Edgar Filing: UNITED STATES STEEL CORP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



	[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2018



	[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

(Exact name of registrant as specified in its charter)



Delaware	1-16811	25-1897152
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)



600 Grant Street, Pittsburgh, PA		15219-2800
(Address of principal executive offices)		(Zip Code)

(412) 433-1121

(Registrant’s telephone number,

including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes P No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ P ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer P	Accelerated filer	Non-accelerated filer	Smaller reporting company	Emerging growth company^(a) __
		(Do not check if a smaller reporting company)
^(a) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes No P

Common stock outstanding at April 23, 2018 – 176,794,374 shares

INDEX



			Page
PART I – FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Consolidated Statement of Operations (Unaudited)	1
		Consolidated Statement of Comprehensive Income (Loss) (Unaudited)	2
		Consolidated Balance Sheet (Unaudited)	3
		Consolidated Statement of Cash Flows (Unaudited)	4
		Notes to Consolidated Financial Statements (Unaudited)	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
	Item 4.	Controls and Procedures	42
		Supplemental Statistics (Unaudited)	43
PART II – OTHER INFORMATION
	Item 1.	Legal Proceedings	44
	Item 4.	Mine Safety Disclosure	50
	Item 6.	Exhibits	50
SIGNATURE			51
WEB SITE POSTING			51

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains information that may constitute ”forward-looking statements” within the meaning of Section 27 of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in those sections. Generally, we have identified such forward-looking statements by using the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “target,” “forecast,” “aim,” "should," “will” and similar expressions or by using future dates in connection with any discussion of, among other things, operating performance, trends, events or developments that we expect or anticipate will occur in the future, statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements are not historical facts, but instead represent only the Company’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that the Company’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Management believes that these forward-looking statements are reasonable as of the time made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to the risks and uncertainties described in this report and in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

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

UNITED STATES STEEL CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)



	Three Months Ended March 31,
(Dollars in millions, except per share amounts)	2018			2017
Net sales:
Net sales	$	2,821		$	2,412
Net sales to related parties (Note 20)	328			313
Total (Note 5)	3,149			2,725
Operating expenses (income):
Cost of sales (excludes items shown below)	2,808			2,559
Selling, general and administrative expenses	78			81
Depreciation, depletion and amortization	128			137
Earnings from investees	(3		)	(4		)
Restructuring and other charges (Note 21)	—			33
Net loss (gain) on disposal of assets	1			(1		)
Total	3,012			2,805
Earnings (loss) before interest and income taxes	137			(80		)
Interest expense	50			58
Interest income	(5		)	(4		)
Loss on debt extinguishment (Note 9)	46			—
Other financial costs	10			9
Net periodic benefit cost (other than service cost) (Note 3) ^(a)	17			18
Net interest and other financial costs (Note 9)	118			81
Earnings (loss) before income taxes	19			(161		)
Income tax provision (Note 11)	1			19
Net earnings (loss)	18			(180		)
Less: Net earnings attributable to noncontrolling interests	—			—
Net earnings (loss) attributable to United States Steel Corporation	$	18		$	(180	)
Earnings (loss) per common share (Note 12):
Earnings (loss) per share attributable to United States Steel Corporation stockholders:
-Basic	$	0.10		$	(1.03	)
-Diluted	$	0.10		$	(1.03	)

^(a) Represents postretirement benefit expense as a result of the adoption of Accounting Standards Update 2017-07, Compensation - Retirement Benefits on January 1, 2018.

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

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UNITED STATES STEEL CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)



	Three Months Ended March 31,
(Dollars in millions)	2018			2017
Net earnings (loss)	$	18		$	(180	)
Other comprehensive income (loss), net of tax:
Changes in foreign currency translation adjustments	40			23
Changes in pension and other employee benefit accounts	46			46
Derivative financial instruments	(16		)	—
Total other comprehensive income, net of tax	70			69
Comprehensive income (loss) including noncontrolling interest	88			(111		)
Comprehensive income attributable to noncontrolling interest	—			—
Comprehensive income (loss) attributable to United States Steel Corporation	$	88		$	(111	)

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

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UNITED STATES STEEL CORPORATION

CONSOLIDATED BALANCE SHEET

(Unaudited)



(Dollars in millions)	March 31, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents (Note 6)	$	1,372		$	1,553
Receivables, less allowance of $28 and $28	1,347			1,173
Receivables from related parties (Note 20)	219			206
Inventories (Note 13)	1,824			1,738
Other current assets	68			85
Total current assets	4,830			4,755
Property, plant and equipment	15,298			15,086
Less accumulated depreciation and depletion	10,941			10,806
Total property, plant and equipment, net	4,357			4,280
Investments and long-term receivables, less allowance of $12 and $11	491			480
Intangibles – net (Note 7)	165			167
Deferred income tax benefits (Note 11)	56			56
Other noncurrent assets	127			124
Total assets	$	10,026		$	9,862
Liabilities
Current liabilities:
Accounts payable and other accrued liabilities	$	2,077		$	2,096
Accounts payable to related parties (Note 20)	97			74
Payroll and benefits payable	326			347
Accrued taxes	131			132
Accrued interest	47			69
Current portion of long-term debt (Note 15)	281			3
Total current liabilities	2,959			2,721
Long-term debt, less unamortized discount and debt issuance costs (Note 15)	2,571			2,700
Employee benefits	728			759
Deferred income tax liabilities (Note 11)	6			6
Deferred credits and other noncurrent liabilities	323			355
Total liabilities	6,587			6,541
Contingencies and commitments (Note 22)
Stockholders’ Equity (Note 18):
Common stock (176,794,413 and 176,424,554 shares issued) (Note 12)	177			176
Treasury stock, at cost (33,917 shares and 1,203,344 shares)	(1		)	(76		)
Additional paid-in capital	3,895			3,932
Retained earnings	142			133
Accumulated other comprehensive loss (Note 19)	(775		)	(845		)
Total United States Steel Corporation stockholders’ equity	3,438			3,320
Noncontrolling interests	1			1
Total liabilities and stockholders’ equity	$	10,026		$	9,862

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

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UNITED STATES STEEL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
(Dollars in millions)	2018			2017
Increase (decrease) in cash, cash equivalents and restricted cash
Operating activities:
Net earnings (loss)	$	18		$	(180	)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation, depletion and amortization	128			137
Restructuring and other charges (Note 21)	—			33
Loss on debt extinguishment (Note 9)	46			—
Provision for doubtful accounts	—			1
Pensions and other postretirement benefits	22			14
Deferred income taxes (Note 11)	—			2
Net loss (gain) on disposal of assets	1			(1		)
Distributions received, net of equity investees earnings	(3		)	(4		)
Changes in:
Current receivables	(169		)	(146		)
Inventories	(76		)	(140		)
Current accounts payable and accrued expenses	(24		)	116
Income taxes receivable/payable	(8		)	15
Bank checks outstanding	4			(1		)
All other, net	(38		)	19
Net cash used in operating activities	(99		)	(135		)
Investing activities:
Capital expenditures	(208		)	(47		)
Investments, net	—			(1		)
Net cash used in investing activities	(208		)	(48		)
Financing activities:
Issuance of long-term debt, net of financing costs (Note 15)	640			—
Repayment of long-term debt (Note 15)	(538		)	—
Dividends paid	(9		)	(9		)
Receipt from exercise of stock options	30			12
Taxes paid for equity compensation plans (Note 10)	(6		)	(7		)
Net cash provided by (used in) financing activities	117			(4		)
Effect of exchange rate changes on cash	10			1
Net decrease in cash, cash equivalents and restricted cash	(180		)	(186		)
Cash, cash equivalents and restricted cash at beginning of year (Note 6)	1,597			1,555
Cash, cash equivalents and restricted cash at end of period (Note 6)	$	1,417		$	1,369

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

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Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation and Significant Accounting Policies

United States Steel Corporation (U. S. Steel, or the Company) produces and sells steel products, including flat-rolled and tubular products, in North America and Europe. Operations in North America also include iron ore and coke production facilities, railroad services and real estate operations. Operations in Europe also include coke production facilities.

