WORTHINGTON INDUSTRY

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Business Overview

Worthington Industries, Inc., is a leading diversified metal processing company. The Company focuses on value-added steel processing and manufactured metal. It was founded by John H. McConnell in 155. In 16, his son, John P. McConnell became chairman and CEO. Worthington has three principal business segments

-Processed Steel Products it includes the Worthington Steel and the Gerstenslager business unit. Both are intermediate processors of flat-rolled steel. Worthington Steel focuses on value-added steel processing, while Gerstenslager is a independent supplier of automotive quality exterior body panels to the North American automotive original equipment and past model service markets.

-Metal Framing It consists of one business unit, Dietrich, which designs and produces metal framing components and systems and related accessories for the commercial and residential construction markets within the United States. Dietrichs production facilities are located throughout the country. The Company has over ,700 customers, primarily consisting of wholesale distributors and commercial and residential building contractors.

-Pressure Cylinders It has one business unit called the Worthington Cylinders. It produces portable low-pressure liquefied petroleum gas (LPG) and refrigerant gas cylinders and high-pressure industrial/specialty gas cylinders. The Companys LPG cylinders are used for gas barbecue grills, camping equipment, residential heating systems, industrial forklifts and commercial/residential cooking (outside North America). Refrigerant cylinders are used for commercial and residential air conditioning and refrigeration systems and for automotive air conditioning systems. Industrial/specialty gas high-pressure cylinders are used as containers for gases for cutting and welding metals, medical, semiconductor production, beverage delivery and compressed natural gas systems.

Industry Analysis

The steel industry has not been favorably looked upon many investors. Even though Worthington is an intermediate value-added manufacture, there are several factors that will always affect the company

1.Weakening demand Domestic steel shipments declined to .4 million tons from 10.1 million last year. Many smaller steel companies couldn't survive the turbulence and filed Chapter 11 or declared bankruptcy. Although Worthington was in the middle of the heat, it managed to pass through the tough environment because it has undertaken restructuring several years ago to re-focus on its core operation.

.Tariffs Tariffs have always been the concern for investors when considering steel stocks. A low tariff will encourage cheaper steels imported from foreign countries and made the U.S. steel manufacturers hard to compete. Worthington will not be able to escape from the danger because it already has contracts out with many major U.S. steel suppliers. However, the high tariff under Bush administration will still exist until 004 which impose 0% more on many import steels. Besides, with the weaker dollar now, it could yield the import even more. Even though anything beyond 004 is still an unknown, there is still a year and half for Worthington to grow and prepare itself. Government will always protect the domestic producer will tariff and it is just the matter of how much.

.Cost of good sold Manufacturing costs of integrated steel company is not as intensive as steel mill companies, but its margin is usually affected by steel scrapes prices.

4.Labor Union The Steel industry is usually bonded with labor unions. However, Worthington is a non-unionized company. It doesn't have to negotiating pension plans from time to time or deal with increasing labor salaries. Although without the protection of the union, employees seem to like the company a lot.

5.Cyclical sales Historically, Worthington usually posts strong sales in its 4th quarter due to hot summer, increasing BBQ activities and auto sales. The 4th quarter of Worthington runs from March to June in the calendar year.

STRATEGY ANALYSIS

Based on the industry analysis and the changing of environment, I would summarize Worthington's strategies as follows

1.Culture Value Worthington operates under a long-standing, simple corporate philosophy rooted in the golden rule, with earning money for its shareholders as the first corporate goal. This philosophy a strong commitment to the customer, and one of the strongest employee/employer partnerships in American industry serves as the Companys foundation. We treat our customers, employees, investors, and suppliers as we would like to be treated.

a.Supplier Worthington expects their suppliers to be competitive in both price and quality, and in return they will be loyal to the suppliers. By doing so, Worthington can ensure that customer demands are met at all times, with a competitive price and the quality they expect. By staying loyal to suppliers, Worthington moves closer to their main goal of growth in net income.

b.Customers The second factor that is critically important is customers. If there were no customers for Worthington to sell its product to, then they would simply not exist. Customer satisfaction is considered to be highly important to the company and they go to great lengths to make sure the customer is satisfied, both with products and services that they offer. In order to do this Worthington must be competitive in both price and quality. Consolidation in industries served by the Worthington Steel division, for example, has focused attention on the need to present a consistent face to each customer. Let say Worthington served one customer in the East Coast and another customer in Ohio. The same people own those customers. It doesnt make customers very happy, if they discover that theyre paying different prices for the same item in different locations. They want to have one face and one line of communication to Worthington across all of its businesses and all of its products.

c.Employee I will explain this subject more under compensation/reward system in page 5-6.

.Low cost structure Worthington has done well in the past to manage its COGS, because of its role in the industry; it has more power in negotiating prices than its competitors. Selling, general and administration expenses typically run 7% - 8% of sales at Worthington compared with 10% - 15% at most manufacturing companies (see appendix discounted cash valuation).

