Some of the most prominent businessmen of their time, including J. P. Morgan, Andrew Carnegie and Charles Schwab, formed US Steel in 1901. Albert Gary and J. P. Morgan bought Andrew Carnegie’s steel company and combined it with their own holdings to form US Steel. In the first full year of operation, US Steel produced 67% of the all the steel used in the United States. In the years that followed US Steel consolidated and restructured its operations mainly around its steel making operations.

In the 1980’s a major restructuring and diversification occurred when US Steel decided to enter the energy business by acquiring Marathon Oil Company. Four years later US Steel acquired Texas Oil & Gas. In 1986, realizing that it had become a vastly different company changed its name to USX Corporation. However, in 1991 the shareholders voted to change the capitalization of the corporation. A new class of common stock was issued called USX – US Steel Group common stock and to reflect the steel portion of the business and the USX common stock was converted to Marathon Group Common Stock representing the energy side of the business.

Ten years later another restructuring occurred when USX shareholders adopted a plan to spin off the steel and steel related industries into a publicly traded company known as United States Steel Corporation, the same name it originally had. The remaining energy business became Marathon Oil Company. After a century, United States Steel Corporation is still the largest integrated steel producer in the United States. AK Steel Holding Corporation has only been in existence a very short time but it roots date back almost 100 years.

The American Rolling Mill company was formed in 1899 to roll steel mostly for other manufacturers to use their own products. After about 20 years, the American Rolling Mill company laid plans for a new manufacturing plant in Middletown, Ohio. In the 1930’s, the company expanded its operations and built another facility in Ashland, Kentucky. In 1948, the American Rolling Mill company adapted the acronym ARMCO and soon and officially changed its name to ARMCO steel company. ARMCO was looking for ways to grow and in 1990 entered into a limited partnership with Kawasaki Steel of Japan.

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The following years found ARMCO in deep financial trouble experiencing first hand what the analysts were saying, which was that steel companies required such a large output of expenses that it very difficult for them to be profitable. ARMCO executives started searching for new leadership that could give the company a new direction and a new era of profitability. Long time steel executive Tom Graham was coaxed out of retirement and he immediately set about turning ARMCO’s financial situation around. Graham divested more than ten operating divisions that lacked efficiency or profit potential.

Also within the first year of Graham’s tenure, he replaced 75% of top executives and managers. In 1994, the limited partnership with Kawasaki Steel was altered slightly and AK steel was born. AK Steel holding company became public later that year and raised $654 million dollars to pay off its debt. This left AK’s balance sheet clear and in excellent financial shape. The business strategy for US Steel, especially in North America, is to focus on the value added steel products to their target markets where they already have a leadership position, production capabilities and technical expertise to give US Steel a competitive advantage.

There is a statement in the Business Strategy section of the 2006 US Steel 10-K that states, “… will focus on advanced high strength steel and coated sheets for the automotive and appliance industries. 1 I can speak to this point from personal experience. I currently work at Protec Coating Company in Leipsic. Protec is a 50-50 joint venture between US Steel and Kobe Steel of Japan. Protec, a stand-alone company started in 1992, operates two (2) hot-dip galvanizing lines with a total annual capacity of about 1.

2 million tons of coated sheet steel. In the past few years Protec’s strategic plan is to develop and produce advanced high strength steels (AHSS) with help from technology gained from our partnership with Kobe Steel. US Steel has supported this strategic plan buy increasing capital spending at Protec to purchase equipment needed for the production of AHSS. Why AHSS you might ask? The automotive manufactures are under increased pressure to increase the fuel efficiency and improve crash worthiness at the same time.

In the past, you could have heavy cars that were safe or lightweight, fuel-efficient cars that offered little crash protection. The answer to this problem is an Advanced High Strength Steel that offers high strength at a fraction of the weight. This has proven to be a wise decision as 17 of the top 20 cars sold in the US use Protec’s AHSS. 8 US Steel’s revenues increased from 9,320 million in 2002 to 15,715 million in 2006. A portion of the increase can be attributed to greater demand and higher proceeds for steel.

However, this increase was due in large part by the successful bid for the bankrupt National Steel Corporation in mid 2003. 1 US Steel improved its liquidity by approximately $1. 4 billion since the National and USSB (Serbia operations) acquisitions in 2003. The current ratio for the past 3 years has averaged about 1. 80. (See Figure 3) The Rule of Thumb discussed in our text states that a current ratio below 2:1 suggests increasing liquidity risks. This may not be the case for US Steel at this time as in a successful period such as (2004 -2006) increases in taxes payable can lower the current ratio.

The current ratio has a number of drawbacks for use as an analysis tool. The current ratio is a static measure of resources available at a point in time to meet current obligations. 6 A more stringent test of liquidity is the Acid Test or quick ratio. The Acid Test ratio is similar to the Current ratio but does not include inventory and Plant, Property and Equipment. (PP ; E). Inventory is often the least liquid of current assets. In this category, US Steel is approximately 1. 12 for years 2004 and 2005. This is equal to the industry average. (See figure 27)


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