Document

10-Q 1 x201763010q.htm 10-Q 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 June 30, 2017



	[ ]	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 July 20, 2017 – 174,911,603 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	27
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
	Item 4.	Controls and Procedures	47
		Supplemental Statistics (Unaudited)	48
PART II – OTHER INFORMATION
	Item 1.	Legal Proceedings	49
	Item 4.	Mine Safety Disclosure	55
	Item 5.	Other Information	55
	Item 6.	Exhibits	55
SIGNATURE			56
WEB SITE POSTING			56

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, 2016, 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 June 30,						Six Months Ended June 30,
(Dollars in millions, except per share amounts)	2017			2016			2017			2016
Net sales:
Net sales	$	2,787		$	2,320		$	5,199		$	4,346
Net sales to related parties (Note 18)	357			264			670			579
Total	3,144			2,584			5,869			4,925
Operating expenses (income):
Cost of sales (excludes items shown below)	2,725			2,397			5,286			4,833
Selling, general and administrative expenses	79			64			176			133
Depreciation, depletion and amortization	121			129			258			258
Earnings from investees	(16		)	(28		)	(20		)	(73		)
Gain associated with retained interest in U. S. Steel Canada Inc. (Note 21)	(72		)	—			(72		)	—
Restructuring and other charges (Note 19)	(1		)	(6		)	32			4
Net (gain) loss on disposal of assets	—			—			(1		)	3
Other income, net	(5		)	—			(5		)	—
Total	2,831			2,556			5,654			5,158
Earnings (loss) before interest and income taxes	313			28			215			(233		)
Interest expense	55			60			113			115
Interest income	(4		)	(2		)	(8		)	(3		)
Loss on debt extinguishment	1			24			1			22
Other financial costs (income)	16			(1		)	25			12
Net interest and other financial costs (Note 7)	68			81			131			146
Earnings (loss) before income taxes	245			(53		)	84			(379		)
Income tax (benefit) provision (Note 9)	(16		)	(7		)	3			7
Net earnings (loss)	261			(46		)	81			(386		)
Less: Net earnings attributable to noncontrolling interests	—			—			—			—
Net earnings (loss) attributable to United States Steel Corporation	$	261		$	(46	)	$	81		$	(386	)
Earnings (loss) per common share (Note 10):
Earnings (loss) per share attributable to United States Steel Corporation stockholders:
-Basic	$	1.49		$	(0.32	)	$	0.46		$	(2.64	)
-Diluted	$	1.48		$	(0.32	)	$	0.46		$	(2.64	)

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

-1-

UNITED STATES STEEL CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2017			2016			2017			2016
Net earnings (loss)	$	261		$	(46	)	$	81		$	(386	)
Other comprehensive income (loss), net of tax:
Changes in foreign currency translation adjustments	82			(31		)	105			31
Changes in pension and other employee benefit accounts	46			42			92			(182		)
Other	(3		)	11			(3		)	21
Total other comprehensive income (loss), net of tax	125			22			194			(130		)
Comprehensive income (loss) including noncontrolling interest	386			(24		)	275			(516		)
Comprehensive income attributable to noncontrolling interest	—			—			—			—
Comprehensive income (loss) attributable to United States Steel Corporation	$	386		$	(24	)	$	275		$	(516	)

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

-2-

UNITED STATES STEEL CORPORATION

CONSOLIDATED BALANCE SHEET



(Dollars in millions)	(Unaudited) June 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	1,522		$	1,515
Receivables, less allowance of $28 and $25	1,206			976
Receivables from related parties, less allowance of $0 and $265 (Notes 18 and 21)	238			272
Inventories (Note 11)	1,727			1,573
Other current assets	30			20
Total current assets	4,723			4,356
Property, plant and equipment	14,527			14,196
Less accumulated depreciation and depletion	10,517			10,217
Total property, plant and equipment, net	4,010			3,979
Investments and long-term receivables, less allowance of $11 and $10	548			528
Long-term receivables from related parties, less allowance of $0 and $1,627 (Notes 18 and 21)	—			—
Intangibles – net (Note 5)	171			175
Deferred income tax benefits (Note 9)	4			6
Other noncurrent assets	124			116
Total assets	$	9,580		$	9,160
Liabilities
Current liabilities:
Accounts payable and other accrued liabilities	$	1,948		$	1,602
Accounts payable to related parties (Notes 18 and 21)	77			66
Payroll and benefits payable	338			400
Accrued taxes	140			128
Accrued interest	73			85
Short-term debt and current maturities of long-term debt (Note 13)	175			50
Total current liabilities	2,751			2,331
Long-term debt, less unamortized discount and debt issuance costs (Note 13)	2,752			2,981
Employee benefits	1,151			1,216
Deferred income tax liabilities (Note 9)	28			28
Deferred credits and other noncurrent liabilities	343			329
Total liabilities	7,025			6,885
Contingencies and commitments (Note 20)
Stockholders’ Equity (Note 16):
Common stock (176,424,554 shares issued) (Note 10)	176			176
Treasury stock, at cost (1,521,037 and 2,614,378 shares)	(96		)	(182		)
Additional paid-in capital	3,942			4,027
Accumulated deficit	(165		)	(250		)
Accumulated other comprehensive loss (Note 17)	(1,303		)	(1,497		)
Total United States Steel Corporation stockholders’ equity	2,554			2,274
Noncontrolling interests	1			1
Total liabilities and stockholders’ equity	$	9,580		$	9,160

