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An investor’s guide to U.S. Steel’s balance sheet

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U.S. Steel has a weak balance sheet

U.S. Steel Corporation (X) has a weak balance sheet compared to other steel companies such as ArcelorMittal (MT), Nucor Corporation (NUE), and Steel Dynamics (STLD). It has high leverage ratios and generates low cash flows. This is a dangerous combination for any enterprise. Under the Carnegie Way program, the focus has been on reducing debt and increasing cash flows. Let’s see how U.S. Steel (X) has fared in these areas in 3Q14.

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Net debt increased over 2Q14

The above chart shows U.S. Steel’s (X) trend in net debt, or total debt minus cash. Net debt has increased slightly over 2Q14 due to a decrease in cash. The gross debt has actually come down over 2Q14. Let’s now see why cash has come down in 3Q14.

Cash was reduced in 3Q14

As you can see in the above chart, U.S. Steel’s cash and cash equivalents have come down in 3Q14. The reduction in cash was due mainly to the following reasons.

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  • Deconsolidation of U.S. Steel Canada.  As discussed previously, U.S. Steel (X) has deconsolidated its Canadian operations. U.S. Steel Canada had $80 million on its balance sheet. Post-deconsolidation, this cash was part of U.S. Steel’s balance sheet.
  • Voluntary pension contribution.  Currently, U.S. Steel’s pension plan is underfunded. The company made a voluntary pension contribution of $140 million in 3Q14, a positive sign for U.S. Steel (X) investors.
  • Increase in inventory.  Last year, U.S. Steel faced disruptions in its raw material supply due to adverse weather conditions. With winter approaching, U.S. Steel has increased its inventories to face any similar circumstances. This has also led to a decrease in its cash.

After looking at U.S. Steel’s (X) 3Q14 performance, we will now analyze what factors will drive its future earnings. Please move to the next part to learn more.

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