X 2013.6.30 10Q


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, 2013
Or
 
[   ]
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. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  P 
 
Accelerated filer     
 
Non-accelerated filer     
  
Smaller reporting company     
 
 
 
 
(Do not check if a smaller reporting company)
  
 
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 25, 2013 – 144,657,396 shares



INDEX

 
Page
PART I – FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
Item 1.
 
Item 4.
 
Item 6.





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)
 
2013
 
2012
 
2013
 
2012
Net sales:
 
 
 
 
 
 
 
 
Net sales
 
$
4,119

 
$
4,695

 
$
8,436

 
$
9,528

Net sales to related parties (Note 19)
 
310

 
322

 
588

 
661

Total
 
4,429

 
5,017

 
9,024

 
10,189

Operating expenses (income):
 
 
 
 
 
 
 
 
Cost of sales (excludes items shown below)
 
4,114

 
4,485

 
8,356

 
9,118

Selling, general and administrative expenses
 
151

 
165

 
296

 
331

Depreciation, depletion and amortization
 
170

 
164

 
341

 
327

Loss (income) from investees
 
3

 
(44
)
 
(5
)
 
(68
)
Net (gain) loss on disposal of assets (Note 4)
 
(1
)
 
—

 
—

 
309

Other (income) expense, net
 
(1
)
 
(6
)
 
5

 
(8
)
Total
 
4,436

 
4,764

 
8,993

 
10,009

(Loss) income from operations
 
(7
)
 
253

 
31

 
180

Interest expense
 
58

 
66

 
143

 
115

Interest income
 
(1
)
 
(1
)
 
(2
)
 
(5
)
Other financial costs
 
11

 
17

 
31

 
22

Net interest and other financial costs (Note 7)
 
68

 
82

 
172

 
132

(Loss) income before income taxes and noncontrolling interests
 
(75
)
 
171

 
(141
)
 
48

Income tax provision (Note 9)
 
3

 
70

 
10

 
166

Net (loss) income
 
(78
)
 
101

 
(151
)
 
(118
)
Less: Net income attributable to noncontrolling interests
 
—

 
—

 
—

 
—

Net (loss) income attributable to United States Steel Corporation
 
$
(78
)
 
$
101

 
$
(151
)
 
$
(118
)
Earnings per common share (Note 11):
 
 
 
 
 
 
 
 
Earnings per share attributable to United States Steel Corporation shareholders:
 
 
 
 
 
 
 
 
-Basic
 
$
(0.54
)
 
$
0.70

 
$
(1.05
)
 
$
(0.82
)
-Diluted
 
$
(0.54
)
 
$
0.62

 
$
(1.05
)
 
$
(0.82
)












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)
 
2013
 
2012
 
2013
 
2012
Net (loss) income
 
$
(78
)
 
$
101

 
$
(151
)
 
$
(118
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Changes in foreign currency translation adjustments
 
19

 
(91
)
 
(18
)
 
16

Changes in pension and other employee benefit accounts
 
69

 
66

 
138

 
136

Total other comprehensive income (loss), net of tax
 
88

 
(25
)
 
120

 
152

Comprehensive income (loss) including noncontrolling interest
 
10

 
76

 
(31
)
 
34

Comprehensive loss attributable to noncontrolling interest
 
—

 
—

 
—

 
—

Comprehensive income (loss) attributable to United States Steel Corporation
 
$
10

 
$
76

 
$
(31
)
 
$
34





































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, 
 2013
 
December 31,  
 2012
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
767

 
$
570

Receivables, less allowance of $54 and $55
 
1,971

 
1,872

Receivables from related parties (Note 19)
 
171

 
218

Inventories (Note 12)
 
2,269

 
2,503

Deferred income tax benefits (Note 9)
 
167

 
171

Other current assets
 
71

 
40

Total current assets
 
5,416

 
5,374

Property, plant and equipment
 
16,902

 
16,906

Less accumulated depreciation and depletion
 
10,746

 
10,498

Total property, plant and equipment, net
 
6,156

 
6,408

Investments and long-term receivables, less allowance of $3 in both periods
 
621

 
609

Intangibles – net (Note 5)
 
277

 
253

Goodwill (Note 5)
 
1,790

 
1,822

Deferred income tax benefits (Note 9)
 
306

 
424

Other noncurrent assets
 
298

 
327

Total assets
 
$
14,864

 
$
15,217

Liabilities
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and other accrued liabilities
 
$
1,650

 
$
1,722

Accounts payable to related parties (Note 19)
 
93

 
78

Bank checks outstanding
 
47

 
15

Payroll and benefits payable
 
950

 
977

Accrued taxes
 
151

 
146

Accrued interest
 
55

 
50

Short-term debt and current maturities of long-term debt (Note 14)
 
322

 
2

Total current liabilities
 
3,268

 
2,990

Long-term debt, less unamortized discount (Note 14)
 
3,611

 
3,936

Employee benefits
 
4,122

 
4,416

Deferred credits and other noncurrent liabilities
 
389

 
397

Total liabilities
 
11,390

 
11,739

Contingencies and commitments (Note 20)
 

 

Stockholders’ Equity (Note 17):
 
 
 
 
Common stock (150,925,911 shares issued) (Note 11)
 
151

 
151

Treasury stock, at cost (6,276,682 and 6,643,553 shares)
 
(482
)
 
(521
)
Additional paid-in capital
 
3,656

 
3,652

Retained earnings
 
3,296

 
3,463

Accumulated other comprehensive loss (Note 18)
 
(3,148
)
 
(3,268
)
Total United States Steel Corporation stockholders’ equity
 
3,473

 
3,477

Noncontrolling interests
 
1

 
1

Total liabilities and stockholders’ equity
 
$
14,864

 
$
15,217



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)
 
2013
 
2012
Increase (decrease) in cash and cash equivalents
 
 
 
 
Operating activities:
 
 
 
 
Net loss
 
$
(151
)
 
$
(118
)
Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
 
341

 
327

Provision for doubtful accounts
 
(1
)
 
(3
)
Pensions and other postretirement benefits
 
10

 
(111
)
Deferred income taxes
 
(2
)
 
107

Net loss on disposal of assets (Note 4)
 
—

 
309

Currency remeasurement loss
 
21

 
6

Distributions received, net of equity investees income
 
4

 
(7
)
Changes in:
 
