NUCOR STEEL
Nick Hartnett & Matt Ketellapper
FNCE 4820 Professor Madigan
4/7/2011
“The safest, highest quality, lowest cost, most productive, and most profitable
steel and steel products company in the world.”
- Nucor Mission Statement
Executive Summary
Nucor Corporation (“NUE” or “the Company”) is the second largest steel manufacturer and fabricator in
the US.
Key Drivers of Value
1.
2.
3.
4.
Increasing steel spot price
Successful economic recovery
Government protection
Cost control mechanism
Key Risks
1.
2.
3.
4.
Steel & scrap prices
Cyclicality Exposure
Foreign competition & government policy
Other raw materials prices
DCF Valuation
Discounted cash flow valuation produced a stock price of $66.22 per share, indicating that Nucor is
undervalued. A bull market scenario could reach a stock price of $120.62 and a bear market scenario
could reach $28.85 per share.
Multiples Analysis
Multiples analysis based on P/CF, P/E, P/BV, P/S, EV/EBITDA produced an average stock price of $52.74,
indicating that NUE is currently undervalued. The strongest multiples were P/CF and EV/EBITDA.
Base
10 year Average Growth
Volume G-rate
Composite price G-rate
Total Capacity G-rate
Stock Price
$
4%
2%
4%
66.22
Bear
Volume G-rate
Composite price G-rate
Total Capacity G-rate
Stock Price
$
8%
11%
9%
258.04
$
8%
4%
10%
120.62
Bull
Volume G-rate
Composite price G-rate
Total Capacity G-rate
Stock Price
$
-4%
-4%
0%
28.85
Volume G-rate
Composite price G-rate
Total Capacity G-rate
Stock Price
Page | 1
Nucor Corporation
NUE is the second largest steel manufacturer in the US. NUE and its affiliates, the David J. Joseph
Company and Harris Steel, are recognized as global leaders in process innovation and efficiency. Unlike
its integrated steel counterparts that use iron ore pellets and blast furnaces that result in unsustainable
energy consumption, NUE is the world’s largest recycler of scrap steel (17 million tons annually), using
energy efficient Electric Arc Furnaces (EAF) and mini-mills to produce both hot and cold rolled steel. By
supplementing raw material requirements with scrap and scrap steel substitutes, NUE is less exposed to
fluctuations in iron ore and other raw materials spot prices. As the most diversified steel producer in
North America, NUE has the infrastructure and management to capture positive market trends.
Like any steel company, NUE is dependent on the supply of raw material inputs in the production
process. However, NUE is less exposed to the traditional iron ore pellets. Instead, NUE is dependent on a
constant supply of scrap steel for use in the production of steel products. In 2008, NUE acquired the
David J. Joseph Company (DJJ) for $1.44 billion. DJJ is one of America’s oldest and largest scrap metal
brokers and has integrated seamlessly into the NUE model. DJJ has a scrap processing capacity of
approximately 1.1 million tons. The purchase of DJJ further consolidates and vertically integrates NUE’s
supply chain. To supplement the need of iron ore, NUE operates a direct reduced iron (DRI) plant in
Trinidad, located off the coast of Venezuela. NUE’s only DRI plant benefits from easy access to Brazilian
iron ore, cheap natural gas from Venezuela, and easy shipping access to the US. NUE is in the process of
building a new, state of the art DRI plant at St. James Parish, Louisiana, with the future prospect of
expanding the project to include two facilities. The current project will increase annual DRI production
to 5.5 million tons.
Company History
Nucor Corp.
NUE has had a unique and interesting history. Nucor began as the REO Motor Car Company, a car
company established by Ransom E Olds, founder of Oldsmobile. REO Motor Cars was eventually
unsuccessful and had to enter bankruptcy in 1938. After coming out of bankruptcy, REO sold its
manufacturing operations off, REO eventually used the cash from the sale to purchase a nuclear
consulting firm, Nuclear Consultants, Inc. REO changed its name to Nuclear Corporation of America, Inc.
and attempted to become a nuclear service company. During this time, Nuclear Corporation acquired
Vulcraft, a steel products manufacturer. Nuclear Corporation would eventually fail and enter into
bankruptcy again in 1965, the come out, and started to rebuild the business around its Vulcraft
operations. In 1968, Nuclear Corporation decided to enter into steel making and purchased an electric
arc furnace. This first electric arc furnace would be the start of an electric arc revolution, and nuclear
corporation would eventually change its name to Nucor Corporation to avoid being associated with the
nuclear industry. Nucor would go on to expand into all steel making activities, steel products
manufacturing, and metal recycling.
Page | 2
Harris Steel
Starting in 2004 as a joint venture between NUE and Harris Steel, Inc., the business of Harris Steel
Group, Inc (Harris Steel) is to fabricate various steel products. After several successful years, NUE
acquired a full interest in 2007. Harris Steel has allowed NUE to diversify its business capabilities and
product offerings into the fabrication business. Since the acquisition of Harris Steel in 2007, NUE’s
fabrication capacity has more than doubled, reaching 1.68 million tons annually. Harris Steel has strong
operations in Canada.
David J. Joseph
NUE fully acquired DJJ in 2008 and has offered significant growth opportunities through strategic
acquisitions. DJJ has add a processing capacity of 1.1 million tons of scrap, bringing NUE to a total scrap
processing capacity of 5 million tons; this represents 25% of the total capacity utilized in 2010. In
addition to its scrap processing operations, DJJ brokers ferrous scrap, internationally sources scrap, pig
iron, and other scrap substitutes, as well as brokers ferro-alloys and nonferrous metals. DJJ and its
affiliates add strategic value to NUE as a diversified steel company.
Management Overview
From left: James Darsey, Ladd Hall, Hamilton Lott, Joseph Stratman, Daniel DiMicco (CEO), John Ferriola, Keith Grass, Fames Frias
Page | 3
Executive Officers of the Registrant (As Represented in 10K)
James R. Darsey has been an Executive Vice President of Nucor since September 2010. He was
promoted to Vice President in 1996 and to President of the Vulcraft/Verco Group in 2007. He served as
General Manager of Nucor Steel in Jewett, Texas from 1999 to 2007, as General Manager of Vulcraft,
Grapeland, Texas from 1995 to 1999, as Engineering Manager of Vulcraft, Grapeland, Texas from 1987
to 1995, and as Engineering Manager of Vulcraft, Brigham City, Utah from 1986 to 1987. He began his
Nucor career in 1979 as a Design Engineer at Vulcraft, Grapeland, Texas.
Daniel R. DiMicco has been a director of Nucor since 2000 and was elected Chairman in 2006. DiMicco
has served as Nucor's Chief Executive Officer since 2000 and served as Vice Chairman from 2001 to
2006. He served as President from 2000 to 2010, Executive Vice President from 1999 to 2000, and Vice
President from 1992 to 1999, serving as General Manager of Nucor-Yamato Steel Company. DiMicco
began his career with Nucor in 1982 at Nucor Steel, Plymouth, Utah.
John J. Ferriola became President and Chief Operating Officer and was appointed to the Board of
Directors on January 1, 2011. He was the Chief Operating Officer of Steelmaking Operations from 2007
to 2010. Ferriola previously served as an Executive Vice President of Nucor from 2002 to 2007 and was a
Vice President from 1996 to 2001. He was General Manager of Nucor Steel, Crawfordsville, Indiana from
1998 to 2001, the General Manager of Nucor Steel, Norfolk, Nebraska from 1995 to 1998, the General
Manager of Vulcraft, Grapeland, Texas in 1995, and as Manager of Maintenance and Engineering at
Nucor Steel, Jewett, Texas from 1992 to 1995.
