Nucor
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Nucor Corporation (NYSE: NUE) is one of the largest steel producers in the United States, and the largest of the "mini-mill" operators (those using electric arc furnaces to melt scrap steel, as opposed to companies using traditional blast furnace technology). Nucor claims to be the largest recycler of scrap steel in the United States, recycling over 19 million tons of scrap steel annually.
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[edit] History
Nucor's history consists of three distinct era's: the Reo Motor Car era, the Nuclear Corporation of America era, and the current Nucor era.
[edit] The REO era
Nucor's origins are with auto manufacturer Ransom E. Olds, who founded Olds Motor Vehicle Company in 1897 (later, as Oldsmobile, to become a part of General Motors). Olds stayed on with GM until 1905, when he established a new company, REO Motor Car Company, the predecessor to Nucor, in Lansing, Michigan. Though Olds' cars, including the luxurious REO Flying Cloud, were popular, they were not profitable, while the company's more successful truck business (featuring the famous REO Speed-Wagon) was not sufficiently profitable to avoid a bankruptcy filing in 1938.
As part of the bankruptcy reorganization, REO exited the car business to concentrate on trucks, and after World War II, attempted to diversify into lawn mowers. The reorganized company continued to under perform, and finally in December 1954, REO sold off its entire manufacturing operations to Bohn Aluminum and Brass Company (suffering a $3 million loss on the sale).
[edit] The Nuclear Corporation Era
After the sale, REO was left with $16 million in cash on hand and no trading businesses. The company initiated liquidation proceedings, with the goal of selling its few remaining assets and distributing the cash to creditors and shareholders.
However, a group of dissident shareholders noticed the tax loss and successfully challenged the liquidation in a proxy fight in September 1955. In what amounted to a "reverse hostile takeover", activist shareholders forced REO to take over a tiny nuclear services company called Nuclear Consultants, Inc.
Following the purchase, REO Motor Company emerged as "Nuclear Corporation of America Inc.", and relocated to offices in the Empire State Building in New York City. Nuclear's attempt to recast itself as a nuclear industry services company was ultimately no more successful than the REO motor vehicle business had been. Nuclear then followed the example of other companies in the 1950's and 60s and attempted to become a conglomerate, once again moving its headquarters, this time to Phoenix, Arizona.
Among the many businesses purchased during Nuclear's attempts at becoming a profitable conglomerate was Vulcraft Corporation, a steel joist manufacturer located in Florence, South Carolina. Vulcraft had been founded by Sanborn Chase (no relation to the coffee company), who died at an early age, leaving the company to his widow. Nuclear purchased Vulcraft from Chase's widow in 1962 and hired F. Kenneth Iverson as general manager.
However, Nuclear the conglomerate faired no better than Nuclear the nuclear services company or REO the truck manufacturer, and in March 1965 filed for bankruptcy for the second time in 27 years. The Board of Directors fired Nuclear's President (and, in the process, had to return his private jet to him), but for two months could not find a replacement, as nobody wanted to head a corporation that was most likely going to go out of business. Finally, Samuel Siegel, an accountant with Nuclear (and friend of Iverson) who had actively been looking to leave the company, informed the Board of Directors he would remain with the company under two conditions: Iverson would become President and he (Siegel) would become Chief Financial Officer, conditions the Board quickly accepted.
[edit] The Nucor Era
Iverson and Siegel quickly reorganized Nuclear around its only profitable business, Vulcraft. All other Nuclear businesses were either sold or liquidated. The company moved its headquarters yet again, this time to Charlotte, North Carolina in 1966, to be closer to its main Vulcraft plant.
Unable to get favorable prices from American steel manufacturers, and unhappy with the imported steel available at the time, Iverson (a metallurgist by training) decided to integrate Nuclear backwards into steel making by building its first steel bar mill in Darlington, South Carolina in 1968. The company chose to purchase an electric arc furnace, which was far cheaper than the traditional steel blast furnace, courtesy of a US$5,000,000 bank loan from Wachovia. Although the early days were tough (once the American steel manufacturers learned Nuclear was operating its own mill, they cancelled their contracts), Nuclear was finally able to obtain the financial success that had eluded the company from its beginning.
In 1972 the company (recognizing that there was nothing "nuclear" about making steel or steel products) adopted its current name. Since that time, Nucor has built three more Vulcraft facilities, eight steel mills, and expanded into other steel products, and has maintained its headquarters in the SouthPark area of Charlotte (though it did relocate within the area).
Nucor greatly expanded its market presence in the 1990's by absorbing Birmingham Steel, including the successful Mississippi Steel plant and its own Birmingham, Alabama operations.
In September of 2000, Dan DiMicco was appointed as the Chief Executive Officer by Nucor's Board of Directors. Under his leadership, Nucor curtailed its long standing practice of constructing "greenfield" production facilities, citing an overcapacity in the domestic market as the primary reason. Instead, attention was given to acquiring compatible existing steel manufacturing facilities with similar operating philosophies. Nucor has made approximately 6-7 purchases of companies, part interests, and facilities since DiMicco became CEO.