 
 
 
Current receivables
 
(64
)
 
(159
)
Inventories
 
204

 
252

Current accounts payable and accrued expenses
 
(10
)
 
158

Income taxes receivable/payable
 
(3
)
 
22

Bank checks outstanding
 
32

 
31

All other, net
 
3

 
47

Net cash provided by operating activities
 
384

 
861

Investing activities:
 
 
 
 
Capital expenditures
 
(221
)
 
(397
)
Acquisition of intangible assets (Note 5)
 
(12
)
 
—

Disposal of assets
 
1

 
133

Change in restricted cash, net
 
34

 
10

Investments, net
 
(6
)
 
(1
)
Net cash used in investing activities
 
(204
)
 
(255
)
Financing activities:
 
 
 
 
Revolving credit facilities – borrowings
 
—

 
523

– repayments
 
—

 
(653
)
Receivables Purchase Agreement payments
 
—

 
(380
)
Issuance of long-term debt, net of financing costs
 
576

 
392

Repayment of long-term debt
 
(542
)
 
(315
)
Dividends paid
 
(14
)
 
(14
)
Net cash provided by (used in) financing activities
 
20

 
(447
)
Effect of exchange rate changes on cash
 
(3
)
 
(2
)
Net increase in cash and cash equivalents
 
197

 
157

Cash and cash equivalents at beginning of year
 
570

 
408

Cash and cash equivalents at end of period
 
$
767

 
$
565



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

-4-


Notes to Consolidated Financial Statements (Unaudited)
1.    Basis of Presentation
United States Steel Corporation (U. S. Steel) produces and sells steel mill products, including flat-rolled and tubular products, in North America and Central Europe. Operations in North America also include transportation services (railroad and barge operations) and real estate operations.
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 presentation 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 accounting principles generally accepted in the United States of America for complete financial statements. Additional information is contained in the United States Steel Corporation Annual Report on Form 10-K for the year ended December 31, 2012 which should be read in conjunction with these financial statements.
Reclassifications
Certain reclassifications of prior years’ data have been made to conform to the current year presentation.
2.    New Accounting Standards
On February 5, 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 requires companies to present information about reclassification adjustments from accumulated other comprehensive income, including the amount of the reclassification and the income statement line items affected by the reclassification. The information must be presented in the financial statements in a single note or on the face of the financial statements. ASU 2013-02 is effective for interim and annual periods beginning after December 15, 2012. U. S. Steel adopted ASU 2013-02 effective January 1, 2013 and has provided the required disclosures in Note 18.
On July 18, 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). ASU 2013-11 requires the netting of unrecognized tax benefits (UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. UTBs are required to be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 is effective for interim and annual periods beginning after December 15, 2013. U. S. Steel early adopted ASU 2013-11 in the second quarter of 2013 on a prospective basis which resulted in a reduction of approximately $35 million in the presentation of our noncurrent deferred tax assets and unrecognized tax benefits (within deferred credits and other noncurrent liabilities).
3.    Segment Information
U. S. Steel has three reportable segments: Flat-rolled Products (Flat-rolled), U. S. Steel Europe (USSE), and Tubular Products (Tubular). The results of several other operating segments that do not constitute reportable segments are combined and disclosed in the Other Businesses category. Prior to January 31, 2012, our USSE reportable segment consisted of U. S. Steel Košice (USSK) and U. S. Steel Serbia (USSS). On January 31, 2012, U. S. Steel sold USSS (see Note 4). The USSE segment information subsequent to January 31, 2012 reflects the results of USSK only.
The chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being income (loss) from operations. Income (loss) from operations 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 accounting principles applied at the operating segment level in determining income (loss) from operations are generally the same as those applied at the consolidated financial statement level. The transfer value for

-5-


steel rounds from Flat-rolled to Tubular is based on cost. All other 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 June 30, 2013 and 2012 are:
(In millions)                                            Second Quarter 2013
 
Customer
Sales
 
Intersegment
Sales
 
Net
Sales
 
Income
(loss)
from
investees
 
Income
(loss)
from
operations
Flat-rolled
 
$
2,876

 
$
326

 
$
3,202

 
$
3

 
$
(51
)
USSE
 
778

 
1

 
779

 
—

 
10

Tubular
 
709

 
1

 
710

 
(5
)
 
45

Total reportable segments
 
4,363

 
328

 
4,691

 
(2
)
 
4

Other Businesses
 
66

 
35

 
101

 
(1
)
 
43

Reconciling Items and Eliminations
 
—

 
(363
)
 
(363
)
 
—

 
(54
)
Total
 
$
4,429

 
$
—

 
$
4,429

 
$
(3
)
 
$
(7
)

 
 
 
 
 
 
 
 
 
 
Second Quarter 2012
 

 

 

 

 

Flat-rolled
 
$
3,356

 
$
539

 
$
3,895

 
$
45

 
$
177

USSE
 
763

 
26

 
789

 
—

 
34

Tubular
 
871

 
2

 
873

 
—

 
103

Total reportable segments
 
4,990

 
567

 
5,557

 
45

 
314

Other Businesses
 
27

 
36

 
63

 
(1
)
 
16

Reconciling Items and Eliminations
 
—

 
(603
)
 
(603
)
 
—

 
(77
)
Total
 
$
5,017

 
$
—

 
$
5,017

 
$
44

 
$
253

The results of segment operations for the six months ended June 30, 2013 and 2012 are:
(In millions)                                         First Six Months 2013
 
Customer
Sales
 
Intersegment
Sales
 
Net
Sales
 
Income
(loss)
from
investees
 
Income
(loss)
from
operations
Flat-rolled
 
$
5,979

 
$
661

 
$
6,640

 
$
13

 
$
(64
)
USSE
 
1,561

 
2

 
1,563

 
—

 
48

Tubular
 
1,395

 
2

 
1,397

 
(6
)
 
109

Total reportable segments
 
8,935

 
665

 
9,600

 
7

 
93

Other Businesses
 
89

 
69

 
158

 
(2
)
 
48

Reconciling Items and Eliminations
 
—

 
(734
)
 
(734
)
 
—

 
(110
)
Total
 
$
9,024

 
$
—

 
$
9,024

 
$
5

 
$
31


 
 
 
 
 
 
 
 
 
 
First Six Months 2012
 

 

 