James D. Frias has been Chief Financial Officer, Treasurer and Executive Vice President since January 1,
2010. He was a Vice President of Nucor from 2006 to 2009. Frias previously served as Corporate
Controller from 2001 to 2009, as Controller of Nucor Steel, Crawfordsville, Indiana from 1994 to 2001,
and as Controller of Nucor Building Systems, Waterloo, Indiana from 1991 to 1994.
Keith B. Grass is an Executive Vice President of Nucor and serves as President and Chief Executive
Officer of DJJ. From January 2000 until Nucor acquired DJJ in February 2008, he served as the President
and Chief Executive Officer of DJJ. Before he assumed that position with DJJ, Mr. Grass held the
following positions with the same company: President and Chief Operating Officer of the Metal
Recycling Division during 1999; President of the International Division from 1996 to 1998; Vice President
of Trading from 1992 to 1996; District Manager of the Chicago trading office from 1988 to 1992; District
Manager of the Detroit office from 1986 to 1988; and District Manager of the Omaha office from 1985
to 1986. Mr. Grass began his career as a brokerage representative in DJJ's Chicago office in 1978.
Ladd R. Hall has been an Executive Vice President of Nucor since September 2007 and was Vice
President and General Manager of Nucor Steel, Berkeley County, South Carolina from 2000 to 2007; Vice
President and General Manager of Nucor Steel, Darlington, South Carolina from 1998 to 2000; Vice
President of Vulcraft, Brigham City, Utah from 1994 to 1998 and General Manager there from 1993 to
1994; General Manager of Vulcraft, Grapeland, Texas in 1993; Sales Manager of Vulcraft, Brigham City,
Utah from 1988 to 1993; and Inside Sales at Nucor Steel Plymouth, Utah from 1981 to 1988.
Page | 4
Hamilton Lott, Jr. has been an Executive Vice President of Nucor since September 1999 and was a Vice
President from 1988 to 1999. He was General Manager of Vulcraft, Florence, South Carolina from 1993
to 1999; General Manager of Vulcraft, Grapeland, Texas from 1987 to 1993; Sales Manager of Vulcraft,
St. Joe, Indiana from January 1987 to May 1987 and Engineering Manager there from 1982 to 1986.
Mr. Lott began his career with Nucor as Design Engineer at Vulcraft, Florence, South Carolina in 1975.
R. Joseph Stratman has been an Executive Vice President of Nucor since September 2007 and was Vice
President and General Manager of Nucor-Yamato Steel Company from 1999 to 2007. He was Vice
President of Nucor Steel, Norfolk, Nebraska in 1999 and General Manager there from 1998 to 1999;
Controller of Nucor-Yamato Steel Company from 1991 to 1998; and Controller of Nucor Building
Systems, Waterloo, Indiana from 1989 to 1991.
Subsector Analysis
Nucor is part of the Metals and Mining subsector encompassed within the overall Materials sector. The
Metals and Mining subsector makes up 30% of the market cap and 36% of operating profit within the
Materials sector.
The steel industry alone makes up 35% of the market cap and 14% of the operating profit within the
Metals and Mining subsector. The steel industry is comprised of a few large manufactures and several
smaller players (see Exhibit 1).
NUE makes up 10% of the steel industry, has a market cap of $14.6 billion, and has a dividend yield of
3.1%, the largest in the industry.
EXHIBIT 1
Materials Sub-Sector
Mrkt Cap
% Mrkt Cap
% of EBIT
Construction Materials
$
12,922
2%
$
6,085
1%
$
181
0%
Containers & Packaging
$
40,086
7%
$
46,299
11%
$
4,840
10%
Metals & Mining
$ 168,902
30%
$ 128,139
30%
$ 17,635
36%
Paper & Forestry Products
$
Metals & Mining
Steel
Mrkt Cap
$
58,634
% Mrkt Cap
35%
$
37,755
Net Sales
$
71,728
50%
EBIT
$ 316,540
4%
$ 214,671
% of Sales
Chemicals
24,994
56%
Net Sales
9%
% of Sales
56%
$ 23,864
$
2,819
EBIT
$
48%
6%
% of EBIT
2,474
14%
Page | 5
The Nucor Difference
Integrated Steel Companies
NUE’s integrated steel counterparts, such as United States Steel Company (X), Allegheny Technologies
(ATI), and Reliance Steel and Aluminum Co. (RS) domestically, as well as ArcelorMittal (MT)
internationally, lack the production and energy efficiency that NUE lives by. These companies utilize
blast furnace technology and operate large scale facilities with little production flexibility. The integrated
steel companies lack the ability to vary production with demand and efficiently manage costs, leading to
increased downside risk.
As the largest operator of mini mills, NUE operates 23 facilities with Electric Arc Furnaces (EAF) in the
United States. EAFs and mini mills provide many advantages over traditional integrated steel mills which
utilize blast furnaces. EAFs use significantly less energy per unit weight. Mini mills can be quickly and
efficiently adjusted for various production demand levels over large steel mills and blast furnaces which
cannot. Production can also be stopped and started in a matter of hours vs days for traditional
integrated blast furnace operators such as US Steel. Furthermore, by utilizing EAFs and mini mills,
located all across the US, NUE can further lower costs by being closer to end users. In all, NUE’s
operations allow for greater efficiency of production, lower and more efficient energy use, and
significantly reduced pollutants (see Exhibit 2 & Exhibit 3).
Page | 6
EXHIBIT 2
Energy Consumed (GJ/t) by Manufacturing Type
2
1.6
1.2
0.8
0.4
0
Thick Slab Caster
Thin Slab Caster
Castrip Caster
EXHIBIT 3
GGE (CO2 Equivalent)
0.25
0.2
0.15
0.1
0.05
0
Thick Slab Caster
Thin Slab Caster
Castrip Caster
Page | 7
Mini-Mills
NUE is recognized as a pioneer and leader in mini mill steel production. Mini mills are simply smaller
scale steel production facilities that use scrap as their primary raw material source. The first NUE mini
mill supplied Vulcraft, merely a construction joist division in 1969, with an economical and reliable
supply of steel. Mini mills are recognized over their integrated counterparts for their energy, time, and
labor efficiency.
Electric Arc Furnaces
EXHIBIT 4
Electric Arc Furnaces (EAF) are the core of
the mini mill production process. Anywhere
from 130 to 170 tons of scrap and iron units
can be reduced to liquid steel in the matter
of an hour. EAFs are the core of mini mills as
blast furnaces are the core of integrated
steel mills that rely heavily on iron ore pellets
for the production of liquid iron. The liquid
iron must then be processed with carbon to
produce the same steel product that NUE
produces in one easy step. The use of scrap
steel and EAFs allow NUE to streamline the production of steel and limit the adverse effects
environmental effects of the traditional steel making process (see Exhibit 4).
Thin-Slab Casting
Thin-slab casting was once recognized as NUE’s most important contribution to the steel industry. In
short, thin-slab casting allowed mini mills to produce 2-inch steel slabs in a single step. Previously, flatrolled steel was cast into slabs 8 to 10 inches thick. Steel companies would then use a “roughing mill” to
reduce it to an inch and a half thick. With thin-slab casting, the two inch thick slabs can go directly to the
finishing mill.
Micro Mills & Thin-Strip Casting®
Micro mills and thin strip casting is recognized as the future of the steel industry. Trademarked under
the name Castrip®, the process involves pouring molten steel through a caster that converts it directly
into solid sheets. This new process dramatically reduces the amount of time, space, manpower and
energy needed to produce coiled steel, even over the mini mill process. The long term goal is to produce
ultra-thin cast strips as thin as 0.7mm. As the cast thickness is reduced, the productivity of the process is
increased. After implementing micro mills and Castrip® production in 2002, NUE has successfully opened
two micro mill facilities.