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

-3-

UNITED STATES STEEL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)



	Six Months Ended June 30,
(Dollars in millions)	2017			2016
Increase (decrease) in cash and cash equivalents
Operating activities:
Net earnings (loss)	$	81		$	(386	)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation, depletion and amortization	258			258
Gain associated with retained interest U. S. Steel Canada Inc. (Note 21)	(72		)	—
Restructuring and other charges (Note 19)	32			4
Provision for doubtful accounts	1			—
Pensions and other postretirement benefits	31			(21		)
Deferred income taxes	2			2
Net (gain) loss on disposal of assets	(1		)	3
Distributions received, net of equity investees earnings	(16		)	(70		)
Changes in:
Current receivables	(172		)	(182		)
Inventories	(125		)	404
Current accounts payable and accrued expenses	98			213
Income taxes receivable/payable	20			6
Bank checks outstanding	7			9
All other, net	98			73
Net cash provided by operating activities	242			313
Investing activities:
Capital expenditures	(120		)	(217		)
Disposal of assets	—			1
Change in restricted cash, net	(1		)	(3		)
Investments, net	(1		)	(15		)
Net cash used in investing activities	(122		)	(234		)
Financing activities:
Issuance of long-term debt, net of financing costs	—			958
Repayment of long-term debt	(108		)	(962		)
Dividends paid	(18		)	(15		)
Taxes paid for equity compensation plans (Note 3)	(10		)	—
Receipts from exercise of stock options	13			—
Net cash used in financing activities	(123		)	(19		)
Effect of exchange rate changes on cash	10			5
Net increase in cash and cash equivalents	7			65
Cash and cash equivalents at beginning of year	1,515			755
Cash and cash equivalents at end of period	$	1,522		$	820

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

-4-

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation and Significant Accounting Policies

United States Steel Corporation produces and sells steel products, including flat-rolled and tubular products, in North America and Central 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, 2016, which should be read in conjunction with these financial statements.

Change in Accounting Estimate - Capitalization and Depreciation Method

During 2017, U. S. Steel completed a review of its accounting policy for property, plant and equipment depreciated on a group basis. As a result of this review, U. S. Steel changed its accounting method for property, plant and equipment from the group method of depreciation to the unitary method of depreciation, effective as of January 1, 2017. The Company believes the change from the group method to the unitary method of depreciation is preferable under U.S. GAAP as it will result in a more precise estimate of depreciation expense. Additionally, the change to the unitary method of depreciation is consistent with the depreciation method applied by our competitors, and improves the comparability of our results to our competitors. Our change in the method of depreciation is considered a change in accounting estimate effected by a change in accounting principle and has been applied prospectively. Due to the application of the unitary method of depreciation and resultant change in our capitalization policy, maintenance and outage spending that had previously been expensed as well as capital investments associated with our asset revitalization program will now be capitalized if it extends the useful life of the related asset. For the three months ended June 30, 2017, the effect of the change was an increase in both income from continuing operations and net earnings of $112 million (which consists of a $118 million decrease in cost of sales due to the capitalization of maintenance and outage spending that would have been previously expensed, partially offset by increased depreciation expense of $6 million, as a result of the impact of unitary depreciation on the existing net book value of fixed assets, as noted below, and the capitalization of maintenance and outage spending) and an increase in diluted earnings per share of $0.64. Included in the three months ended June 30, 2017 is a favorable impact of approximately $50 million as the amount of spending subject to capitalization exceeded our previous internal estimate primarily due to the timing of certain capital projects, including projects implemented under our asset revitalization program. For the six months ended June 30, 2017, the effect of the change was an increase in both income from continuing operations and net earnings of $110 million (which consists of a $135 million decrease in cost of sales due to the capitalization of maintenance and outage spending that would have been previously expensed, partially offset by increased depreciation expense of $25 million, as a result of the impact of unitary depreciation on the existing net book value of fixed assets, as noted below, and the capitalization of maintenance and outage spending) and an increase in diluted earnings per share of $0.63. The tax effect of this change was immaterial to the consolidated financial statements.

U. S. Steel's property, plant and equipment totaled $3,979 million at December 31, 2016. U. S. Steel allocated the existing net book value of group assets at the transition date to approximate a unitary depreciation methodology, and the fixed assets will be depreciated over their estimated remaining useful lives as follows:

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	(In millions)
Remaining Useful Life of Assets	Net Book Value at December 31, 2016
Under 5 years	$	597
6-10 years	629
11-15 years	765
16-20 years	654
21-25 years	363
Over 25 years	479
Assets not subject to depreciation	492
Total	$	3,979

2. New Accounting Standards

On May 10, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. The amendments in this update will be applied prospectively to an award modified on or after the adoption date. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted. U. S. Steel is currently evaluating the impact the adoption of ASU 2017-09 will have 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 post retirement 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. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. 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 is effective for periods beginning after December 15, 2017, including interim periods within those annual periods; early adoption is permitted. The adoption of this ASU will not have an impact on U. S. Steel's net earnings (loss) but will be a reclassification from a line on the income statement within earnings (loss) before interest and income taxes to a line on the income statement below earnings (loss) before interest and income taxes.

