CASE 16 Nucor Corporation in 2014: Combating Low-Cost Foreign Imports and Depressed Market Demand for Steel Products Arthur A. Thompson The University of Alabama n 2014, Nucor Corporation, with a production capacity approaching 27 million tons, was the largest manufacturer of steel and steel products in North America and ranked as the 14th-largest steel company in the world based on tons shipped in 2013. It was regarded as a low-cost producer, and it had a sterling reputation for being a global leader in introducing innovative steelmaking technologies throughout its operations. Nucor began its journey from obscurity to a steel industry leader in the 1960s. Operating under the name of Nuclear Corporation of America in the 1950s and early 1960s, the company was a maker of nuclear instruments and electronics products. After suffering through several money-losing years and facing bankruptcy in 1964, Nuclear Corporation of America's board of directors opted for new leadership and appointed F. Kenneth Iverson as president and CEO. Shortly thereafter, Iverson concluded that the best way to put the company on sound footing was to exit the nuclear instrument and electronics business and rebuild the company around its profitable South Carolina-based Vulcraft subsidiary that was in the steel joist businessIverson had been the head of Vulcraft prior to being named president. Iverson moved the company's headquarters from Phoenix, Arizona, to Charlotte, North Carolina, in 1966, and he proceeded to expand the joist business with new operations in Texas and Alabama. Then, in 1968, top management decided to integrate backward into steelmaking, partly because of the benefits of supplying the company's own steel requirements for I producing steel joists and partly because Iverson saw opportunities to capitalize on newly emerging technologies to produce steel more cheaply. In 1972 the company adopted the name Nucor Corporation, and Iverson initiated a long-term strategy to grow Nucor into a major player in the U.S. steel industry. By 1985 Nucor had become the seventh-largest steel company in North America, with revenues of $758 million, six joist plants, and four state-of-theart steel mills that used electric arc furnaces to produce new steel products from recycled scrap steel. Nucor was regarded as an excellently managed company, an accomplished low-cost producer, and one of the most competitively successful manufacturing companies in the country.1 A series of articles in The New Yorker related how Nucor, a relatively small American steel company, had built an enterprise that led the whole world into a new era of making steel with recycled scrap steel. NBC did a business documentary that used Nucor to make the point that American manufacturers could be successful in competing against low-cost foreign manufacturers. During the 1985-2000 period, Nucor continued to construct additional steelmaking capacity, adopt trailblazing production methods, and expand its lineup of steel products. By 2000, Nucor was the second-largest steel producer in the United States and was charging to overtake long-time leader United States Steel. Nucor continued its long-term growth strategy between 2006 and 2013, Copyright 2014 by Arthur A. Thompson. All rights reserved. CASE 16 constructing additional plants and acquiring other (mostly troubled) steel facilities at bargain-basement prices, enabling it to enter new product segments and offer customers a diverse variety of steel shapes and steel products. Heading into 2014, Nucor was solidly entrenched as the largest steel producer in North America (based on production capacity); it had 23 plants with the capacity to produce 27 million tons of assorted steel shapes (steel bars, sheet steel, steel plate, and structural steel) and had additional steelmanufacturing facilities with the capacity to make 4.6 million tons of steel joists, steel decking, coldfinish bars, steel buildings, steel mesh, steel grating, steel fasteners, and fabricated-steel reinforcing products. The company had 2013 revenues of $19.1 billion and net profits of $488.0 million, well below its prerecession peak in 2008 of $23.7 billion in revenues and $1.8 billion in net profits. With the exception of three quarters in 2009 and one quarter in 2010 (when the steel industry in the United States was in the midst of a deep economic EXHIBIT 1 Year 1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Nucor Corporation in 2014 C-217 downturn and the demand for steel was unusually weak), Nucor had earned a profit in every quarter of every year since 1966a truly remarkable accomplishment in a mature and cyclical business in which it was common for industry members to post losses when demand for steel sagged. As of April 2014, Nucor had paid a dividend for 164 consecutive quarters and had raised the base dividend it paid to stockholders every year since 1973, when the company first began paying cash dividends. (In years when earnings and cash flows permitted, it was Nucor's practice to pay a supplemental year-end dividend in addition to the base quarterly dividend.) Exhibit 1 provides highlights of Nucor's growth since 1970. NUCOR IN 2014 Former CEO Ken Iverson, the architect of Nucor's climb to prominence in the steel industry, was regarded by many as a \"model company president.\" Under Iverson, who served as Nucor's CEO from Nucor's Growing Presence in the Market for Steel, 1970-2013 Total Tons Sold to Outside Customers 207,000 387,000 1,159,000 1,902,000 3,648,000 7,943,000 11,189,000 12,237,000 13,442,000 17,473,000 19,109,000 20,465,000 22,118,000 22,940,000 25,187,000 17,576,000 22,019,000 23,044,000 23,092,000 23,730,000 Average Price per Ton $245 314 416 399 406 436 425 354 357 359 595 621 667 723 940 637 720 869 841 803 Net Sales (millions) $ 50.8 121.5 482.4 758.5 1,481.6 3,462.0 4,756.5 4,333.7 4,801.7 6,265.8 11,376.8 12,701.0 14,751.3 16,593.0 23,663.3 11,190.3 15,844.6 20,023.6 19,429.3 19,052.0 Source: Company records, www.nucor.com (accessed April 15, 2014). Earnings before Taxes (millions) $ 2.2 11.7 76.1 106.2 111.2 432.3 478.3 179.4 227.0 70.0 1,725.9 2,027.1 2,692.4 2,253.3 2,790.5 (470.4) 194.9 1,169.9 764.4 693.6 Pretax Earnings per Ton $ 10 30 66 56 35 62 48 16 19 4 96 104 129 104 116 (28) 9 53 34 30 Net Earnings (millions) $ 1.1 7.6 45.1 58.5 75.1 274.5 310.9 113.0 162.1 62.8 1,121.5 1,310.3 1,757.7 1,471.9 1,831.0 (293.6) 134.1 778.2 504.6 488.0 C-218 PART 2 Cases in Crafting and Executing Strategy the time the company was formed until late 1998, Nucor was known for its aggressive pursuit of innovation and technical excellence, rigorous quality systems, strong emphasis on employee relations and workforce productivity, cost-conscious corporate culture, and ability to achieve low costs per ton produced. The company had a very streamlined organizational structure, incentive-based compensation systems, and steel mills that were among the most modern and efficient in the United States. Iverson proved himself as a master in crafting and executing a low-cost provider strategy, and he made a point of making sure that he practiced what he preached when it came to holding down costs. The offices of executives and division general managers were simply furnished. There were no company planes and no company cars, and executives were not provided with company-paid country club memberships, reserved parking spaces, executive dining facilities, or other perks. To save money on his own business expenses and set an example for other Nucor managers, Iverson flew coach class and took the subway when he was in New York City. When Iverson left the company in 1998 following disagreements with the board of directors, he was succeeded briefly by John Correnti and then Dave Aycock, both of whom had worked in various roles under Iverson for a number of years. In 2000, EXHIBIT 2 Daniel R. DiMicco, who had joined Nucor in 1982 and risen up through the ranks to executive vice president, was named president and CEO. DiMicco was Nucor's chairman and CEO through 2012. Like his predecessors, DiMicco continued to pursue a strategy to aggressively grow the company's