The year-end Consolidated Balance Sheet data was derived from audited statements but does not include all disclosures required for complete financial statements by accounting principles generally accepted in the United States of America (U.S. GAAP). The other information in these financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair statement of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. Additional information is contained in the United States Steel Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which should be read in conjunction with these financial statements.

2. New Accounting Standards

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). ASU 2018-02 allows a reclassification from Accumulated Other Comprehensive Income to Retained Earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the 2017 Act). The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. Early adoption of ASU 2018-02 is permitted. U. S. Steel is currently assessing the impact of the ASU, but does not believe this ASU will have a material impact on its overall Consolidated Financial Statements.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02). ASU 2016-02 supersedes prior lease accounting guidance. Under ASU 2016-02, for operating leases, a lessee should recognize in its statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term; recognize a single lease cost, which is allocated over the lease term, generally on a straight line basis, and classify all cash payments within operating activities in the statement of cash flows. For financing leases, a lessee is required to recognize a right-of-use asset and a lease liability; recognize interest on the lease liability separately from amortization of the right-of-use asset, and classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability within operating activities in the statement of cash flows. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. In addition, at the inception of a contract, an entity should determine whether the contact is or contains a lease. ASU 2016-02 is effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, using a modified retrospective approach. U. S. Steel is evaluating the financial statement implications of adopting ASU 2016-02, which will include recognizing the lease liability and related right-of-use asset on our balance sheet.

3. Recently Adopted Accounting Standards

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), which amends and simplifies hedge accounting guidance so that companies could more accurately present the economic effects of risk management activities in the financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. U. S. Steel adopted the provisions of ASU 2017-12 on January 1, 2018. The adoption did not result in a material impact to our financial results; however, we expanded our use of hedge accounting effective January 1, 2018 as well as our disclosures of derivative activity. See Note 14 for further details.

On May 10, 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting (ASU 2017-09). The amendments included in ASU 2017-09 provide guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting.

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The amendments in this update will be applied prospectively to an award modified on or after the adoption date. On January 1, 2018, U. S. Steel adopted the provisions of ASU 2017-09 and the adoption did not have an impact on its Consolidated Financial Statements.

On March 10, 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (ASU 2017-07). ASU 2017-07 requires an employer who offers defined benefit and postretirement benefit plans to report the service cost component of the net periodic benefit cost in the same line item or items as other compensation cost arising from services rendered by employees during the period. The other components of net periodic benefit costs are required to be presented on a retrospective basis in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The ASU also allows for the service cost component of net periodic benefit cost to be eligible for capitalization into inventory when applicable. ASU 2017-07 was effective for periods beginning after December 15, 2017, including interim periods within those annual periods; early adoption was permitted. U. S. Steel adopted ASU 2017-07 on January 1, 2018. U. S. Steel has historically capitalized the service cost component of net periodic benefit cost into inventory, when applicable, and will continue to do so prospectively.

The effect of the retrospective presentation change related to the net periodic benefit cost of our defined benefit pension and other post-employment benefits (OPEB) plans on our consolidated statement of operations was as follows:



	Three Months Ended March 31, 2017
Statement of Operations (In millions)		As Revised		Previously Reported		Effect of Change Higher/(Lower)
Cost of Sales		$	2,559	$	2,561	$	(2	)
Selling, general and administrative expenses		81		97		(16		)
Net periodic benefit cost (other than service cost)		18		—		18

On November 17, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). The ASU reduced diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows by including restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. On January 1, 2018, U. S. Steel adopted the provisions of ASU 2016-18 using a retrospective transition method. As a result, the Change in Restricted Cash, Net line that was included in the Investing Activities section of the Consolidated Statement of Cash Flows has been eliminated as changes in restricted cash are now included in the beginning-of-period and end-of-period total cash, cash equivalents and restricted cash amounts. Expanded disclosures have been included, which describe the components of cash shown on the Company's Consolidated Statements of Cash Flows. See Note 6 for further details.

On August 26, 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 reduced diversity in practice in how certain transactions are classified in the statement of cash flows by addressing eight specific cash receipt and cash payment issues. On January 1, 2018, U. S. Steel adopted the provisions of ASU 2016-15 using a retrospective transition method. As a result, all payments to extinguish debt will now be presented as cash outflows from financing activities on our Consolidated Statement of Cash Flows in accordance with ASU 2016-15. U. S. Steel has historically presented make-whole premiums as cash outflows from operating activities. The other cash receipt and cash payment items addressed in ASU 2016-15 did not have an impact on the Company’s Consolidated Statement of Cash Flows. Since there were no payments to extinguish debt during the three months ended March 31, 2017, there was no retrospective adjustment to our Consolidated Statement of Cash Flows. Additionally, the Company has elected to use the cumulative earnings approach as defined in ASU 2016-15 to classify distributions received from equity method investees.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 and its related amendments (Revenue Recognition Standard) outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded most previous revenue recognition guidance. On January 1, 2018, U. S. Steel adopted the Revenue Recognition Standard using the full retrospective method. Generally, U. S. Steel’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time. The adoption did not

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have a financial statement impact to U. S. Steel but did result in expanded disclosures. See Note 5 for further details.

4. Segment Information

U. S. Steel has three reportable segments: Flat-Rolled Products (Flat-Rolled), which consists of the following three commercial entities that directly interact with our customers and service their needs: (1) automotive solutions, (2) consumer solutions, and (3) industrial, service center and mining solutions; U. S. Steel Europe (USSE); and Tubular Products (Tubular). The results of our railroad and real estate businesses that do not constitute reportable segments are combined and disclosed in the Other Businesses category.

The chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being earnings (loss) before interest and income taxes. Earnings (loss) before interest and income taxes for reportable segments and Other Businesses does not include net interest and other financial costs (income), income taxes, and certain other items that management believes are not indicative of future results.

The accounting principles applied at the operating segment level in determining earnings (loss) before interest and income taxes are generally the same as those applied at the consolidated financial statement level. Intersegment sales and transfers are accounted for at market-based prices and are eliminated at the corporate consolidation level. Corporate-level selling, general and administrative expenses and costs related to certain former businesses are allocated to the reportable segments and Other Businesses based on measures of activity that management believes are reasonable.

The results of segment operations for the three months ended March 31, 2018 and 2017 are:



(In millions) Three Months Ended March 31, 2018	Customer Sales		Intersegment Sales			Net Sales			Earnings (loss) from investees		Earnings (loss) before interest and income taxes
Flat-Rolled	$	2,046	$	57		$	2,103		$	2	$	33
USSE	823		1			824			—		110
Tubular	266		—			266			1		(27		)
Total reportable segments	3,135		58			3,193			3		116
Other Businesses	14		31			45			—		11
Reconciling Items and Eliminations	—		(89		)	(89		)	—		10
Total	$	3,149	$	—		$	3,149		$	3	$	137

Three Months Ended March 31, 2017
Flat-Rolled	$	1,865	$	21		$	1,886		$	3	$	(88	)
USSE	673		13			686			—		87
Tubular	171		—			171			1		(57		)
Total reportable segments	2,709		34			2,743			4		(58		)
Other Businesses	16		30			46			—		13
Reconciling Items and Eliminations	—		(64		)	(64		)	—		(35		)
Total	$	2,725	$	—		$	2,725		$	4	$	(80	)

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The following is a schedule of reconciling items to consolidated earnings (loss) before interest and income taxes:



	Three Months Ended March 31,
(In millions)	2018		2017
Items not allocated to segments:
Granite City Works adjustment to temporary idling charges	10		—
Loss on shutdown of certain tubular assets ^(a)	—		(35		)
Total reconciling items	$	10	$	(35	)

^(a) Included in Restructuring and other charges in the Consolidated Statement of Operations. See Note 21 to the Consolidated Financial Statements.

