NUCOR IN 2009

Submitted by:
Group6
J.Prabhat_123
Anisha Gupta_152
Suryadeep Jain_158
Monika
Aggarwal_170
Sumeet Mittal_171
Shruti Gupta_178
Karuna Miglani_182

Mission
To Take Care Of Our Customers
By being
The safest,
Highest quality,
Lowest cost,
Most productive
Most profitable
Steel and steel products firm

Nucor History
1897 - Ransom E. Olds
founded the Olds Motor
Vehicle Company which was
later sold to General Motors.

The firm was sold at a $

3miilion loss to Bohn
Aluminum and Brass
Company and was left
with no viable
businesses primarily
because of the intense
completion in the lawn
mower industry.

In 1905 Olds launched the Reo

Motor Car Company in Lansing,
Michigan. This company filed for
bankruptcy in 1938 and was
reorganized to focus on building
trucks during WW II and lawn
mowers in the post-war era.

In 1955 a group of
dissident share-holders
opposed the Nucor
boards decision to
liquidate the company.
Instead, they forced it to
acquire a tiny nuclear
services company called
Nuclear Consultants,
Inc.

The original Reo Motor

Company was renamed
the Nuclear Corporation
of America, Inc. Its and
the headquarters were
moved to the Empire
State Building in New
York City.

Source: www.Nucor.com

1950s -1960
started acquiring unrelated
businesses including Vulcraft a
manufacturer of steel joists
located South Carolina. Kenneth
Iverson was hired as General
Manger of Vulcraft in 1956.

Iverson and Siegel sold off or

liquidated all Nuclear businesses
except Vulcraft and moved
company headquarters to North
Carolina slightly over 100 miles
from the Vulcraft plant in
Florence.

1980one of the most profitable

carbon steel operations in
the world

1965- promotion of Ken Iverson to

president and Sam Siegel to chief
financial officer.

1969Expansion into steel joists

and introduction of minimills

2000 Don DiMicco was

promoted to CEO in and
Ken Iverson retired.

2 Basic Businesses in the Steel

Industry
Steel joist plants
Steel frames for building

Steel mills using Mini-mill technology

Smaller scale production

Nucor Success

Consolidated business in first 20 years

Highly Successful in the 1980s
The most innovative and technologically
advanced steel company in USA
Mid 2000s 2nd largest American steel
manufacturer

Reasons for success

Ken Iverson restructured the company

Engaged in divestment of high-tech business
Focus on profitable business: steel
Decentralized operations with decision
making power to managers.
No volume discounts
Shift from the normal shipment delivery
charges
Use of the latest technology and advancement
in processes

Steel and Iron Industry

Three main competitors
ArcelorMittal USA, Inc.
Commerical Metals Company
United States Steel Corp.

Less competitors = more opportunities

Nucors Philosophy
There were three principles that defined their
philosophy
Honesty
Autonomy to workers in decision making and
allowing them to focus upon more effective
ways to perform their duties
Fairness to all employees

Steel Making Process

Mini-mills

Bar mills

Used junk auto parts instead of

ore
Produced steel used in
integrated mills

Used Steel scrap as raw

material
Production process: melting,
casting and extrusion

Production cost: $250 per

tonne

Production cost: under $ 135

per tonne

Evolution of US steel Industry

The US steel industry witnessed cyclic periods of
growths
In the mid 1980s faced with external competition from
Asian steel firms, slowdown in the automobile industry,
the steel industry faced a slowdown
However with focus on modernization, cost reduction
and innovation the situation improved for the US steel
firms
In 1997-98. due to fall in demand and flooding of the
US steel market with imported steel, the situation
changed quickly

Competitive Advantage
Technology
Innovation

Corporate
culture
Operational
excellence

Low cost
structure

Cost leadership
Lean structure
JIT
Mini mills technology using scrap as raw
material
Offices in rural areas near the markets they
serve
Simple routine office building
Emphasis on recycling and less use of paper

Nucor culture
Egalitarian

Pay for performance

Same coloured
hard hats for all
employees
No designated
parking spaces for
managers
No separate
executive dining
halls
Bi-directional
communication
even with Ken
Iverson

Weekly bonus as
high as 150% of
base pay for work
groups those who
achieved
productivity
above standards
College tution
plan
Employee stock
ownership options

Flat organization
structure
Four layers of
management only
between
chairman and
hourly workers
Wide spread
sharing of
information

Source: Nucor website

Technology
Nucor was one of the most technologically
advanced steel firm of its time
It had a computerised inventory management
system in the 60s
It used electric arc furnaces for steel production
while most of its counterparts used the traditional
blast furnaces
Setting up of a revolutionary plant, the first minimill in the world to roll out sheet steel and savings
worth $ 50 to $ 75 on selling price of $ 400 per
tonne

Corporate success factors

Employee
relationship

Work ethics

Corporate
success

Organisatio
nal
structure

Compensati
on/ benefit
system

Organisational Structure
Nucors structure was decentralized, with only the four
management layers:

Chairman / Vice Chairman / President

Vice President / Plant General Manager
Department Manager
Supervisor

The general manager at each plant was granted

considerable autonomy, essentially operating the
facility as an independent business.
Each plant could source its inputs either from another
Nucor plant or from the outside market
Tolerance for experimentation and risk taking.