Page | 8
In recap, the major differences between conventional slab casting, used by integrated steel mills, thin
slab casting, and strip casting, are inherent in the processes themselves. Innovation in the steel industry,
such that NUE has embodied since its inception, results in more productive and efficient steel output
(see Exhibit 5).
EXHIBIT 5
Direct Competitors
Nucor competes with all other steel manufactures in the United States and in the world. The main
American competition is United States Steel Company (X), Allegheny Technologies Inc. (ATI), and
Reliance Steel and Aluminum Co. (RS).
United States Steel Company (X)
US Steel is an integrated steel producer and one of America’s oldest steel companies. US Steel has a
market cap of $7.8 billion and sales in 2009 of $11 billion. US Steel is a traditional steel manufacturer,
based on integrated steel operations and iron ore melt.
Allegheny Technologies (ATI)
Allegheny is one of the largest producers of metals and specialty metals in the United States. ATI had
revenues of $3 billion in 2009 and a current market cap of $6.71 billion.
Page | 9
Reliance Steel and Aluminum Co. (RS)
Reliance Steel and Aluminum is a producer of various metals and specialty metals. RS produces
aluminum, copper, titanium, and steel. Reliance has a current market cap of $4.42 billion and revenues
of $5.3 billion in 2009.
International Competition
ArcelorMittal (MT)
MT is the world’s largest steel producer by volume. MT is head-quartered in Luxembourg and serves the
European steel market. MT has a market cap of $56.96 billion and sales in 2009 of $61 billion.
Business Segments & Analysis
Products Overview
Nucor (“Nucor” or the “Company”) and its affiliates manufacture steel and steel products, as well as
produces direct reduced iron (“DRI”) for use in the Company’s steel mills. The Company also processes
ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briqueted iron
(“HBI”) and DRI through the David J. Joseph Company (“DJJ”) which it acquired in 2008. Operations
include various international trading companies that buy and sell steel and steel products manufactured
by Nucor. Most of Nucor’s operating facilities are located in North America, however, the Company is
increasingly expanding its operation horizons outside of North America as well.
Segments
Nucor reports sales and earnings in three business segments: steel mills, steel products, and raw
materials. While each segment is important to the overall development and growth of the company, the
steel mills comprised approximately 69% of the Company’s sales in the fiscal year ended 31 Dec 2010.
EXHIBIT 6
$1,736 $411
$26,410
Steel Mills
Steel Products
Raw Materials
Page | 10
Steel Mills Segment
The steel mills product segment encompasses hot and cold-rolled sheet steel, plate steel, structural
steel, and bar steel. Steel mills products are produced with scrap steel and substitutes. The production
process makes use of electric arc furnaces, continuous casting, and automated rolling mills. This
segments products are sold to steel service centers,
Scrap-based Steel Mills
fabricators, and manufacturers throughout the U.S.,
Canada, and Mexico, with growing prospects of global
expansion. While inventories are maintained in
anticipation of orders, 40% of the Company’s sheet steel
sales were to contract customers in the fiscal year
ended 31 Dec 2010. The contracts allowed for the
adjustment of steel prices relative to raw materials costs
over a six to twelve month time period, protecting gross
margin. Plate, structural, and bar steel are produced in
standardized sizes and grades, allowing the Company to maintain inventory levels to meet expected
orders. Certain products are produced to specific customer requests, serving various sectors including
automotive, energy, agricultural, heavy equipment, and transportation. In the fiscal year ended Dec
2010, 87% of production was sold to external customers, the other 23% of sales went to downstream
operations.
Steel Products
The steel products segment encompasses the production of steel joists and joist girders, steel deck,
fabricated concrete reinforcing steel, cold finished steel, steel fasteners, metal building systems, light
gauge steel framing, steel grating and expanded metal, wire, and wire mesh. The steel products segment
caters to general contractors and fabricators located throughout the U.S.
The sales contracts of steel joists and joist girders, and
steel deck are fixed-price contracts that are won through
competitive bidding. Long-term contracts may permit
adjusting of prices as raw materials costs change. As a
result of the specificity of these orders, no inventories of
these products are maintained. Cold finished steel, steel
fasteners, steel grating, wire and wire mesh are
produced in standard sizes and inventories are
maintained to meet expected orders.
Steel Product Operations
Products within the steel mills and steel products segments are marketed through in-house sales forces.
The markets for products in the steel mill and steel products segment are significantly exposed to capital
and durable goods spending, which are largely determined by global economic conditions.
Page | 11
Raw Materials
The raw materials segment encompasses the production of DRI, the brokerage of ferrous and
nonferrous metals, pig iron, HBI and DRI, the supply of ferro-alloys, and the process of ferrous and
nonferrous scrap metal. The process of ferrous and nonferrous scrap metal is used in the Company’s
steel mills and sold to a variety of domestic and international external customers. Within this segment,
the company provides transportation, material handling
Raw Material Producers
and other services to users of scrap metals. While the
primary customers for ferrous scrap steel are EAF steel
mills, nonferrous scrap metal is sold to steel and metal
manufacturers.
The primary raw materials for NUE steel mills segment
are scrap steel and substitutes such as pig iron and DRI.
NUE operates a DRI plant in Trinidad with a capacity of
1,800,000 metric tons of DRI annually. The primary raw
material for the DRI facility in Trinidad is iron ore and natural gas. Plans have been announced to
construct a second and third DRI facility in the State of Louisiana at a location on the Mississippi river
with a total capacity of 5,000,000 tons of DRI annually. Initially, NUE will build one facility with an annual
DRI capacity of 2,500,000 tons. NUE previously entered into an agreement with a natural gas exploration
and production firm that will involve drilling and completing on-shore natural gas over a seven-year
period. Natural gas generated by this working interest drilling program will be sold to offset the
Company’s exposure to the volatility of the price of gas consumed by the planned Louisiana DRI facility.
Page | 12
Business Development
Nucor’s business and growth strategy has allowed it to capitalize on growth opportunities as they
become available. These strategies are integrated into NUE business model and are part of a long-term
outlook. There are four “prongs” to their strategy:
1. Optimizing existing operations
2. Growing through various “greenfield projects” that capitalize on new technologies and result in
greater production efficiency, operating leverage, and environmental safety
3. Acquiring other companies that will strengthen Nucor’s position as North America’s most
diversified producer of sell and steel products
4. Growing internationally with an emphasis on strategic acquisitions
Optimizing existing operations
Optimizing existing operations has been part of the NUE model since it was Reo, a car company, in 1905.
Management aims to continuously improve on the efficiency of current facilities and product offerings.
Through the innovation of the steel production process, as seen in the development of conventional slab
casting, thin slab casting, and thin strip casting, NUE has increased the efficiency and the capacity of its
existing operations (see Exhibit 7).
EXHIBIT 7
Segments
2010 Capacity
2009 Capacity
Steel Mills
Total Capacity
26,410
Steel Products
Total Capacity
1,736
Raw Materials
Total Capacity
Total Company Capacity
411
28,557
Growing through various “greenfield projects” that capitalize on new technologies and result in
greater production efficiency, operating leverage, and environmental safety
The current “greenfield projects” include the a special bar quality steel mill in Memphis, TN, a Castrip®
facility in Blytheville, AK, and a new DRI facility St. James Parish, LA. Each of these projects contributes to
the increasing production efficiency, as in the streamlined Castrip® process (Exhibit 5), and the goal of
reduced energy use and pollution output (refer to Exhibit 2 & Exhibit 3).
Acquiring other companies that will strengthen Nucor’s position as North America’s most diversified
producer of sell and steel products
NUE has slowed its pace of acquisitions significantly from its pre 2008 highs. As a result of strategic
acquisitions, NUE has doubled its capacity since 2006 to produce downstream products. The purchase of
DJJ is one example of the value NUE has gained through its acquisition strategy. With the purchase, NUE
further integrated the supply chain within the Company.