5. Revenue

Revenue is generated primarily from contracts to produce, ship and deliver steel products, and to a lesser extent, to deliver raw materials such as iron ore pellets, to deliver coke by-products and for railroad services and real estate sales. Generally, U. S. Steel’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time, when title transfers to our customer for product shipped or services are provided. Revenues are recorded net of any sales incentives. Shipping and other transportation costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Costs related to obtaining sales contracts are incidental and are expensed when incurred. As customers are invoiced at the time title transfers and U. S. Steel’s right to consideration is unconditional at that time, U. S. Steel does not maintain contract asset balances. Additionally, U. S. Steel does not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. U. S. Steel offers industry standard payment terms that typically require payment from our customers 30 days after title transfers.

U. S. Steel has three reportable segments: Flat-Rolled, USSE and Tubular. Flat-Rolled primarily generates revenue from sheet and coated product sales to North American customers. Flat-Rolled also sells iron ore pellets and coke making by-products. USSE sells slabs, sheet, strip mill plate, coated products and spiral welded pipe to customers primarily in the Eastern European market. Tubular sells seamless and electric resistance welded (ERW) steel casing and tubing (commonly known as oil country tubular goods or OCTG), standard and line pipe and mechanical tubing and primarily serves customers in the oil, gas and petrochemical markets. Revenue from our railroad and real estate businesses is reported in the Other Businesses category in our segment reporting structure. The following tables disaggregate our revenue by product for each of our reportable business segments for the three months ended March 31, 2018 and 2017, respectively:

Net Sales by Product



(In millions) Three Months Ended March 31, 2018	Flat-Rolled		USSE		Tubular		Other Businesses		Total
Semi-finished	$	9	$	37	$	—	$	—	$	46
Hot-rolled sheets	572		353		—		—		925
Cold-rolled sheets	639		98		—		—		737
Coated sheets	706		297		—		—		1,003
Tubular products	—		12		259		—		271
All Other^(a)	120		26		7		14		167
Total	$	2,046	$	823	$	266	$	14	$	3,149

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

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(In millions) Three Months Ended March 31, 2017	Flat-Rolled		USSE		Tubular		Other Businesses		Total
Semi-finished	$	1	$	27	$	—	$	—	$	28
Hot-rolled sheets	420		309		—		—		729
Cold-rolled sheets	606		79		—		—		685
Coated sheets	748		235		—		—		983
Tubular products	—		9		162		—		171
All Other ^(a)	90		14		9		16		129
Total	$	1,865	$	673	$	171	$	16	$	2,725

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

6. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within U. S. Steel's Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statement of Cash Flows:



(In millions)	March 31, 2018		March 31, 2017
Cash and cash equivalents	$	1,372	$	1,326
Restricted cash in other current assets	6		2
Restricted cash in other noncurrent assets	39		41
Total cash, cash equivalents and restricted cash	$	1,417	$	1,369

Amounts included in restricted cash represent cash balances which are legally or contractually restricted, primarily for environmental capital expenditure projects and insurance purposes.

7. Intangible Assets

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



		As of March 31, 2018						As of December 31, 2017
(In millions)	Useful Lives	Gross Carrying Amount		Accumulated Amortization		Net Amount		Gross Carrying Amount		Accumulated Amortization		Net Amount
Customer relationships	22 Years	$	132	$	66	$	66	$	132	$	64	$	68
Patents	10-15 Years	22		5		17		22		5		17
Other	4-20 Years	15		8		7		15		8		7
Total amortizable intangible assets		$	169	$	79	$	90	$	169	$	77	$	92

Identifiable intangible assets with finite lives are reviewed for impairment whenever events or circumstances indicate that the carrying values may not be recoverable.

Amortization expense was $2 million and $3 million in the three months ended March 31, 2018 and March 31, 2017, respectively. The estimated future amortization expense of identifiable intangible assets during the next five years is $6 million for the remaining portion of 2018, $9 million in each year from 2019 to 2021, and $8 million in 2022.

In addition, the carrying amount of acquired water rights with indefinite lives as of March 31, 2018 and December 31, 2017 totaled $75 million. The acquired water rights are tested for impairment annually in the third quarter, or whenever events or circumstances indicate the carrying value may not be recoverable. U. S. Steel performed a quantitative impairment evaluation of its acquired water rights during the third quarter of 2017. Based on the results of the evaluation, the water rights were not impaired.

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8. Pensions and Other Benefits

The following table reflects the components of net periodic benefit cost for the three months ended March 31, 2018 and 2017:



	Pension Benefits						Other Benefits
(In millions)	2018			2017			2018			2017
Service cost	$	13		$	12		$	4		$	4
Interest cost	58			59			23			23
Expected return on plan assets	(90		)	(97		)	(20		)	(16		)
Amortization of prior service cost	—			—			7			7
Amortization of actuarial net loss	38			37			1			1
Net periodic benefit cost, excluding below	19			11			15			19
Multiemployer plans	14			15			—			—
Settlement, termination and curtailment losses ^(a)	—			4			—			—
Net periodic benefit cost	$	33		$	30		$	15		$	19

^(a)During the first three months of 2017, the non-qualified pension plan incurred settlement charges of approximately $4 million due to lump sum payments for certain individuals.

Employer Contributions

During the first three months of 2018, U. S. Steel made cash payments of $14 million to the Steelworkers’ Pension Trust and $2 million of pension payments not funded by trusts.

During the first three months of 2018, cash payments of $9 million were made for other postretirement benefit payments not funded by trusts.

Company contributions to defined contribution plans totaled $11 million and $9 million for the three months ended March 31, 2018 and 2017, respectively.

9. Net Interest and Other Financial Costs

Net interest and other financial costs includes interest expense (net of capitalized interest), interest income, financing costs, net periodic benefit costs (other than service costs) related to pension and OPEB plans, and foreign currency derivative and remeasurement gains and losses. During the three months ended March 31, 2018 and 2017, net foreign currency losses of $4 million and $5 million, respectively were recorded in other financial costs. Additionally, during the three months ended March 31, 2018, there was a loss on debt extinguishment recognized of $46 million. There was no debt extinguishment during the three months ended March 31, 2017.

See Note 14 for additional information on U. S. Steel’s use of derivatives to mitigate its foreign currency exchange rate exposure.

10. Stock-Based Compensation Plans

U. S. Steel has outstanding stock-based compensation awards that were granted by the Compensation & Organization Committee of the Board of Directors (the Committee) under the 2005 Stock Incentive Plan (the 2005 Plan) and the 2016 Omnibus Incentive Compensation Plan (the Omnibus Plan), which are more fully described in Note 14 of the United States Steel Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2017. On April 26, 2016, the Company's stockholders approved the Omnibus Plan and authorized the Company to issue up to 7,200,000 shares of U. S. Steel common stock under the Omnibus Plan. The Company's stockholders authorized the issuance of an additional 6,300,000 shares under the Omnibus Plan on April 25, 2017. 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, 2018, there were 10,808,964 shares available for future grants under the Omnibus Plan.

