of grant. Restricted stock units granted in connection with new-hire or retention grants generally cliff vest three years from the date of the grant.
TSR performance awards may vest at varying levels at the end of a three-year performance period if U. S. Steel’s total shareholder return compared to the total shareholder return of a peer group of companies meets performance criteria during the three-year performance period. TSR is calculated as follows: 20 percent for each year in the three-year performance period and 40 percent for the full three-year period. TSR performance awards may vest and payout 50 percent at the threshold level, 100 percent at the target level and 200 percent at the maximum level for payouts. Payment for performance in between the threshold percentages will be interpolated. The fair value of the performance awards is calculated using a Monte-Carlo simulation.
ROCE performance awards may vest at the end of a three-year performance period contingent upon meeting ROCE performance goals approved by the Committee. For the 2022 and 2023 ROCE performance awards, each year in the three-year performance period is weighted at 20 percent and the full three-year period is weighted at 40 percent of the total award. ROCE performance awards may vest and payout 50 percent at the threshold level, 100 percent at the target level and 200 percent at the maximum level for payouts. Payment for performance in between the threshold percentages will be interpolated. The fair value of the ROCE performance awards is the average market price of the underlying common stock on the date of grant.
In December 2021 and August 2022, special performance-based restricted stock unit awards (PSUs) were granted to members of the Company’s executive leadership team. Shares are earned based on the achievement of certain pre-set quantitative performance criteria during the four-year performance period, January 1, 2022 through December 31, 2025. Shares may vest following the expiration of the Performance Period if the Company satisfies the performance criteria.
The Chief Executive Officer was granted PSUs that vest with the following, equally weighted, performance metrics: (i) EBITDA margin expansion, (ii) greenhouse gas emissions intensity reduction, (iii) asset portfolio optimization, (iv) leverage metrics and (v) corporate relative valuation. Other members of the executive leadership team were granted PSUs that vest with performance criteria related to: (i) on time and on budget completion of BR2 (30% of the grant), (ii) EBITDA margin expansion (40% of the grant) and (iii) greenhouse gas emissions intensity reduction (30% of the grant).
For the PSU awards, a payout is achievable at threshold (50% of target), target (100% of target) or maximum (200% of target) performance achievement. Payout amounts will be interpolated between the threshold, target and maximum amounts.
12. Income Taxes
Tax provision
For the three months ended March 31, 2023, and 2022, the Company recorded a tax provision of $51 million and $246 million, respectively. The tax provisions for the first three months of 2023 and 2022 were based on an estimated annual effective rate, which requires management to make its best estimate of annual pretax income or loss and discrete items recognized during the period, if applicable.
Throughout the year, management regularly updates forecasted annual pretax results for the various countries in which we operate based on changes in factors such as prices, shipments, product mix, plant operating performance and cost estimates. To the extent that actual 2023 pretax results for U.S. and foreign income or loss vary from estimates applied herein, the actual tax provision or benefit recognized in 2023 could be materially different from the forecasted amount used to estimate the tax provision for the three months ended March 31, 2023.
In March 2022, the Company and the Arkansas Economic Development Commission entered into the Recycling Tax Credit Incentive Agreement, whereby the Company may earn state income tax credits in an amount equal to 30 percent of the cost of waste reduction, reuse, or recycling equipment, subject to meeting the requirements of the Arkansas Code Ann. Section 26-51-506, for BR2 which is under construction in Osceola, Arkansas. Documentation supporting the Company's investment in qualifying equipment must be submitted as part of an application for certification expected to be completed on or before 2025. In March 2022, the Company received a lump-sum payment of approximately $82 million as proceeds from the sale of a portion of expected future tax credits to be earned by the Company (see Note 21 for additional information). The Company estimates that it could earn tax credits in excess of $700 million, exclusive of the amount sold in March 2022, which the Company will recognize in the year the assets are placed into service and meet the requirements of Arkansas Code Ann. Section 26-51-506. Any unused tax credit that cannot be claimed in a tax year may be carried forward indefinitely by the Company and applied to its future state tax liability.
On August 16, 2022, H.R. 5376 (commonly called the Inflation Reduction Act of 2022) was signed into law, which, among other things, implemented a corporate alternative minimum tax (CAMT) of 15 percent on net book income of certain large corporations adjusted for certain items prescribed by the legislation. The tax provision for the three months ended March 31, 2023 reflects the impact of CAMT, which is not material to the Condensed Consolidated Financial Statements.
13. Earnings and Dividends Per Common Share
Earnings Per Share Attributable to United States Steel Corporation Stockholders
The effect of dilutive securities on weighted average common shares outstanding included in the calculation of diluted earnings per common share for the three months ended March 31, 2023 and March 31, 2022 were as follows.
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
(Dollars in millions, except per share amounts) | 2023 | 2022 | | | |
Earnings attributable to United States Steel Corporation stockholders: | | | | | |
Basic | $ | 199 | | $ | 882 | | | | |
Interest expense on Senior Convertible Notes, net of tax | 3 | | 3 | | | | |
Diluted | $ | 202 | | $ | 885 | | | | |
Weighted-average shares outstanding (in thousands): | | | | | |
Basic | 227,332 | | 261,453 | | | | |
Effect of Senior Convertible Notes | 26,194 | | 26,194 | | | | |
Effect of stock options, restricted stock units and performance awards | 3,921 | | 5,620 | | | | |
Diluted | 257,447 | | 293,267 | | | | |
Earnings per share attributable to United States Steel Corporation stockholders: | | | | | |
Basic | $ | 0.87 | | $ | 3.37 | | | | |
Diluted | $ | 0.78 | | $ | 3.02 | | | | |
Excluded from the computation of diluted earnings per common share due to their anti-dilutive effect were 0.9 million and 0.6 million outstanding securities granted under the Omnibus Plan for the three months ended March 31, 2023 and 2022, respectively.