 

 

Flat-rolled
 
$
6,656

 
$
990

 
$
7,646

 
$
73

 
$
360

USSE
 
1,578

 
75

 
1,653

 
—

 
—

Tubular
 
1,817

 
3

 
1,820

 
(3
)
 
232

Total reportable segments
 
10,051

 
1,068

 
11,119

 
70

 
592

Other Businesses
 
138

 
92

 
230

 
(2
)
 
33

Reconciling Items and Eliminations
 
—

 
(1,160
)
 
(1,160
)
 
—

 
(445
)
Total
 
$
10,189

 
$
—

 
$
10,189

 
$
68

 
$
180


-6-


The following is a schedule of reconciling items to income (loss) from operations:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
 
2013
 
2012
 
2013
 
2012
Items not allocated to segments:
 

 

 

 

Postretirement benefit expense (a)
 
$
(54
)
 
$
(77
)
 
$
(110
)
 
$
(154
)
Other items not allocated to segments:
 

 

 

 

Net loss on the sale of assets (Note 4)
 
$
—

 
$
—

 
$
—

 
$
(310
)
Property tax settlements
 
—

 
—

 
—

 
19

Total other items not allocated to segments
 
—

 
—

 
—

 
(291
)
Total reconciling items
 
$
(54
)
 
$
(77
)
 
$
(110
)
 
$
(445
)
(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 pension, retiree health care and life insurance benefit plans.
4.    Dispositions
The net loss on disposal of assets for the first six months of 2012 primarily relates to the following dispositions:
U. S. Steel Serbia
On January 31, 2012, U. S. Steel sold USSS to the Republic of Serbia for a purchase price of one dollar. In addition, USSK received a $40 million payment for certain intercompany balances owed by USSS for raw materials and support services. As a result of this transaction, U. S. Steel recorded a total non-cash pretax charge of $399 million.
Birmingham Southern Railroad Company
On February 1, 2012, U. S. Steel completed the sale of the majority of the operating assets of Birmingham Southern Railroad Company and the Port Birmingham Terminal. As a result of the transaction, U. S. Steel recorded a pretax gain of $89 million.
5.     Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by segment for the six months ended June 30, 2013 are as follows:
 
 
Flat-rolled
Segment
 
USSE
Segment
 
Tubular
Segment
 
Total
Balance at December 31, 2012
 
$
984

 
$
4

 
$
834

 
$
1,822

Goodwill from acquisitions
 
—

 
—

 
3

 
$
3

Currency translation
 
(35
)
 
—

 
—

 
(35
)
Balance at June 30, 2013
 
$
949

 
$
4

 
$
837

 
$
1,790

Goodwill represents the excess of the cost over the fair value of acquired identifiable tangible and intangible assets and liabilities assumed from businesses acquired. We have two reporting units that include nearly all of our goodwill: our Flat-rolled reporting unit and our Texas Operations reporting unit, which is part of our Tubular operating segment.
Goodwill is tested for impairment at the reporting unit level annually in the third quarter and whenever events or circumstances indicate that the carrying value may not be recoverable. U. S. Steel completed its annual goodwill impairment evaluation, by performing a qualitative assessment, during the third quarter of 2012 and determined, on the basis of a number of economic, cost, market and other qualitative factors, that there was no indication of goodwill impairment for any of the reporting units. Goodwill impairment tests in prior years also indicated that goodwill was not impaired for any reporting unit.

-7-


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

 
As of June 30, 2013
 
As of December 31, 2012
(In millions)
 
Useful
Lives
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amount
Customer relationships
 
22-23 Years
 
$
216

 
$
58

 
$
158

 
$
221

 
$
54

 
$
167

Other
 
2-20 Years
 
23

 
12

 
11

 
22

 
11

 
11

Total amortizable intangible assets
 

 
$
239

 
$
70

 
$
169

 
$
243

 
$
65

 
$
178

The carrying amount of acquired water rights with indefinite lives as of June 30, 2013 and December 31, 2012 totaled $75 million. The water rights are tested for impairment annually in the third quarter. U. S. Steel completed its annual evaluation during the third quarter of 2012 by performing a qualitative assessment which indicated that the water rights were not impaired. Prior year impairment tests also indicated that the water rights were not impaired.
During the second quarter of 2013, U. S. Steel acquired indefinite-lived intangible assets for $12 million and entered into an agreement to make future payments contingent upon certain factors. As of June 30, 2013, U. S. Steel recorded a liability of $24 million to reflect the fair value of the contingent consideration. The aggregate purchase price was $36 million, and U. S. Steel allocated $33 million to indefinite-lived intangible assets, based upon their estimated fair value, and the remaining $3 million to goodwill. The liability for contingent consideration will be reassessed each quarter. The maximum potential liability for contingent consideration is $53 million.
Amortization expense was $2 million in both the three months ended June 30, 2013 and 2012 and was $5 million in both the six months ended June 30, 2013 and 2012. The estimated future amortization expense of identifiable intangible assets during the next five years is $6 million for the remaining portion of 2013 and $11 million each year from 2014 to 2017.

-8-


6.    Pensions and Other Benefits
The following table reflects the components of net periodic benefit cost for the three months ended June 30, 2013 and 2012:
 
 
Pension
Benefits
 
Other
Benefits
(In millions)
 
2013
 
2012
 
2013
 
2012
Service cost
 
$
32

 
$
30

 
$
7

 
$
8

Interest cost
 
102

 
117

 
36

 
46

Expected return on plan assets
 
(153
)
 
(153
)
 
(32
)
 
(29
)
Amortization of prior service cost
 
6

 
4

 
(4
)
 
5

Amortization of actuarial net loss
 
91

 
88

 
7

 
—

Net periodic benefit cost, excluding below
 
78

 
86

 
14

 
30

Multiemployer plans
 
18

 
17

 
—

 
—

Net periodic benefit cost
 
$
96

 
$
103

 
$
14

 
$
30

The following table reflects the components of net periodic benefit cost for the six months ended June 30, 2013 and 2012:
 
 
Pension
Benefits
 
Other
Benefits
(In millions)
 
2013
 
2012
 
2013
 
2012
Service cost
 
$
64

 
$
59

 
$
14

 
$
15

Interest cost
 
203

 
233

 
71

 
91

Expected return on plan assets
 
(307
)
 
(306
)
 