Page | 13
Growing internationally with an emphasis on strategic acquisitions
Recent international developments have expanded NUE presence abroad. Through a joint venture with
Duferco S.A., NUE has expanded its operations to Brescia, Italy. The resulting company, Duferdofin
Nucor S.r.l., produces products for steel service centers and distributors in the region.
Competitive Analysis
Porter’s Five/Six Forces
Threat of Substitute Products:
Medium-High
Threat of New Entrants:
Low
Competitive Rivalry
w/in an Industry:
High
Bargaining Power of Suppliers:
Low
Bargaining Power of Customers:
Low
Bargaining Power of Customers: Low
The largest single purchaser of Nucor product accounts for 4% of total sales. There is not a single or
large group of purchasers that acquire the majority of Nucor’s product. Furthermore, steel hot rolled
and cold rolled prices are set by the steel spot price leaving little room for negotiation.
Threat of New Entrants: Low
The initial investment and capital expenditure required to enter into the steel industry is too great. Very
few individuals or corporations have the resources to start a steel producer.
Bargaining Power of Suppliers: Low
Nucor has strong control over its supply line. Nucor purchased its largest supplier of scrap metal, DJJ, in
2008. Nucor also operated a DRI plant in Trinidad for steady access to iron. Nucor is currently opening a
new DRI plant in Louisiana, increasing DRI capacity to 5 million tons/year.
Threat of Substitute Products: Medium-High
There are many steel manufactures producing the same basic product, hot and cold rolled steel and
steel products. Furthermore, the threat of cheaper Chinese steel could take sales away from Nucor.
Nucor has to rely on an increase in demand of steel, producing a high quality product, and staying price
competitive. Therefore, there is a medium- high threat of substitutes.
Page | 14
Competitive Rivalry w/in an Industry: High
The steel industry is very competitive because everyone is selling a similar product. There is much
competition to get large contracts. Nucor has a competitive advantage by using electric arc mini mills
which provide a much lower cost per unit ton. Electric arc mini mills can adjust to demand easier and
quicker than integrated steel manufactures. The ability to adjust production leads to strong downside
protection and upside gain.
Government: High
The action that the United States government, the Chinese government, and the World Trade
Organizations take into the future will impact Nucor and the Steel industry. If the US government
protects the domestic steel producers, the steel industry will benefit, if they don’t, Chinese steel could
gain a serious competitive advantage. If the Chinese government continues to manipulate its currency
and subsidize Chinese steel producers, it puts Nucor at disadvantage. The WTO could also play a
significant role in enforcing or not enforcing the current trade laws and fair trade policy.
Page | 15
Key Drivers
Price – Volume Analysis
A key driver of any steel producer is price, measured by the composite price a ton and the hot rolled and
cold rolled spot prices. Composite price/ton is the average amount of money gained from a sale of 1 ton
of steel product. The spot price is actual price of a ton of hot rolled or cold rolled steel. They are related
because as the spot price increases, composite price will increase as well. Volume is related to spot
price because spot is related to demand which leads to volume demanded. For example, in 2009, the
composite price/ton decreased by 32% and volume decreased 30% from 25 million tons to 17 million
tons. The decrease in composite price leads to a 50% decrease in revenues. Furthermore, as spot price
increases, it leads to increased margins for Nucor, because the price of scrap material costs increase at a
decreasing rate over the steel spot price. Therefore, the spot price of steel and volume produced is a
key driver of Nucor’s Value.
Composite Price per Ton
1000
900
800
700
600
500
400
300
200
100
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Page | 16
Sales Volume (tons/year)
30000
25000
20000
15000
10000
5000
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Recovery of Economy and Infrastructure Development
The economy continuing to recover and grow is a key driver for Nucor. Steel is used in construction,
auto manufacturing, and consumer products. All of those are dependent on a strong economy and
economic growth. Nucor management has stated that GDP grows needs to be at or above 3% for steel
demand to grow. Nucor is not currently heavily involved in the auto industry, but is heavily involved in
the construction industry. Nucor needs residential and especially non-residential construction to start to
grow to increase steel demand. In 2011, GDP is expected to grow at around 3.3% and increase into the
future. According to Prosales magazine, residential housing construction will grow between 6% and 16%
from 2011 to 2014.The McGraw-Hill is construction forecast is estimating an 8% increase in construction
starts in 2011, a 16% increase in commercial construction, and 8% increase in hotel construction.
However, McGraw also predicts a 1% decrease in public construction projects. It is important that GDP
increases, as well as construction spending, to drive Nucor’s value into the future.
New Products and Markets
Nucor has expressed interest in entering new steel markets and growing is target markets. Nucor would
like to get involved in the auto manufacturing business and create the types of steel required by the
industry. Furthermore, Nucor is expanding more into the DRI market with the construction of its new
DRI plant in Louisiana expanding total DRI capacity to five million tons a year.
Page | 17
Cost Control Mechanisms
Surcharge Mechanism
As the price of raw materials such as scrap steel increases, NUE bakes the increased costs into the selling
price of the Company’s steel products, passing the increased cost on to customers. The effect of this
mechanism has greater effect with higher raw material costs.
Pay for Performance
By adjusting the hourly and salary pay of our employees based on production output, NUE can retain
employees and continue to operate facilities. Competitors with labor as a fixed cost may be forced to lay
off employees or shut down factories during periods of low production. NUE thus has better control of
its costs and is relatively more efficient.
Page | 18
Key Risks
Steel & Scrap Prices
While NUE is working to vertically integrate the production of raw materials in its business model.
However, the Company continues to rely on raw materials suppliers for the majority of its production
needs. In order to further limit their exposure to suppliers, a DRI facility in Trinidad, as well as a new DRI
site being constructed in Louisiana, as well as the acquisition and integration of DJJ, continues to relieve
the need for outside suppliers. While scrap and scrap substitutes are sufficient for production, their
prices are susceptible to global demand from competitors.
Natural Gas Prices & Electricity
NUE is significantly exposed to natural gas prices as the raw material is a significant input in the steel
production process. However, NUE does employ cash flow hedges to manage the risk of increased
natural gas prices. Risk aside, in the last five years natural gas prices have decreased significantly as a
result of technology advances in natural gas production and extraction. Furthermore, any rise in
electricity and other energy costs could adversely affect operating profits. Despite this risk, NUE plants
are the most energy efficient and cost effective in the steel business. NUE plants inherently protect the
Company from environmental legislation and external costs associated with environmental safety.
Foreign Imports
Steel companies in the United States are subject to competition from China. Chinese steel prices remain
low as a result of government subsidies and currency manipulation. China has become the world’s
leading producer of steel, accounting for 40% of global steel production annually. If the Chinese steel
production continues to outstrip demand, without the protection of domestic policy legislation, it could
result in cheap steel imports, putting domestic steel companies at a competitive disadvantage. NUE and
the steel industry has been heavily lobbying the US government and the World Trade Organization
(WTO) to prohibit blatant Chinese trade violations, such as dumping steel in the U.S. market in 2008
under fair value. The Obama administration has been proactive in preventing these unfair trade
practices and is working to protect the domestic steel market. NUE believes the U.S. government and
Page | 19
the WTO will enforce trade regulations, and that the U.S. government will protect domestic steel
manufactures.
Global Economic Exposure
The sluggish recovery from the 4Q2008 financial crisis is continuing to negatively impact global demand
for steel products. If the recovery slows further, it could impact NUE’s ability to not only produce
sufficient operating profits, but could limit the Company’s and their customer’s ability to obtain further
credit facilities.