Leadership
From a bankrupt conglomerate to the 2nd largest
steel producer in US . It took some acute
leadership skills from Aycock and Iverson
Iverson had the courage to do thing and take risks
as Iverson believed that- failure to take risk is a
failure
Iverson always promoted independence and
autonomy
He set an example by living a modest life and
allowed only for simple and organized offices,
sending a message that steel production was
their sole focus not public appeal

Incentive Plan
At 4 levels:
Production Incentive plan
Department manager incentive plan
Non-production and non-department
manager incentive plan
Senior officer incentive plan

Personnel Policies/Employee relations

Nucor plant did not have job description, flexible
workforce and non-union status of employees.
No performance appraisal. If employee was not
performing well , dealt directly.
Employees were kept well-informed about the
company.
Absenteeism and tardiness was not a problem.
Safety was a concern for critics.
The average hourly workers pay was more than twice
the average paid by other manufacturing companies.

Division Managers
Management relations were informal, trusting and minimum
paperwork was required for communication.

Weekly basis
Joist division
reported sales
cancellation,
backlogs,
production to
corporate office.
Steel mills
similarly reported
orders,
cancellation,
backlogs.

Monthly basis
Divisions
completed brief
operations
analysis and this
summarized
information was
sent back to
managers.

Yearly basis
GMs met thrice a
year.
Oct: present
preliminary
budgets.
Feb: finalize the
budget.
May: handle
personnel
matters.

Vulcraft: Joist division

Nucors major businesses was manufacture and sale of open web steel
joists and joist girders at vulcraft division.

Joist industry was characterized by high competition but Nucor had been
largest supplier of joist in U.S since 1975.
It sought to be the lowest cost producer in the industry. Materials and
freight being the most important elements of cost.
Maintained fleet of 150 trucks to ensure on-time delivery.
Plants located in rural area near the market they served.

Workers were responsible for quality and a quality control inspector

was appointed to keep a check on the produced items.
Time required for manufacturing joist varied with different
specifications and this time helped in determining plant teams
bonuses.

Steel divisions
Nucor got into steel business in 1968 to provide raw
material to Vulcraft plants to make steel available to
them at a cheap rate .
It marketed its 75% of its shipments to Vulcraft and
rest 25% to outside customers.
It also built 3 more bar mills between 1973-81.
Nucor was the first steel company to build mini-mill to
manufacture steel sheet for auto industry followed by
other 3 plants in 1990.
Nucors total steel production capacity was 5.9 mn tons
per year at a cost of $300 per ton of annual capacity.

Value chain

Source:businesssetfree.com/porters-value-chain/

Value Chain Analysis- primary activities

Inbound
logistics

Operations

Outbound
logistics

Monitoring system of each plants schedule to function JIT inventory

mode
All new mills were built on large tracts of land to accommodate
collaborating businesses
The ownership in Novosteel SA help Nucor to improve its ability in
logistics support, handling material, quality certifications and
schedule management functions

The companys hallmarks were continuous innovation, modern

equipment, individualised customer service and a commitment to
produce high quality and steel products at competitive prices
Construction at efficient scale production facilities
Automated production
Location of diverse facilities in rural areas across US
Capitalize on high quality leadership
Implementation of mini mills and castrip technology

Acquisition of DJJ gave Nucor more railcars to deliver

orders
Mini mills were originally designed in part to bring
steel closer to customer

Marketing
and sales

Service

Each division/plant is manage marketing and sales

activities
Domestic markets see Nucors position in small towns and
their ability to contribute to the community.
Nucors major customer segments were the construction
industry (60 percent), the automotive and appliance
industries, (15 percent), and the oil and gas industries (15
percent), with the remaining 10 percent divided among
miscellaneous users.

Each Vulcraft plant maintained its own engineering

department to help customers with design problems or
specifications
All customers treated fairly with the same sales terms
(closer is cheaper)

Support activities

Procurement

Commonly ask the equipment supplier to provide about

materials information
Buy materials from independent broker who followed the market
and made recommendations regarding the materials.
The company had alliances with outside parties and suppliers
Acquisition strategy (DJJ, Harris) and Joint Venture (Nextframe,
Hismelt commercial plant)

Technological
development

Didnt have a formal R&D department, a corporate engineering

group, or a CTO
Monitoring others work worldwide and attracted investors who
brought them new technical applications at the earliest possible
dates

Support activities
HRM

Firm
infrastructure

No formal HR department Human

Proper wage and incentive structure Resource
Four principles of Employee Relations
No lay off policies
Attracts local workforces

Very flat organization, but then increase due to

acquisition strategies Firm
Decentralization Infrastructure
Cost-effective management information systems
Union-free (except in the subsidiary Harris)

Nucor in the 21st century

Nucor was doing well in the beginning with most
of the other steel companies in the US operating
under Bankruptcy.
Many regional companies underwent mergers in
Europe and Asia, making survival difficult for
Nucor.
However, after US introduced the protective
tariffs and rise in Demand , The Steel prices rose
in the country and Nucor took advantage of it.
They acquired local steel companies like Trico
steel ,Birmingham Steel corp., Magnatrax corp.