[edit] Nucor buys Harris Steel
Shareholders in Harris Steel, are being offered C$46.25 a share in a deal announced January 2 2007. The deal will total C$1.25 billion. If successful, Harris Steel will become the largest acquisition in Nucor's history. The deal has the support of the Harris' board of directors, primarily consisting of the Harris family who have tendered enough shares for Nucor to own over 50% of the company.
[edit] Nucor Today
As of December 2006, Nucor operates facilities in 19 states and employs over 11,900 workers. According to Nucor's 2006 Form 10-K, only 70 of its employees work in the company's executive office in Charlotte.
Steel products produced include:
- Bars (carbon and alloy steel)
- Beams
- Sheet/Flat Rolled
- Plate
- Steel joists
- Joist girders
- Steel deck
- Cold finished steel
- Steel fasteners
- Metal building systems
- Light gauge steel framing
[edit] The Nucor Culture
The Nucor Culture can be summarized in five areas: decentralized management philosophy, performance based compensation, egalitarian benefits, customer service and quality, and technological leadership. Underlying these elements is the fact that none of Nucor's plants, whether built from scratch or acquired, are unionized. Nucor is opposed to unions, believing them to be a destructive force in the US steel industry. No Nucor plant has ever held a successful union certification election, even though Nucor management has not engaged in the controversial "union busting" tactics adopted by other companies.
[edit] Decentralized Management Philosophy
Nucor is highly decentralized in its operations; there are only five employee levels at Nucor (supervisor/professional, department manager, division general manager, executive vice president, and president). Most operating decisions are made at the division level or lower. In addition, as stated above only 70 employees work at the Nucor corporate office, which may possibly be the smallest number of corporate office employees among major corporations.
[edit] Performance Based Compensation
All Nucor employees, from senior officers to hourly employees, are covered under one of four basic compensation plans (in addition to base pay) which reward employees for meeting certain incentive specific goals and targets:
- Production Incentive Plan: Operating and maintenance employees and supervisors at the facilities are paid weekly bonuses based on the productivity of their work group. The rate is calculated based on the capabilities of the equipment employed, and no bonus is paid if the equipment is not operating. In general, the Production Incentive bonus can average from 80 to 150 percent of an employee's base pay.
- Department Manager Incentive Plan: Department Managers earn annual incentive bonuses based primarily on the percentage of net income to dollars of assets employed for their division. These bonuses can be as much as 80 percent of a department manager's base pay.
- Professional and Clerical Bonus Plan: This bonus is paid to employees that are not on the production or department manager plan and is based on the division's net income return on assets.
- Senior Officers Incentive Plan: Nucor's senior officers do not have employment contracts. They do not participate in any pension or retirement plans. Their base salaries are set lower than what executives receive in comparable companies. The remainder of their compensation is based on Nucor's annual overall percentage of net income to stockholder's equity and is paid out in cash and stock.
In addition to these established bonus plans, Nucor has periodically issued an extraordinary bonus to all employees, except officers, in years of particularly strong company performance. This bonus has been as high as $2,000 for each employee; during 2005 two such extraordinary bonuses were paid (per the 10-K filing).
[edit] Egalitarian Benefits
Nucor's senior officers are not provided traditional "perks" such as company cars, executive parking spaces, or executive dining rooms. In fact, several programs (such as Nucor's Profit Sharing, Scholarship Program, Employee Stock Purchase Plan, Extraordinary Bonus, and Service Awards Program) are not available to Nucor's officers but only to lower-level employees. As a symbol of Nucor's egalitarian culture, the annual report has the names of every employee printed on the cover (2005 annual report). In August of 2006, the company did purchase a corporate jet for use by senior management. In a letter to all employees from the CEO, Dan DiMicco explained that the frequent rentals of charter jets made a corporate jet purchase a cost-effective measure.
[edit] Customer Service and Quality
Many of Nucor's facilities are ISO 9000 certified.
[edit] Technological Leadership
Nucor was among the first steel companies in the United States to use electric arc furnaces to melt recycled steel (primarily from junked automobiles). The company's website maintains a running count of the tons of recycled steel used during the current calendar year.
Currently, Nucor (in conjunction with two foreign-owned steel companies) operates a facility in Crawfordsville, Indiana that produces sheet steel directly from molten steel without the need for heavy, expensive, and energy-consuming rollers. The process (known as Castrip [1]), if successful, would allow an entire mill to be built in 1/6th the space of a 'mini-mill" and at 1/10th the cost of a traditional integrated mill. A second Castrip plant has been proposed near Blytheville, Arkansas (where Nucor currently operates two facilities).
Also, Nucor has two pilot projects, one in western Australia and one in Brazil, which are developing low-cost sources of iron for use in its mills.
[edit] References
Preston, Richard (1992). American Steel. Quill. ISBN 0-380-71822-7. Construction and startup story of Nucor's first big mill, discusses the history of Nucor.