A depressed housing market, slow long-term unemployment recovery, and the rising municipal cutbacks in slowing non-residential construction spending, could continue to adversely affect demand for
NUE products. Furthermore, supplying highly cyclical industries such as commercial construction,
energy, appliance, and automotive could continue to put downward pressure on demand if the
domestic or global economy continues its slow recovery or turns back into a recession. Despite losses in
2009, the first in NUE’s history, the Company returned to profitability in 2010, giving substance to a
positive long-term economic outlook.
Managing Market Risk Exposure
Interest Rate Risk
By acquiring a combination of variable- and fixed-rate debt, NUE manages its exposure to adverse
effects of interest rates. NUE’s debt is currently made up of 76% fixed rates and 24% variable rates. The
variable rates are adjusted on a weekly or annual basis. NUE concentrates its investments on liquid,
short maturity investments, significantly reducing the impact of interest rate changes.
Commodity Price Risk
As previously stated, NUE has significant exposure to raw materials and energy prices. In order to pass
variations in the cost of raw materials such as scrap steel on to their customers, NUE implements a
“surcharge mechanism.” The mechanism is designed to offset the cost of raw materials more when the
costs are higher. In the past, this has allowed NUE to maintain its gross margin targets. NUE also
employs various financial derivatives to hedge exposure to raw material and energy costs.
Foreign Currency Risk
NUE is exposed to foreign currency risk through its operations in Canada, Europe, Trinidad and Australia.
In order to offset an adverse effect due to foreign currency risk, NUE employs derivative hedges
opportunistically. Nucor is also exposed to currency risk when exporting its steel products. The dollar is
currently relatively weak, providing upside for exports, however, that can change at any time. Nucor has
hedged its currency risk in Europe, by acquiring 50% Duferdofin Nucor in 2008, giving Nucor the ability
to produce product in Europe.
Page | 20
Model
Historical Price-Volume Data
Historical
Date
Composite price/ton Sales Volume/ton
354
357
359
595
621
667
723
940
637
720
624
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Average
Volume G rate Price G Rate
12237
13442
17473
19109
20465
22118
22940
25187
17576
22019
20,037
10%
30%
9%
7%
8%
4%
10%
-30%
25%
8%
Total Capacity G rate
1%
1%
66%
4%
7%
8%
30%
-32%
13%
11%
21%
5%
7%
6%
6%
12%
19%
4%
3%
9%
Rev Build
Year
Total Revenue
Composite Price/ton
Volume
Total capacity
Capacity Utilization
Year
Total Revenue
Composite Price/ton
Volume
Total capacity
Capacity Utilization
2008
Growth Rate
2009
Growth Rate
2010
23,663
0.94
25,174
28,577
88.09%
-52.71%
-32.23%
-30.22%
0.00%
-30%
11,190
0.637
17,567
28,577
61%
41.59%
13.03%
25.27%
0.00%
25%
15,845
0.72
22,006
28,577
77%
2013
2014
2015
2016
2017
$ 18,914 $
0.76
24,754
32,145
77.01%
20,064 $ 21,284 $
0.78
0.79
25,744
26,774
33,431
34,768
77.01% 77.01%
22,578 $ 23,951 $
0.81
0.83
27,845
28,959
36,159
37,605
77.01% 77.01%
Growth Rate
2011
2012
$ 16,808 $ 17,830
0.73
0.75
22,887
23,802
29,720
30,909
77.01% 77.01%
2%
4%
4%
2018
2019
2020
25,407 $ 26,952 $ 28,590
0.84
0.86
0.88
30,117
31,322
32,575
39,110
40,674
42,301
77.01% 77.01% 77.01%
Page | 21
COGS Build
Year
2008
2009
$ 23,663 $
17.12%
$ 4,051 $
$ 19,612 $
Total Revenue
Margin
Gross Profit
COGS
Year
2015
Margin
Gross Profit
COGS
11,190 $ 15,845 $
1.4%
5.55%
154 $ 879 $
11,036 $ 14,965 $
2016
$ 21,284 $
15.00%
$ 3,193 $
$ 18,091 $
Total Revenue
2010
2017
22,578 $ 23,951 $
15.00% 15.00%
3,387 $ 3,593 $
19,191 $ 20,358 $
2011
2012
2013
16,808 $ 17,830 $
10.00% 12.00%
1,681 $ 2,140 $
15,127 $ 15,690 $
2018
2019
2014
18,914 $ 20,064
15.00% 16.00%
2,837 $ 3,210
16,077 $ 16,854
2020
25,407 $ 26,952 $
15.00% 15.00%
3,811 $ 4,043 $
21,596 $ 22,909 $
28,590
15.00%
4,289
24,302
Sensitivity Analysis
Base
10 year Average Growth
Volume G-rate
Composite price G-rate
Total Capacity G-rate
Stock Price
$
4%
2%
4%
66.22
Bear
Volume G-rate
Composite price G-rate
Total Capacity G-rate
Stock Price
$
8%
11%
9%
258.04
$
8%
4%
10%
120.62
Bull
Volume G-rate
Composite price G-rate
Total Capacity G-rate
Stock Price
$
-4%
-4%
0%
28.85
Volume G-rate
Composite price G-rate
Total Capacity G-rate
Stock Price
Page | 22
Sensitivity of 2011 Revenue to Volume and Composite Price
Growth in Volume
$
16,808
-30%
-25%
8,318
9,428
11,091
11,202
12,755
13,864
-15%
Growth in
Composite Price
-15%
0%
1%
15%
25%
0%
10,101
11,448
13,468
13,603
15,488
16,835
11,883
13,468
15,845
16,003
18,221
19,806
5%
15%
12,478
14,141
16,637
16,803
19,132
20,796
13,666
15,488
18,221
18,404
20,955
22,777
25%
14,854
16,835
19,806
20,004
22,777
24,757
Growth in Volume
$
16,808
-30%
Growth in
Composite Price
-25%
-15%
0%
1%
15%
25%
-15%
-51%
-44%
-34%
-33%
-24%
-18%
0%
-40%
-32%
-20%
-19%
-8%
0%
-29%
-20%
-6%
-5%
8%
18%
5%
15%
-26%
-16%
-1%
0%
14%
24%
-19%
-8%
8%
9%
25%
36%
25%
-12%
0%
18%
19%
36%
47%
08-10 Beta Calculation vs 02-10 Beta Calculation
y = 1.4957x + 0.0003
R² = 0.5712
-15%
20%
20%
10%
10%
0%
-10%
-5%
0%
5%
-10%
-20%
-30%
% Change S&P 500
10%
15%
y = 1.4144x + 0.0003
R² = 0.3416
30%
% Change NUE
% Change NUE
30%
-15%
0%
-10%
-5%
0%
5%
10%
-10%
-20%
-30%
% Change S&P 500
Page | 23
15%
Multiples
Ticker
MC
% MC P/E NTM P/BV
P/CF
P/Sales
EV/EBITDA Div Yld
ATI
6,334
19%
19.4
3.1
19.6
1.6
21.6
1.1%
NUE
14,876
45%
16.0
2.1
14.9
0.9
16.4
3.1%
RS
3,964
12%
11.5
1.4
10.4
0.6
10.1
0.9%
X
7,927
24%
12.6
2.1
24.6
0.5
20.9
0.4%
14.9
2.2
17.4
0.9
17.2
0.9%
$ 32.75
$ 31.05
$ 61.14
$ 47.69
Mean
5,517
NUE Imp Price
Avg Price
91.08
$ 52.74
Company Comps
Allegheny Technologies Inc. (ATI), Reliance Steel & Aluminum Co. (RS), and United States Steel Corp. (X),
were chosen as the closest NUE comps on the basis of market cap and annual revenues. Being that the
steel industry is highly exposed to steel spot prices, companies with similar revenues should compare on
volume of output as well. Better financial performance will thus be a result of production efficiency, cost
control, and cash flow management.