The dividend for each of the first quarter of 2023 and 2022 was five cents per common share, respectively.
14. Derivative Instruments
U. S. Steel uses foreign exchange forward sales contracts (foreign exchange forwards) with maturities up to 20 months to manage our currency requirements and exposure to foreign currency exchange rate fluctuations. The USSE and Flat-Rolled segments use hedge accounting for their foreign exchange forwards. The Mini Mill segment has foreign exchange forwards for which hedge accounting has not been elected; therefore, the changes in the fair value of their foreign exchange forwards are recognized immediately in the Consolidated Statements of Operations (mark-to-market accounting).
U. S. Steel also uses financial swaps to protect from the commodity price risk associated with purchases of natural gas, zinc, tin, electricity and iron ore (commodity purchase swaps). We elected cash flow hedge accounting for commodity purchase swaps for natural gas, zinc and tin and iron ore and use mark-to-market accounting for electricity swaps. The commodity purchase swaps where hedge accounting was elected have maturities up to 21 months. The commodity purchase swaps where hedge accounting was not elected have maturities of up to 9 months.
U. S. Steel has entered into financial swaps that are used to partially manage the sales price risk of certain hot-rolled coil sales (sales swaps) and iron ore sales (zero cost collars and swaps). Both the sales swaps and the zero cost collars are accounted for using hedge accounting and have maturities of up to 12 months.
The table below shows the outstanding swap quantities used to hedge forecasted purchases and sales as of March 31, 2023 and March 31, 2022:
| | | | | | | | | | | | | | |
Hedge Contracts | Classification | March 31, 2023 | | March 31, 2022 |
Natural gas (in mmbtus) | Commodity purchase swaps | 32,976,000 | | 43,265,000 |
Tin (in metric tons) | Commodity purchase swaps | 1,045 | | 2,430 |
Zinc (in metric tons) | Commodity purchase swaps | 23,783 | | 15,679 |
Electricity (in megawatt hours) | Commodity purchase swaps | 367,200 | | 724,320 |
Iron ore (in metric tons) | Commodity purchase swaps | 280,000 | | 30,000 |
Iron ore (in metric tons) | Zero-cost collars | — | | 1,080,000 |
Iron ore (in metric tons) | Sales swaps | 1,087,500 | | — |
Hot-rolled coils (in tons) | Sales swaps | 215,000 | | 110,000 |
Foreign currency (in millions of euros) | Foreign exchange forwards | € | 383 | | | € | 311 | |
Foreign currency (in millions of dollars) | Foreign exchange forwards | $ | 85 | | | $ | 158 | |
The following summarizes the fair value amounts included in our Condensed Consolidated Balance Sheets as of March 31, 2023, and December 31, 2022:
| | | | | | | | |
Balance Sheet Location (in millions) | March 31, 2023 | December 31, 2022 |
Designated as Hedging Instruments | | |
Accounts receivable | $ | 17 | | $ | 20 | |
Accounts payable | 133 | | 68 | |
| | |
Other long-term liabilities | 4 | | 15 | |
Not Designated as Hedging Instruments | | |
Accounts receivable | 4 | | 13 | |
Investments and long-term receivables | — | | 1 | |
The table below summarizes the effect of hedge accounting on Accumulated Other Comprehensive Income (AOCI) and amounts reclassified from AOCI into earnings for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | |
| Gain (Loss) on Derivatives in AOCI | | | Amount of Gain (Loss) Recognized in Income |
(In millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | Location of Reclassification from AOCI (a) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 |
Sales swaps | $ | (31) | | $ | (57) | | | Net sales | $ | 3 | | $ | (26) | |
Commodity purchase swaps | (18) | | 88 | | | Cost of sales (b) | (9) | | 22 | |
Foreign exchange forwards | (8) | | (2) | | | Cost of sales | 4 | | 8 | |
(a) The earnings impact of our hedging instruments substantially offsets the earnings impact of the related hedged items resulting in immaterial ineffectiveness. |
(b) Costs for commodity purchase swaps are recognized in cost of sales as products are sold. |
At current contract values, $79 million currently in AOCI as of March 31, 2023, will be recognized as an increase in cost of sales over the next year and $37 million currently in AOCI as of March 31, 2023, will be recognized as a decrease in net sales over the next year.
The loss recognized for foreign exchange forwards and financial swaps where hedge accounting was not elected was $10 million for the three months ended March 31, 2023. The loss recognized for sales swaps where hedge accounting was not elected was $9 million for the three months ended March 31, 2022.