production capacity and product offerings. DiMicco expanded the company's production capabilities via both acquisition and new plant construction; tons sold rose from 11.2 million in 2000 to 25.2 million in 2008. Then the unexpected financial crisis in the fourth quarter of 2008 and the subsequent economic fallout caused tons sold in 2009 to plunge to 17.6 million and revenues to nose-dive from $23.7 billion in 2008 to $11.2 billion in 2009. Nucor's business remained in the doldrums in 2010-2013 (see Exhibit 2) because of a lackluster economy in the United States and almost everywhere else, depressed global demand for steel and steel products, global overcapacity in the steel industry, and fierce competition from foreign imports. In the 12 years of Dan DiMicco's leadership, Nucor was quite opportunistic in initiating actions to strengthen its competitive position during periods when the demand for steel was weak and then to capitalize on these added strengths in periods of strong market demand for steel products and significantly boost financial performance. According to Dan DiMicco:2 Five-Year Financial and Operating Summary, Nucor Corporation, 2009-2013 (dollar amounts in millions, except per share data and sales per employee) 2013 For the year Net sales Costs, expenses and other: Cost of products sold Marketing, administrative and other expenses Equity in (earnings) losses of minority-owned enterprises Impairment of noncurrent assets Interest expense, net Total Earnings (loss) before income taxes and noncontrolling interests Provision for (benefit from) income taxes 2012 2011 2010 2009 $19,052.0 $19,429.3 $20,023.6 $15,844.6 $11,190.3 17,641.4 481.9 17,915.7 454.9 18,142.1 439.5 15,060.9 331.5 11,090.2 296.9 (9.3) 146.9 18,260.9 13.3 30.0 162.4 18,576.3 10.0 13.9 166.1 18,771.8 32.1 153.1 15,577.5 82.3 134.8 11,604.3 852.9 259.8 1,251.8 390.8 267.1 60.8 791.1 205.6 (414.0) (176.8) (Continued) CASE 16 EXHIBIT 2 Nucor Corporation in 2014 C-219 (Continued) 2013 Net earnings (loss) Less earnings attributable to the minority-interest partners of Nucor's joint ventures* Net earnings (loss) attributable to Nucor stockholders Net earnings (loss) per share: Basic Diluted Dividends declared per share Percentage of net earnings to net sales Return on average stockholders' equity Capital expenditures Acquisitions (net of cash acquired) Depreciation Sales per employee (000s) At year-end Cash, cash equivalents, and short-term investments Current assets Current liabilities Working capital Cash provided by operating activities Current ratio Property, plant, and equipment Total assets Long-term debt (including current maturities) Percentage of long-term debt to total capital Stockholders' equity Shares outstanding (000s) Employees 2012 585.5 $ 97.5 488.0 2011 593.1 $ 88.5 504.6 $1.52 $1.58 1.52 1.58 $1.4725 $1.4625 2.6% 2.6% 6.4% 6.7% $1,230.4 $1,019.3 760.8 535.9 534.0 859 906 $ 1, 511.5 $ 1,157.1 6,410.0 5,661.4 1,960.2 2,029.6 4,449.8 3,631.8 1, 077.9 1,200.4 3.3 2.8 $ 4,917.0 $ 4,283.1 15,203.3 14,152.1 4,380.2 3,630.2 35.6% 31.5% $7,645.8 $7,641.6 318,328 317,663 22,300 22,200 $ 2010 2009 861.0 206.3 (237.2) 82.8 778.2 72.2 $ 134.1 56.4 $ (293.6) $2.45 $0.42 2.45 0.42 $1.4525 $1.4425 3.9% 0.8% 10.7% 1.8% $450.6 $345.3 4.0 64.8 522.6 512.1 974 777 $(0.94) (0.94) $1.41 22.6% 23.8% $390.5 32.7 494.0 539 $ 2,563.3 6,708.1 2,396.1 4,312.0 1,032.6 2.8 $ 3,755.6 14,570.4 4,280.2 35.7% $7,474.9 316,749 20,800 $ 2,479.0 $ 2,242.0 5,861.2 5,182.2 1,504.4 1, 227.1 4,356.8 3,995.1 873.4 1,173.2 3.9 4.2 $ 3,852.1 $ 4,013.8 13,921.9 12,571.9 4,280.2 3,086.2 36.9% 28.9% $7,120.1 $7,390.5 315,791 314,856 20,500 20,400 *The principal joint venture responsible for these earnings is the Nucor-Yamato Steel Company, of which Nucor owns 51 percent. This joint venture operates a structural steel mill in Blytheville, Arkansas, and it is the largest producer of structural steel beams in the Western Hemisphere. Total capital is defined as stockholders' equity plus long-term debt. Source: Nucor's 2013 annual report, p. 43. Our objective is to deliver improved returns at every point in the economic cycle. We call it delivering higher highs and higher lows. In the last major economic slump, from 2001 through 2003, Nucor had total net earnings of $339.8 million. During the even deeper slump of 2009 through 2011, Nucor earned $618.7 million, an increase of 82 percent. The most recent peak to peak earnings grew from $310.9 million in 2000 to $1.83 billion in 2008, an increase of 489 percent. Nucor uses each economic downturn as an opportunity to grow stronger. We use the good times to prepare for the bad, and we use the bad times to prepare for the good. Emerging from downturns stronger than we enter them is how we build longterm value for our stockholders. We get stronger because our team is focused on continual improvement and because our financial strength allows us to invest in attractive growth opportunities throughout the economic cycle. During DiMicco's tenure, Nucor completed more than 50 acquisitions from 2000 to 2012, expanding from 18 facilities to more than 200 and boosting revenues from $4.8 billion in 2000 to $19.4 billion at the end of 2012. DiMicco retired as C-220 PART 2 Cases in Crafting and Executing Strategy Nucor's CEO at the end of 2012 and was succeeded by John J. Ferriola, who had served as Nucor's president and COO since 2011. DiMicco continued on as chairman of Nucor's board of directors during 2013 and then relinquished that role to John Ferriola at the beginning of 2014. In his first year as Nucor's CEO, Ferriola continued to pursue Nucor's core strategy of investing in down markets to better position the company for success when the economy strengthened and market demand for steel products became more robust. In the company's 2013 annual report, Ferriola said: We are finding ways to grow our company and be successful despite the lackluster economy by continually looking for ways to improve our performance and lower our costs, investing in projects that will move us up the value chain and providing superior customer service. NUCOR'S EVER-GROWING PRODUCT LINE, 1967-2014 Over the years, Nucor had expanded progressively into the manufacture of a wider and wider range of steel shapes and steel products, enabling it in 2014 to offer steel users the broadest product lineup of any North American steel producer. Steel shapes and steel products were considered commodities. While some steelmakers had plants whose production quality was sometimes inconsistent or, on occasion, failed to meet customer-specified metallurgical characteristics, most steel plants turned out products of comparable metallurgical qualityone producer's reinforcing bar was essentially the same as another producer's reinforcing bar, and a particular type and grade of sheet steel made at one plant was essentially identical to the same type and grade of sheet steel made at another plant. The commodity nature of steel products forced steel producers to be very price-competitive, with the market price of each particular steel product being driven by demand-supply conditions for that product. Finished Steel Products Nucor's first venture into steel in the late 1960s, via its Vulcraft division, was principally one of fabricating steel joists and joist girders from steel that was purchased from various steelmakers. Vulcraft expanded into the fabrication of steel decking in 1977. The division expanded its operations over the years, and, as of 2014, Nucor's Vulcraft division was the largest producer and leading innovator of openweb steel joists, joist girders, and steel deck in the United States. It had seven plants with annual capacity of 715,000 tons that made steel joists and joist girders and nine plants with 530,000 tons of capacity that made steel deck; in 2012-2013, about 85 percent of the steel needed to make these products was supplied by various Nucor steelmaking plants. Vulcraft's joist, girder, and decking products were used mainly for roof and floor support systems in retail stores, shopping centers, warehouses, manufacturing facilities, schools, churches, hospitals, and, to