P/E NTM P/E for the next twelve months was used because the P/E ratio for the last two years has been
too low or non-existent based on steel taking a huge hit from the recession in 2008. Both US Steel and
Nucor had negative net income in 2009 and unusually low net Income in 2010. However, the economy
and steel industry is recovering. Based on P/E analysis, Nucor is overvalued; a price of $32.75 was
returned. This could be based off of low projected earnings in 2011 when compared to historical (pre2008) returns.
P/BV Price to book value returned a share price of $31.06, indicating that Nucor is overvalued. Nucor
does not hold has much debt as some of its competitors and may be decreased because of that.
P/S Price to Sales analysis produced a share price of $47.70, indicating Nucor is under/fairly valued.
Nucor’s sales are projected to increase in 2011 and start to return to historic numbers. In 2008, Nucor
had sales of $23 billion, compared with $11 billion in 2009 after the crash of steel. This indicates the
volatility of the steel industry, as well as, the impact the recession had on steel producers. However,
Page | 24
Nucor looks to rebound and get back to 2008 numbers. As steel spot price continues to increase, Nucor
should continue to see increases in sales.
P/CF Electric arc mini-mills prove a competitive advantage to Nucor in the form of a cast savings through
increased efficiency. This leads to a greater amount of revenues flowing through to cash flows, and why
Nucor has generally had above average cash flows relative to the steel industry. A price to cash flow
analysis produced a share price of $61.21, indicating Nucor is undervalued.
EV/EBITDA Enterprise Value to EBITDA analysis produced a share price of $91.08, indicating Nucor is
greatly undervalued. This could be attributed to Nucor’s high EBITDA based on high margins though use
of scrap materials and electric arc mini-mills. As well as, Nucor’s strong balance sheet and cash holdings.
Average The average share price of the multiples was $52.74.
$100 Growth (10 Year)
If $100 was invested into Nucor in April of 2000 and all dividends reinvested, $100 would have grown to
$159.6. $159 may appear to be a small gain, however, the last two years, since 2008, steel has been hit
extremely hard by the recession. If the Nucor security was sold before 2008, the value could have been
up to $231 and over $300 in 2006.
$100 Investment Growth Over the Past 10 Years
350
300
250
200
150
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Page | 25
2016
2017
2018
2019
2020
543
576
611
649
688
543
3,387
730
576
3,593
774
612
3,811
821
649
4,043
871
688
4,289
924
67
3,600
512
63
3,394
3,193
59
3,199
483
56
3,016
3,210
53
2,843
455
50
2,680
2,837
47
2,727
429
44
2,382
2,140
42
1,710
405
39
1,276
1,681
4%
16,808 17,830 18,914 20,064 21,284 22,578 23,951 25,407 26,952 28,590
2015
15,127 15,690 16,077 16,854 18,091 19,191 20,358 21,596 22,909 24,302
2014
14,584 15,114 15,466 16,205 17,403 18,461 19,584 20,775 22,038 23,378
2013
14,965
2012
14,383
2011
11,036
2010
10,469
2009
19,612
2008
19,063
2007
13,463
2006
13,035
4,139 4,802 6,266 11,377 12,701 14,751 16,593 23,663 11,190 15,845
2001 2002 2003
11,283
2005
Pro Forma Income Statement
10,919
2004
Sales/Revenue
9,710
10,085
5.63%
9,116
70
512
8,732
72
494
5,997
69
479
5,632
24
403
4,332
0
364
4,025
0
375
3,820
0
383
3,531
COGS excluding D&A
0
364
381
879
0
348
154
307
751
4,051
0
578
3,130
289
592
3,468
2.41%
Cost of Goods Sold (COGS) incl. D&A
Depreciation
494
2,616
Amortization of Intangibles
415
8
498
2,261
15
(194)
165
44
3,300
269
46
2,552
176
78
2,876
470
32
2,122
159
9
1,846
319
7
104
Gross Income
9
294
SG&A Expense
36
160
0.23%
EBIT (Operating Income)
Nonoperating Income (Expense) - Net
0
3.76%
291
161
274
150
258
135
244
51
230
40
216
37
204
29
192
27
181
23
z/o
171
22
46
Interest Expense
299
3,243
3
0
(332)
3,057
105
0
3,104
2,882
0
387
2,503
0
2,547
2,360
2,717
0
365
0
2,913
2,225
1,995
2,561
(9)
344
0
2,127
2,097
1,880
2,414
13
324
0
1,812
1,977
1,773
2,476
(7)
306
0
91
1,864
1,671
2,145
(30)
288
0
310
1,912
1,575
1,488
0
296
0
174
Unusual Expense (Income) - Net
1,656
1,616
1,066
Pretax Income
256
0
1,148
1,400
740
(32)
823
178
0
206
971
2,116
127
697
(237)
134
696
0
56
657
2,145
(294)
0
314
620
1,765
1,831
0
294
584
1,977
1,472
0
219
551
(82)
(177)
1,421
1,758
0
0
959
111
565
0
781
1,202
1,310
0
0
936
81
489
0
706
87
1,121
0
0
610
24
339
4
242
63
0
0
79
243
0
68
113
162
z/o
0
61
0
72 15.47%
113
61 22.81%
Income Taxes
Equity in Earnings of Affiliates
Consolidated Net Income
Minority Interest Expense
Net Income
Page | 26
Pro Forma Balance Sheet
Assets
Cash and ST Investmetns
1,288
1,850
5,196
1,550
2,649
2,449
1,962
6,063
1,829
2,811
2,598
2,082
6,999
2,127
2020
4,396
2,309
2019
1,040
1,744
2,498
2018
3,657
2,176
2017
807
1,644
2,354
2016
2,975
2,052
2015
587
1,550
2,219
2014
2,348
1,934
2013
380
1,461
2,092
2012
1,640
1,823
9,875 11,160 12,539 14,019 15,607 17,310
2011
184
1,377
1,972
2010 Rate
1,111
1,719
8,679
2009
0
1,298
1,859
2008
974
1,620
7,435
2007
1,224
1,753
2006
1,527
6,399
2005
1,325
7.28%
1,652
2004
2,017
1,154
9.09%
5,786
2003
225
1,440
9.83%
2002
2,355
1,116
1,558
2001
0
1,313
835
5,861
11,207
1,394
1,229
5,182
432
9,854
182
2,408
812
7,502
8,596
2,196
1,612
6,397
403
7,427
0
1,602
720
7,213
6,341
1,838
1,077
5,073
363
5,332
0
1,141
624
6,540
4,396
779
1,011
4,675
232
3,397
0
945
521
5,903
2,593
350
963
4,072
170
2,198
0
1,240
501
5,592
2,479
219
572
3,175
146
2,242
0
560
478
5,183
2,355
462
484
1,621
142
1,576
0
589
455
4,981
2,196
434
1,424
133
1,838
467
452
4,623
779
1,374
123
350
Total Accounts Receivable
387
4,475
219
Inventories
100
462
Buildings
3,605
Excess Cash
Land & Improvements
Total Current Assets
ST Investments
Cash
Machinery & Equipment
1
0
324
0
0
370
0
0
860
0
0
391
0
0
110
0
7
227
0
0
92
0
0
--
0
0
--
0
0
--
Construction in Progress
Long-Term Note Receivable
169
14,112 15,007 16,341 17,902 19,434 21,076 22,833 24,715 26,728 28,882
4,858
93
159
2,706
13,922
4,580
37
150
2,679
12,572
4,317
40
141
1,318
13,874
4,070
56
133
0
9,826
3,837
169
125
0
7,885
3,617
44
118
0
7,139
3,409
15
112
0
6,133
3,214
55
105
0
4,492
3,030
25
99
0
4,381
2,856
20
2,692 16.99%
3,759
Intangible Assets
Other Assets
0.59%
Total Assets
1
1,504
5.26%
1,418
834
1,337
633
1,260
472
1,188
692
1,120
517
1,056
502
995
472
938
330
884
247
1,073
189
Accounts Payable
0
3.75%
1,011
0
0
594
Income Tax Payable
953
0
115
0
512
899
199
114
0
932
847
0
111
0
868
798
0
177
0
933
753
0
181
0
753
710
29
101
0
0
0
565
669
9
0
300
0
0
0
319
631
0
207
2,716
1,504
2,559
155
2,412
580
2,274
436
2,144
455
2,021
369
1,905
320
$3,250
1,796
91
1,227
1,693
116
$2,650
1,596
93
1,854
565
$2,825
532
1,582
502
0
8,446
0
0
0
9,561
0
0
0
10,620
0
0
0
11,760
0
0
0
12,985
0
0
0
14,302
0
0
0
15,716
1,712
0
0
0
17,234
1,712
1.97%
7,532
0
--
0
0
$313
7,033
0
($6)
0
0
$294
0
$281
z/o
0
($180)
$6,796
z/o
--
($41)
z/o
$209
$7,120
$0
--
($54)
$13
$147
$7,861
$0
--
$6,622
($135)
$13
$144
$149
$11
($66)
--
$5,809
$4
$80
$4,709
$0
$10
--
$147
$0
$4
$257
$3,689
$47
--
$117
$0
($3)
$265
$99
$2,642
($1)
--
$81
$2,642
$0
($0)
$152
$1,825
473
1,712
9,850 10,449 11,086
$525
446
1,712
9,286
1,450
420
1,712
8,754
--
396
1,712
8,252
1,256
373
1,712
7,779
--
352
1,712
7,333
1,066
332
1,712
6,913
--
1,712
6,517
630
$1,712
$6,591
--
$1,676
$4,988
592
$1,630
$5,618
--
$256
$4,426
484
$196
$2,820
295
Dividends Payable
Other Current Liabilities
Accrued Payroll
Bonds - Senior Unsec.