(65
)
 
(57
)
Amortization of prior service cost
 
12

 
9

 
(7
)
 
11

Amortization of actuarial net loss
 
183

 
176

 
15

 
—

Net periodic benefit cost, excluding below
 
155

 
171

 
28

 
60

Multiemployer plans
 
36

 
34

 
—

 
—

Settlement, termination and curtailment gains
 
—

 
(2
)
 
—

 
—

Net periodic benefit cost
 
$
191

 
$
203

 
$
28

 
$
60

Employer Contributions
During the first six months of 2013, U. S. Steel made $45 million in required cash contributions to the USSC pension plans, cash payments of $36 million to the Steelworkers’ Pension Trust and $4 million of pension payments not funded by trusts.
During the first six months of 2013, cash payments of $113 million were made for other postretirement benefit payments not funded by trusts. In addition, U. S. Steel made a required contribution of $10 million in the first six months of 2013 to our trust for represented retiree health care and life insurance benefits.
Company contributions to defined contribution plans totaled $11 million in both the three months ended June 30, 2013 and 2012. Company contributions to defined contribution plans totaled $22 million and $21 million for the six months ended June 30, 2013 and 2012, respectively.
            
Pension Funding
In January 2013, U. S. Steel's Board of Directors authorized voluntary contributions to U. S. Steel's trusts for pensions and other benefits of up to $300 million through the end of 2014. U. S. Steel made voluntary contributions to our main U.S. defined benefit plan of $140 million in 2012. U. S. Steel will likely make voluntary contributions of similar amounts in future periods in order to mitigate potentially larger mandatory contributions in later years. Assuming future asset performance consistent with our expected long-term earnings rate assumption of 7.75%, we anticipate that the interest rate formula changes in the pension stabilization legislation enacted in 2012 will allow us to continue to make voluntary contributions of approximately $140 million per year

-9-


through 2015 before we could be required to contribute more than that amount should the current low interest rate environment continue.
7.    Net Interest and Other Financial Costs
Net interest and other financial costs includes interest expense, interest income, financing costs, derivatives gains and losses and foreign currency remeasurement gains and losses. Foreign currency gains and losses are a result of foreign currency denominated assets and liabilities that require remeasurement. During the three months ended June 30, 2013 and 2012, net foreign currency remeasurement losses of $3 million and $10 million, respectively, were recorded in other financial costs. During the six months ended June 30, 2013 and 2012, net foreign currency remeasurement losses of $12 million and $8 million, respectively, were recorded in other financial costs.
For the six months ended June 30, 2013, net interest and other financial costs also includes a charge of $34 million related to repurchases of approximately $542 million aggregate principal amount of our 4.00% Senior Convertible Notes due May 15, 2014 (see Note 14 for further details). For the three and six months ended June 30, 2012, net interest and other financial costs also includes a charge of $18 million associated with the April 2012 redemption of all of our $300 million Senior Notes due June 1, 2013.
See Note 13 for additional information on U. S. Steel’s use of derivatives to mitigate its foreign currency exchange rate exposure.

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 several stock-based employee compensation plans, which are more fully described in Note 12 of the United States Steel Corporation 2012 Annual Report on Form 10-K. An aggregate of 15,450,000 shares of U. S. Steel common stock may be issued under the plans. As of June 30, 2013, 1,662,363 shares are available for future grants.

U. S. Steel recognized pre-tax stock-based compensation cost in the amount of $9 million and $10 million in the three months ended June 30, 2013 and 2012, respectively, and $19 million in both the first six months of 2013 and 2012.

Recent grants of stock-based compensation consist of stock options, restricted stock units and performance awards. Historically, the Committee has granted traditional stock options with an exercise price equal to the stock price on the date of grant. For the May 2013 grant, premium-priced stock options with an exercise price of $25 per share were awarded to executives in lieu of traditional stock options. The following table is a general summary of the awards made under the Plan.

May 2013 Grant
 
May 2012 Grant
Grant Details
Shares (a)
Fair Value (b)
 
Shares (a)
Fair Value (b)
Executive Stock Options
483,900

$
8.50

 
456,070

$
11.95

Non-executive Stock Options
970,640

$
9.70

 
993,310

$
11.95

Restricted Stock Units
863,170

$
18.64

 
867,600

$
22.31

Performance Awards (c)
265,340

$
21.26

 
286,470

$
25.36

(a) The share amounts shown in this table do not reflect an adjustment for estimated forfeitures.
(b) Per share amounts.
(c) The number of Performance Awards shown represents the target value of the award.

As of June 30, 2013, total future compensation cost related to nonvested stock-based compensation arrangements was $53 million, and the weighted average period over which this cost is expected to be recognized is approximately 1.5 years.

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 vest ratably over a three-year service period and have a term of ten years.


-10-


Black-Scholes Assumptions
 
May 2013 Executive Grant
 
May 2013 Non-Executive Grant
 
May 2012 Grant
Grant date price per share of option award
 
$
18.64

 
$
18.64

 
$
22.31

Exercise price per share of option award
 
$
25.00

 
$
18.64

 
$
22.31

Expected annual dividends per share, at grant date
 
$
0.20

 
$
0.20

 
$
0.20

Expected life in years
 
5.0

 
5.0

 
5.0

Expected volatility
 
67
%
 
67
%
 
68
%
Risk-free interest rate
 
1.049
%
 
1.049
%
 
0.8
%
Grant date fair value per share of unvested option awards as calculated from above
 
$
8.50

 
$
9.70

 
$
11.95


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 generally vest ratably over three years. The fair value of the restricted stock units is the market price of the underlying common stock on the date of the grant.