a lesser extent, multistory buildings and apartments. Customers for these products were principally nonresidential construction contractors. In 1979, Nucor began fabricating cold-finished steel products. These consisted mainly of cold drawn and turned, ground, and polished steel bars or rods of various shapesrounds, hexagons, flats, channels, and squaresmade from carbon, alloy, and leaded steels based on customer specifications or end-use requirements. Cold-finished steel products were used in tens of thousands of other products, including anchor bolts, hydraulic cylinders, farm machinery, air conditioner compressors, electric motors, motor vehicles, appliances, and lawn mowers. Nucor sold cold-finish steel directly to large-quantity users in the automotive, farm machinery, hydraulic, appliance, and electric motor industries and to steel service centers that in turn supplied manufacturers needing only relatively small quantities. In 2013, Nucor Cold Finish was the largest producer of cold-finished bar products in North America and had facilities in Missouri, Nebraska, South Carolina, Utah, Wisconsin, and Ontario, Canada, with a capacity of about 860,000 tons per year. It obtained most of its steel from Nucor's mills that made steel bar. This factor, along with the fact that all of Nucor's cold-finished facilities employed the latest technology and were among the most modern in the world, resulted in Nucor Cold Finish having a highly competitive cost structure. It maintained sufficient inventories of cold-finish products to fulfill anticipated orders. Nucor produced metal buildings and components throughout the United States under several brands: Nucor Building Systems, American Buildings Company, Kirby Building Systems, Gulf States Manufacturers, and CBC Steel Buildings. In 2014, CASE 16 the Nucor Buildings Group had 11 metal buildings plants, with an annual capacity of approximately 465,000 tons. Sales were 280,000 tons in 2013, an increase of 2 percent over 274,000 tons in 2010. Nucor's Buildings Group began operations in 1987 and currently had the capability to supply customers with buildings ranging from less than 1,000 square feet to more than 1,000,000 square feet. Complete metal buildings packages could be customized and combined with other materials such as glass, wood, and masonry to produce a cost-effective, aesthetically pleasing building built to a customer's particular requirements. The buildings were sold primarily through an independent builder distribution network. The primary markets served were commercial, industrial, and institutional buildings, including distribution centers, automobile dealerships, retail centers, schools, warehouses, and manufacturing facilities. Nucor's Buildings Group obtained a significant portion of its steel requirements from the Nucor bar and sheet mills. Another Nucor division produced steel mesh, grates, and fasteners. Various steel mesh products were made at two facilities in the United States and one in Canada that had a combined annual production capacity of about 128,000 tons. Steel and aluminum bar grating, safety grating, and expanded metal products were produced at several North American locations that had a combined annual production capacity of 103,000 tons. Nucor Fastener, located in Indiana, began operations in 1986 with the construction of a $25 million plant. At the time, imported steel fasteners accounted for 90 percent of the U.S. market because U.S. manufacturers were not competitive on cost and price. Iverson said, \"We're going to bring that business back; we can make bolts as cheaply as foreign producers.\" Nucor built a second fastener plant in 1995, giving it the capacity to supply about 20 percent of the U.S. market for steel fasteners. In 2013, these two facilities had annual capacity of over 75,000 tons and produced carbon and alloy steel hex-head cap screws, hex bolts, structural bolts, nuts and washers, finished hex nuts, and custom-engineered fasteners that were used for automotive, machine tool, farm implement, construction, military, and various other applications. Nucor Fastener obtained much of the steel it needed from Nucor's mills that made steel bar. Beginning in 2007, Nucorthrough its newly acquired Harris Steel subsidiarybegan fabricating, Nucor Corporation in 2014 C-221 installing, and distributing steel reinforcing bars (rebars) for highways, bridges, schools, hospitals, airports, stadiums, office buildings, high-rise residential complexes, and other structures where steel reinforcing was essential to concrete construction. Harris Steel had over 70 fabrication facilities in the United States and Canada, with each facility serving the surrounding local market. Since acquiring Harris Steel, Nucor had more than doubled its rebar fabrication capacity to over 1,700,000 tons annually. Total fabricated rebar sales in 2013 were 1,065,000 tons, down 10 percent from 1,180,000 tons in 2012. Much of the steel used in making fabricated rebar products was obtained from Nucor steel plants that made steel bar. Fabricated reinforcing products were sold only on a contract bid basis. Steelmaking In 1968 Nucor got into basic steelmaking, building a mill in Darlington, South Carolina, to manufacture steel bars. The Darlington mill was one of the first plants of major size in the United States to use electric arc furnace technology to melt scrap steel and cast molten metal into various shapes. Electric arc furnace technology was particularly appealing because the labor and capital requirements for melting steel scrap and producing crude steel were far lower than those at conventional integrated steel mills, where raw steel was produced using coke ovens, basic oxygen blast furnaces, ingot casters, and multiple types of finishing facilities to make crude steel from iron ore, coke, limestone, oxygen, scrap steel, and other ingredients. By 1981, Nucor had four steel mills making carbon and alloy steels in bars, angles, and light structural shapes; since then, Nucor had undertaken extensive capital projects to keep these facilities modernized and globally competitive. In 2000-2011, Nucor aggressively expanded its market presence in steel bars, and by 2012 it had 13 bar mills located across the United States that produced concrete-reinforcing bars, hot-rolled bars, rods, light shapes, structural angles, channels, and guard rails in carbon and alloy steels; in 2014, these 13 plants had total annual capacity of approximately 9.1 million tons. Four of the 13 mills made hotrolled special quality bar manufactured to exacting specifications. The products of the 13 bar mills had wide usage and were sold primarily to customers in the agricultural, automotive, construction, energy, C-222 PART 2 Cases in Crafting and Executing Strategy furniture, machinery, metal buildings, railroad, recreational equipment, shipbuilding, heavy truck, and trailer industries. Nucor began work in 2012 on a $290 million project to expand its wire rod and special-quality steel bar production capabilities at three existing bar mills by 1 million tons annually; the purpose of the investment was to enable Nucor to produce engineered bars for the most demanding applications (and realize a significantly higher price) while maintaining its market share in commodity bar products by shifting production to its other bar mills that were operating below capacity. Completion of the added capacity to make special-quality bar products was expected sometime in 2014, with production startup following shortly thereafter. In addition, the company had recently renovated an existing wire rod and bar mill in Kingman, Arizona, to boost production capacity from 200,000 tons annually to 500,000 tons annually, thereby putting Nucor in a strong position to serve wire rod and rebar customers in the southwestern U.S. market. Nucor executives expected that the added capacity at the three special-quality bar mills and at the Kingman plant would be an important source of revenue and profit growth in upcoming years. In the late 1980s, Nucor entered into the production of sheet steel at a newly constructed plant in