Total Current Liabilities
LTD Current (Debt/Capital Leases)
Other Liabilities
$192
$1,274 $1,841 $1,973 $2,504 $2,665
$2,539
$0
$0
Additional Paid-In Capital/Capital Surplus
Total Liabilities
$0
$0
Retained Earnings
Cumulative Translation Adjustment
$0
14,112 15,007 16,341 17,902 19,434 21,076 22,833 24,715 26,728 28,882
Unrealized Gain/Loss Marketable Securities
Other Appropriated Reserves
13,922
7,139
($739) ($1,332) ($2,078) ($1,521) ($1,514) ($1,510) (1,510) (1,510) (1,510) (1,510) (1,510) (1,510) (1,510) (1,510) (1,510) (1,510) (1,510)
12,572
6,133
($452)
13,874
4,492
($453)
9,826
4,381
($454)
7,885
3,759
($455)
Treasury Stock
Shareholder's Equity & Liabilities
Page | 27
Pro Forma Cash Flow Statement
Cash Flow From Operating Ac tivities
2001 2002 2003 2004 2005
0
(390)
0
(48)
0
63 1,121 1,310
18
(196)
(67)
0
1,758
(23)
(460)
(535)
(182)
1,472
383
182
1,831
(106)
(807) 1,095
113
(225)
(294)
127
(245)
(324)
(929)
134
(23)
(95)
(88)
(70)
696
(25)
(100)
(93)
(74)
(26)
(107)
(99)
(79)
(28)
(113)
(104)
(84)
(30)
(120)
(111)
(89)
(31)
(127)
(118)
(94)
(33)
(135)
(125)
(100)
(35)
(143)
(132)
(106)
(38)
(152)
(140)
(112)
(40)
(161)
(149)
(119)
971 1,400 1,616 1,575 1,671 1,773 1,880 1,995 2,116
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(89)
(85)
295
2008 2009 2010
0
(56)
(679)
2006 2007
(50)
(5)
29
162
(122)
113
(122)
Net Income
Inventory
24
9
58
52
(20)
(9)
83
432 1,661
266
29
142
188
(29)
30
1,709
181
0
15
381
(66)
0
175
1,512
64
199
(220)
(122)
126
(420)
(199)
161
(954)
82
0
200
507
36
0
51
586
(38)
0
(54)
992 1,183 1,116 1,184 1,256 1,332 1,413 1,498
(41)
0
(57)
(43)
0
(61)
(46)
0
(64)
(49)
0
(68)
(51)
0
(72)
(55)
0
(77)
(58)
0
(81)
(1)
(86)
A/R
Short-Term Investments
Other Current Assets
(40)
Income Tax Payable
A/P
Other Current Liabilities
Other Appropriated Reserves
Unrealied Gain/Loss Marketble Securities
Cumulative Translation Adjustment
Other Liabilities
Deferred Taxes
ST Debt & Current Portion LT Debt
Other Assets
Intangible Assets
LT Notes Receivable
(67)
0
0
0
0
18
0
113
(76)
5
418
16
(5)
0
0
(566)
0
(566)
(35)
(63)
(39)
1
0
0
0
18
0
(8)
74
2
25
(16)
(30)
0
0
115
0
115
350
429 1,058
123
(75)
(4)
1
(0)
(1)
0
30
37
(177)
248
4
20
0
40
0
0
(126)
(125)
(1)
779
21
(287)
(3)
48
0
45
0
65
(96)
4
(1)
1
(29)
0
(7)
(73)
(36)
(37)
1,838
359
(529) (1,326)
(290)
2,196
(658)
44
(593)
3
(42)
0
4
75
3
(46)
4
0
(1)
(125)
(24)
(24)
(1)
2,196
(802)
(845)
(659)
49
(746)
10
(0)
149
61
0
62
91
(8)
1,328
23
113
(377)
1,394 2,355 2,017
961
829
(592)
40
557
1
(70)
(284)
1,374
0
72
10
2
836
228
16
0
(338) (1,379)
39
2,355 2,017 1,325
0 (1,318) (1,361)
7
1,394
(480)
(899)
(338)
(576)
(447)
(134)
6
2
66
81
46
0
13
(8)
(1)
3
(27)
0
112
(7)
118
890
(458)
17
4
0
0
13
36
0
19
106
1
(6) 1,200
(170)
(692)
(5)
(56)
14
0
(628)
(790)
162
1,325
(351)
(458)
0
0
(13)
0
41
0
(0)
19
(448)
3
260
5
(6)
(164)
0
(10)
(472)
0
0
0
0
0
0
0
20
0
3
276
5
(6)
(174)
0
(96) (102)
(87)
136
(762) (348)
(92)
(10)
530
(354)
(486)
0
0
0
0
0
0
0
21
0
3
293
5
(6)
(184)
0
(108)
(97)
(11)
708
(361) (367)
(501)
0
0
0
0
0
0
0
23
0
3
311
6
(7)
(195)
0
(103)
(11)
(516)
0
0
0
0
0
0
0
24
0
4
330
6
(7)
(207)
0
(110)
(12)
(531)
0
0
0
0
0
0
0
26
0
4
350
6
(8)
(220)
0
(116)
(13)
(547)
0
0
0
0
0
0
0
27
0
4
371
7
(8)
(233)
0
(123)
(14)
(564)
0
0
0
0
0
0
0
29
0
4
393
7
(9)
(247)
0
(131)
(14)
(581)
0
0
0
0
0
0
0
31
0
4
417
7
(9)
(262)
0
(139)
(15)
(598)
0
0
0
0
0
0
0
32
0
5
443
8
(10)
(278)
(1)
(147)
(16)
(61)
Net Operating Cash Flow
Cash Flow From Investing Ac tivities
Treasury Stock
(59)
131
779 1,838
Net PPE
Accumulated Minority Interest
363
219
Net Investing Cash Flow
Cash Flow From Financ ing Ac tivities
LT Debt
Provision for risks and Charges
Common stock
Additional Paid in Capital
681
739
(374) (380)
801
867
935
(386) (392) (399)
974 1,111 1,640 2,348 2,975 3,657 4,396 5,196 6,063 6,999
974 1,111 1,640 2,348 2,975 3,657 4,396 5,196 6,063
627
(145) (154) (163)
Dividends
(243)
350
(129) (137)
Net Financ ing Cash Flow
462
(115) (122)
Change in cash