Performance awards vest at the end of a three-year performance period as a function of U. S. Steel's total shareholder return compared to the total shareholder return of a group of peer companies over the three-year performance period. Performance awards can vest at between zero and 200 percent of the target award. The fair value of the performance awards is calculated using a Monte-Carlo simulation.
9.    Income Taxes
Tax provision
For the six months ended June 30, 2013 and 2012, we recorded a tax provision of $10 million on our pretax loss of $141 million and a tax provision of $166 million on our pretax income of $48 million, respectively. The tax provision does not reflect any tax benefit for pretax losses in Canada and Serbia (USSS was sold on January 31, 2012), which are jurisdictions where we have, or had, recorded full valuation allowances on deferred tax assets, and also does not reflect any tax provision or benefit for certain foreign currency remeasurement gains and losses that are not recognized in any tax jurisdiction. In addition, no significant tax benefit was recorded on the $399 million loss on the sale of USSS.
The tax provision for the first six months of 2013 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 2013 pretax results for U.S. and foreign income or loss vary from estimates applied herein, the actual tax provision or benefit recognized in 2013 could be materially different from the forecasted amount used to estimate the tax provision for the six months ended June 30, 2013.
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. The total amount of gross unrecognized tax benefits was $87 million at June 30, 2013 and $85 million at December 31, 2012. The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $68 million and $65 million as of June 30, 2013 and December 31, 2012, respectively.
U. S. Steel records interest related to uncertain tax positions as a part of net interest and other financial costs in the Statement of Operations. Any penalties are recognized as part of selling, general and administrative expenses. As of both June 30, 2013 and December 31, 2012, U. S. Steel had accrued liabilities of $7 million for interest related to uncertain tax positions. U. S. Steel currently does not have a liability for tax penalties.

-11-


It is reasonably expected that during the next 12 months unrecognized tax benefits related to income tax issues will decrease by approximately $10 million.
Deferred taxes
As of June 30, 2013, the net domestic deferred tax asset was $415 million compared to $538 million at December 31, 2012. A substantial amount of U. S. Steel’s domestic deferred tax assets relates to employee benefits that will become deductible for tax purposes over an extended period of time as cash contributions are made to employee benefit plans and retiree benefits are paid in the future. We continue to believe it is more likely than not that the net domestic deferred tax asset will be realized.
As of June 30, 2013, the net foreign deferred tax asset was $58 million, net of established valuation allowances of $1,117 million. At December 31, 2012, the net foreign deferred tax asset was $57 million, net of established valuation allowances of $1,099 million. The net foreign deferred tax asset will fluctuate as the value of the U.S. dollar changes with respect to the euro and the Canadian dollar. At December 31, 2012, a full valuation allowance was recorded for the net Canadian deferred tax asset primarily due to cumulative losses in Canada in recent years.
If evidence changes and it becomes more likely than not that the Company will realize the net Canadian deferred tax asset, the valuation allowance would be partially or fully reversed. Any reversal of this amount would result in a decrease to income tax expense. The Slovak income tax rate increased from 19% to 23% starting in 2013. This change had an insignificant impact on deferred taxes at the end of 2012.

10.    Significant Equity Investments
Summarized unaudited income statement information for our significant equity investments for the six months ended June 30, 2013 and 2012 is reported below (amounts represent 100% of investee financial information):
(In millions)
 
2013
 
2012
Net sales
 
$
1,236

 
$
1,305

Cost of sales
 
937

 
915

Operating income
 
268

 
337

Net income
 
257

 
333

Net income attributable to significant equity investments
 
257

 
333

U. S. Steel’s portion of the equity in net income of the significant equity investments above was $23 million and $73 million for the six months ended June 30, 2013 and 2012, respectively, which is included in the income from investees line on the Consolidated Statement of Operations.
11.    Earnings and Dividends Per Common Share
Earnings Per Share Attributable to United States Steel Corporation Shareholders
Basic earnings per common share is based on the weighted average number of common shares outstanding during the period.
Diluted earnings per common share assumes the exercise of stock options, the vesting of restricted stock units and performance awards and the conversion of convertible notes, provided in each case the effect is dilutive. The “if-converted” method is used to calculate the dilutive effect of the Senior Convertible Notes due in 2014 and the “treasury stock” method is used to calculate the dilutive effect of the Senior Convertible Notes due in 2019 (due to our current intent and policy, among other factors, to settle the principal amount of the 2019 Senior Convertible Notes in cash upon conversion).

-12-


The computations for basic and diluted earnings 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)
 
2013
 
2012
 
2013
 
2012
Net (loss) income attributable to United States Steel
 

 

 

 

Corporation shareholders
 
$
(78
)
 
$
101

 
$
(151
)
 
$
(118
)
Plus income effect of assumed conversion-interest on convertible notes
 
—

 
6

 
—

 
—

Net (loss) income after assumed conversion
 
$
(78
)
 
$
107

 
$
(151
)
 
$
(118
)
Weighted-average shares outstanding (in thousands):
 

 

 

 

Basic
 
144,485

 
144,176

 
144,419

 
144,123

Effect of convertible notes
 
—

 
27,059

 
—

 
—

Effect of stock options, restricted stock units and performance awards
 
—

 
181

 
—

 
—

Adjusted weighted-average shares outstanding, diluted
 
144,485

 
171,416

 
144,419

 
144,123

Basic earnings per common share
 
$
(0.54
)
 
$
0.70

 
$
(1.05
)
 
$
(0.82
)
Diluted earnings per common share
 
$
(0.54
)
 
$
0.62

 
$
(1.05
)
 
$
(0.82
)
The following table summarizes the securities that were antidilutive, and therefore, were not included in the computations of diluted earnings per common share:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2013
 
2012
 
2013
 
2012
Securities granted under the 2005 Stock Incentive Plan
 
7,177
 
4,330

 
7,177
 
5,575
Securities convertible under the Senior Convertible Notes
 
10,058
 
—

 
18,042
(a) 
27,059
Total
 
17,235
 
4,330

 
25,219
 
32,634
(a) On March 27, 2013, we repurchased approximately $542 million aggregate principal amount of our 4% Senior Convertible Notes due in 2014. If the repurchases had occurred on January 1, 2013, the antidilutive securities would be 10,058 for the six months ended June 30, 2013.
Dividends Paid Per Share
The dividend for each of the first and second quarters of 2013 and 2012 was five cents per common share.
12.    Inventories
Inventories are carried at the lower of cost or market. The first-in, first-out method is the predominant method of inventory costing in Europe and Canada. The last-in, first-out (LIFO) method is the predominant method of inventory costing in the United States. At June 30, 2013 and December 31, 2012, the LIFO method accounted for 59 percent and 56 percent of total inventory values, respectively.
(In millions)
 
June 30, 2013
 
December 31, 2012
Raw materials
 
$
860

 
$
945

Semi-finished products
 
820

 
883

Finished products
 
494

 
573

Supplies and sundry items
 
95

 
102

Total
 
$
2,269

 
$
2,503

Current acquisition costs were estimated to exceed the above inventory values by $1.0 billion at both June 30, 2013 and December 31, 2012. The effect of liquidations of LIFO inventories was insignificant in both the three