Crawfordsville, Indiana. Flat-rolled sheet steel was used in the production of motor vehicles, appliances, steel pipes and tubes, and other durable goods. The Crawfordsville plant was the first in the world to employ a revolutionary thin-slab casting process that substantially reduced the capital investment and costs to produce flat-rolled sheet steel. Thinslab casting machines had a funnel-shaped mold to squeeze molten steel down to a thickness of 1.5 to 2.0 inches, compared to the typically 8- to 10-inchthick slabs produced by conventional casters. It was much cheaper to then build and operate facilities to roll thin-gauge sheet steel from 1.5- to 2-inch-thick slabs than from 8- to 10-inch-thick slabs. When the Crawfordsville plant first opened in 1989, it was said to have cost $50 to $75 per ton below the costs of traditional sheet steel plants, a highly significant cost advantage in a commodity market where the going price at the time was $400 per ton. Forbes magazine described Nucor's pioneering use of thinslab casting as the most substantial, technological industrial innovation in the past 50 years.3 By 1996 two additional sheet steel mills that employed thin-slab casting technology were constructed and a fourth mill was acquired in 2002, giving Nucor the capacity to produce 11.3 million tons of sheet steel products annually. Nucor also operated two Castrip sheet production facilities, one built in 2002 at the Crawfordsville plant and a second built in Arkansas in 2009; these facilities used the breakthrough stripcasting technology that involved the direct casting of molten steel into the final shape and thickness without further hot or cold rolling. The process allowed for lower capital investment, reduced energy consumption, smaller-scale plants, and improved environmental impact (because of significantly lower emissions). Also in the late 1980s, Nucor added wide-flange steel beams, pilings, and heavy structural steel products to its lineup of product offerings. Structural steel products were used in buildings, bridges, overpasses, and similar projects where strong weight-bearing support was needed. Customers included construction companies, steel fabricators, manufacturers, and steel service centers. To gain entry to the structural steel segment, in 1988 Nucor entered into a joint venture with Yamato-Kogyo, one of Japan's major producers of wide-flange beams, to build a new structural steel mill in Arkansas; a second mill was built on the same site in the 1990s that made the NucorYamato venture in Arkansas the largest structural beam facility in the Western Hemisphere. In 1999, Nucor started operations at a third structural steel mill in South Carolina. The mills in Arkansas and South Carolina both used a special continuous-casting method that was quite cost-effective. In 2014, the Nucor-Yamato mill completed a $115 million project to add several new sheet-piling sections, increase production of single-sheet widths by 22 percent, and provide customers with a lighter, stronger sheet covering more area at a lower installed cost. Going into 2014, Nucor had the capacity to make 3.7 million tons of structural steel products annually. Starting in 2000, Nucor began producing steel plate of various thicknesses and lengths that was sold to manufacturers of heavy equipment, ships, barges, bridges, railcars, refinery tanks, pressure vessels, pipes and tubes, wind towers, and similar products. Steel plate was made at two mills in Alabama and North Carolina having combined capacity of about 2.9 million tons. In early 2011, Nucor started operations at a newly constructed 125,000-ton heat-treating facility at the plate mill CASE 16 in North Carolina. Heat-treated steel plate was used in applications requiring higher strength, abrasion resistance, and toughness. During 2012, the North Carolina plate mill began using a newly constructed vacuum-tank degasser and started operations on a new 120,000-ton normalizing line in 2013. Collectively, these investments allowed Nucor to broaden its product offerings in the markets for pressure vessels, tank cars, tubular structures for offshore oil rigs, and naval and commercial shipbuilding. All of Nucor's 23 steel mills used electric arc furnaces, whereby scrap steel and other metals were melted and the molten metal was then poured into continuous-casting systems. Sophisticated rolling mills converted the billets, blooms, and slabs produced by various casting equipment into rebars, angles, rounds, channels, flats, sheets, beams, plates, and other finished steel products. Nucor's steel mill operations were highly automated, typically requiring fewer operating employees per ton produced than the mills of rival companies. High worker productivity at all Nucor steel mills resulted in labor costs roughly 50 percent lower than the labor costs at the integrated mills of companies using union labor and conventional blast furnace technology. Nucor's value chain (anchored in using electric arc furnace technology to recycle scrap steel) involved far fewer production steps, far less capital investment, and considerably less labor than the value chains of companies with integrated steel mills that made crude steel from iron ore. The breadth of Nucor's product line in steel mill products and finished steel products made it the most diversified steel producer in North America, and all of its steel mills were among the most modern and efficient mills in the United States. In 2013, the company was the North American market leader in nine product categoriessteel bars, structural steel, steel reinforcing bars, steel joists, steel deck, cold-finished bar steel, metal buildings, steel piling distribution, and rebar fabrication, distribution, and installation.4 It ranked number two in 2013 sales of plate steel, and number three in sales of sheet steel. Exhibit 3 shows Nucor's sales by product category for 1990 to 2013. However, despite Nucor's long-standing reputation for being a cost-efficient producer, it had been stymied throughout the 2010-2013 period in its quest to operate its 23 steel mills as cost-efficiently as they were capable of being operated. Ever since the Great Recession of 2008-2009, the combination Nucor Corporation in 2014 C-223 of an anemic economic recovery, depressed market demand for steel products, industrywide overcapacity, and fierce competition from foreign imports in certain product categories had forced Nucor to operate its steel mills well below full capacity. Whereas in the first three quarters of 2008, Nucor's steel mills operated at an average of 91 percent of full capacity, the average capacity utilization rates at Nucor's 23 steel mills were 54 percent in 2009, 70 percent in 2010, 74 percent in 2011, 75 percent in 2012, and just over 76 percent in 2013 (including tons shipped to outside customers and tons shipped to Nucor facilities making finished steel products). Likewise, subpar average capacity utilization rates at Nucor's facilities for producing finished steel products 54 percent in 2010, 57 percent in 2011, 58 percent in 2012, and 61 percent in 2013had impaired Nucor's ability to keep overall production costs for finished steel products as low as it would have been able to keep them at higher production levels. Market conditions in the steel industry still remained challenging in 2014, making the 2009-2014 period one of the longest and deepest economic slumps in several decades. One of Nucor's biggest challenges in boosting its sales and profitability concerned the unusually weak demand for steel products used in nonresidential construction. As the company stated in its 2013 10-K report:5 Sales of many of our products are dependent upon capital spending in the nonresidential construction markets in the United States, including in the industrial and commercial sectors, as well as capital spending on infrastructure that is publicly funded such as bridges, schools, prisons and hospitals. Unlike recoveries from past recessions, the recovery from the recession of 2008-2009 has not included a strong recovery in the severely depressed nonresidential construction market. In fact, while capital