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Recent grants of stock-based compensation consist of stock options, restricted stock units, total shareholder return (TSR) performance awards and return on capital employed (ROCE) performance awards. Stock options are generally issued at the market price of the underlying stock on the date of the grant. Upon exercise of stock options, shares of U. S. Steel common stock were issued from treasury stock. Beginning in 2018, shares of common stock are issued from authorized, but unissued stock. The following table is a general summary of the awards made under the Omnibus Plan during the first quarter of 2018 and 2017. There were no stock options granted during the first quarter of 2018.



	2018			2017
Grant Details	Shares^(a)	Fair Value^(b)		Shares^(a)	Fair Value^(b)
Stock Options	—	$	—	564,360	$	18.32
Restricted Stock Units	450,240	$	43.99	291,490	$	39.03
Performance Awards ^(c)
TSR	70,470	$	63.87	121,240	$	49.52
ROCE ^(d)	236,220	$	43.99	—	$	—

^(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 quarter.

^(c) The number of performance awards shown represents the target value of the award.

^(d) The ROCE awards granted in 2017 are not shown in the table above, because they were granted in cash.

U. S. Steel recognized pretax stock-based compensation expense in the amount of $7 million and $10 million in the three month periods ended March 31, 2018 and 2017, respectively.

As of March 31, 2018, total future compensation expense related to nonvested stock-based compensation arrangements was $40 million, and the weighted average period over which this expense is expected to be recognized is approximately 1 year.

Compensation expense for stock options is recorded over the vesting period based on the fair value on the date of grant, as calculated by U. S. Steel using the Black-Scholes model. The stock options generally vest ratably over a three-year service period and have a term of ten years.

The expected annual dividends per share are based on the latest annualized dividend rate at the date of grant; the expected life in years is determined primarily from historical stock option exercise data; the expected volatility is based on the historical volatility of U. S. Steel stock; and the risk-free interest rate is based on the U.S. Treasury strip rate for the expected life of the option.

Restricted stock units awarded as part of annual grants generally vest ratably over three years. Their fair value is the 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 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 over the three-year performance period meets performance criteria. Performance awards can vest at between zero and 200 percent of the target award. The fair value of the TSR performance awards is calculated using a Monte-Carlo simulation.

ROCE performance awards vest at the end of a three-year performance period contingent upon meeting the specified ROCE metric. ROCE performance awards can vest at between zero and 200 percent of the target award. The fair value of the ROCE performance awards is the average market price of the underlying common stock on the date of grant.

11. Income Taxes

Tax provision

For the three months ended March 31, 2018 and 2017, we recorded a tax provision of $1 million on our pretax earnings of $19 million and a tax provision of $19 million on our pretax loss of $161 million, respectively. The tax provision reflects a tax benefit for the release of a portion of the valuation allowance due to pretax income.

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The tax provision for the first three months of 2018 is based on an estimated annual effective rate, which requires management to make its best estimate of annual pretax income or loss.

During 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 2018 pretax results for U.S. and foreign income or loss vary from estimates applied herein, the actual tax provision or benefit recognized in 2018 could be materially different from the forecasted amount used to estimate the tax provision for the three months ended March 31, 2018.

Deferred taxes

Each quarter U. S. Steel analyzes the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion, or all, of the deferred tax asset may not be realized.

At March 31, 2018, U. S. Steel reviewed all available positive and negative evidence and determined that it is more likely than not that all of its net domestic deferred tax asset may not be realized.

U. S. Steel will continue to monitor the realizability of its deferred tax assets on a quarterly basis taking into consideration, among other items, the uncertainty regarding the Company's continued ability to generate domestic income in the near term. In the future, if we determine that realization is more likely than not for deferred tax assets with a valuation allowance, the related valuation allowance will be reduced, and we will record a non-cash benefit to earnings.

Unrecognized tax benefits

Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken, in a tax return and the benefit recognized for accounting purposes pursuant to the guidance in ASC Topic 740 on income taxes. As of both March 31, 2018 and December 31, 2017, the total amount of gross unrecognized tax benefits was $42 million. The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $7 million as of March 31, 2018 and $6 million as of December 31, 2017.

U. S. Steel records interest related to uncertain tax positions as a part of net interest and other financial costs in the Consolidated Statement of Operations. Any penalties are recognized as part of selling, general and administrative expenses. As of both March 31, 2018 and December 31, 2017, U. S. Steel had accrued liabilities of $6 million for interest and penalties related to uncertain tax positions.

12. Earnings and Dividends Per Common Share

Earnings (Loss) Per Share Attributable to United States Steel Corporation Stockholders

Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding during the period.

Diluted earnings (loss) per common share assumes the exercise of stock options, the vesting of restricted stock units and performance awards, provided in each case the effect is dilutive.

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The computations for basic and diluted earnings (loss) per common share from continuing operations are as follows:



	Three Months Ended March 31,
(Dollars in millions, except per share amounts)	2018		2017
Earnings (loss) attributable to United States Steel Corporation stockholders	$	18	$	(180	)
Weighted-average shares outstanding (in thousands):
Basic	176,157		174,242
Effect of stock options, restricted stock units and performance awards	2,132		—
Adjusted weighted-average shares outstanding, diluted	178,289		174,242
Basic earnings (loss) per common share	$	0.10	$	(1.03	)
Diluted earnings (loss) per common share	$	0.10	$	(1.03	)

The following table summarizes the securities that were antidilutive, and therefore, were not included in the computations of diluted earnings (loss) per common share:



	Three Months Ended March 31,
(In thousands)	2018	2017
Securities granted under the 2016 Omnibus Incentive Compensation Plan, as amended	1,982	8,162

Dividends Paid Per Share

The dividend for the first quarter of 2018 and 2017 was five cents per common share.

13. Inventories

Inventories are carried at the lower of cost or market for last-in, first-out (LIFO) inventories and lower of cost and net realizable value for first-in, first-out (FIFO) method inventories. The LIFO method is the predominant method of inventory costing in the United States. The FIFO method is the predominant inventory costing method in Europe. At March 31, 2018 and December 31, 2017, the LIFO method accounted for 73 percent and 75 percent of total inventory values, respectively.



(In millions)	March 31, 2018		December 31, 2017
Raw materials	$	555	$	527
Semi-finished products	827		796
Finished products	385		356
Supplies and sundry items	57		59
Total	$	1,824	$	1,738

Current acquisition costs were estimated to exceed the above inventory values by $726 million and $802 million at March 31, 2018 and December 31, 2017, respectively. As a result of the liquidation of LIFO inventories, cost of sales increased and earnings (loss) before income and income taxes decreased by $2 million and $6 million in the three months ended March 31, 2018 and March 31, 2017, respectively.

Inventory includes $41 million and $42 million of land held for residential/commercial development as of March 31, 2018 and December 31, 2017, respectively.

14. Derivative Instruments

U. S. Steel is exposed to foreign currency exchange rate risks in our European operations. USSE’s revenues are primarily in euros and costs are primarily in euros and U.S. dollars. U. S. Steel uses foreign exchange

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forward sales contracts (foreign exchange forwards) with maturities no longer than 12 months to exchange euros for U.S. dollars to manage our currency requirements and exposure to foreign currency exchange rate fluctuations. Derivative instruments are required to be recognized at fair value in the Consolidated Balance Sheet. U. S. Steel has not elected to designate these contracts as hedges. Therefore, changes in their fair value are recognized immediately in the Consolidated Statements of Operations. We mitigate the risk of concentration of counterparty credit risk by purchasing our forwards from several counterparties.