On August 26, 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 reduces 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. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. U. S. Steel is evaluating the financial statement implications of adopting ASU 2016-15, but anticipates it will not have an overall impact to the Company's consolidated statement of cash flows, but may result in a reclassification between cash flow line items.

On February 25, 2016, the FASB issued Accounting Standards Update 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 the 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

-6-

activities and payments of interest on the lease liability within the 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 contract 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 currently evaluating the financial statement implications of adopting ASU 2016-02, and has begun an inventory of its global leasing arrangements. U. S. Steel has also begun to review its information technology systems, internal controls, and accounting policies in relation to the ASU’s accounting and reporting requirements to recognize the respective right-of-use assets and the related lease liabilities.

On May 28, 2014, the FASB and the International Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2016; early application is not permitted. On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date (ASU 2015-14). ASU 2015-14 defers the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, and only permits entities to adopt the standard one year earlier as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. U. S. Steel has completed a review of its significant customer contracts and is finalizing its evaluation of those contracts in relation to the recognition of revenue under the new standard. U. S. Steel is currently developing disclosures, finalizing its review of information technology systems, and key internal controls related to our ability to process, record and account for revenue under the new standard. U. S. Steel does not expect a material financial statement impact related to the adoption of this ASU.

3. Recently Adopted Accounting Standards

On March 30, 2016, the FASB issued Accounting Standards Update 2016-09, Compensation - Stock Compensation (ASU 2016-09). ASU 2016-09 simplifies the accounting and reporting of certain aspects of share-based payment transactions, including income tax treatment of excess tax benefits, forfeitures, classification of share-based awards as either equity or liabilities, and classification in the statement of cash flows for certain share-based transactions related to tax benefits and tax payments. ASU 2016-09 was effective for public business entities for annual periods beginning after December 15, 2016.

On January 1, 2017, the Company adopted the provisions of ASU 2016-09. The adoption of ASU 2016-09 did not have a significant impact on the Company’s Consolidated Financial Statements and included the following items: (1) adoption on a prospective basis of the recognition of excess tax benefits and tax deficiencies in the Company’s income tax expense line in the Consolidated Statement of Operations for vested and exercised equity awards as discrete items in the period in which they occur; (2) adoption on a prospective basis of the classification of excess tax benefits in cash flows from operations in the Company’s Consolidated Statement of Cash Flows; (3) adoption on a retrospective basis of the classification of cash paid by the Company for directly withholding shares for tax withholding purposes in cash flows from financing activities, and (4) adoption on a prospective basis for the exclusion of the amount of excess tax benefits when applying the treasury stock method for the Company’s diluted earnings per share calculation.

Additionally, the Company continues to withhold the statutory minimum taxes for participants in the Company’s stock-based compensation plans and estimates forfeiture rates at the grant date and the expected term of its equity awards based on historical results.

On July 22, 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 requires an entity to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. ASU 2015-11 does not apply to inventories that are measured using either the last-in, first-out (LIFO) method or the retail inventory method. ASU 2015-11 was effective for public entities for financial statements issued for fiscal years beginning after December 15, 2016. U. S. Steel adopted ASU 2015-11 on January 1, 2017. The adoption did not have a significant financial statement impact to U. S. Steel.

-7-

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, (2) consumer, and (3) industrial, service center and mining; 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, postretirement benefit expenses (other than service cost and amortization of prior service cost for active employees) and certain other items that management believes are not indicative of future results. Information on segment assets is not disclosed, as it is not reviewed by the chief operating decision maker. The chief operating decision maker assesses the Company's assets on an enterprise wide level, based upon the projects that yield the greatest return to the Company as a whole, and not on an individual segment level.

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 three months ended June 30, 2017 and 2016 are:



(In millions) Three Months Ended June 30, 2017	Customer Sales		Intersegment Sales			Net Sales			Earnings (loss) from investees			Earnings (loss) Before Interest and Income Taxes
Flat-Rolled	$	2,151	$	92		$	2,243		$	14		$	218
USSE	740		12			752			—			55
Tubular	234		—			234			2			(29		)
Total reportable segments	3,125		104			3,229			16			244
Other Businesses	19		29			48			—			9
Reconciling Items and Eliminations	—		(133		)	(133		)	—			60
Total	$	3,144	$	—		$	3,144		$	16		$	313

Three Months Ended June 30, 2016
Flat-Rolled	$	1,926	$	—		$	1,926		$	27		$	6
USSE	565		1			566			—			55
Tubular	81		2			83			2			(78		)
Total reportable segments	2,572		3			2,575			29			(17		)
Other Businesses	12		25			37			(1		)	10
Reconciling Items and Eliminations	—		(28		)	(28		)	—			35
Total	$	2,584	$	—		$	2,584		$	28		$	28

-8-

The results of segment operations for the six months ended June 30, 2017 and 2016 are:



(In millions) Six Months Ended June 30, 2017	Customer Sales		Intersegment Sales			Net Sales			Earnings (loss) from investees			Earnings (loss) Before Interest and Income Taxes
Flat-Rolled	$	4,016	$	113		$	4,129		$	17		$	128
USSE	1,413		24			1,437			—			142
Tubular	405		1			406			3			(86		)
Total reportable segments	5,834		138			5,972			20			184
Other Businesses	35		60			95			—			22
Reconciling Items and Eliminations	—		(198		)	(198		)				9
Total	$	5,869	$	—		$	5,869		$	20		$	215

Six Months Ended June 30, 2016
Flat-Rolled	$	3,657	$	16		$	3,673		$	71		$	(182	)
USSE	1,041		2			1,043			—			41
Tubular	190		1			191			4			(142		)
Total reportable segments	4,888		19			4,907			75			(283		)
Other Businesses	37		53			90			(2		)	24
Reconciling Items and Eliminations	—		(72		)	(72		)	—			26
Total	$	4,925	$	—		$	4,925		$	73		$	(233	)

The following is a schedule of reconciling items to Earnings (Loss) Before Interest and Income Taxes:



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2017			2016		2017			2016
Items not allocated to segments:
Postretirement benefit (expense) income^(a)	$	(12	)	$	12	$	(28	)	$	28
Other items not allocated to segments:
Loss on shutdown of certain tubular assets^(b)	—			—		(35		)	—
Gain associated with retained interest in U. S. Steel Canada Inc. (Note 21)	72			—		72			—
Restructuring and other charges and adjustments^(c)	—			23		—			(2		)
Total other items not allocated to segments	72			23		37			(2		)
Total reconciling items	$	60		$	35	$	9		$	26

^(a) Consists of the net periodic benefit cost elements, other than service cost and amortization of prior service cost for active employees, associated with our defined pension, retiree health care and life insurance benefit plans.

^(b) Included in Restructuring and other charges on the Consolidated Statement of Operations. See Note 19 to the Consolidated Financial Statements.

^(c) For the three and six months ended June 30, 2016, approximately $(17) million and $(2) million is included in Cost of sales, respectively and approximately $(6) million and $4 million is included in the Restructuring and other charges in the Consolidated Statement of Operations, respectively. See Note 19 to the Consolidated Financial Statements.

-9-

5. Intangible Assets

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



		As of June 30, 2017						As of December 31, 2016
(In millions)	Useful Lives	Gross Carrying Amount		Accumulated Amortization		Net Amount		Gross Carrying Amount		Accumulated Amortization		Net Amount
Customer relationships	12 Years	$	132	$	62	$	70	$	132	$	59	$	73
Patents	2-10 Years	22		3		19		22		2		20
Other	5-10 Years	14		7		7		14		7		7
Total amortizable intangible assets		$	168	$	72	$	96	$	168	$	68	$	100

The carrying amount of acquired water rights with indefinite lives as of June 30, 2017 and December 31, 2016 totaled $75 million. The research and development activities of the Company's acquired indefinite lived in-process research and development patents was completed during the fourth quarter of 2016 and are now being amortized over their useful lives of approximately 10 years. The indefinite lived intangible assets are tested for impairment annually in the third quarter, or whenever events or circumstances indicate the carrying value may not be recoverable.

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

Amortization expense was $2 million in the three months ended June 30, 2017 and $2 million in the three months ended June 30, 2016. Amortization expense was $4 million in the six months ended June 30, 2017 and $4 million in the six months ended June 30, 2016. The estimated future amortization expense of identifiable intangible assets during the next five years is $4 million for the remaining portion of 2017 and $9 million each year from 2018 to 2021.

-10-

6. Pensions and Other Benefits

The following table reflects the components of net periodic benefit cost (income) for the three months ended June 30, 2017 and 2016:



	Pension Benefits						Other Benefits
(In millions)	2017			2016			2017			2016
Service cost	$	12		$	13		$	5		$	5
Interest cost	59			65			24			24
Expected return on plan assets	(97		)	(105		)	(17		)	(38		)
Amortization of prior service cost	—			3			7			7
Amortization of actuarial net loss	37			32			1			1
Net periodic benefit cost (income), excluding below	11			8			20			(1		)
Multiemployer plans	14			15			—			—
Settlement, termination and curtailment losses	—			3			—			—
Net periodic benefit cost (income)	$	25		$	26		$	20		$	(1	)

The following table reflects the components of net periodic benefit cost (income) for the six months ended June 30, 2017 and 2016:



	Pension Benefits						Other Benefits
(In millions)	2017			2016			2017			2016
Service cost	$	24		$	26		$	9		$	10
Interest cost	118			130			47			49
Expected return on plan assets	(194		)	(210		)	(33		)	(75		)
Amortization of prior service cost	—			6			14			13
Amortization of actuarial net loss	74			64			2			1
Net periodic benefit cost (income), excluding below	22			16			39			(2		)
Multiemployer plans	29			32			—			—
Settlement, termination and curtailment losses	4			3			—			—
Net periodic benefit cost (income)	$	55		$	51		$	39		$	(2	)

Settlements

During the first six months of 2017 and 2016, there were settlement charges of $4 million and $3 million, respectively, incurred for the non-qualified pension plan due to lump sum payments for certain individuals.