spending on nonresidential construction projects is slowly improving, it continues to lack sustained momentum, which is posing a significant challenge to our business. We do not expect to see strong growth in our net sales until we see a sustained increase in capital spending on these types of construction projects. Pricing and Sales In both 2012 and 2013, approximately 86 percent of the steel shipped from Nucor's steel mills went to external customers. The balance of the company's PART 2 C-224 EXHIBIT 3 Cases in Crafting and Executing Strategy Nucor's Sales of Steel and Steel Products to Outside Customers, by Product Category, 1990-2013 Tons Sold to Outside Customers (thousands) Steel Mill Products Finished Steel Products Cold Rebar Sheet Steel Steel Steel Finished Fabrication Steel Steel Bars Structural Plate Total Joists Deck Steel (2013 (2013 (2013 Steel (2013 (2013 (2013 (2013 (2013 (2013 capacity capacity capacity capacity capacity capacity capacity capacity capacity of ~1.7 of ~11.3 of ~9.1 of ~3.7 of ~2.9 of ~27 of of of million tons) million million million million million ~715,000 ~530,000 ~860,000 and Other Year tons) tons) tons) tons) tons) tons) tons) tons) Products* 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1995 1990 7,491 7,622 7,500 7,434 5,212 7,505 8,266 8,495 8,026 8,078 6,954 5,806 5,074 4,456 2,994 420 5,184 5,078 4,680 4,019 3,629 5,266 6,287 6,513 5,983 5,244 5,530 2,947 2,687 2,209 1,799 1,382 2,695 2,505 2,338 2,139 1,626 2,934 3,154 3,209 2,866 2,760 2,780 2,689 2,749 3,094 1,952 1,002 2,363 2,268 2,278 2,229 1,608 2,480 2,528 2,432 2,145 1,705 999 872 522 20 17,733 17,473 16,796 15,821 12,075 18,185 20,235 20,649 19,020 17,787 16,263 12,314 11,032 9,779 6,745 2,804 342 291 288 276 264 485 542 570 554 522 503 462 532 613 552 443 334 308 312 306 310 498 478 398 380 364 353 330 344 353 234 134 474 492 494 462 330 485 449 327 342 271 237 226 203 250 234 163 4,847 4,528 5,154 5,154 4,596 4,534 1,236 174 169 165 117 110 126 194 178 104 Total Tons 23,730 23,092 23,044 22,019 17,576 25,187 22,940 22,118 20,465 19,109 17,473 13,442 12,237 11,189 7,943 3,648 *Includes steel fasteners (steel screws, nuts, bolts, washers, and bolt assemblies), steel mesh, steel grates, metal buildings systems, lightgauge steel framing, and scrap metal. Source: Company records, www.nucor.com (accessed April 15, 2014). steel mill shipments went to supply the steel needs of the company's joist, deck, rebar fabrication, fastener, metal buildings, and cold-finish operations. The commodity nature of steel products meant that the prices a company could command were governed by market demand-supply conditions that shifted more or less constantly and caused the spot market price for commodity steel to bounce around on a weekly and sometimes daily basis. The big majority of Nucor's steel sales were to customers that placed orders monthly based on their immediate upcoming needs; Nucor's pricing strategy was to charge customers the going spot price on the day an order was placed. Ongoing shifts in market demand- supply conditions and the resulting spot market price caused Nucor's average sales prices per ton to fluctuate from quarter to quarter, sometimes by considerable amountssee Exhibit 4. It was Nucor's practice to quote the same payment terms to all customers and for customers to pay all shipping charges. Nucor marketed the output of its steel mills and steel product facilities mainly through an in-house sales force; there were salespeople located at almost every Nucor production facility. In 2012 and 2013, approximately 65 percent of Nucor's sheet steel sales were to contract customers (versus 40 percent in 2010 and 30 percent in 2009); the contracts for sheet steel were usually for periods of 6 to 12 months and permitted price adjustments to reflect changes in the market pricing for steel and/or raw-material costs. CASE 16 EXHIBIT 4 Nucor Corporation in 2014 C-225 Nucor's Average Quarterly Sales Prices for Steel Products, by Product Category, 2011-2013 Steel Plate Average of All Steel Mill Products Average of All Finished Steel Products* Period Sheet Steel Steel Bars Structural Steel 2011 Qtr 1 Qtr 2 Qtr 3 Qtr 4 $755 894 800 744 $779 803 811 796 $831 923 901 891 $ 880 1,029 1,021 946 $789 891 847 806 $1,274 1,361 1,381 1,395 2012 Qtr 1 Qtr 2 Qtr 3 Qtr 4 780 759 707 690 823 795 745 723 866 905 973 956 929 922 837 778 824 812 775 751 1,387 1,395 1,371 1,420 2013 Qtr 1 Qtr 2 Qtr 3 Qtr 4 699 676 693 724 732 731 708 709 949 959 923 969 769 765 753 767 756 746 741 763 1,380 1,374 1,369 1,378 *An average of the steel prices for steel deck, steel joists and girders, steel buildings, cold-finished steel products, steel mesh, fasteners, fabricated rebar, and other finished steel products. Source: Company records, www.nucor.com (accessed April 15, 2014). The other 35 percent of Nucor's sheet steel shipments and virtually all of the company's shipments of plate, structural, and bar steel were sold at the prevailing spot market pricecustomers not purchasing sheet steel rarely ever wanted to enter into a contract sales agreement. Nucor's steel mills maintained inventory levels deemed adequate to fill the expected incoming orders from customers. Nucor sold steel joists, joist girders, and deck on the basis of firm, fixed-price contracts that, in most cases, were won in competitive bidding against rival suppliers. Longer-term supply contracts for these items that were sometimes negotiated with customers contained clauses permitting price adjustments to reflect changes in prevailing raw-material costs. Steel joists, girders, and deck were manufactured to customers' specifications and shipped immediately; Nucor's plants did not maintain inventories of steel joists, girders, and deck. Nucor also sold fabricated reinforcing products only on a construction contract bid basis. However, cold-finished steel, steel fasteners, steel grating, wire, and wire mesh were all manufactured in standard sizes, with each facility maintaining sufficient inventories of its products to fill anticipated orders; almost all sales of these items were made at the prevailing spot price. The average prices Nucor received for its various finished steel products are shown in the last column of Exhibit 4. NUCOR'S STRATEGY TO GROW AND STRENGTHEN ITS BUSINESS AND COMPETITIVE CAPABILITIES Starting in 2000, Nucor embarked on a five-part growth strategy that involved new acquisitions, new plant construction, continued plant upgrades and cost reduction efforts, international growth through joint ventures, and greater control over raw-material costs. C-226 PART 2 Cases in Crafting and Executing Strategy Strategic Acquisitions Beginning in the late 1990s, Nucor management concluded that growth-minded companies like Nucor might well be better off purchasing existing plant capacity rather than building new capacity, provided the acquired plants could be bought at bargain prices, economically retrofitted with new equipment if need be, and then operated at costs comparable to (or even below) those of newly constructed state-of-the-art plants. At the time, the steel industry worldwide had far more production capacity than was needed to meet market demand, forcing many companies to operate in the red. Nucor had not made any acquisitions since about 1990, and a team of five people was assembled in 1998 to explore acquisition possibilities that would strengthen Nucor's customer base, geographic coverage, and lineup of product offerings. For almost three years, no acquisitions were made. But then the economic recession that hit Asia and Europe in the late 1990s reached the United States in full force in 2000-2001. The September 11, 2001, terrorist attacks further weakened steel purchases by such major steel-consuming industries as construction, automobiles, and farm equipment. Many steel companies in the United States and other parts of the world were operating in the red. Market conditions in the United States were particularly grim. Between October 2000 and October 2001, 29 steel companies in the United States, including Bethlehem Steel Corp. and LTV Corp., the nation's third- and