From time to time U. S. Steel may use fixed-price forward physical purchase contracts to partially manage our exposure to price risk related to the purchases of natural gas, zinc and tin used in the production process. Generally, forward physical purchase contracts qualify for the normal purchase and normal sales exceptions described in ASC Topic 815 and are not subject to 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 and tin (commodity purchase swaps). Commodity purchase swaps did not have a significant impact on the Company's financial results and were classified as cash flow hedges in prior periods (their impacts are included in our expanded tabular disclosure below). Effective January 1, 2018, U. S. Steel adopted the provisions of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The cumulative effect of the adoption of ASU 2017-12 was not material to U. S. Steel's financial results. See Note 3 for additional information on the recently adopted accounting standard.

Financial swaps are also used to partially manage the sales price of certain hot-rolled coil and iron ore pellet contract sales (sales swaps). In prior periods, we did not elect hedge accounting for these financial swaps and changes in their fair value were immediately recognized in earnings. Effective January 1, 2018, U. S. Steel elected to designate its hot-rolled coil sales swaps as cash flow hedges. See the tabular disclosure below for further details.

In accordance with the guidance in ASC Topic 820 on fair value measurements and disclosures, the fair value of our foreign exchange forwards, commodity purchase swaps and sales swaps was determined using Level 2 inputs, which are defined as "significant other observable" inputs. The inputs used are from market sources that aggregate data based upon market transactions.

The table below shows the outstanding swap quantities used to hedge forecasted purchases and sales as of March 31, 2018 and March 31, 2017:



Hedge Contracts	Classification	March 31, 2018		March 31, 2017
Natural gas (in mmbtus)	Commodity purchase swaps	17,711,000		13,956,000
Tin (in metric tons)	Commodity purchase swaps	690		720
Zinc (in metric tons)	Commodity purchase swaps	10,627		62,685
Hot-rolled coils (in tons)	Sales swaps	78,000		84,000
Iron ore pellets (in metric tons)	Sales swaps	—		430,000
Foreign currency (in thousands of dollars)	Foreign exchange forwards	$	303,000	$	182,500

The following summarizes the fair value amounts included in our Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017:

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(In millions) Designated as Hedging Instruments	Balance Sheet Location	March 31, 2018		December 31, 2017
Sales swaps	Accounts payable	$	9	$	—
Commodity purchase swaps	Accounts receivable	1		4
Commodity purchase swaps	Accounts payable	6		2
Commodity purchase swaps	Investments and long-term receivables	—		1
Commodity purchase swaps	Other long-term liabilities	2		1

Not Designated as Hedging Instruments
Sales swaps	Accounts payable	—		2
Commodity purchase swaps	Accounts payable	—		1
Foreign exchange forwards	Accounts payable	11		11

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, 2018 and 2017:



	Gain (Loss) on Derivatives in AOCI						Amount of Gain (Loss) Recognized in Income
(In millions)	March 31, 2018			March 31, 2017		Location of Reclassification from AOCI ^(a)	March 31, 2018		March 31, 2017
Sales swaps ^(b)	$	(9	)	$	—	Net sales	$	—	$	—
Commodity purchase swaps	(7		)	—		Cost of sales ^(c)	5		2

^(a) The earnings impact of our hedging instruments substantially offsets the earnings impact of the related hedged items since ineffectiveness is less than $1 million.

^(b)U. S. Steel has elected hedge accounting for hot-rolled coil sales swaps prospectively on January 1, 2018. Iron ore pellet sales swaps are not classified as hedges.

^(c) Costs for commodity purchase swaps are recognized in cost of sales as products are sold.

The table below summarizes the impact of derivative activity where hedge accounting has not been elected on our Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017:



		Amount of Gain (Loss) Recognized in Income
(In millions)	Consolidated Statement of Operations Location	March 31, 2018			March 31, 2017
Sales swaps ^(a)	Net sales	$	(1	)	$	4
Commodity purchase swaps	Cost of sales	1			4
Foreign exchange forwards	Other financial costs	(6		)	(2		)

^(a)U. S. Steel has elected hedge accounting for hot-rolled coil sales swaps prospectively on January 1, 2018. Iron ore pellet sales swaps are not classified as hedges.

At current contract values, $5 million and $9 million currently in AOCI as of March 31, 2018 will be recognized as an increase in cost of sales and a decrease in net sales, respectively, over the next year as related hedged items are recognized in earnings. The maximum derivative contract duration for commodity purchase swaps is two years and the maximum duration for sales swaps is one year.

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15. Debt



(In millions)	Interest Rates %	Maturity	March 31, 2018		December 31, 2017
2037 Senior Notes	6.650	2037	$	350	$	350
2026 Senior Notes	6.250	2026	650		—
2025 Senior Notes	6.875	2025	750		750
2021 Senior Secured Notes ^(a)	8.375	2021	281		780
2020 Senior Notes	7.375	2020	432		432
Environmental Revenue Bonds	5.750 - 6.875	2019 - 2042	400		400
Fairfield Caster Lease		2022	24		24
Other capital leases and all other obligations		2019	1		1
Fourth Amended and Restated Credit Agreement	Variable	2023	—		—
Third Amended and Restated Credit Agreement	Variable	2020	—		—
USSK Credit Agreement	Variable	2021	—		—
USSK credit facilities	Variable	2018	—		—
Total Debt			2,888		2,737
Less unamortized discount and debt issuance costs			36		34
Less short-term debt and long-term debt due within one year ^(a)			281		3
Long-term debt			$	2,571	$	2,700

^(a)The $281 million balance due on the 2021 Senior Secured Notes is included within Short-term debt and long-term debt due within one year as of March 31, 2018. All of the 2021 Senior Secured Notes were redeemed on April 12, 2018.

To the extent not otherwise discussed below, information concerning the senior notes and other listed obligations can be found in Note 16 of the audited financial statements in the United States Steel Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Senior Secured Note Tender and Redemption

In March 2018, pursuant to a cash tender offer, U. S. Steel repurchased approximately $499 million aggregate principal amount of its outstanding 8.375% Senior Secured Notes due 2021 (2021 Senior Secured Notes). The aggregate cash outflow from the tender was approximately $538 million, which included $39 million in premiums. The remaining approximately $281 million aggregate principal amount of 2021 Senior Secured Notes were redeemed on April 12, 2018 (see Note 24 for details).

Issuance of Senior Notes due 2026

In March 2018, U. S. Steel issued $650 million aggregate principal amount of 6.250% Senior Notes due March 15, 2026 (2026 Senior Notes). U. S. Steel received net proceeds from the offering of approximately $640 million after fees of approximately $10 million related to the underwriting and third party expenses. The net proceeds from the issuance of the 2026 Senior Notes, together with cash on hand, were used to tender or otherwise redeem all of our 2021 Senior Secured Notes as discussed above.

The 2026 Senior Notes are senior and unsecured obligations that rank equally in right of payment with all of our other existing and future senior and unsecured indebtedness. U. S. Steel will pay interest on the notes semi-annually in arrears on March 15th and September 15th of each year, commencing on September 15, 2018.

Similar to our other senior notes, the indenture governing the 2026 Senior Notes restricts our ability to create certain liens, to enter into sale leaseback transactions and to consolidate, merge, transfer or sell all, or substantially all of our assets. It also contains provisions requiring the purchase of the 2026 Senior Notes upon a change of control under certain specified circumstances, as well as other customary provisions.