15. Debt
| | | | | | | | | | | | | | | | | | | | |
(In millions) | Issuer/Borrower | Interest Rates % | Maturity | March 31, 2023 | | December 31, 2022 |
2037 Senior Notes | U. S. Steel | 6.650 | 2037 | 274 | | | 274 | |
2029 Senior Secured Notes | Big River Steel | 6.625 | 2029 | 720 | | | 720 | |
2029 Senior Notes | U. S. Steel | 6.875 | 2029 | 475 | | | 475 | |
2026 Senior Convertible Notes | U. S. Steel | 5.000 | 2026 | 350 | | | 350 | |
Environmental Revenue Bonds | U. S. Steel | 4.125 - 6.750 | 2024 - 2052 | 924 | | | 924 | |
Environmental Revenue Bonds | Big River Steel | 4.500 - 4.750 | 2049 | 752 | | | 752 | |
Finance leases and all other obligations | U. S. Steel | Various | 2023 - 2029 | 117 | | | 100 | |
Finance leases and all other obligations | Big River Steel | Various | 2023 - 2027 | 172 | | | 176 | |
Export Credit Agreement | U. S. Steel | Variable | 2031 | 137 | | | 136 | |
Credit Facility Agreement | U. S. Steel | Variable | 2027 | — | | | — | |
Big River Steel ABL Facility | Big River Steel | Variable | 2026 | — | | | — | |
USSK Credit Agreement | U. S. Steel Kosice | Variable | 2026 | — | | | — | |
USSK Credit Facility | U. S. Steel Kosice | Variable | 2024 | — | | | — | |
Total Debt | | | | 3,921 | | | 3,907 | |
Less unamortized discount, premium, and debt issuance costs | | | | (71) | | | (70) | |
Less short-term debt, long-term debt due within one year, and short-term issuance costs | | | | 91 | | | 63 | |
Long-term debt | | | | $ | 3,901 | | | $ | 3,914 | |
Arkansas Development Finance Authority Environmental Improvement Revenue Bonds, Series 2022 (United States Steel Corporation Project) (Green Bonds)
On September 6, 2022, U. S. Steel closed on an offering of $290 million aggregate principal amount of 5.450% Environmental Improvement Revenue Bonds due 2052 (2052 ADFA Green Bonds). U. S. Steel received net proceeds of approximately $287 million after fees of approximately $3 million related to the underwriting and third-party expenses. The net proceeds from the issuance of the 2052 ADFA Green Bonds were used to partially fund work related to U. S. Steel’s solid waste disposal facilities, including two electric arc furnaces (EAF) and other equipment facilities at its new technologically-advanced flat rolled steel making facility, BR2, currently under construction near Osceola, Arkansas.
On and after September 1, 2025, the Company may redeem the 2052 ADFA Green Bonds at its option, at any time in whole or from time to time in part at the redemption prices (expressed in percentages of principal amount) listed below, plus accrued and unpaid interest on the 2052 ADFA Green Bonds, if any, to, but excluding, the applicable redemption date, if redeemed during the twelve-month period beginning on September 1 of each of the years indicated below.
| | | | | |
Year | Redemption Price |
2025 | 105.000 | % |
2026 | 104.000 | % |
2027 | 103.000 | % |
2028 | 102.000 | % |
2029 | 101.000 | % |
2030 and thereafter | 100.000 | % |
At any time prior to September 1, 2025, U. S. Steel may also redeem the 2052 ADFA Green Bonds, at our option, in whole or in part, or from time to time, at a price equal to the greater of 100 percent of the principal amount of the 2052 ADFA Green Bonds plus accrued and unpaid interest, if any, or the sum of the present value of the redemption price of the 2052 ADFA Green Bonds if they were redeemed on September 1, 2025, plus interest payments due through September 1, 2025, discounted to the date of redemption on a semi-annual basis at the applicable tax-exempt municipal bond rate, plus accrued and unpaid interest, if any.
2026 Senior Convertible Notes
In October 2019, U. S. Steel issued $350 million of 5.00% Senior Convertible Notes due November 1, 2026 (2026 Senior Convertible Notes). Interest on the 2026 Senior Convertible Notes is payable semi-annually on May 1 and November 1 of each year. The initial conversion rate for the 2026 Senior Convertible Notes is 74.8391 shares of U. S. Steel common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $13.36 per share of common stock, subject to adjustment pursuant to the 2026 Senior Convertible Notes indenture. Based on the initial conversion rate, the 2026 Senior Convertible Notes are convertible into 26,193,685 shares of U. S. Steel common stock and we reserved for the possible issuance of 33,396,930 shares, which is the maximum amount that could be issued upon conversion at maturity. Prior to August 1, 2026, holders of notes may convert all or a portion of their notes at their option only upon the satisfaction of specified conditions and during certain periods. On or after August 1, 2026, holders may convert all or a portion of their notes prior to the maturity date. Upon conversion, we will satisfy the obligation with cash, common stock, or a combination thereof, at our election. U. S. Steel may not redeem the 2026 Senior Convertible Notes prior to November 5, 2023. On or after November 5, 2023, and prior to August 1, 2026, if the price per share of U. S. Steel's common stock has been at least 130% of the conversion price for specified periods, U. S. Steel may redeem all or a portion of the 2026 Senior Convertible Notes at a cash redemption price of 100% of the principal amount, plus accrued and unpaid interest.
If U. S. Steel undergoes a fundamental change, as defined in the 2026 Senior Convertible Notes, holders may require us to repurchase the 2026 Senior Convertible Notes in whole or in part for cash at a price equal to 100% of the principal amount of the 2026 Senior Convertible Notes to be purchased plus any accrued and unpaid interest up to, but excluding the repurchase date.
Big River Steel - Sustainability Linked ABL Facility
Big River Steel's amended senior secured asset-based revolving credit facility (Big River Steel ABL Facility) matures on July 23, 2026. The facility is secured by first-priority liens on accounts receivable and inventory and certain other assets and second priority liens on most tangible and intangible assets of Big River Steel in each case subject to permitted liens. Additionally, the amendment includes sustainability targets related to greenhouse gas emissions intensity reduction, safety performance and facility certification by ResponsibleSteel™.
The Big River Steel ABL Facility provides for borrowings for working capital and general corporate purposes in an amount equal up to the lesser of (a) $350 million and (b) a borrowing base calculated based on specified percentages of eligible accounts receivables and inventory, subject to certain adjustments and reserves.
Big River Steel LLC must maintain a fixed charge coverage ratio of at least 1.00 to 1.00 for the most recent twelve consecutive months when availability under the Big River Steel ABL Facility is less than the greater of ten percent of the borrowing base availability and $13 million. Based on the most recent four quarters as of March 31, 2023, Big River Steel would have met the fixed charge coverage ratio test. The facility includes affirmative and negative covenants and events of default that are customary for facilities of this type.