fourth-largest steel producers respectively, filed for bankruptcy protection. Bankrupt steel companies accounted for about 25 percent of U.S. capacity. The Economist noted that of the 14 steel companies tracked by Standard & Poor's, only Nucor was indisputably healthy. Some experts believed that close to half of the U.S. steel industry's production capacity might be forced to close before conditions improved; about 47,000 jobs in the U.S. steel industry had vanished since 1997. One of the principal reasons for the distressed market conditions in the United States was a surge in imports of low-priced steel from foreign countries. Outside the United States, weak demand and a glut of capacity had driven commodity steel prices to 20-year lows in 1998. Globally, the industry had about 1 billion tons of annual capacity, but puny demand had kept production levels in the range of 750 to 800 million tons per year during 1998-2000. A number of foreign steel producers, anxious to keep their mills running and finding few good market opportunities elsewhere, began selling steel in the U.S. market at cut-rate prices in 1997-1999. Nucor and other U.S. companies reduced prices to better compete, and several filed unfair trade complaints against foreign steelmakers. The U.S. Department of Commerce concluded in March 1999 that steel companies in six countries (Canada, South Korea, Taiwan, Italy, Belgium, and South Africa) had illegally dumped stainless steel in the United States and that the governments of Belgium, Italy, and South Africa further facilitated the dumping by giving their steel producers unfair subsidies that at least partially made up for the revenue losses of selling at below-market prices. Congress and the Clinton administration opted to not impose tariffs or quotas on imported steel, which helped precipitate the number of bankruptcy filings. However, the Bush administration was more receptive to protecting the U.S. steel industry from the dumping practices of foreign steel companies. In October 2001, the U.S. International Trade Commission (ITC) ruled that increased steel imports of semifinished steel, plate, hot-rolled sheet, strip and coils, cold-rolled sheet and strip, and corrosion-resistant and coated sheet and strip were a substantial cause of serious injury, or threat of serious injury, to the U.S. industry. In March 2002, the Bush administration imposed tariffs of up to 30 percent on imports of select steel products to help provide relief from Asian and European companies dumping steel in the United States at ultra-low prices. Even though market conditions were tough for Nucor, management concluded that oversupplied steel industry conditions and the number of beleaguered U.S. companies made it attractive to expand Nucor's production capacity via acquisition. Starting in 2001 and continuing through 2013, the company proceeded to make a series of strategic acquisitions to strengthen Nucor's competitiveness, selectively expand its product offerings, improve its ability to serve customers in particular geographic locations, and boost the company's overall prospects for excellent profitability in times when market demand for steel was strong: In 2001, Nucor paid $115 million to acquire substantially all of the assets of Auburn Steel Company's 400,000-ton steel bar facility in Auburn, New York. This acquisition gave Nucor expanded market presence in the Northeast and was seen as a good source of supply for a new Vulcraft joist plant being constructed in Chemung, New York. CASE 16 In November 2001, Nucor announced the acquisition of ITEC Steel Inc. for a purchase price of $9 million. ITEC Steel had annual revenues of $10 million and produced load-bearing lightgauge steel framing for the residential and commercial markets at facilities in Texas and Georgia. Nucor was impressed with ITEC's dedication to continuous improvement and intended to grow ITEC's business via geographic and product line expansion. ITEC Steel's name was changed to Nucor Steel Commercial Corporation in 2002. In July 2002, Nucor paid $120 million to purchase Trico Steel Company, which had a 2.2-millionton sheet steel mill in Decatur, Alabama. Trico Steel was a joint venture of LTV (which owned a 50 percent interest) and two leading international steel companiesSumitomo Metal Industries and British Steel. The joint venture partners had built the mill in 1997 at a cost of $465 million, but Trico was in Chapter 11 bankruptcy proceedings at the time of the acquisition and the mill was shut down. The Trico mill's capability to make thin sheet steel with a superior surface quality added competitive strength to Nucor's strategy to gain sales and market share in the flat-rolled sheet segment. By October 2002, two months ahead of schedule, Nucor had restarted operations at the Decatur mill and was shipping products to customers. In December 2002, Nucor paid $615 million to purchase substantially all of the assets of Birmingham Steel Corporation, which included four bar mills in Alabama, Illinois, Washington, and Mississippi. The four plants had a capacity of approximately 2 million tons annually. The purchase price also included approximately $120 million in inventory and receivables, the assets of Port Everglade Steel Corp., the assets of Klean Steel, Birmingham Steel's ownership interest in Richmond Steel Recycling, and a mill in Memphis, Tennessee, that was not currently in operation. Top executives believed the Birmingham Steel acquisition would broaden Nucor's customer base and build profitable market share in bar steel products. In August 2004, Nucor acquired a cold-rolling mill in Decatur, Alabama, from Worthington Industries for $80 million. This 1-million-ton mill, which opened in 1998, was located adjacent to the previously acquired Trico mill and gave Nucor added ability to serve the needs of sheet Nucor Corporation in 2014 C-227 steel buyers located in the southeastern United States. In June 2004, Nucor paid a cash price of $80 million to acquire a plate mill owned by Britainbased Corus Steel that was located in Tuscaloosa, Alabama. The Tuscaloosa mill, which currently had a capacity of 700,000 tons that Nucor management believed was expandable to 1 million tons, was the first U.S. mill to employ a special technology that enabled high-quality wide steel plate to be produced from coiled steel plate. The mill produced coiled steel plate and plate products that were cut to customer-specified lengths. Nucor intended to offer these niche products to its commodity-plate and coiled-plate customers. In February 2005, Nucor completed the purchase of Fort Howard Steel's operations in Oak Creek, Wisconsin; the Oak Creek facility produced coldfinished bars in sizes up to 6-inch rounds and had approximately 140,000 tons of annual capacity. In June 2005, Nucor purchased Marion Steel Company located in Marion, Ohio, for a cash price of $110 million. Marion operated a bar mill with annual capacity of about 400,000 tons; the Marion location was within close proximity to 60 percent of the steel consumption in the United States. In May 2006, Nucor acquired Connecticut Steel Corporation for $43 million in cash. Connecticut Steel's bar-products mill in Wallingford had annual capacity to make 300,000 tons of wire rod and rebar and approximately 85,000 tons of wire mesh fabrication and structural mesh fabrication, products that complemented Nucor's present lineup of steel bar products provided to construction customers. In late 2006, Nucor purchased Verco Manufacturing Co. for approximately $180 million; Verco produced steel floor and roof decking at one location in Arizona and two locations in California. The Verco acquisition further solidified Vulcraft's market-leading position in steel decking, giving it total annual capacity of over 500,000 tons. In January 2007, Nucor acquired Canada-based Harris Steel for about $1.07 billion. Harris Steel had 2005 sales of Cdn$1.0 billion and earnings of Cdn$64 million. The company's operations consisted of (1) Harris Rebar, which was involved in the fabrication and placement of concrete-reinforcing steel and the design and installation