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U. S. Steel may redeem the 2026 Senior Notes, in whole or in part, at our option at any time, or from time to time, on or after March 15, 2021 at the redemption price for such notes set forth below as a percentage of the principal amount, plus accrued and unpaid interest, if any, to, but excluding the redemption date, if redeemed during the twelve-month period beginning March 15 of the years indicated below:



Year	Redemption Price
2021	103.125	%
2022	101.563	%
2023 and thereafter	100.000	%

At any time prior to March 15, 2021, U. S. Steel may also redeem up to 35% of the original aggregate principal amount of the 2026 Senior Notes at 106.25%, plus accrued and unpaid interest, if any, but excluding the applicable date of redemption, with proceeds from equity offerings.

Fourth Amended and Restated Credit Agreement

On February 26, 2018, U. S. Steel entered into the Fourth Amended and Restated Credit Agreement (Credit Facility Agreement), replacing the Company's Third Amended and Restated Credit Agreement. The Credit Facility Agreement maintains the facility size of $1.5 billion and extends the maturity date to 2023.

As of March 31, 2018, there were no amounts drawn under the $1.5 billion 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 10 percent of the total aggregate commitments and $150 million. Based on the most recent four quarters as of March 31, 2018, we would have met this covenant. If we are unable to meet this covenant in future periods, the amount available to the Company under this facility would be reduced by $150 million.

The Credit Facility Agreement provides for borrowings at interest rates based on defined, short-term market rates plus a spread based on availability and includes other customary terms and conditions including restrictions on our ability to create certain liens and to consolidate, merge or transfer all, or substantially all, of our assets. The Credit Facility Agreement expires in February 2023. Maturity may be accelerated 91 days prior to the stated maturity of any outstanding senior debt if excess cash and credit facility availability do not meet the liquidity conditions set forth in the Credit Facility Agreement. Borrowings are secured by liens on certain North American inventory and trade accounts receivable.

The Credit Facility Agreement permits incurrence of additional secured debt up to 17.5% of Consolidated Net Tangible Assets.

U. S. Steel Košice (USSK) credit facilities

At March 31, 2018, USSK had no borrowings under its €200 million (approximately $247 million) unsecured revolving credit facility (the USSK Credit Agreement). The USSK Credit Agreement contains certain USSK financial covenants, including maximum Leverage, maximum Net Debt to Tangible Net Worth, and minimum Interest Coverage ratios as defined in the USSK Credit Agreement. The covenants are measured semi-annually for the period covering the last twelve calendar months. USSK may not draw on the USSK Credit Agreement if it does not comply with any of the financial covenants until the next measurement date. At March 31, 2018, USSK had full availability under the USSK Credit Agreement. The USSK Credit Agreement expires in July 2021.

At March 31, 2018, USSK had no borrowings under its €40 million and €10 million unsecured credit facilities (collectively, approximately $62 million) and the availability was approximately $60 million due to approximately $2 million of customs and other guarantees outstanding. The €40 million credit facility expires in December 2018. Currently, the €10 million credit facility also expires in December 2018, but can be extended one additional year to the final maturity date at the mutual consent of USSK and its lender.

Each of these facilities bear interest at the applicable inter-bank offer rate plus a margin and contain customary terms and conditions.

Change in control event

If there is a change in control of U. S. Steel, the following may occur: (a) debt obligations totaling $2,463 million as of March 31, 2018 may be declared due and payable; (b) the Credit Facility Agreements and the USSK

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Credit Agreement may be terminated and any amounts outstanding declared due and payable; and (c) U. S. Steel may be required to either purchase the leased Fairfield Works slab caster for $26 million or provide a letter of credit to secure the remaining obligation.

16. Asset Retirement Obligations

U. S. Steel’s asset retirement obligations (AROs) primarily relate to mine, landfill closure and post-closure costs. The following table reflects changes in the carrying values of AROs:



(In millions)	March 31, 2018			December 31, 2017
Balance at beginning of year	$	69		$	79
Obligations settled	(1		)	(8		)
Change in estimate of obligations	—			(6		)
Foreign currency translation effects	—			2
Accretion expense	1			2
Balance at end of period	$	69		$	69

Certain AROs related to disposal costs of the majority of fixed assets at our integrated steel facilities have not been recorded because they have an indeterminate settlement date. These AROs will be initially recognized in the period in which sufficient information exists to estimate their fair value.

17. Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, current accounts and notes receivable, accounts payable, bank checks outstanding, and accrued interest included in the 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.

The following table summarizes U. S. Steel’s financial liabilities that were not carried at fair value at March 31, 2018 and December 31, 2017.



	March 31, 2018				December 31, 2017
(In millions)	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Financial liabilities:
Long-term debt ^(a)	$	2,631	$	2,546	$	2,851	$	2,678

(a) Excludes capital lease obligations.

The following methods and assumptions were used to estimate the fair value of financial instruments included in the table above:

Long-term debt: Fair value was determined using Level 2 inputs which were derived from quoted market prices and is based on the yield on public debt where available or current borrowing rates available for financings with similar terms and maturities.

Fair value of the financial liabilities disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

Financial guarantees are U. S. Steel’s only unrecognized financial instrument. For details relating to financial guarantees see Note 22.

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18. Statement of Changes in Stockholders’ Equity

The following table reflects the first three months of 2018 and 2017 reconciliation of the carrying amount of total equity, equity attributable to U. S. Steel and equity attributable to noncontrolling interests:



Three Months Ended March 31, 2018 (In millions)	Total			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Common Stock		Treasury Stock			Paid-in Capital			Non- Controlling Interest
Balance at beginning of year	$	3,321		$	133		$	(845	)	$	176	$	(76	)	$	3,932		$	1
Comprehensive income (loss):
Net earnings	18			18
Other comprehensive income (loss), net of tax:
Pension and other benefit adjustments	46						46
Currency translation adjustment	40						40
Employee stock plans	39									1		75			(37		)
Dividends paid on common stock	(9		)	(9		)
Other	(16		)				$	(16	)
Balance at March 31, 2018	$	3,439		$	142		$	(775	)	$	177	$	(1	)	$	3,895		$	1



Three Months Ended March 31, 2017 (In millions)	Total			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Common Stock		Treasury Stock			Paid-in Capital			Non- Controlling Interest
Balance at beginning of year	$	2,275		$	(250	)	$	(1,497	)	$	176	$	(182	)	$	4,027		$	1
Comprehensive income (loss):
Net loss	(180		)	(180		)
Other comprehensive income (loss), net of tax:
Pension and other benefit adjustments	46						46
Currency translation adjustment	23						23
Employee stock plans	14											63			(49		)
Dividends paid on common stock	(9		)												(9		)
Other	5			5
Balance at March 31, 2017	$	2,174		$	(425	)	$	(1,428	)	$	176	$	(119	)	$	3,969		$	1

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19. Reclassifications from Accumulated Other Comprehensive Income (AOCI)



(In millions) ^(a)	Pension and Other Benefit Items			Foreign Currency Items		Unrealized Gain (Loss) on Derivatives			Total
Balance at December 31, 2017	$	(1,309	)	$	463	$	1		$	(845	)
Other comprehensive income before reclassifications	92			40		(13		)	119
Amounts reclassified from AOCI ^(b)	(46		)	—		(3		)	(49		)
Net current-period other comprehensive income	46			40		(16		)	70
Balance at March 31, 2018	$	(1,263	)	$	503	$	(15	)	$	(775	)

(a)Amounts do not reflect a tax benefit as a result of a full valuation allowance on our domestic deferred tax assets.

