Third
Quarter
2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September
29, 2007
Commission
file number 1-4119
NUCOR
CORPORATION
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
|
13-1860817
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
1915
Rexford Road, Charlotte, North Carolina
|
|
28211
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(704)
366-7000
|
(Registrant's
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x
Accelerated
filer o
Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o No x
287,926,784
shares of common stock were outstanding at September 29,
2007.
Nucor
Corporation
Form
10-Q
September
29, 2007
INDEX
|
|
|
Page
|
Part
I
|
Financial
Information
|
|
|
|
|
|
|
Item
1
|
Financial
Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Earnings - Nine Months (39 Weeks) and
Three
Months (13 Weeks) Ended September 29, 2007 and September 30,
2006
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets - September 29, 2007 and December 31,
2006
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows - Nine Months (39 Weeks) Ended
September 29, 2007 and September 30, 2006
|
5
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
|
|
|
|
Item
2
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
|
|
|
|
|
Item
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
|
|
|
|
|
Item
4
|
Controls
and Procedures
|
20
|
|
|
|
|
Part
II
|
Other
Information
|
|
|
|
|
|
|
Item
1A
|
Risk
Factors
|
21
|
|
|
|
|
|
Item
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
21
|
|
|
|
|
|
Item
6
|
Exhibits
|
22
|
|
|
|
|
Signatures
|
22
|
|
|
|
|
List
of Exhibits to Form 10-Q
|
23
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
Nucor
Corporation Condensed Consolidated Statements of Earnings
(Unaudited)
(In
thousands, except per share amounts)
|
|
Nine Months (39 Weeks) Ended
|
|
Three Months (13 Weeks) Ended
|
|
|
|
Sept.
29, 2007
|
|
Sept.
30, 2006
As
Adjusted
(Note
1)
|
|
Sept.
29, 2007
|
|
Sept.
30, 2006
As
Adjusted
(Note
1)
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
12,196,216
|
|
$
|
11,282,680
|
|
$
|
4,259,221
|
|
$
|
3,931,233
|
|
Costs,
expenses and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
9,844,763
|
|
|
8,628,748
|
|
|
3,449,260
|
|
|
2,920,782
|
|
Marketing,
administrative and other expenses
|
|
|
430,605
|
|
|
450,266
|
|
|
145,470
|
|
|
160,464
|
|
Interest
(income) expense, net
|
|
|
(607
|
)
|
|
(25,753
|
)
|
|
3,576
|
|
|
(10,433
|
)
|
Minority
interests
|
|
|
214,653
|
|
|
147,568
|
|
|
76,494
|
|
|
58,660
|
|
|
|
|
10,489,414
|
|
|
9,200,829
|
|
|
3,674,800
|
|
|
3,129,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
1,706,802
|
|
|
2,081,851
|
|
|
584,421
|
|
|
801,760
|
|
Provision
for income taxes
|
|
|
599,701
|
|
|
730,173
|
|
|
203,199
|
|
|
280,124
|
|
Net
earnings
|
|
$
|
1,107,101
|
|
$
|
1,351,678
|
|
$
|
381,222
|
|
$
|
521,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.71
|
|
$
|
4.38
|
|
$
|
1.30
|
|
$
|
1.71
|
|
Diluted
|
|
$
|
3.68
|
|
$
|
4.34
|
|
$
|
1.29
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
298,468
|
|
|
308,569
|
|
|
293,096
|
|
|
304,835
|
|
Diluted
|
|
|
300,600
|
|
|
311,420
|
|
|
295,019
|
|
|
307,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$
|
1.83
|
|
$
|
1.55
|
|
$
|
0.61
|
|
$
|
0.60
|
|
See
notes to condensed consolidated financial statements.
Nucor
Corporation Condensed Consolidated Balance Sheets
(Unaudited)
(In
thousands)
|
|
Sept.
29, 2007
|
|
Dec.