of concrete post-tensioning systems; C-228 PART 2 Cases in Crafting and Executing Strategy (2) Laurel Steel, which manufactured and distributed wire and wire products, welded wire mesh, and cold-finished bar; and (3) Fisher & Ludlow, which manufactured and distributed heavy industrial steel grating, aluminum grating, and expanded metal. In Canada, Harris Steel had 24 reinforcing-steel fabricating plants, two steelgrating distribution centers, and one cold-finished bar and wire processing plant; in the United States, it had 10 reinforcing-steel fabricating plants, two steel-grating manufacturing plants, and three coldfinished bar and wire processing plants. Harris had customers throughout Canada and the United States and employed about 3,000 people. For the past three years, Harris had purchased a big percentage of its steel requirements from Nucor. Nucor management opted to operate Harris Steel as an independent subsidiary. Over several months in 2007 following the Harris Steel acquisition, Nucor, through its new Harris Steel subsidiary, acquired rebar fabricator South Pacific Steel Corporation, Consolidated Rebar, Inc., and a 90 percent equity interest in rebar fabricator Barker Steel Company, as well as completing several smaller transactionsall aimed at growing its presence in the rebar fabrication marketplace. In August 2007, Nucor acquired LMP Steel & Wire Company for a cash purchase price of approximately $27.2 million, adding 100,000 tons of cold-drawn steel capacity. In October 2007, Nucor completed the acquisition of Nelson Steel, Inc., for a cash purchase price of approximately $53.2 million, adding 120,000 tons of steel mesh capacity. In the third quarter of 2007, Nucor completed the acquisition of Magnatrax Corporation, a leading provider of custom-engineered metal buildings, for a cash purchase price of approximately $275.2 million. The Magnatrax acquisition enabled Nucor's Buildings Group to become the second-largest metal buildings producer in the United States. In August 2008, Nucor's Harris Steel subsidiary acquired Ambassador Steel Corporation for a cash purchase price of about $185.1 million. Ambassador Steel was one of the largest independent fabricators and distributors of concretereinforcing steelin 2007, Ambassador shipped 422,000 tons of fabricated rebar and distributed another 228,000 tons of reinforcing steel. Its business complemented that of Harris Steel, and the acquisition represented another in a series of moves to greatly strengthen Nucor's competitive position in the rebar fabrication marketplace. Another small rebar fabrication company, Free State Steel, was acquired in late 2009, adding to Nucor's footprint in rebar fabrication. In June 2012, Nucor acquired Skyline Steel, LLC, and its subsidiaries for a cash price of approximately $675.4 million. Skyline was primarily a distributor of steel pilings, and it also processed and fabricated spiral-weld pipe piling, rolled and welded pipe piling, cold-formed sheet piling, and threaded bar. The Skyline acquisition paired Skyline's leadership position in the steel piling distribution market with Nucor's own Nucor-Yamato plant in Arkansas, which was the market leader in steel piling manufacturing. To capitalize upon the strategic fits between Skyline's business and Nucor's business, Nucor immediately announced that its Nucor-Yamato mill in Arkansas would begin a capital project to (1) add several new sheet-piling sections, (2) increase the production of single-sheet widths by 22 percent, and (3) produce a lighter, stronger sheet covering more area at a lower installed costoutcomes that would broaden the range of hot-rolled steel piling products that could be marketed through Skyline's distribution network in the United States, Canada, Mexico, and the Caribbean that supplied customers needing steel pilings for marine construction, bridge and highway construction, heavy civil construction, storm protection, underground commercial parking, and environmental containment projects. Commercialization of New Technologies and New Plant Construction The second element of Nucor's growth strategy was to continue to be a technology leader and to be opportunistic in constructing new plant capacity that would enable the company to expand its presence in attractive new or existing market segments. From its earliest days, Nucor had been an early and aggressive investor in two types of steelmaking breakthroughs: CASE 16 Disruptive technological innovationsproduction processes and equipment that would give Nucor a commanding market advantage and thus be disruptive to the efforts of competitors in matching Nucor's cost competitiveness and/or product quality. Leapfrog technological innovationsproduction processes and equipment that would enable Nucor to overtake competitors in terms of product quality, cost per ton, or market share. One of Nucor's biggest and most recent successes in pioneering new technology had been at its Crawfordsville facilities, where Nucor had the world's first installation of direct strip casting of carbon sheet steela process called Castrip. After several years of testing and process refinement at Crawfordsville, Nucor announced in 2005 that the Castrip process was ready for commercialization; Nucor had exclusive rights to Castrip technology in the United States and Brazil. The process, which had proved to be quite difficult to bring to commercial reality, was a major technological breakthrough for producing flat-rolled, carbon, and stainless steels in very thin gauges; it involved far fewer process steps to cast metal at or very near customer-desired thicknesses and shapes. The Castrip process drastically reduced capital outlays for equipment and produced savings on operating expenses as wellmajor expense savings resulted from the ability to use lower-quality scrap metal and to expend 90 percent less energy to process liquid metal into hot-rolled steel sheets. A big environmental benefit of the Castrip process was that it cut greenhouse gas emissions by up to 80 percent. Nucor's Castrip facility at Crawfordsville had the capacity to produce 500,000 tons annually. In 2006, Nucor built a second Castrip facility on the site of its structural steel mill in Arkansas. Nucor's growth strategy also included investing in the construction of new plant capacity or enhanced production capabilities whenever management spotted opportunities to strengthen its competitive position vis--vis rivals: In 2006, Nucor announced that it would construct a new $27 million facility to produce metal buildings systems in Brigham City, Utah. The new plant, Nucor's fourth buildings systems plant, had a capacity of 45,000 tons and gave Nucor national market reach in buildings systems products. In 2006, Nucor initiated construction of a $230 million state-of-the-art steel mill in Memphis, Nucor Corporation in 2014 C-229 Tennessee, with the annual capacity to produce 850,000 tons of special-quality steel bars. Management believed this mill, together with the company's other special-quality bar mills in Nebraska and South Carolina, would give Nucor the broadest, highest-quality, and lowest-cost specialquality steel bar offering in North America. In 2009, Nucor opened an idle and newly renovated $50 million wire rod and bar mill in Kingman, Arizona, that had been acquired in 2003. Production of straight-length rebar, coiled rebar, and wire rod began in mid-2010; the plant had an initial capacity of 100,000 tons and the ability to increase annual production to 500,000 tons. Also in 2009, Nucor began production at a new facility in Blytheville, Arkansas, which used the breakthrough Castrip technology to cast molten steel into near-final shape and thickness with minimal hot or cold rolling. This innovative production process entailed both lower capital investment and lower operating costs, plus it reduced the environmental impact of producing steel. A new $150 million galvanizing facility located at the company's sheet steel mill in Decatur, Alabama, began operations in mid-2009. This facility gave Nucor the ability to make 500,000 tons of 72-inch-wide galvanized sheet steel, a