(b)See table below for further details.



		Amount reclassified from AOCI
		Three Months Ended March 31,
(In millions) ^(a)	Details about AOCI components	2018			2017
	Amortization of pension and other benefit items
	Prior service costs ^(b)	$	(7	)	$	(7	)
	Actuarial losses ^(b)	(39		)	(38		)
	Settlement, termination and curtailment gains ^(b)	—			(4		)
	Total pensions and other benefits items	(46		)	(49		)
	Derivative reclassifications to Consolidated Statements of Operations	(3		)	—
	Total before tax	(49		)	(49		)
	Tax benefit ^(c)	—			—
	Net of tax	$	(49	)	$	(49	)

(a)Amounts in parentheses indicate decreases in AOCI.

(b)These AOCI components are included in the computation of net periodic benefit cost (see Note 8 for additional details).

(c)Amounts do not reflect a tax benefit as a result of a full valuation allowance on our domestic deferred tax assets.

20. Transactions with Related Parties

Net sales to related parties and receivables from related parties primarily reflect sales of raw materials and steel products to equity investees and U. S. Steel Canada Inc. (USSC) after the Canada Companies' Creditor Arrangement Act (CCAA) filing on September 16, 2014, but before the sale to an affiliate of Bedrock Industries Group LLC (Bedrock) on June 30, 2017. Generally, transactions are conducted under long-term contractual arrangements. Related party sales and service transactions were $328 million and $313 million for the three months ended March 31, 2018 and 2017, respectively.

Purchases from related parties for outside processing services provided by equity investees and USSC after the CCAA filing on September 16, 2014, but before the sale to Bedrock, amounted to $7 million and $14 million for the three months ended March 31, 2018 and 2017, respectively. Purchases of iron ore pellets from related parties amounted to $17 million and $36 million for the three months ended March 31, 2018 and 2017 respectively.

Accounts payable to related parties include balances due to PRO-TEC Coating Company, LLC (PRO-TEC) of $93 million and $72 million at March 31, 2018 and December 31, 2017, 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 $4 million and $2 million at March 31, 2018 and December 31, 2017, respectively.

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21. Restructuring and Other Charges

Restructuring charges recorded during the three months ended March 31, 2018 were immaterial. Cash payments were made related to severance and exit costs of $14 million.

During the three months ended March 31, 2017, the Company recorded a net restructuring charge of approximately $33 million, which consists of charges of $35 million related to the permanent shutdown of the No. 6 Quench & Temper Mill at Lorain Tubular Operations and a favorable adjustment of $2 million primarily associated with a change in estimate for previously recorded environmental costs. Cash payments were made related to severance and exit costs of $11 million.

Charges for restructuring and ongoing cost reduction initiatives are recorded in the period U. S. Steel commits to a restructuring or cost reduction plan, or executes specific actions contemplated by the plan and all criteria for liability recognition have been met. Charges related to the restructuring and cost reductions are reported in restructuring and other charges in the Consolidated Statements of Operations.

The activity in the accrued balances incurred in relation to restructuring and other cost reduction programs during the three months ended March 31, 2018 were as follows:



	Employee Related			Exit
(in millions)	Costs			Costs			Total
Balance at December 31, 2017	$	4		$	34		$	38
Cash payments/utilization	(1		)	(13		)	(14		)
Balance at March 31, 2018	$	3		$	21		$	24

Accrued liabilities for restructuring and other cost reduction programs are included in the following balance sheet lines:



(in millions)	March 31, 2018		December 31, 2017
Accounts payable	$	14	$	26
Payroll and benefits payable	2		4
Deferred credits and other noncurrent liabilities	8		8
Total	$	24	$	38

22. 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 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, 2018, U. S. Steel was a defendant in approximately 773 active cases involving approximately 3,320 plaintiffs. The vast majority of these cases involve multiple defendants. At December 31, 2017, U. S. Steel was a defendant in approximately 820 cases involving approximately 3,315 plaintiffs. About 2,547, or approximately 77 percent, of these plaintiff claims are currently pending in jurisdictions which permit filings with massive numbers of plaintiffs. Based upon U. S. Steel’s experience in such cases, it believes that the actual number of plaintiffs who ultimately assert claims against U. S. Steel will likely be a small fraction of the total number of plaintiffs.

The following table shows the 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, 2015	3,455	415	275	3,315
December 31, 2016	3,315	225	250	3,340
December 31, 2017	3,340	275	250	3,315
March 31, 2018	3,315	70	75	3,320

Historically, asbestos-related claims against U. S. Steel fall into three groups: (1) claims made by persons who allegedly were exposed to asbestos on the premises of U. S. Steel facilities; (2) claims made by persons allegedly exposed to products manufactured by U. S. Steel; and (3) claims made under certain federal and maritime laws by employees of former operations of U. S. Steel.

The amount U. S. Steel accrues for pending asbestos claims is not material to U. S. Steel’s financial condition. However, U. S. Steel is unable to estimate the ultimate outcome of asbestos-related claims due to a number of uncertainties, including: (1) the rates at which new claims are filed, (2) the number of and effect of bankruptcies of other companies traditionally defending asbestos claims, (3) uncertainties associated with the variations in the litigation process from jurisdiction to jurisdiction, (4) uncertainties regarding the facts, circumstances and disease process with each claim, and (5) any new legislation enacted to address asbestos-related claims. Despite these uncertainties, management believes that the ultimate resolution of these matters will not have a material adverse effect on U. S. Steel’s financial condition, although the resolution of such matters could significantly impact results of operations for a particular quarter.

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:



(In millions)	Three Months Ended March 31, 2018
Beginning of period	$	179
Accruals for environmental remediation deemed probable and reasonably estimable	1
Obligations settled	(1		)
End of period	$	179

Accrued liabilities for remediation activities are included in the following Consolidated Balance Sheet lines:



(In millions)	March 31, 2018		December 31, 2017
Accounts payable	$	29	$	29
Deferred credits and other noncurrent liabilities	150		150
Total	$	179	$	179

Expenses related to remediation are recorded in cost of sales and were immaterial for both three month periods ended March 31, 2018 and March 31, 2017. 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 15 to 30 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, we categorize projects as follows:

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(1)

Projects with Ongoing Study and Scope Development - Projects which are still in the development phase. 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 six environmental remediation projects where additional costs for completion are not currently estimable, but could be material. These projects are at Fairfield Works, Lorain Tubular, USS-POSCO Industries (UPI), the Fairless Plant, Cherryvale Zinc and the former steelmaking plant at Joliet, Illinois. As of March 31, 2018, 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 $30 million to $50 million.

(2)

Significant Projects with Defined Scope - Projects with significant accrued liabilities with a defined scope. As of March 31, 2018, there are three significant projects with defined scope greater than or equal to $5 million each, with a total accrued liability of $135 million. These projects are Gary Resource Conservation and Recovery Act (RCRA) (accrued liability of $25 million), the former Geneva facility (accrued liability of $63 million), and the former Duluth facility St. Louis River Estuary (accrued liability of $47 million).

(3)

Other Projects with a Defined Scope - Projects with 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, 2018 was $4 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, 2018 was approximately $6 million. We do 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 $22 million at March 31, 2018 and were based on known scopes of work.

Administrative and Legal Costs – As of March 31, 2018, U. S. Steel had an accrued liability of $8 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 bring existing facilities into compliance with various laws relating to the environment. In the first three months of 2018 and 2017, such capital expenditures totaled $13 million and $11 million, respectively. U. S. Steel anticipates making additional such expenditures in the future; however, the exact amounts and timing of such expenditures are uncertain because of the continuing evolution of specific regulatory requirements.