-13-


and six months ended June 30, 2013. Cost of sales was reduced by $6 million and $11 million in the three and six months ended June 30, 2012, respectively, as a result of liquidation of LIFO inventories.
Inventory includes $86 million of land held for residential or commercial development as of both June 30, 2013 and December 31, 2012.
13.    Derivative Instruments
U. S. Steel is exposed to foreign currency exchange rate risks as a result of our European and Canadian operations. USSE’s revenues are primarily in euros and costs are primarily in U.S. dollars and euros. USSC’s revenues and costs are denominated in both Canadian and U.S. dollars. In addition, foreign cash requirements have been, and in the future, may be funded by intercompany loans, creating intercompany monetary assets and liabilities in currencies other than the functional currency of the entities involved, which can 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 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 results of operations. The gains and losses recognized on these euro forward sales contracts may also partially offset the accounting remeasurement gains and losses recognized on intercompany loans.
As of June 30, 2013, U. S. Steel held euro forward sales contracts with a total notional value of approximately $347 million. We mitigate the risk of concentration of counterparty credit risk by purchasing our forward sales contracts from several counterparties.
Additionally, we routinely enter into 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 2013 and 2012, 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 financial statements as of June 30, 2013 and December 31, 2012 and for the three and six months ended June 30, 2013 and 2012:
 
 
 
 
Fair Value
 
Fair Value
(In millions)
 
Balance Sheet
Location
 
June 30, 2013
 
December 31, 2012
Foreign exchange forward contracts
 
Accounts receivable
 
$
2

 
$
—

Foreign exchange forward contracts
 
Accounts payable
 
$
5

 
$
12

 
 
Statement of
Operations
Location
 
Amount of Gain
(Loss)
 
Amount of Gain
(Loss)
(In millions)
 
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
Foreign exchange forward contracts
 
Other financial
costs
 
$
(7
)
 
$
4

 
 
Statement of
Operations
Location
 
Amount of Gain
(Loss)
 
Amount of Gain
(Loss)
(In millions)
 
 
Three Months Ended June 30, 2012
 
Six Months Ended June 30, 2012
Foreign exchange forward contracts
 
Other financial
costs
 
$
26

 
$
13


-14-


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 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.
14.    Debt
(In millions)
 
Interest
Rates %
 
Maturity
 
June 30, 2013
 
December 31, 2012
2037 Senior Notes
 
6.65
 
2037
 
$
350

 
$
350

2022 Senior Notes
 
7.50
 
2022
 
400

 
400

2021 Senior Notes
 
6.875
 
2021
 
275

 
—

2020 Senior Notes
 
7.375
 
2020
 
600

 
600

2018 Senior Notes
 
7.00
 
2018
 
500

 
500

2017 Senior Notes
 
6.05
 
2017
 
450

 
450

2019 Senior Convertible Notes
 
2.75
 
2019
 
316

 
—

2014 Senior Convertible Notes
 
4.00
 
2014
 
321

 
863

Province Note (C$150 million)
 
1.00
 
2015
 
143

 
151

Environmental Revenue Bonds
 
5.38 - 6.88
 
2015 - 2042
 
549

 
549

Recovery Zone Facility Bonds
 
6.75
 
2040
 
70

 
70

Fairfield Caster Lease
 
 
 
2022
 
35

 
35

Other capital leases and all other obligations
 
 
 
2013 - 2014
 
—

 
1

Amended Credit Agreement
 
Variable
 
2016
 
—

 
—

USSK Revolver
 
Variable
 
2013
 
—

 
—

USSK credit facility
 
Variable
 
2015
 
—

 
—

Total Debt
 
 
 
 
 
4,009

 
3,969

Less Province Note fair value adjustment
 
 
 
 
 
18

 
23

Less unamortized discount
 
 
 
 
 
58

 
8

Less short-term debt and long-term debt due within one year
 
 
 
 
 
322

 
2

Long-term debt
 
 
 
 
 
$
3,611

 
$
3,936

To the extent not otherwise discussed below, information concerning the Senior Notes, the 2014 Senior Convertible Notes and other listed obligations can be found in Note 14 of the audited financial statements in the 2012 Annual Report on Form 10-K.
2021 Senior Notes
On March 26, 2013, U. S. Steel issued $275 million of 6.875% Senior Notes due April 1, 2021 (2021 Senior Notes). U. S. Steel received net proceeds from the offering of $270 million after fees of $5 million related to the underwriting discount and third party expenses. The net proceeds from the issuance of the 2021 Senior Notes, together with the net proceeds of the concurrent 2019 Senior Convertible Notes offering (see below), were used to repurchase a portion of our 4.00% Senior Convertible Notes due May 15, 2014 (the 2014 Senior Convertible Notes). Interest on the notes is payable semi-annually on April 1st and October 1st of each year, commencing on October 1, 2013.