There were no loans outstanding under the Big River Steel ABL Facility at March 31, 2023.
U. S. Steel - Sustainability Linked Credit Facility Agreement
On May 27, 2022, U. S. Steel entered into the Sixth Amended and Restated Credit Facility Agreement (Credit Facility Agreement) to replace the existing Fifth Amended and Restated Credit Facility Agreement (Fifth Credit Facility Agreement). The Credit Facility Agreement has substantially the same terms as the Fifth Credit Facility Agreement, except the Credit Facility Agreement references the Secured Overnight Financing Rate instead of the London Interbank Offered Rate, adjusts the individual lenders' commitments, and renews the five-year maturity to May 27, 2027. The Credit Facility Agreement also adjusts the threshold for the fixed charge coverage ratio. The total availability under the facility remained the same at $1,750 million, and the financial impact from replacing the Fifth Credit Facility Agreement was immaterial. Consistent with the Fifth Credit Facility Agreement, the Credit Facility Agreement is secured by first-priority liens on certain accounts receivable and inventory and includes targets related to greenhouse gas emissions intensity reduction, safety performance and facility certification by ResponsibleSteel™.
The Credit Facility Agreement provides for borrowings for working capital and general corporate purchases in an amount equal to the lesser of (a) $1,750 million or (b) a borrowing base calculated based on specified percentages of eligible accounts receivable and inventory, subject to certain adjustments and reserves. As of March 31, 2023, there were approximately $4 million of letters of credit issued and no loans drawn under the Credit Facility Agreement. U. S. Steel must maintain a fixed charge coverage ratio of at least 1.00 to 1.00 for the most recent four consecutive quarters when availability under the Credit Facility Agreement is less than the greater of ten percent of the maximum facility availability and $140 million. Based on the most recent four quarters as of March 31, 2023, the Company would have met the fixed charge coverage ratio test.
U. S. Steel Košice (USSK) Credit Facilities
On September 29, 2021, USSK entered into a €300 million (approximately $326 million) unsecured sustainability linked credit agreement (USSK Credit Agreement). The USSK Credit Agreement matures in 2026 and contains sustainability targets related to greenhouse gas emissions intensity reduction, safety performance and facility certification by ResponsibleSteel™. At March 31, 2023, USSK had no borrowings under the USSK Credit Agreement.
Under the USSK Credit Agreement, USSK is required to maintain a net debt to EBITDA ratio of less than 3.50:1.00 for the rolling twelve months ending June 30, 2023. The Company has determined that it may not be able to comply with the EBITDA ratio covenant at June 30, 2023, based on the currently forecasted EBITDA for the twelve-month period ending June 30, 2023. This could partially or fully limit USSK’s ability to borrow under the USSK Credit Agreement.
Any amendment or waiver may lead to additional lender protections, including a reduction of loan commitments or less favorable terms, and there can be no assurance that USSK can obtain waivers or amendments in timely fashion, or on acceptable terms or at all. The Company believes that USSK will have adequate cash on hand as of June 30, 2023 and will not need to borrow under the USSK Credit Agreement.
During the first quarter of 2023, USSK increased the size of its €20 million credit facility to €30 million (approximately $33 million) (the USSK Credit Facility). At March 31, 2023, USSK had no borrowings under the USSK Credit Facility, and the availability was approximately $16 million due to approximately $17 million of customs and other guarantees outstanding.
16. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, current accounts and notes receivable, accounts payable and accrued interest included in the Condensed Consolidated Balance Sheet approximate fair value. See Note 14 for disclosure of U. S. Steel’s derivative instruments, which are accounted for at fair value on a recurring basis.
Stelco Option for Minntac Mine Interest
On April 30, 2020 (Effective Date), the Company entered into an Option Agreement with Stelco, Inc. (Stelco), that grants Stelco the option to purchase a 25 percent interest (Option Interest) in a to-be-formed entity (Joint Venture) that will own the Company’s current iron ore mine located in Mt. Iron, Minnesota (Minntac Mine). As consideration for the Option Interest, Stelco paid the Company an aggregate amount of $100 million in five $20 million installments during the year-ended December 31, 2020 which are recorded net of transaction costs in noncontrolling interests in the Condensed Consolidated Balance Sheet. The option can be exercised any time before January 31, 2027, and in the event Stelco exercises the option, Stelco will contribute an additional $500 million to the Joint Venture, which amount shall be remitted solely to U. S. Steel in the form of a one-time special distribution, and the parties will engage in good faith negotiations to finalize the master agreement (pursuant to which Stelco will acquire the Option Interest) and the limited liability company agreement of the Joint Venture.
Surplus VEBA assets
During the fourth quarter 2022, U. S. Steel and the United Steelworkers (USW) agreed to utilize the overfunded OPEB plans to support the benefits provided to active represented employees. Beginning January 1, 2023, this agreement allows the Company to use a certain amount of surplus VEBA assets (the surplus amount) to pay for legally permissible benefits under Section 501(c)(9) of the Internal Revenue Code for active employees and retirees of the USW. The surplus amount of $595 million was determined as of December 31, 2022 and was the balance of VEBA assets in excess of 135% of the retiree obligation at that time. On January 1, 2023, a subaccount was created and consisted of a pro-rata share of the existing trust. On February 1, 2023, using January 31, 2023 asset values, a new investment strategy was implemented and comprised of existing investments from the VEBA trust and cash. On February 1, 2023, certain assets were transferred from the VEBA to the subaccount. The Company is permitted to withdraw a target of $75 million annually, with a guaranteed annual minimum of $50 million, on a quarterly pro rata basis, from the subaccount to cover the cost of the permissible benefits for active USW employees and USW retirees. The surplus VEBA assets subaccount portfolio consists of fixed income securities including corporate bonds, U.S. government bonds, and U.S. Treasury notes, in addition to alternatives including investments in private credit partnerships and real estate funds. A portion of the corporate bonds are classified as available-for-sale debt securities, with unrealized gains and losses reported in Accumulated other comprehensive loss. Upon sale, realized gains and losses are reported in earnings. All other investments in the subaccount are financial instruments measured at fair value or net asset value, with gains and losses recognized through net earnings and are reported as a component of Other financial costs (benefits) on the Company's Consolidated Statements of Operations.