EU Environmental Requirements - Under the Emission Scheme (ETS), USSK's final allocation of free allowances for the Phase III period, which covers the years 2013 through 2020 is 48 million allowances. Based on projected future production levels, we started to purchase allowances in the third quarter of 2017 to meet the annual compliance submission in the future. As of March 31, 2018, we have purchased 7.5 million European Union Allowances (EUA) totaling €59 million (approximately $73 million). On March 26, 2018, we surrendered 9.2 million EUA’s to fulfill the 2017 obligation. We estimate a shortfall of approximately 16 million allowances for the Phase III period. However, due to a number of variables such as the future market value of allowances, future production levels and future emissions intensity levels, we cannot reliably estimate the full cost of complying with the ETS regulations at this time.

The EU’s Industry Emission Directive will require 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. Our most recent broad estimate of future capital expenditures for projects to comply with or go beyond BAT requirements is €138 million (approximately $170 million) over the 2017 to 2020 period. There are ongoing efforts to seek EU grants to fund a portion of these capital expenditures. The actual amount spent will depend largely upon the amount of EU incentive grants received. See Item 2. Management's Discussion

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and Analysis of Financial Condition and Results of Operations, Environmental Matters, Litigation and Contingencies, Slovak Operations.

Due to other EU legislation, BAT for Large Combustion Plants (LCP), we are required to make changes to the boilers at our steam and power generation plant in order to comply with stricter air emission limits for large combustion plants. The new requirements for LCP resulted in the construction of a new boiler and certain upgrades to our existing boilers. In January 2014, the operation of USSK's boilers was approved by the European Commission (EC) as part of Slovakia's Transitional National Plan (TNP) for bringing all boilers in Slovakia into compliance by no later than 2020. The TNP establishes emissions ceilings for each category of emissions (total suspended particulate, sulfur dioxide (SO₂), and nitrogen oxide (NO_x)) for both stacks within the power plant. The allowable amount of discharged emissions will decrease each year until mid 2020. An emission ceiling will be a limiting factor for future operation of the boilers. The boiler projects have been approved by our Board of Directors and we are now in the execution phase. These projects will result in a reduction in electricity, carbon dioxide (CO₂) emissions and operating, maintenance and waste disposal costs once completed. The construction of the new boiler is complete with a total final installed cost of €128 million (approximately $158 million). Reconstruction of the existing boiler with a projected cost of €54 million (approximately $66 million) is in progress. The total remaining to be spent on the existing boiler project is projected to be €3 million (approximately $3 million), with the final inspection expected to be completed in October 2018. Broad legislative changes were enacted by the Slovak Republic to extend the scope of support for renewable sources of energy, that are intended to allow USSK to participate in Slovakia's renewable energy incentive program once the boiler projects are completed.

Guarantees – The maximum guarantees of the indebtedness of unconsolidated entities of U. S. Steel totaled $4 million at March 31, 2018.

Other contingencies – Under certain operating 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 $11 million at March 31, 2018). No liability has been recorded for these guarantees as the potential loss is not probable.

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 $186 million as of March 31, 2018, 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 $45 million and $44 million at March 31, 2018 and December 31, 2017, respectively.

Capital Commitments – At March 31, 2018, U. S. Steel’s contractual commitments to acquire property, plant and equipment totaled $485 million.

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 2018	2019	2020	2021	2022	Later Years	Total
$533	$421	$319	$312	$301	$1,189	$3,075

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 two to 15 years. Unconditional purchase obligations

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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, 2018, if U. S. Steel were to terminate the agreement, it may be obligated to pay in excess of $180 million.

Total payments relating to unconditional purchase obligations were $161 million and $140 million for the three months ended March 31, 2018 and 2017, respectively.

23. Significant Equity Investments

Summarized unaudited income statement information for our significant equity investments for the three months ended March 31, 2018 and 2017 is reported below (amounts represent 100% of investee financial information):



(In millions)	2018		2017
Net sales	$	261	$	262
Cost of sales	235		233
Operating income	15		18
Net earnings	12		16
Net earnings attributable to significant equity investments	12		16

U. S. Steel's portion of the equity in net earnings of the significant equity investments above was $8 million and $10 million for the three months ended March 31, 2018 and 2017, respectively, which is included in the earnings from investees line on the Consolidated Statement of Operations.

24. Subsequent Event

On April 12, 2018, approximately $281 million in aggregate principal amount of the Company's 2021 Senior Secured Notes was redeemed. This amount represents all of the outstanding principal on the 2021 Senior Secured Notes following the issuer cash tender offer that was conducted in March 2018. U. S. Steel incurred a $25 million loss on debt extinguishment associated with this redemption.

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Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Net sales by segment for the three months ended March 31, 2018 and 2017 are set forth in the following table:



	Three Months Ended March 31,
(Dollars in millions, excluding intersegment sales)	2018		2017		% Change
Flat-Rolled Products (Flat-Rolled)	$	2,046	$	1,865	10	%
U. S. Steel Europe (USSE)	823		673		22	%
Tubular Products (Tubular)	266		171		56	%
Total sales from reportable segments	3,135		2,709		16	%
Other Businesses	14		16		(13	)%
Net sales	$	3,149	$	2,725	16	%

Management’s analysis of the percentage change in net sales for U. S. Steel’s reportable business segments for the three months ended March 31, 2018 versus the three months ended March 31, 2017 is set forth in the following table:

Three Months Ended March 31, 2018 versus Three Months Ended March 31, 2017



	Steel Products ^(a)
	Volume		Price		Mix		FX ^(b)		Coke & Other ^(c)		Net Change
Flat-Rolled	5	%	12	%	(9	)%	—	%	2	%	10	%
USSE	1	%	5	%	—	%	15	%	1	%	22	%
Tubular	30	%	24	%	—	%	—	%	2	%	56	%

^(a) Excludes intersegment sales

^(b) Foreign currency translation effects

^(c) Includes sales of coke and scrap inventory

Net sales were $3,149 million in the three months ended March 31, 2018, compared with $2,725 million in the same period last year. The increase in sales for the Flat-Rolled segment primarily reflect higher average realized prices (increase of $21 per net ton), notably for hot-rolled products, and increased shipments, including substrate to our Tubular segment (increase of 130 thousand net tons), partially offset by an unfavorable impact on product mix as a result of increased sales of hot-rolled products. The increase in sales for the USSE segment was primarily due to the strengthening of the euro versus the U.S. dollar in the three months ended March 31, 2018 compared to the same period last year and higher average realized euro-based prices (increase of €17 per net ton). The increase in sales for the Tubular segment primarily reflect a favorable impact on volume as a result of the restart of its Lone Star Tubular operations in April of 2017 (increase of 35 thousand net tons) as well as higher average realized prices (increase of $290 per net ton) as a result of improved market conditions.

Pension and other benefits costs

Pension and other benefit costs (other than service cost) are reflected within net interest and other financial costs and the service cost component is reflected within cost of sales in the Consolidated Statements of Operations.

Defined benefit and multiemployer pension plan costs included in cost of goods sold totaled $27 million in both of the three months ended March 31, 2018 and March 31, 2017.

Costs related to defined contribution plans totaled $10 million and $11 million for the three months ended March 31, 2018 and 2017, respectively.

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Other benefit expense included in cost of sales totaled $4 million in both of the three months ended March 31, 2018 and March 31, 2017.

Selling, general and administrative expenses

Selling, general and administrative expenses were $78 million in the three months ended March 31, 2018, compared to $81 million in the three months ended