Employer Contributions

During the first six months of 2017, U. S. Steel made cash payments of $30 million to the Steelworkers’ Pension Trust and $7 million of pension payments not funded by trusts.

During the first six months of 2017, cash payments of $27 million were made for other postretirement benefit payments not funded by trusts.

Company contributions to defined contribution plans totaled $10 million and $11 million in the three months ended June 30, 2017 and 2016, respectively. Company contributions to defined contribution plans totaled $19 million and $22 million for the six months ended June 30, 2017 and 2016, respectively.

-11-

Non-retirement postemployment benefits

U. S. Steel recorded a favorable adjustment associated with a change in estimate that resulted in a benefit of approximately $1 million for both of the three and six month periods ended June 30, 2017, compared to a favorable adjustment of approximately $17 million and $2 million for the three and six months ended June 30, 2016, respectively, related to employee costs for supplemental unemployment benefits and the continuation of health care benefits and life insurance coverage for employees associated with the temporary idling of certain facilities and reduced production at others. Payments for these benefits during the three and six months ended June 30, 2017 were $5 million and $13 million, respectively. Payments for these benefits during the three and six months ended June 30, 2016 were $21 million and $40 million, respectively.

7. Net Interest and Other Financial Costs

Net interest and other financial costs includes interest expense (net of capitalized interest), interest income, financing costs, derivatives gains and losses and foreign currency remeasurement gains and losses. Foreign currency gains and losses are primarily a result of foreign currency denominated assets and liabilities that require remeasurement and the impacts of euro-U.S. dollar derivatives activity. During the three months ended June 30, 2017 and 2016, net foreign currency losses of $11 million and gains of $6 million respectively, were recorded in other financial costs. During the six months ended June 30, 2017 and 2016, net foreign currency losses of $16 million and $2 million respectively, were recorded in other financial costs. Additionally, during the three and six months ended June 30, 2016, a net loss on debt extinguishment was recognized of $24 million and $22 million, respectively.

See Note 12 for additional information on U. S. Steel’s use of derivatives to mitigate its foreign currency exchange rate exposure. See Note 13 for further details on U. S. Steel's redemption of its senior debt.

8. 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 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, 2016 and the 2017 Proxy Statement. 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 June 30, 2017, there were 6,196,234 shares available for future grants under the Omnibus Plan.

Recent grants of stock-based compensation consist of stock options, restricted stock units, and total shareholder return (TSR) 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 are issued from treasury stock. The following table is a general summary of the awards made under the 2005 Plan and the Omnibus Plan during the first six months of 2017 and 2016.



	2017			2016
Grant Details	Shares^(a)	Fair Value^(b)		Shares^(a)	Fair Value^(b)
Stock Options	632,050	$	17.43	1,333,210	$	6.24
Restricted Stock Units	336,120	$	36.59	1,117,495	$	14.27
TSR Performance Awards ^(c)	156,770	$	42.45	308,130	$	10.02

^(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 value of the award.

U. S. Steel recognized pretax stock-based compensation expense in the amount of $5 million in both of the three month periods ended June 30, 2017 and 2016, respectively, and $15 million and $11 million in the first six months of 2017 and 2016, respectively.

-12-

As of June 30, 2017, total future compensation expense related to nonvested stock-based compensation arrangements was $30 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 and the assumptions listed below. The stock options generally vest ratably over three years and have a term of ten years.



Black-Scholes Assumptions	2017 Grants			2016 Grants
Grant date price per share of option award	$	36.53		$	14.78
Exercise price per share of option award	$	36.53		$	14.78
Expected annual dividends per share, at grant date	$	0.20		$	0.20
Expected life in years	5.0			5.0
Expected volatility	57		%	53		%
Risk-free interest rate	1.97		%	1.46		%
Grant date fair value per share of unvested option awards as calculated from above	$	17.43		$	6.24

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. The fair value is the market price of the underlying common stock on the date of the grant. Restricted stock units granted in connection with new-hire or retention grants generally cliff vest three years from the date of grant.

TSR performance awards generally vest at the end of a three-year performance period and the value of the award is based upon 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. The value of the performance awards is between zero and 200 percent of the target award. The fair value of the TSR performance awards is calculated using a Monte-Carlo simulation.

9. Income Taxes

Tax provision

For the six months ended June 30, 2017 and 2016, we recorded a tax provision of $3 million on our pretax earnings of $84 million and a tax provision of $7 million on our pretax loss of $379 million, respectively. Included in the tax provision in the first six months of 2017 is a benefit of $13 million related to the carryback of certain losses to prior years. Due to the full valuation allowance on our domestic deferred tax assets, the tax provision does not reflect any benefit for domestic pretax losses, if any.

The tax provision for the first six months of 2017 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 2017 pretax results for U.S. and foreign income or loss vary from estimates applied herein, the actual tax provision or benefit recognized in 2017 could be materially different from the forecasted amount used to estimate the tax provision for the six months ended June 30, 2017.

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 a deferred tax asset may not be realized.

-13-

At June 30, 2017, 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 assets may not be realized.

U. S. Steel will continue to monitor the realizability of its deferred tax assets on a quarterly basis. In the future, if we determine that 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 June 30, 2017 and December 31, 2016, the total amount of gross unrecognized tax benefits was $72 million. The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $10 million as of June 30, 2017 and $9 million as of December 31, 2016.