-15-


U. S. Steel may redeem the 2021 Senior Notes, in whole or in part, at our option at any time and from time to time on or after April 1, 2017 at the redemption price for such notes set forth below as a percentage of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, if redeemed during the twelve-month period beginning April 1 of the years indicated below:
Year
Redemption Price
2017
103.438
%
2018
101.719
%
2019 and thereafter
100.000
%
2019 Senior Convertible Notes
On March 26, 2013, U. S. Steel issued $316 million of 2.75% Senior Convertible Notes due April 1, 2019 (the 2019 Senior Convertible Notes). U. S. Steel received net proceeds from the offering of $306 million after fees of $10 million related to the underwriting discount and third party expenses. The net proceeds from the issuance of the 2019 Senior Convertible Notes, together with the net proceeds of the concurrent 2021 Senior Notes offering (see above), were used to repurchase a portion of our 2014 Senior Convertible Notes. Interest on the 2019 Senior Convertible Notes is payable semi-annually on April 1st and October 1st of each year, commencing on October 1, 2013.
The initial conversion rate for the 2019 Senior Convertible Notes is 39.5491 shares of U. S. Steel common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $25.29 per share of common stock, subject to adjustment as defined in the 2019 Senior Convertible Notes. On the issuance date of the 2019 Senior Convertible Notes, the market price of U. S. Steel’s common stock was below the stated conversion price of $25.29 so there was no beneficial conversion option to the holders. Based on the initial conversion rate, the 2019 Senior Convertible Notes are convertible into 12,507,403 shares of U. S. Steel common stock and we reserved for the possible issuance of 16,259,615 shares, which is the maximum amount that could be issued upon conversion. Holders may convert their notes at their option prior to the close of business on the business day immediately preceding October 1, 2018 only under certain circumstances (as described in the 2019 Senior Convertible Notes). On or after October 1, 2018, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2019 Senior Convertible Notes at any time. Upon conversion, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock at our election. Any unconverted 2019 Senior Convertible Notes mature at par on April 1, 2019.
U. S. Steel may not redeem the 2019 Senior Convertible Notes prior to April 5, 2017. On or after April 5, 2017, we may redeem for cash all or part of the 2019 Senior Convertible Notes, at our option, under certain circumstances. The redemption price will equal 100% of the principal amount of the 2019 Senior Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
If U. S. Steel undergoes a fundamental change, as defined in the 2019 Senior Convertible Notes, holders may require us to repurchase the 2019 Senior Convertible Notes in whole or in part for cash at a price equal to 100% of the principal amount of the 2019 Senior Convertible Notes to be purchased plus any accrued and unpaid interest (including additional interest, if any) up to, but excluding the repurchase date.
Although the 2019 Senior Convertible Notes were issued at par, for accounting purposes the proceeds received from the issuance of the notes are allocated between debt and equity to reflect the fair value of the conversion option embedded in the notes and the fair value of similar debt without the conversion option. As a result, $53 million of the gross proceeds of the 2019 Senior Convertible Notes was recorded as an increase in additional paid-in capital with the offsetting amount recorded as a debt discount. The debt discount will be amortized over the term of the 2019 Senior Convertible Notes using an interest rate of 6.2% (the estimated effective borrowing rate for nonconvertible debt at the time of issuance) which will accrete the carrying value of the notes to the principal amount at maturity. As of June 30, 2013, the remaining unamortized debt discount was $51 million and the net carrying amount of the 2019 Senior Convertible Notes was $265 million.
Similar to our other senior notes, the 2019 Senior Convertible Notes and the 2021 Senior Notes contain covenants limiting our ability to create liens, to enter into sale-leaseback transactions and to consolidate, merge or transfer all, or substantially all of our assets. They also contain provisions requiring the purchase of the notes

-16-


upon a change in control under certain specified circumstances, as well as other customary provisions. In addition, certain payment defaults on other indebtedness are a default under the 2019 Senior Convertible Notes.
2014 Senior Convertible Notes
In March 2013, U. S. Steel repurchased approximately $542 million aggregate principal amount of our 4.00% Senior Convertible Notes due 2014, reducing the outstanding principal amount of the notes to $321 million.
The repurchases were funded with the net proceeds from the 2021 Senior Notes and the 2019 Senior Convertible Notes and cash. The aggregate purchase price, including accrued and unpaid interest and fees, for the convertible notes repurchased was approximately $580 million. U. S. Steel recorded a pretax charge of $34 million to net interest and other financial costs (see Note 7) in the first six months of 2013 related mainly to the repurchase premiums.
Amended Credit Agreement
As of June 30, 2013, there were no amounts drawn on the Amended Credit Agreement, which expires July 20, 2016, and inventory values calculated in accordance with the Amended Credit Agreement supported the full $875 million of the facility. Under the Amended Credit Agreement, U. S. Steel must maintain a fixed charge coverage ratio (as further defined in the Amended Credit Agreement) of at least 1.00 to 1.00 for the most recent four consecutive quarters when availability under the Amended Credit Agreement is less than the greater of 10% of the total aggregate commitments and $87.5 million. Since availability was greater than $87.5 million, compliance with the fixed charge coverage ratio covenant was not applicable. Based on the most recent four quarters as of June 30, 2013, we would not meet this covenant. If the value of inventory does not support the full amount of the facility or we remain unable to meet this covenant in the future, the full amount of this facility would not be available to the Company.
Receivables Purchase Agreement
As of June 30, 2013, U. S. Steel has a Receivables Purchase Agreement (RPA) under which eligible trade accounts receivable are sold, on a daily basis without recourse, to U. S. Steel Receivables, LLC (USSR), a wholly owned, bankruptcy-remote, special purpose entity used only for the securitization program. As U. S. Steel accesses this facility, USSR sells senior undivided interests in the receivables to certain third-party commercial paper conduits, while maintaining a subordinated undivided interest in a portion of the receivables. U. S. Steel has agreed to continue servicing the sold receivables at market rates.
At both June 30, 2013 and December 31, 2012, eligible accounts receivable supported $625 million of availability under the RPA and there were no receivables sold to third-party conduits under this facility.
USSR pays the conduits a discount based on the conduits’ borrowing costs plus incremental fees. We paid $1 million in each of the three month periods ended June 30, 2013 and 2012 and $2 million in each of the six month periods ended June 30, 2013 and 2012 relating to fees on the RPA. These costs are included in other financial costs in the statement of operations.
Generally, the facility provides that as payments are collected from the sold accounts receivables, USSR may elect to have the conduits reinvest the proceeds in new eligible accounts receivable. As there was no activity under this facility during the six months ended June 30, 2013, there were no collections reinvested. During the six months ended June 30, 2012, collection of accounts receivable of approximately $1,175 million were reinvested.
The eligible accounts receivable and receivables sold to third-party conduits are summarized below:
(In millions)
 
June 30, 2013
 
December 31, 2012
Balance of accounts receivable-net, eligible for sale to third-party conduits
 
$
1,128

 
$
1,127

Accounts receivable sold to third-party conduits
 
—

 
—

Balance included in Receivables on the balance sheet of U. S. Steel
 
$
1,128

 
$
1,127

The net book value of U. S. Steel’s retained interest in the receivables represents the best estimate of the fair market value due to the short-term nature of the receivables. The retained interest in the receivables is recorded net of the allowance for bad debts, which historically have not been significant.