As of March 31, 2023, the fair value of the surplus VEBA assets subaccount portfolio was $602 million, with $75 million in Other current assets and $527 million in Other noncurrent assets on the Condensed Consolidated Balance Sheet. As of March 31, 2023, the value of the investment in corporate bonds classified as available-for-sale debt securities was $252 million. During the three months ended March 31, 2023, pretax net gains of $22 million and $4 million were recognized in Other financial costs (benefits) and in Accumulated other comprehensive loss, respectively.
The fair value of the subaccount portfolio by asset category at March 31 were as follows (in millions):
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| March 31, 2023 |
| Level 1 | Level 2 | Level 3 | measured at NAV (a) | Total |
Asset Category | | | | | |
Fixed Income | | | | | |
Corporate bonds - U.S. | — | | 219 | | — | | — | | 219 | |
Corporate bonds - Non-U.S. | — | | 71 | | — | | — | | 71 | |
U.S. government bonds | — | | 83 | | — | | — | | 83 | |
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Mortgage and asset-backed securities | — | | 10 | | — | | — | | 10 | |
Total fixed income | $ | — | | $ | 383 | | $ | — | | $ | — | | $ | 383 | |
Alternatives | | | | | |
Private credit partnerships | — | | — | | 58 | | 24 | | 82 | |
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Other alternatives | — | | — | | — | | 18 | | 18 | |
Total alternatives | $ | — | | $ | — | | $ | 58 | | $ | 42 | | $ | 100 | |
Commingled Funds | — | | — | | — | | 66 | | 66 | |
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Other (b) | 53 | | — | | — | | — | | 53 | |
Total assets at fair value | $ | 53 | | $ | 383 | | $ | 58 | | $ | 108 | | $ | 602 | |
(a)In accordance with ASC Topic 820, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
(b)Includes cash, accrued income, and miscellaneous payables.
The following table summarizes U. S. Steel’s financial liabilities that were not carried at fair value at March 31, 2023 and December 31, 2022. The fair value of long-term debt was determined using Level 2 inputs.
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| As of March 31, 2023 | | As of December 31, 2022 |
(In millions) | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount |
Financial liabilities: | | | | | | | |
Long-term debt (a) | $ | 3,874 | | | $ | 3,703 | | | $ | 3,815 | | | $ | 3,701 | |
(a) Excludes finance lease obligations.
17. Statement of Changes in Stockholders’ Equity
The following table reflects the first three months of 2023 and 2022 reconciliation of the carrying amount of total equity, equity attributable to U. S. Steel and equity attributable to noncontrolling interests:
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Three Months Ended March 31, 2023 (In millions) | Total | Retained Earnings | Accumulated Other Comprehensive Loss | Common Stock | Treasury Stock | Paid-in Capital | Non- Controlling Interest |
Balance at beginning of year | $ | 10,311 | | $ | 6,030 | | $ | (85) | | $ | 283 | | $ | (1,204) | | $ | 5,194 | | $ | 93 | |
Comprehensive income (loss): | | | | | | | |
Net earnings | 199 | | 199 | | — | | — | | — | | — | | — | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Pension and other benefit adjustments | (10) | | — | | (10) | | — | | — | | — | | — | |
Currency translation adjustment | 32 | | — | | 32 | | — | | — | | — | | — | |
Derivative financial instruments | (44) | | — | | (44) | | — | | — | | — | | — | |
Active employee benefit investments | 3 | | — | | 3 | | — | | — | | — | | — | |
Employee stock plans | (9) | | — | | — | | 2 | | (22) | | 11 | | — | |
Common stock repurchased | (75) | | — | | — | | — | | (75) | | — | | — | |
Dividends paid on common stock | (12) | | (12) | | — | | — | | — | | — | | — | |
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Balance at March 31, 2023 | $ | 10,395 | | $ | 6,217 | | $ | (104) | | $ | 285 | | $ | (1,301) | | $ | 5,205 | | $ | 93 | |
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Three Months Ended March 31, 2022 (In millions) | Total | Retained Earnings | Accumulated Other Comprehensive Income | Common Stock | Treasury Stock | Paid-in Capital | Non- Controlling Interest |
Balance at beginning of year | $ | 9,103 | | $ | 3,534 | | $ | 331 | | $ | 280 | | $ | (334) | | $ | 5,199 | | $ | 93 | |
Comprehensive income (loss): | | | | | | | |
Net earnings | 882 | | 882 | | — | | — | | — | | — | | — | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Pension and other benefit adjustments | (3) | | — | | (3) | | — | | — | | — | | — | |
Currency translation adjustment | (28) | | — | | (28) | | — | | — | | — | | — | |
Derivative financial instruments | 22 | | — | | 22 | | — | | — | | — | | — | |
Employee stock plans | 7 | | — | | — | | 2 | | (20) | | 25 | | — | |
Common stock repurchased | (123) | | — | | — | | — | | (123) | | — | | — | |
Dividends paid on common stock | (13) | | (13) | | — | | — | | — | | — | | — | |
Cumulative effect upon adoption of Accounting Standards Update 2020-06 | (56) | | 22 | | — | | — | | — | | (78) | | — | |
Balance at March 31, 2022 | $ | 9,791 | | $ | 4,425 | | $ | 322 | | $ | 282 | | $ | (477) | | $ | 5,146 | | $ | 93 | |
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18. Reclassifications from Accumulated Other Comprehensive Income (AOCI)
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(In millions) | Pension and Other Benefit Items | | Foreign Currency Items | | Unrealized (Loss) Gain on Derivatives | | Active Employee Benefit Investments | | Total |