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 June 30, 2017 and December 31, 2016, U. S. Steel had accrued liabilities of $5 million and $4 million, respectively, for interest and penalties related to uncertain tax positions.

10. 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.

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



	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in millions, except per share amounts)	2017		2016			2017		2016
Earnings (loss) attributable to United States Steel Corporation stockholders	$	261	$	(46	)	$	81	$	(386	)
Weighted-average shares outstanding (in thousands):
Basic	174,797		146,582			174,521		146,492
Effect of stock options, restricted stock units and performance awards	1,231		—			1,798		—
Adjusted weighted-average shares outstanding, diluted	176,028		146,582			176,319		146,492
Basic earnings (loss) per common share	$	1.49	$	(0.32	)	$	0.46	$	(2.64	)
Diluted earnings (loss) per common share	$	1.48	$	(0.32	)	$	0.46	$	(2.64	)

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 June 30,		Six Months Ended June 30,
(In thousands)	2017	2016	2017	2016
Securities granted under the 2005 Stock Incentive Plan, as amended, and the 2016 Omnibus Incentive Compensation Plan, as amended	3,538	10,126	1,669	10,126

Dividends Paid Per Share

The dividend for each of the first and second quarters of 2017 and 2016 was five cents per common share.

-14-

11. 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 method of inventory costing in Europe. At June 30, 2017 and December 31, 2016, the LIFO method accounted for 74 percent and 75 percent of total inventory values, respectively.



(In millions)	June 30, 2017		December 31, 2016
Raw materials	$	499	$	449
Semi-finished products	789		686
Finished products	388		375
Supplies and sundry items	51		63
Total	$	1,727	$	1,573

Current acquisition costs were estimated to exceed the above inventory values by $771 million and $489 million at June 30, 2017 and December 31, 2016, respectively. As a result of the liquidation of LIFO inventories, cost of sales decreased and earnings (loss) before interest and income taxes increased by $7 million and $1 million for the three and six months ended June 30, 2017, respectively. Cost of sales increased and earnings (loss) before interest and income taxes decreased by $29 million and $75 million for the three and six months ended June 30, 2016, respectively, as a result of liquidation of LIFO inventories.

Inventory includes $45 million and $54 million of property held for residential or commercial development as of June 30, 2017 and December 31, 2016, respectively.

12. Derivative Instruments

U. S. Steel is exposed to foreign currency exchange rate risks as a result of our European operations. USSE’s revenues are primarily in euros and costs are primarily in U.S. dollars and euros. In addition, cash requirements may be funded by intercompany loans, which may create intercompany monetary assets and liabilities in currencies other than the functional currency of the entities involved and affect income when remeasured at the end of each period.

U. S. Steel uses euro forward sales contracts 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 euro forward sales contracts as hedges. Therefore, changes in their fair value are recognized immediately in the Consolidated Statements of Operations.

As of June 30, 2017, U. S. Steel held euro forward sales contracts with a total notional value of approximately $216 million. We mitigate the risk of concentration of counterparty credit risk by purchasing our forward sales contracts from several counterparties.

Additionally, U. S. Steel uses fixed-price forward physical purchase contracts to partially manage our exposure to price risk related to the purchases of natural gas and certain nonferrous metals used in the production process. During 2017 and 2016, the forward physical purchase contracts for natural gas and nonferrous metals qualified for the normal purchases and normal sales exemption described in ASC Topic 815 and were not subject to mark-to-market accounting.

The following summarizes the location and amounts of the fair values and gains or losses related to derivatives included in U. S. Steel's consolidated financial statements as of June 30, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and 2016:

-15-



		Fair Value		Fair Value
(In millions)	Balance Sheet Location	June 30, 2017		December 31, 2016
Foreign exchange forward contracts	Accounts receivable	$	—	$	9
Foreign exchange forward contracts	Accounts payable	$	9	$	—



(In millions)	Statement of Operations Location	Amount of Gain (Loss)			Amount of Gain (Loss)
(In millions)	Statement of Operations Location	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
Foreign exchange forward contracts	Other financial income/ costs	$	(11	)	$	(13	)



(In millions)	Statement of Operations Location	Amount of (Loss)			Amount of Gain
(In millions)	Statement of Operations Location	Three Months Ended June 30, 2016			Six Months Ended June 30, 2016
Foreign exchange forward contracts	Other financial income/ costs	$	(6	)	$	4

In accordance with the guidance found in ASC Topic 820 on fair value measurements and disclosures, the fair value of our euro forward sales contracts is 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.

13. Debt



(In millions)	Interest Rates %	Maturity	June 30, 2017		December 31, 2016
2037 Senior Notes	6.65	2037	$	350	$	350
2022 Senior Notes	7.50	2022	400		400
2021 Senior Secured Notes	8.375	2021	980		980
2021 Senior Notes	6.875	2021	200		200
2020 Senior Notes	7.375	2020	432		432
2018 Senior Notes	7.00	2018	161		161
Environmental Revenue Bonds	5.50 - 6.88	2017 - 2042	411		447
Recovery Zone Facility Bonds	6.75	2040	—		70
Fairfield Caster Lease		2022	26		28
Other capital leases and all other obligations		2019	1		1
Third Amended and Restated Credit Agreement	Variable	2020	—		—
USSK Revolver	Variable	2020	—		—
USSK credit facilities	Variable	2017 - 2018	—		—
Total Debt			2,961		3,069
Less unamortized discount and debt issuance costs			34		38
Less short-term debt and long-term debt due within one year			175		50
Long-term debt			$	2,752	$	2,981

-16-

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, 2016.