219
Total Investment and Advances
Beginning cash
0
Ending cash
Page | 28
-47
417
-49
932 1,135 1,080 1,162 1,249 1,342 1,441
15
971 1,400 1,616 1,575 1,671 1,773 1,880 1,995
2011 2012 2013 2014 2015 2016 2017 2018 2019
996
443
-51
1,546
16
2,116
2020
DCF Valuation
-44
393
956
956 13,605
696
-41
371
917
Net Income
-39
350
881
917
14
10
-37
330
846
881
14
10
516
-35
311
812
846
956 13605
13
Less: (Capex-Dep)
-167
-33
293
780
812
917
12
Less: chg in NOWC
417
276
750
780
881
11
Less: chg in other assets/libilities
260
720
750
846
11
Plus: Net debt proceeds
1,113
Annual FCFE
720
812
12609
1,113
557
Terminal Value
Total FCFE
599
20,929
644
Total PV of CFs
20,929
1,113
Value of equity
316.04
PV CFs
Shares outstanding
$ 66.22
11.90%
6.0%
3.50%
1.4
Value per share
Inputs
Beta
Risk-Free
M arket Risk Premium
Cost of Equity
Page | 29
ROIC Analysis
ROIC
Wd
Kd
T
We
Ke
WACC
ROIC-WACC Spread
2001
Dupont Analysis
Profit margin
Asset turnover
ROA
Equity M ultiplier
ROE
Ratios
Divs/Sh
Quick Ratio
Current Ratio
Dividends
Shares Outstanding
1.89
2020
$
598
2019
1.84
$
2018
$
581
2017
1.78
$
2016
$
564
2015
1.73
$
2014
$
547
2013
1.68
$
2012
$
531
2011
1.63
$
2019
316,040
$
516
2018
316,040
1.58
$
2017
316,040
$
501
2016
316,040
1.54
$
2015
316,040
$
486
2014
316,040
1.49
$
2013
316,040
$
472
$ 1,115
2012
316,040
1.45
$
914
2011
316,040
3% $
458
$
2010
316,040
$
499
2009
13.3%
31.2%
4.5%
26%
68.8%
11.9%
9.2%
4.0%
Divs/Sh
Total Divs
$
2008
13.5%
31.9%
4.5%
26%
68.1%
11.9%
9.2%
4.3%
2008 2009
2010
2012
2013
2014
2015
2016
2017
2018
2011
2.7
3.8
53.8
41.1
35.4
22.7
88%
61%
2012
3.1
4.1
55.5
42.6
36.3
23.5
83%
58%
2013
3.5
4.6
56.9
43.2
37.6
23.8
78%
55%
2014
3.9
4.9
57.7
42.6
38.6
23.5
75%
52%
2015
4.2
5.2
58.7
42.6
39.6
23.5
72%
50%
2016
4.5
5.5
59.8
42.6
40.6
23.5
70%
49%
2017
4.8
5.8
60.8
42.6
41.7
23.5
67%
47%
2018
5.1
6.1
61.9
42.6
42.8
23.5
65%
45%
2019
5.3
6.4
63.1
42.6
43.9
23.5
63%
44%
2020
15.3%
30.4%
4.5%
27%
69.6%
11.9%
9.3%
6.1%
2020 Average
2.6
3.6
53.2
40.2
35.2
22.1
88%
61%
10.0% 12.0% 15.0% 16.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%
1.2x 1.2x 1.2x 1.1x 1.1x 1.1x 1.0x 1.0x 1.0x 1.0x
11.9% 14.3% 17.4% 17.9% 16.4% 16.1% 15.7% 15.4% 15.1% 14.8%
1.9x 1.9x 1.9x 1.8x 1.8x 1.7x 1.7x 1.7x 1.7x 1.6x
22.8% 27.1% 32.2% 32.4% 29.1% 28.0% 26.9% 26.0% 25.2% 24.4%
2011
$ 1,518
237
2007
13.7%
32.7%
4.5%
26%
67.3%
11.9%
9.1%
4.6%
2007
2.9
3.9
51.5
36.4
36.2
21.2
93%
60%
$ 1,414
$
2006
13.9%
33.5%
4.5%
26%
66.5%
11.9%
9.0%
4.9%
2006
3.2
4.2
87.2
64.9
44.4
22.1
67%
42%
$ 1,317
2005
14.2%
34.4%
4.5%
26%
65.6%
11.9%
8.9%
5.2%
2005
2.2
3.5
50.4
38.4
21.0
9.0
71%
39%
$ 1,225
Addition to RE
2004
15.6%
35.3%
4.5%
26%
64.7%
11.9%
8.9%
6.7%
2004
2.2
3.2
57.7
38.4
38.7
19.4
87%
44%
$ 1,140
2003
14.9%
36.7%
4.5%
26%
63.3%
11.9%
8.7%
6.1%
$ 1,059
2002
11.6%
37.9%
4.5%
26%
62.1%
11.9%
8.6%
2.9%
2003
2.4
3.2
48.9
34.9
31.3
17.3
58%
19%
13.0%
30.5%
4.5%
26%
69.5%
11.9%
9.3%
3.8%
9.0%
38.1%
4.5%
26%
61.9%
11.9%
8.6%
0.4%
2002
2.5
3.2
56.2
41.1
34.0
18.9
62%
22%
2020
3.7%
37.5%
4.5%
20.3%
62.5%
11.9%
8.8%
-5.1%
2010
2001
1.8
3.0
51.1
37.6
33.2
19.7
72%
27%
2019
-1.4%
29.4%
4.5%
53.3%
70.6%
11.9%
9.0%
-10.4%
2008 2009
22.5%
28.0%
4.5%
30.9%
72.0%
11.9%
9.4%
13.0%
2007
26.4%
30.6%
4.5%
30.7%
69.4%
11.9%
9.2%
17.2%
2006
37.1%
16.0%
4.5%
32.1%
84.0%
11.9%
10.5%
26.6%
2005
30.4%
17.7%
4.5%
33.2%
82.3%
11.9%
10.3%
20.0%
2004
31.3%
21.1%
4.5%
33.6%
78.9%
11.9%
10.0%
21.3%
2003
2.3%
27.8%
4.5%
4.5%
72.2%
11.9%
9.8%
-7.4%
2002
1.9
2.8
1.7
2.6
51.2
37.2
35.3
21.4
84%
39%
58%
21%
1.4
2.4
64.0
47.9
38.5
22.4
79%
38%
7.7% 9.8% 4.3% 19.9% 20.6% 23.5% 18.9% 17.1% 1.4% 5.5%
1.1x 1.1x 1.4x 1.9x 1.8x 1.9x 1.7x 1.7x 0.9x 1.1x
8.5% 10.7% 6.0% 36.9% 36.6% 44.0% 31.9% 29.2% 1.2% 6.3%
1.7x 1.9x 1.9x 1.8x 1.7x 1.6x 1.9x 1.7x 1.7x 2.0x
14.5% 20.2% 11.5% 65.4% 61.1% 71.9% 61.2% 51.1% 2.1% 12.3%
2001
6.6%
27.4%
4.5%
22.0%
72.6%
11.9%
9.6%
-3.0%
Days inventory outstanding
CCC
Days sales outstanding
Days payable outstanding
D/E
LTD/E
Page | 30