.Restructure Facing an increasingly competition global marketplace, Worthington responded to significant changes by implementing major restructuring initiatives and investing heavily in new production facilities

a.Worthington Steel will be reorganized along product lines, with plants pooling resources to better serve customers. That is a major reason for the steel-division restructuring that will shift some decision-making responsibilities out of the hands of plant-level managers. Operations will be organized into six Strategic Business Units (SBUs), each focused on a specific product line. Each SBU will focus on business strategy, profitability and marketing for a specific steel product line cold-rolled strip, cold-rolled sheet, hot-rolled steel, hot-dip galvanized, specialty coatings, and tolled products. Executives in charge of the SBUs will have responsibility for global marketing, trend analysis, and pricing strategies. In addition, an operational realignment that groups steel plants into five regions based on geography or product similarity is expected to eliminate administrative redundancies. Joint-venture facilities will be incorporated into the regional structure.

b.The Companys national sales force will be organized geographically rather than around manufacturing location. Sales personnel have been realigned into regional territories, but given total-product-line responsibility. The salesperson in a region will be able to deal with a customer across Worthington entire steel-group product line. The regional sales forces will represent all six SBUs, but report to a single sales vice president.

c.Purchasing and logistics will be centralized in order to maximize synergies, promote efficiency and reduce costs. Otherwise, Worthington essentially was decentralized.

The new approach is also designed to maximize productivity across all of the Companys plants while capitalizing on new opportunities created by the new, larger steel processing facilities in Delta, Ohio and Decatur, Alabama. Since mid-18 Worthington has divested seven operations, including a $00-million-a year automotive-plastics unit. The Delta facility includes a 500,000-ton hot-rolling mill, plus hot-dip galvanizing, pickling, and slitting operations. The Decatur plant, which went into operation in 18, has a 1-million-ton tandem mill, along with pickling and slitting lines.

4.Compensation/reward system John H. McConnell, who founded Worthington Industries 44 years ago, explained why he applied profit sharing. I just feel that the people who make the profit for you should be able to share in it, and you have to provide an incentive for employees. You cant just sit in the office and make a profit. Profit sharing encourages teamwork . For example, if a slitter operator knows a way to keep scrap levels down, he will share the information to others to save money. That bottom-line sort of thinking also influences the activities of the Employee Councils that have been established in each Worthington plant. The eight-to-10-member councils meet monthly and serve as a liaison between management and the plant floor, often serving as a conduit for improvement ideas. As one of their major responsibilities, the Employee Councils vote on whether or not to recommend regular employee status for temporary workers after theyve been on the job for 0 days. This council will look at their attendance record and their attitude. They want a positive person someone who doesnt miss work or waste time. One of the council member stated Time is money, and wasted time can hurt the profit sharing. Furthermore, workers are encouraged to increase their education and develop their skill though a tuition reimbursement program . This increased trust from employees provides incentive for them to stay with Worthington. The main objective of Worthington is to add value to the steel. To do so, they must have skilled employees. Their employee pleasing policies help them obtain and retain skilled individuals. Another management system that aids in their success is the way that they treat their customers. They believe that happy employees create happy customers. The flaw with this policy is they do not have a measure in place to evaluate its success

5.Joint ventures and acquisitions Through joint venture and acquisitions, Worthington has become a more global player in recent years. In 18 it purchased an Austrian company, Jos. Heiser, the leading European producer of high-pressure cylinders. In 00, it acquired the manufacturing assets of Portugals Metalurgica Progresso de Vale de Cambra Lda. and the Czech Republics Gastec Spol a.r.o., both makers of gas cylinders for heating and industrial applications. A Brazilian joint venture, in partnership with a local gas producer, makes propane tanks in Brazil. Worthington acquired cylinder-manufacturing operations in Austria, Portugal, and Czechoslovakia and launched a restructuring of its steel-processing business. The 7,500-employee firm now operates 5 facilities in 11 countries.

Due to the strategies' changing, they have earned an advantage over many competitors in the market and even have gained the respect of the corporate world. As of October 00, Worthington operated 6 facilities in 10 countries (it owns 44 manufacturing facilities worldwide and holds equity positions in seven joint ventures that operate an additional 16 manufacturing facilities worldwide).

BUSINESS WIRE. (June 18, 00). Worthington Industries Reports Fourth Quarter and Fiscal Year Results. Retrieved November , 00 from http//www. Google.com

John H. Sheridan. (Sept 0, 1). BUILDING A BRIDGE TO THE FUTURE.(Worthington Industries Inc. Retrieved Nov., 00. from http//www.google.com

Byrne, Harlan. S. (Oct. , 10). Barron's. Worthington Industries Inc Low overhead helps profits despite economy's slowdown.p.41

Worthington Industry Inc. Retrieved November , 00 from http//uoig.uoregon.edu

PR Newswire. (May 6, 1). Worthington Industries Announces Restructuring of Steel Processing Business. P 1-.

Tom Peters. (Dec 0, 187). Chicago Sun - Times. To increase productivity, give the workers a stake Series THRIVING ON CHAOS. p. 5

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