Balance at December 31, 2022 | $ | (322) | | | $ | 280 | | | $ | (43) | | | $ | — | | | $ | (85) | |
Other comprehensive income (loss) before reclassifications | 1 | | | 32 | | | (65) | | | 3 | | | (29) | |
Amounts reclassified from AOCI (a) | (11) | | | — | | | 21 | | | — | | | 10 | |
Net current-period other comprehensive (loss) income | (10) | | | 32 | | | (44) | | | 3 | | | (19) | |
Balance at March 31, 2023 | $ | (332) | | | $ | 312 | | | $ | (87) | | | $ | 3 | | | $ | (104) | |
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Balance at December 31, 2021 | $ | (25) | | | $ | 371 | | | $ | (15) | | | $ | — | | | $ | 331 | |
Other comprehensive (loss) income before reclassifications | (2) | | | (28) | | | 15 | | | — | | | (15) | |
Amounts reclassified from AOCI (a) | (1) | | | — | | | 7 | | | — | | | 6 | |
Net current-period other comprehensive (loss) income | (3) | | | (28) | | | 22 | | | — | | | (9) | |
Balance at March 31, 2022 | $ | (28) | | | $ | 343 | | | $ | 7 | | | $ | — | | | $ | 322 | |
(a) See table below for further details.
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| Amount reclassified from AOCI |
| Three Months Ended March 31, | | |
Details about AOCI components (in millions) | 2023 | | 2022 | | | | |
Amortization of pension and other benefit items (a) | | | | | | | |
Prior service credits | $ | (1) | | | $ | (7) | | | | | |
Actuarial (gains) losses | (16) | | | 6 | | | | | |
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Total pensions and other benefits items | (17) | | | (1) | | | | | |
Derivative reclassifications to Condensed Consolidated Statements of Operations | 28 | | | 10 | | | | | |
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Total before tax | 11 | | | 9 | | | | | |
Tax benefit | (1) | | | (3) | | | | | |
Net of tax | $ | 10 | | | $ | 6 | | | | | |
(a) These AOCI components are included in the computation of net periodic benefit cost. See Note 10 for additional details.
19. Transactions with Related Parties
Related party sales and service transactions are primarily related to equity investees and were $558 million and $391 million for the three months ended March 31, 2023 and 2022, respectively.
Accounts payable to related parties include balances due to PRO-TEC Coating Company, LLC (PRO-TEC) of $168 million and $142 million at March 31, 2023 and December 31, 2022, respectively for invoicing and receivables collection services provided by U. S. Steel on PRO-TEC's behalf. U. S. Steel, as PRO-TEC’s exclusive sales agent, is responsible for credit risk related to those receivables. U. S. Steel also provides PRO-TEC marketing, selling and customer service functions. Payables to other related parties totaled $3 million and $1 million for the periods ending March 31, 2023 and December 31, 2022, respectively.
Purchases from related parties for outside processing services provided by equity investees amounted to $7 million for both periods ending March 31, 2023 and 2022, respectively. Purchases of iron ore pellets from related parties amounted to $21 million and $25 million for the three months ended March 31, 2023 and 2022, respectively.
20. Restructuring and Other Charges
During the three months ended March 31, 2023, the Company recorded restructuring and other charges of $1 million, which related to the planned disposition of a component within the Flat-Rolled segment. Cash payments were made related to previously accrued restructuring programs of approximately $46 million.
During the three months ended March 31, 2022, the Company recorded restructuring and other charges of $17 million related to the planned sale of a component within the Flat-Rolled segment. Cash payments were made related to previously accrued restructuring programs of approximately $23 million.
The activity in the accrued balances incurred in relation to restructuring during the three months ended March 31, 2023, was as follows:
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(In millions) | Employee Related Costs | Exit Costs | Non-cash Charges | Total |
Balance at December 31, 2022 | $ | 132 | | $ | 50 | | $ | — | | $ | 182 | |
Additional charges | 1 | | — | | — | | 1 | |
Release of prior accruals and other adjustments(a) | (2) | | (1) | | — | | (3) | |
Cash payments | (24) | | (22) | | — | | (46) | |
Balance at March 31, 2023 | $ | 107 | | $ | 27 | | $ | — | | $ | 134 | |
(a)Includes releases of accruals to reflect the current estimate of costs to complete approved restructuring programs. |
Accrued liabilities for restructuring programs are included in the following balance sheet lines:
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(In millions) | March 31, 2023 | December 31, 2022 |
Accounts payable | $ | 19 | | $ | 33 | |
Payroll and benefits payable | 102 | | — | |
Employee benefits | 4 | | 131 | |
Deferred credits and other noncurrent liabilities | 9 | | 18 | |
Total | $ | 134 | | $ | 182 | |
21. Contingencies and Commitments
U. S. Steel is the subject of, or 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. Certain of these matters are discussed below. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the Condensed Consolidated Financial Statements. However, management believes that U. S. Steel will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably.
U. S. Steel accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that it will incur these costs in the future and the costs are reasonably estimable.