Contd.
Through Joint Ventures and Acquisitions Nucor
became the second largest steel producer in the
US with an annual capacity of 20.3 MMT.
With the rise in the raw material prices, Nucor
material started with backward integration and
started acquiring scrap metal selling firms.
However in 2008, due to slowdown in the
automobile and construction industry, the
demand and price steel fell abnormally.

Management Evolution
Iverson was removed as chairman in January,
1999
John Correnti succeeded Iverson but he too
was voted out in June, 1999
David Ayecock came out of retirement to
become chairman
A level of Executive VPs added over four areas
of business
Also appointed a new CFO a director of IT

 Necessary to change the perspective from

individual plant level to corporate level
In September, 2000, Daniel DiMicco became
President & CEO
Peter Browning was elected as Chairman of
the Board of Directors
Nucor planned to achieve 10-15 percent
average annual growth and be the market
leader in every product group over the next
decade

Organizational Chart in 2000

Source: case

Environmental and Political Issues

Nucors mill in Crawfordville was in news for
alleged violations of federal and state clean air
rules
Fast track approval to one of the facility which
was situated on the Chowan river and on a
stretch which was critical for marine life
Excessive incentives by the North Carolina
government to set up a steel mill in their state

Issues
In 2008, fourth quarter, a severe economic
decline hit the company in 4th quarter
This was part of the world-wide recession that
began in September 2008
Steelmakers in US experienced sharp pullback
from buyers who were concerned about the
slowdown in automobile and construction market
Capacity utilization (at Nucor) was 95% in the first
three quarters of 2008. It dropped to 48% in the
fourth quarter of 2008 and 45% in the first
quarter of 2009 (a 40% decline).

Financial Issues
In April 2009, Nucor's loss, which was expected,
totaled $189.6 million,
Revenue fell 47 percent to $2.65 billion.
Shipments dropped 43 percent and average
prices slipped 7 percent
Its mills operated at just 45 percent of capacity,
down from 92 percent a year earlier. That meant
energy costs raised about $11 per ton because its
furnaces continued using large amounts of power
but produced less steel

Nucors Financial Ratios

Net Income
(Loss)
Depreciation/Am
ortization

Cash Flow Forecast

12/31/2011 12/31/2010

1,224.36

1,288.80

381.51

Net Incr (Decr) in

Assets/Liab.
(225.11)

Cash Flow from

Disc. Operations
Other
Adjustments-Net

Net Cash Flow

from Operations
in millions of USD

12/31/2009

12/31/2008

1,516.23

1,783.80

401.59

472.45

(155.25)

12/31/2007 12/31/2006 12/31/2005

12/31/2004

12/31/2003

1,471.95

1,757.68

1,310.28

1,121.49

62.78

555.83

427.56

363.94

375.05

383.31

364.11

(115.00)

(100.00)

-202.47

-83.99

357.63

-574.26

-26.12

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

238.27

213.61

93.65

99.19

93.84

1,380.75

1,535.13

1,935.31

2,251.23

2,136.62

1,029.72

494.62

1,873.68

2,239.63

Nucors response
Cut down prices
Suspending expansion plans
Reducing hours of plant employees but not
indulging in lay offs like major steel players in US
Salaried employees also absorbed pay reduction
of 40% (share the pain philosophy)
Nucors acquisition and integration into steel
products markets and raw material also provided
many opportunities

Conclusion
Overall, despite the current credit crisis, we expect Nucor
Corporation to capitalize on the weakness competitors are
experiencing due to the current economic downturn. We
expect Nucor to continue making a profit and paying
dividends while positioning for growth through acquisitions.
Key Points for Basis of Recommendation:
Cash is King: Nucor can afford to wait until things get better.
Secondary Offering raises $1.85 Billion. May 08
$1 Billion in cheap debt sold. May 2008.
Within the Steel Sector, Nucor clearly provides better returns
on equity, assets, and investment than competitors.
Likely to benefit from US Government Stimulus Package
focused on Infrastructure and Energy.

Recommendations
Build long term relationship with customers by understanding their

product and business roadmaps.

Reduce impact of cyclical demand.
Determine products to be eliminated.
Tailor Nucor pre and after sales services based on customers need

and expectation.
Expand international presence through M&A and JV with local

partners in Asia, Europe and South America, specially India, China

and Brazil.

References

nucor.com/buildingsystems
nucor.com/responsibility
nucor.com/ourhistory
nucor-sheetmills.com
wkrb13.com/markets/390897/nucor-given-acredit-rating-by-morningstar-nue/

THANK YOU