-17-


The facility may be terminated on the occurrence and failure to cure certain events, including, among others, failure of USSR to maintain certain ratios related to the collectability of the receivables and failure to make payment under its material debt obligations and may also be terminated upon a change of control. The facility was scheduled to expire in July 2014; however, on July 12, 2013, U. S. Steel entered into an amendment of the RPA that extended the expiration to July 2016.
Change in control event
In the event of a change in control of U. S. Steel, debt obligations totaling $3,212 million at June 30, 2013, which includes the Senior Notes and Senior Convertible Notes, may be declared immediately due and payable. In addition, the Amended Credit Agreement, RPA and the USSK €200 million revolving credit facility may be terminated and any amount outstanding thereunder may be declared immediately due and payable. In such event, U. S. Steel may also be required to either repurchase the leased Fairfield slab caster for $41 million or provide a letter of credit to secure the remaining obligation.
U. S. Steel Košice (USSK) credit facilities
At June 30, 2013, USSK had no borrowings under its €200 million (approximately $262 million) unsecured revolving credit facility.

On July 15, 2013, USSK entered into a €200 million revolving credit facility agreement (the Credit Agreement) that replaced USSK's €200 million credit facility that was scheduled to expire in August 2013. The Credit Agreement contains certain USSK financial covenants (as further defined in the Credit Agreement) as well as other customary terms and conditions. The Credit Agreement expires in July 2016.
At June 30, 2013, USSK had no borrowings under its €20 million unsecured credit facility (which approximated $26 million) and the availability was approximately $24 million due to approximately $2 million of customs and other guarantees outstanding.
15.    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, 2013
 
December 31, 2012
 
 
Balance at beginning of year
 
$
33

 
$
38

 
 
Additional obligations incurred
 
—

 
2

 
 
Obligations settled
 
(4
)
 
(9
)
 
(a) 
Accretion expense
 
2

 
2

 
 
Balance at end of period
 
$
31

 
$
33

 
 
(a) Includes $2 million as a result of the sale of USSS on January 31, 2012. See Note 4 for additional details.
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.
16.    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 13 for disclosure of U. S. Steel’s derivative instruments, which are accounted for at fair value on a recurring basis.

-18-


The following table summarizes U. S. Steel’s financial assets and liabilities that were not carried at fair value at June 30, 2013 and December 31, 2012.
 
 
June 30, 2013
 
December 31, 2012
(In millions)
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
Financial assets:
 

 

 

 

Investments and long-term receivables (a)
 
$
66

 
$
66

 
$
39

 
$
39

Financial liabilities:
 

 

 

 

Debt (b)
 
$
3,962

 
$
3,898

 
$
4,113

 
$
3,902

(a) Excludes equity method investments.
(b) Excludes capital lease obligations.
The following methods and assumptions were used to estimate the fair value of financial instruments included in the table above:
Investments and long-term receivables: Fair value was based on Level 2 inputs which were discounted cash flows. U. S. Steel is subject to market risk and liquidity risk related to its investments.
Long-term debt instruments: 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 assets and 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.

-19-


17.    Statement of Changes in Stockholders’ Equity

The following table reflects the first six months of 2013 and 2012 reconciliation of the carrying amount of total equity, equity attributable to United States Steel Corporation and equity attributable to the noncontrolling interests:
Six Months Ended June 30, 2013 (In millions)
 
Total
 
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock
 
Treasury
Stock
 
Paid-in
Capital
 
Non-
Controlling
Interest
Balance at beginning of year
 
$
3,478

 

 
$
3,463

 
$
(3,268
)
 
$
151

 
$
(521
)
 
$
3,652

 
$
1

Comprehensive income:
 

 

 

 

 

 

 

 

Net loss
 
(151
)
 
(151
)
 
(151
)
 

 

 

 

 

Other comprehensive income (loss), net of tax:
 

 

 

 

 

 

 

 

Pension and other benefit adjustments
 
138

 
138

 

 
138

 

 

 

 

Currency translation adjustment
 
(18
)
 
(18
)
 

 
(18
)
 

 

 

 

Issuance of conversion option in 2019 Senior Convertible Notes, net of tax
 
31

 

 

 

 

 

 
31

 

Employee stock plans
 
12

 

 

 

 

 
39

 
(27
)
 

Dividends paid on common stock
 
(14
)
 

 
(14
)
 

 

 

 

 

Other
 
(2
)
 

 
(2
)
 

 

 

 

 

Balance at June 30, 2013
 
$
3,474

 
$
(31
)
 
$
3,296

 
$
(3,148
)
 
$
151

 
$
(482
)
 
$
3,656

 
$
1

Six Months Ended June 30, 2012 (In millions)
 
Total
 
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock
 
Treasury
Stock
 
Paid-in
Capital
 
Non-
Controlling
Interest
Balance at beginning of year
 
$
3,501

 

 
$
3,616

 
$
(3,367
)
 
$
151

 
$
(550
)
 
$
3,650

 
$
1

Comprehensive income:
 

 

 

 

 

 

 

 

Net loss
 
(118
)
 
(118
)
 
(118
)
 

 

 

 

 

Other comprehensive income (loss), net of tax:
 

 

 

 

 

 

 

 

Pension and other benefit adjustments
 
136

 
136

 

 
136

 

 

 

 

Currency translation adjustment
 
16

 
16

 

 
16

 

 

 

 

Employee stock plans
 
12

 

 

 

 

 
29

 
(17
)
 

Dividends paid on common stock
 
(14
)
 

 
(14
)
 

 

 

 

 

Balance at June 30, 2012
 
$
3,533

 
$
34

 
$
3,484

 
$
(3,215
)
 
$
151

 
$
(521
)
 
$
3,633

 
$
1


-20-





18.    Reclassifications from Accumulated Other Comprehensive Income (AOCI)
(In millions) (a)
 
Pension and
Other Benefit
Items
 
Foreign
Currency
Items
 
Total
Balance at December 31, 2012
 
$
(3,613
)
 
$
345

 
$
(3,268
)
Other comprehensive income before reclassifications
 
2

 
(18
)
 
(16
)
Amounts reclassified from AOCI (b)
 
136

 
—

 
136

Net current-period other comprehensive income
 
138

 
(18
)
 
120

Balance at June 30, 2013
 
$
(3,475
)
 
$
327

 
$
(3,148
)
(a)All amounts are net of tax. Amounts in parentheses indicate debits.
(b)See table below for further details.
 
 
 
 
Amount reclassified
from AOCI
 
(In millions) (a)
 
Details about AOCI components
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013