Asbestos matters – As of March 31, 2023, U. S. Steel was a defendant in approximately 920 active asbestos cases involving approximately 2,510 plaintiffs. The vast majority of these cases involve multiple defendants. About 1,545, or approximately 62 percent, of these plaintiff claims are currently pending in a jurisdiction which permits filings with massive numbers of plaintiffs. At December 31, 2022, U. S. Steel was a defendant in approximately 920 active asbestos cases involving approximately 2,510 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 number of asbestos claims in the current period and the prior three years:
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Period ended | | Opening Number of Claims | | Claims Dismissed, Settled and Resolved | | New Claims | | Closing Number of Claims |
December 31, 2020 | | 2,390 | | 240 | | 295 | | 2,445 |
December 31, 2021 | | 2,445 | | 200 | | 260 | | 2,505 |
December 31, 2022 | | 2,505 | | 230 | | 235 | | 2,510 |
March 31, 2023 | | 2,510 | | 50 | | 50 | | 2,510 |
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.
Further, U. S. Steel does not believe that an accrual for unasserted claims is required. At any given reporting date, it is probable that there are unasserted claims that will be filed against the Company in the future. The Company engages an outside valuation consultant to assist in assessing its ability to estimate an accrual for unasserted claims. This assessment is based on the Company's settlement experience, including recent claims trends. The analysis focuses on settlements made over the last several years as these claims are likely to best represent future claim characteristics. After review by the valuation consultant and U. S. Steel management, it was determined that the Company could not estimate an accrual for unasserted 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.
Environmental matters – U. S. Steel is subject to federal, state, local and foreign laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for noncompliance. Changes in accrued liabilities for remediation activities where U. S. Steel is identified as a named party are summarized in the following table:
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(In millions) | Three Months Ended March 31, 2023 |
Beginning of period | $ | 126 | |
Accruals for environmental remediation deemed probable and reasonably estimable | — | |
Obligations settled | (6) | |
End of period | $ | 120 | |
Accrued liabilities for remediation activities are included in the following Condensed Consolidated Balance Sheet lines:
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| | As of | | As of |
(In millions) | | March 31, 2023 | | December 31, 2022 |
Accounts payable | | $ | 32 | | | $ | 32 | |
Deferred credits and other noncurrent liabilities | | 88 | | | 94 | |
Total | | $ | 120 | | | $ | 126 | |
Expenses related to remediation are recorded in cost of sales and were $1 million for the three months ended March 31, 2023. Expenses for the three months ended March 31, 2022, were immaterial. It is not currently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed. Due to uncertainties inherent in remediation projects and the associated liabilities, it is reasonably possible that total remediation costs for active matters may exceed the accrued liabilities by as much as 20 to 35 percent.
Remediation Projects
U. S. Steel is involved in environmental remediation projects at or adjacent to several current and former U. S. Steel facilities and other locations that are in various stages of completion ranging from initial characterization through post-closure monitoring. Based on the anticipated scope and degree of uncertainty of projects, the Company categorizes projects as follows:
(1)Projects with Ongoing Study and Scope Development - For these projects, the extent of remediation that may be required is not yet known, the remediation methods and plans are not yet developed, and/or cost estimates cannot be determined. Therefore, significant costs, in addition to the accrued liabilities for these projects, are reasonably possible. There are four environmental remediation projects where additional costs for completion are not currently estimable but could be material. These projects are at Fairfield Works, Lorain Tubular, UPI and the former steelmaking plant at Joliet, Illinois. As of March 31, 2023, accrued liabilities for these projects totaled $1 million for the costs of studies, investigations, interim measures, design and/or remediation. It is reasonably possible that additional liabilities associated with future requirements regarding studies, investigations, design and remediation for these projects could be as much as $22 million to $36 million.
(2)Projects with Significant Accrued liabilities with a Defined Scope - As of March 31, 2023, there are three significant projects with defined scope greater than or equal to $5 million each, with a total accrued liability of $64 million. These projects are Gary Resource Conservation and Recovery Act (accrued liability of $26 million), Duluth Works (accrued liability of $20 million) and the former Geneva facility (accrued liability of $18 million).
(3)Other Projects with a Defined Scope - These projects involve relatively small accrued liabilities for which we believe that, while additional costs are possible, they are not likely to be significant, and also include those projects for which we do not yet possess sufficient information to estimate potential costs to U. S. Steel. There are two other environmental remediation projects which each had an accrued liability of between $1 million and $5 million. The total accrued liability for these projects at March 31, 2023, was $3 million. These projects have progressed through a significant portion of the design phase and material additional costs are not expected.
The remaining environmental remediation projects each have an accrued liability of less than $1 million each. The total accrued liability for these projects at March 31, 2023, was approximately $6 million. The Company does not foresee material additional liabilities for any of these sites.
Post-Closure Costs – Accrued liabilities for post-closure site monitoring and other costs at various closed landfills totaled $23 million at March 31, 2023 and were based on known scopes of work.
Administrative and Legal Costs – As of March 31, 2023, U. S. Steel had an accrued liability of $11 million for administrative and legal costs related to environmental remediation projects. These accrued liabilities were based on projected administrative and legal costs for the next three years and do not change significantly from year to year.
Capital Expenditures – For a number of years, U. S. Steel has made substantial capital expenditures to comply with various regulations, laws and other requirements relating to the environment. Such capital expenditures totaled $11 million and $5 million in the first three months of 2023 and 2022, respectively. U. S. Steel anticipates making additional such expenditures in the future, which may be material; however, the exact amounts and timing of such expenditures are uncertain because of the continuing evolution of specific regulatory requirements.
European Union (the EU) Environmental Requirements - Phase IV of the EU Emissions Trading System (the EU ETS) commenced on January 1, 2021 and will finish on December 31, 2030. The European Commission issued final approval of the updated 2021-2025 Slovak National Allocation table in February 2022. The Slovak Ministry of Environment has not yet allocated 2023 emission credits that it grants at no charge (free allowances) to the USSE account. As of March 31, 2023, we have pre-purchased approximately 1.35 million European Union Emission Allowances (EUA) totaling €107 million (approximately $116 million) to cover the expected 2023 shortfall of emission allowances.