Redemption of Recovery Zone Facility Bonds

On March 10, 2017, U. S. Steel announced the permanent shutdown of the No. 6 Quench & Temper Mill at Lorain Tubular Operations in Lorain, Ohio. Under the terms of the Trust Indenture dated as of December 1, 2010, between the Lorain County Port Authority and The Bank of New York Mellon Trust Company, N.A., as Trustee (the Indenture), this action and our decision to relocate the Lorain No. 6 Quench & Temper equipment to one of several other sites under consideration to optimize our operations, triggered an Extraordinary Mandatory Redemption of the Lorain County Port Authority Recovery Zone Facility Revenue Bonds (the Recovery Zone Bonds) and accordingly required U. S. Steel to redeem the Recovery Zone Bonds and repay in full the principal amount plus accrued interest. In accordance with the terms of the Indenture, U. S. Steel paid in full all amounts due under the Indenture, comprised of $70 million principal and accrued interest of approximately $2 million, on April 27, 2017.

Third Amended and Restated Credit Agreement

As of June 30, 2017, there were no amounts drawn on the $1.5 billion credit facility agreement (Third Amended and Restated Credit Agreement). However, since the value of our inventory and trade accounts receivable less specified reserves calculated in accordance with the Third Amended and Restated Credit Agreement do not support the full amount of the facility at June 30, 2017, the amount available to the Company under this facility was reduced by $4 million to $1,496 million. Additionally, 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 Third Amended and Restated Credit 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 June 30, 2017, we 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 Third Amended and Restated Credit 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 Third Amended and Restated Credit Agreement expires in July 2020. 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 Third Amended and Restated Credit Agreement. Borrowings are secured by liens on certain domestic inventory and trade accounts receivable.

The Third Amended and Restated Credit Agreement permits incurrence of additional secured debt up to 15% of the Company's Consolidated Net Tangible Assets.

U. S. Steel Košice (USSK) revolver and credit facilities

At June 30, 2017, USSK had no borrowings under its €200 million (approximately $228 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 June 30, 2017, USSK had full availability under the USSK Credit Agreement. The USSK Credit Agreement expires in July 2020. The USSK Credit Agreement permits one additional one-year extension to the final maturity date at the mutual consent of USSK and its lenders.

At June 30, 2017, USSK had no borrowings under its €40 million and €10 million unsecured credit facilities (collectively approximately $57 million) and the availability was approximately $55 million due to approximately $2 million of customs and other guarantees outstanding. On November 2, 2016, USSK entered into an amendment of its €10 million unsecured credit agreement to extend the agreement's final maturity date from December 2016 to December 2017. The amendment also permits up to two additional one-year extensions 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.

-17-

Change in control event under various financing agreements

If there is a change in control of U. S. Steel, the following may occur: (a) debt obligations totaling $2,523 million as of June 30, 2017 (including the Senior Notes and the Senior Secured Notes) may be declared due and payable; (b) the Third Amended and Restated Credit Agreement and USSK's €200 million Revolving Credit Agreement may be terminated and any amounts outstanding declared due and payable; and (c) U. S. Steel may be required to either repurchase the leased Fairfield Works slab caster for $27 million or provide a letter of credit to secure the remaining obligation.

14. Asset Retirement Obligations

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



(In millions)	June 30, 2017			December 31, 2016
Balance at beginning of year	$	79		$	89
Additional obligations incurred	—			2
Obligations settled	(2		)	(15		)
Change in estimate of obligations	(6		)	—
Foreign currency translation effects	1			—
Accretion expense	1			3
Balance at end of period	$	73		$	79

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.

15. 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 12 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 assets and liabilities that were not carried at fair value at June 30, 2017 and December 31, 2016.



	June 30, 2017				December 31, 2016
(In millions)	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Financial liabilities:
Long-term debt ^(a)	$	3,052	$	2,927	$	3,139	$	3,002

(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 20.

-18-

16. Statement of Changes in Stockholders’ Equity

The following table reflects the first six months of 2017 and 2016 reconciliation of the carrying amount of total equity, equity attributable to U. S. Steel and equity attributable to noncontrolling interests:



Six Months Ended June 30, 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 earnings	81			81
Other comprehensive income, net of tax:
Pension and other benefit adjustments	92						92
Currency translation adjustment	105						105
Employee stock plans	19											86			(67		)
Dividends paid on common stock	(18		)												(18		)
Other	1			4			(3		)
Balance at June 30, 2017	$	2,555		$	(165	)	$	(1,303	)	$	176	$	(96	)	$	3,942		$	1