product used by motor vehicle and appliance producers and in various steel frame and steel stud buildings. The galvanizing process entailed dipping steel in melted zinc at extremely high temperatures; the zinc coating protected the steel surface from corrosion. The Drive for Plant Efficiency and Low-Cost Production A key part of Nucor's production strategy was to make ongoing capital investments to improve efficiency and lower production costs at each and every facility it operated. From its earliest days in the steel business, Nucor had built state-of-the-art facilities in the most economical fashion possible and then made it standard company practice to invest in plant modernization and efficiency improvements as technology advanced and new cost-saving opportunities emerged. Nucor management made a point of staying on top of the latest advances in steelmaking around the world, diligently searching for emerging cost-effective technologies it could adopt or adapt in C-230 PART 2 Cases in Crafting and Executing Strategy its facilities. Executives at Nucor had a long-standing commitment to provide the company's workforce with the best technology available to get the job done safely and to do it in an environmentally responsible manner. When Nucor acquired plants, it immediately began bringing them up to Nucor standardsa process it called \"Nucorizing.\" This included increasing operational efficiency by reducing the amount of time, space, energy, and manpower it took to produce steel or steel products and paying close attention to worker safety and environmental protection practices. Nucor management also stressed continual improvement in product quality and cost at each one of its production facilities. Almost all of Nucor's production locations were ISO 9000- and ISO 14000-certified. The company had a \"BESTmarking\" program aimed at being the industrywide best performer on a variety of production and efficiency measures. Managers at all Nucor plants were accountable for demonstrating that their operations were competitive on both product quality and cost vis--vis the plants of rival companies. One trait of Nucor's corporate culture was the expectation that plant-level managers would be persistent in implementing methods to improve product quality and keep costs per ton low relative to rival plants. Nucor's capital expenditures for new technology, plant improvements, and equipment upgrades in 2000-2013 are shown in Exhibit 5. Nucor management viewed the task of optimizing its manufacturing operations as a continuous process. According to former CEO Dan DiMicco:6 Adding new galvanizing capability at the Decatur, Alabama, mill that enabled Nucor to sell 500,000 tons of corrosion-resistant, galvanized sheet steel for high-end applications. Expanding the cut-to-length capabilities at the Tuscaloosa, Alabama, mill that put the mill in position to sell as many as 200,000 additional tons per year of cut-to-length and tempered steel plate. Shipping 250,000 tons of new steel plate and structural steel products in 2010 that were not offered in 2009, and further increasing shipments of these new products to 500,000 tons in 2011. Completing installation of a heat-treating facility at the Hertford County plate mill in 2011 that gave Nucor the capability to produce as much as 125,000 tons annually of heat-treated steel plate ranging from 3/16 of an inch through 2 inches thick. Installing new vacuum degassers at the Hickman, Arkansas, sheet mill and Hertford County, North Carolina, mill to enable these two facilities to produce increased volumes of higher-grade sheet steel and steel plate. The degasser at the Hickman plant facilitated production of higher-value steel piping and tubular products used in the oil and gas industry. EXHIBIT 5 We talk about \"climbing a mountain without a peak\" to describe our constant improvements. We can take pride in what we have accomplished, but we are never satisfied. Shift of Production from Lower-End Steel Products to Value-Added Products During 2010-2013, Nucor undertook a number of actions to shift more of the production tonnage at its steel mills and steel product facilities to \"valueadded products\" that could command higher prices and yield better profit margins than could be had by producing lower-end or commodity steel products. Examples included: Nucor's Capital Expenditures for New Plants, Plant Expansions, New Technology, Equipment Upgrades, and Other Operating Improvements, 2000-2013 Year Capital Expenditures (millions) Year Capital Expenditures (millions) 2000 2001 2002 2003 2004 2005 2006 $415.0 261.0 244.0 215.4 285.9 331.5 338.4 2007 2008 2009 2010 2011 2012 2013 $ 520.4 1,019.0 390.5 345.2 450.6 1,019.3 1,230.4 Sources: Company records, www.nucor.com; data for 2009-2013 are from the 2013 10-K report, p. 43. CASE 16 Investing $290 million at its three steel bar mills to enable the production of steel bars and wire rods for the most demanding engineered bar applications and also put in place state-of-theart quality inspection capabilities. The project enabled Nucor to offer higher-value steel bars and wire rods to customers in the energy, automotive, and heavy truck and equipment markets (where the demand for steel products had been particularly strong in recent years). Completing installation of a new 120,000-ton \"normalizing\" process for making steel plate at the Hertford County mill in June 2013; the new normalizing process allowed the mill to produce a higher grade of steel plate that was less brittle and had a more uniform fine-grained structure (which permitted the plate to be machined to more precise dimensions). Steel plate with these qualities was more suitable for armor plate applications and for certain uses in the energy, transportation, and shipbuilding industries. Going into 2014, the normalizing process, coupled with the company's recent investments in a vacuum tank degasser and a heat-treating facility at the same plant, doubled the Hertford mill's capacity to produce higher-quality steel plate products that commanded a higher market price. Modernizing the casting, hot-rolling, and downstream operations at the Berkeley, South Carolina, mill to enable, starting in the first quarter of 2014, the production of 72-inch-wide sheet steel and lighter-gauge hot-rolled and cold-rolled steel products with a finished width of 72 inches that were used in an assortment of high-strength and ultra-high-strength applications. This product line expansion opened opportunities for Nucor to sell higher-value sheet steel products to customers in the agricultural, pipe and tube, industrial equipment, automotive, and heavy equipment industries. Several product upgrades had also been undertaken at several Nucor facilities making cold-finished and fastener products. Senior management believed that all of these upgraded product offerings would contribute to higher revenues and earnings when market demand for steel products turned upward. Global Growth via Joint Ventures In 2007, Nucor management decided it was time to begin building an international growth platform. The Nucor Corporation in 2014 C-231 company's strategy to grow its international revenues had two elements: Establishing foreign sales offices and exporting U.S.-made steel products to foreign markets. Because about 60 percent of Nucor's steelmaking capacity was located on rivers with deep-water transportation access, management believed that the company could be competitive in shipping U.S.-made steel products to customers in a number of foreign locations. Entering into joint ventures with foreign partners to invest in steelmaking projects outside North America. Nucor executives believed that the success of this strategy element was finding the right partners to grow with internationally. Nucor opened a trading office in Switzerland and proceeded to establish international sales offices in Mexico, Brazil, Colombia, the Middle East, and Asia. The company's trading office bought and sold steel and steel products that Nucor and other steel producers had manufactured. In 2010, approximately 11 percent of the shipments from Nucor's s