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 $150 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. The last assessment of financial covenants will be performed as of June 30, 2026. USSK complied with these covenants as of March 31, 2023. 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.
Environmental indemnifications – Throughout its history, U. S. Steel has sold numerous properties and businesses and many of these sales included indemnifications and cost sharing agreements related to the assets that were divested. The amount of potential environmental liability associated with these transactions and properties is not estimable due to the nature and extent of the unknown conditions related to the properties divested and deconsolidated. Aside from the environmental liabilities already recorded as a result of these transactions due to specific environmental remediation activities and cases (included in the $120 million of accrued liabilities for remediation discussed above), there are no other known probable and estimable environmental liabilities related to these transactions.
Guarantees – The maximum guarantees of the indebtedness of unconsolidated entities of U. S. Steel totaled $7 million at March 31, 2023.
Other contingencies – Under certain lease agreements covering various equipment, U. S. Steel has the option to renew the lease or to purchase the equipment at the end of the lease term. If U. S. Steel does not exercise the purchase option by the end of the lease term, U. S. Steel guarantees a residual value of the equipment as determined at the lease inception date (totaling approximately $15 million at March 31, 2023). No liability has been recorded for these guarantees as the potential loss is not probable.
The Company's BR2 project in Osceola, Arkansas qualifies for financing and related economic incentives associated with the acquisition, development, construction, and operation of the facility. These incentives consist of advance lump-sum payments which are included in deferred credits and other noncurrent liabilities on the Condensed Consolidated Balance Sheet. In March 2022, the Company received a lump-sum payment of approximately $82 million as proceeds from the sale of a portion of expected future tax credits to be earned by the Company under the State of Arkansas's Recycling Tax Credit program. These funds are to be used primarily for the acquisition of project related equipment, however they may also be used for the training and development of new employees hired for the project. The Company is contingently liable for certain repayment penalties if the Company fails to meet certain employment requirements in any given period. In April 2022, the Company received a $3 million grant from Mississippi County, Arkansas, and in May 2022, the Company received a $50 million grant from the State of Arkansas Quick Action Closing Fund. Both grants pertain to the reimbursement of qualifying project costs. Deferred liabilities were recognized for each of these grants and are included in deferred credits and other noncurrent liabilities on the Condensed Consolidated Balance Sheet. For each of these incentives and grants, the balance of deferred income will be recognized into other gains, net in the accompanying Condensed Consolidated Statements of Operations on a systematic basis over the periods in which the Company earns the granted funds by complying with the investment and employment requirements of the grant programs.
Insurance – U. S. Steel maintains insurance for certain property damage, equipment, business interruption and general liability exposures; however, insurance is applicable only after certain deductibles and retainages. U. S. Steel is self-insured for certain other exposures including workers’ compensation (where permitted by law) and auto liability. Liabilities are recorded for workers’ compensation and personal injury obligations. Other costs resulting from losses under deductible or retainage amounts or not otherwise covered by insurance are charged against income upon occurrence.
U. S. Steel uses surety bonds, trusts and letters of credit to provide whole or partial financial assurance for certain obligations such as workers’ compensation. The total amount of active surety bonds, trusts and letters of credit being used for financial assurance purposes was approximately $182 million as of March 31, 2023, which reflects U. S. Steel’s maximum exposure under these financial guarantees, but not its total exposure for the underlying obligations. A significant portion of our trust arrangements and letters of credit are collateralized by the Credit Facility Agreement. The remaining trust arrangements and letters of credit are collateralized by restricted cash. Restricted cash, which is recorded in other current and noncurrent assets, totaled $36 million and $35 million at March 31, 2023, and December 31, 2022, respectively.
Capital Commitments – At March 31, 2023, U. S. Steel’s contractual commitments to acquire property, plant and equipment totaled $2.203 billion.
Contractual Purchase Commitments – U. S. Steel is obligated to make payments under contractual purchase commitments, including unconditional purchase obligations. Payments for contracts with remaining terms in excess of one year are summarized below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Remainder of 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Later Years | | Total |
$458 | | $632 | | $283 | | $280 | | $152 | | $473 | | $2,278 |
The majority of U. S. Steel’s unconditional purchase obligations relates to the supply of industrial gases, and certain energy and utility services with terms ranging from 13 months to 13 years. Unconditional purchase obligations also include coke and steam purchase commitments related to a coke supply agreement with Gateway Energy & Coke Company LLC (Gateway) under which Gateway is obligated to supply a minimum volume of the expected targeted annual production of the heat recovery coke plant, and U. S. Steel is obligated to purchase the coke from Gateway at the contract price. As of March 31, 2023, if U. S. Steel were to terminate the agreement, it may be obligated to pay in excess of $70 million.
Total payments relating to unconditional purchase obligations were $275 million and $217 million for the three months ended March 31, 2023 and 2022, respectively.
22. Common Stock Issued and Repurchased
On October 25, 2021, the Board of Directors authorized a share repurchase program that allowed for the repurchase of up to $300 million of its outstanding common stock from time to time in the open market or privately negotiated transactions. On January 24, 2022 the Board of Directors authorized an additional $500 million under the share repurchase program.
On July 25, 2022, following the completion of the previously authorized $800 million share repurchase programs, the Board of Directors authorized a new share repurchase program that allows for the repurchase of up to $500 million of its 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 2.8 million and 5.0 million shares of common stock for approximately $75 million and $123 million under these programs during the three months ended March 31, 2023 and 2022, respectively.