Six Months Ended June 30, 2016 (In millions)	Total			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive (Loss) Income			Common Stock		Treasury Stock			Paid-in Capital			Non- Controlling Interest
Balance at beginning of year	$	2,437		$	190		$	(1,169	)	$	151	$	(339	)	$	3,603		$	1
Comprehensive income (loss):
Net loss	(386		)	(386		)
Other comprehensive income (loss), net of tax:
Pension and other benefit adjustments	(182		)				(182		)
Currency translation adjustment	31						31
Employee stock plans	9											42			(33		)
Dividends paid on common stock	(15		)												(15		)
Other	20			(1		)	21
Balance at June 30, 2016	$	1,914		$	(197	)	$	(1,299	)	$	151	$	(297	)	$	3,555		$	1

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17. Reclassifications from Accumulated Other Comprehensive Income (AOCI)



(In millions) ^(a)	Pension and Other Benefit Items				Foreign Currency Items		Other			Total
Balance at December 31, 2016	$	(1,771	)		$	274	$	—		$	(1,497	)
Other comprehensive income before reclassifications	186				105		(1		)	290
Amounts reclassified from AOCI	(94		)	^(b)	—		(2		)	(96		)
Net current-period other comprehensive income	92				105		(3		)	194
Balance at June 30, 2017	$	(1,679	)		$	379	$	(3	)	$	(1,303	)

(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 June 30,						Six Months Ended June 30,
(In millions)^(a)	Details about AOCI components	2017			2016			2017			2016
	Amortization of pension and other benefit items
	Prior service costs ^(b)	$	(7	)	$	(10	)	$	(14	)	$	(19	)
	Actuarial losses ^(b)	(38		)	(33		)	(76		)	(65		)
	Settlement, termination and curtailment losses ^(b)	—			(3		)	(4		)	(3		)
	Total before tax	(45		)	(46		)	(94		)	(87		)
	Tax benefit	—			—			—			—
	Net of tax ^(c)	$	(45	)	$	(46	)	$	(94	)	$	(87	)

(a)Amounts in parentheses indicate decreases in AOCI.

(b)These AOCI components are included in the computation of net periodic benefit cost (see Note 6 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.

18. 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. Generally, transactions are conducted under long-term market-based contractual arrangements. Related party sales and service transactions were $357 million and $264 million for the three months ended June 30, 2017 and 2016, respectively and $670 million and $579 million for the six months ended June 30, 2017 and 2016, respectively.

Purchases from related parties for outside processing services provided by equity investees and USSC after the CCAA filing on September 16, 2014 amounted to $41 million and $24 million for the three months ended June 30, 2017 and 2016, respectively and $55 million and $43 million for the six months ended June 30, 2017 and 2016, respectively. Purchases of iron ore pellets from related parties amounted to $44 million and $42 million for the three months ended June 30, 2017 and 2016, respectively and $80 million and $88 million for the six months ended June 30, 2017 and 2016, respectively.

Accounts payable to related parties include balances due to PRO-TEC Coating Company (PRO-TEC) of $72 million and $63 million at June 30, 2017 and December 31, 2016, respectively for invoicing and receivables collection services provided by U. S. Steel. 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, including USSC after the CCAA filing on September 16, 2014, totaled $5 million and $3 million at June 30, 2017 and December 31, 2016, respectively.

As a result of the completion of the restructuring and disposition of U. S. Steel Canada Inc. on June 30, 2017, subsequent transactions between the Company and U. S. Steel Canada Inc. will no longer be considered

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related party transactions and will be accounted for and recognized as third-party transactions. See Note 21 for further details.

19. Restructuring and Other Charges

During the six months ended June 30, 2017, the Company recorded a net restructuring charge of $32 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 $3 million primarily associated with a change in estimate for previously recorded costs for environmental obligations and Company-wide headcount reductions. Cash payments were made related to severance and exit costs of $17 million.

During the three months ended June 30, 2016, the Company recorded a net favorable adjustment of $6 million primarily associated with a change in estimate for headcount reductions across the enterprise, including within our Flat-Rolled, Tubular and USSE segments. This change in estimate includes adjustments for costs for supplemental unemployment and severance benefits as well as the continuation of health care benefits.

During the six months ended June 30, 2016, the Company recorded a net charge of $4 million associated with Company-wide headcount reductions, including within our Flat-Rolled, Tubular and USSE segments. This charge includes costs for supplemental unemployment and severance benefits as well as the continuation of health care benefits.

Charges for restructuring and ongoing cost reduction initiatives are recorded in the period the Company 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 six months ended June 30, 2017 were as follows:



	Employee Related			Exit			Non-cash
(in millions)	Costs			Costs			Charges			Total
Balance at December 31, 2016	$	14		$	60		$	—		$	74
Additional charges	1			—			35			36
Cash payments/utilization	(6		)	(11		)	(35		)	(52		)
Other adjustments and reclassifications	(2		)	(2		)	—			(4		)
Balance at June 30, 2017	$	7		$	47		$	—		$	54

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



(in millions)	June 30, 2017		December 31, 2016
Accounts payable	$	38	$	50
Payroll and benefits payable	4		11
Employee Benefits	1		1
Deferred credits and other noncurrent liabilities	11		12
Total	$	54	$	74

20. 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

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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 determinable.

Asbestos matters – As of June 30, 2017, U. S. Steel was a defendant in approxi