31, 2006
As
Adjusted
(Note
1)
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
272,256
|
|
$
|
785,651
|
|
Short-term
investments
|
|
|
-
|
|
|
1,410,633
|
|
Accounts
receivable, net
|
|
|
1,629,682
|
|
|
1,067,322
|
|
Inventories
|
|
|
1,604,580
|
|
|
1,141,194
|
|
Other
current assets
|
|
|
256,905
|
|
|
278,265
|
|
Total
current assets
|
|
|
3,763,423
|
|
|
4,683,065
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
3,101,981
|
|
|
2,856,415
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
812,220
|
|
|
143,265
|
|
|
|
|
|
|
|
|
|
Other
intangible assets, net
|
|
|
471,944
|
|
|
5,015
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
150,675
|
|
|
205,258
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,300,243
|
|
$
|
7,893,018
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$
|
22,265
|
|
$
|
-
|
|
Accounts
payable
|
|
|
784,329
|
|
|
516,640
|
|
Salaries,
wages and related accruals
|
|
|
419,096
|
|
|
455,051
|
|
Accrued
expenses and other current liabilities
|
|
|
442,218
|
|
|
450,226
|
|
Total
current liabilities
|
|
|
1,667,908
|
|
|
1,421,917
|
|
|
|
|
|
|
|
|
|
Long-term
debt due after one year
|
|
|
922,300
|
|
|
922,300
|
|
|
|
|
|
|
|
|
|
Deferred
credits and other liabilities
|
|
|
591,173
|
|
|
448,084
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
230,278
|
|
|
243,366
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common
stock
|
|
|
149,277
|
|
|
149,006
|
|
Additional
paid-in capital
|
|
|
244,249
|
|
|
195,543
|
|
Retained
earnings
|
|
|
6,433,374
|
|
|
5,840,067
|
|
Accumulated
other comprehensive income
|
|
|
139,599
|
|
|
4,470
|
|
|
|
|
6,966,499
|
|
|
6,189,086
|
|
|
|
|
|
|
|
|
|
Treasury
stock
|
|
|
(2,077,915
|
)
|
|
(1,331,735
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
4,888,584
|
|
|
4,857,351
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
8,300,243
|
|
$
|
7,893,018
|
|
See
notes to condensed consolidated financial statements.
Nucor
Corporation Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In
thousands)
|
|
Nine Months (39 Weeks) Ended
|
|
|
|
Sept.
29, 2007
|
|
Sept.
30, 2006
As
Adjusted
(Note
1)
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
1,107,101
|
|
$
|
1,351,678
|
|
Adjustments:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
298,280
|
|
|
273,678
|
|
Amortization
|
|
|
15,437
|
|
|
998
|
|
Stock-based
compensation
|
|
|
33,875
|
|
|
30,200
|
|
Deferred
income taxes
|
|
|
(91,191
|
)
|
|
(43,038
|
)
|
Minority
interests
|
|
|
214,651
|
|
|
147,554
|
|
Settlement
of natural gas hedges
|
|
|
(13,207
|
)
|
|
(3,668
|
)
|
Changes
in assets and liabilities (exclusive of
acquisitions):
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(239,401
|
)
|
|
(214,474
|
)
|
Inventories
|
|
|
(128,436
|
)
|
|
(181,482
|
)
|
Accounts
payable
|
|
|
167,549
|
|
|
157,668
|
|
Federal
income taxes
|
|
|
71,598
|
|
|
106,955
|
|
Salaries,
wages and related accruals
|
|
|
(54,430
|
)
|
|
57,869
|
|
Other
|
|
|
8,857
|
|
|
6,484
|
|
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
|
|
1,390,683
|
|
|
1,690,422
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(330,586
|
)
|
|
(240,175
|
)
|
Sale
of interest in affiliates
|
|
|
29,500
|
|
|
-
|
|
Investment
in affiliates
|
|
|
(27,913
|
)
|
|
(34,241
|
)
|
Disposition
of plant and equipment
|
|
|
804
|
|
|
1,978
|
|
Acquisitions
(net of cash acquired)
|
|
|
(1,410,677
|
)
|
|
(43,879
|
)
|
Purchases
of short-term investments
|
|
|
(276,945
|
)
|
|
(803,253
|
)
|
Proceeds
from the sale of short-term investments
|
|
|
1,687,578
|
|
|
271,675
|
|
Proceeds
from currency derivative contracts
|
|
|
517,241
|
|
|
-
|
|
Settlement
of currency derivative contracts
|
|
|
(511,394
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
|
|
(322,392
|
)
|
|
(847,895
|
)
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Net
change in short-term debt
|
|
|
(66,461
|
)
|
|
-
|
|
Repayment
of long-term debt
|
|
|
-
|
|
|
(1,250
|
)
|
Issuance
of common stock
|
|
|
10,430
|
|
|
46,373
|
|
Excess
tax benefits from stock-based compensation
|
|
|
9,500
|
|
|
12,200
|
|
Distributions
to minority interests
|
|
|
(231,520
|
)
|
|
(151,411
|
)
|
Cash
dividends
|
|
|
(549,606
|
)
|
|
(395,793
|
)
|
Acquisition
of treasury stock
|
|
|
(754,029
|
)
|
|
(500,199
|
)
|
|
|
|
|
|
|
|
|
Cash
used in financing activities
|
|
|
(1,581,686
|
)
|
|
(990,080
|
)
|
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents
|
|
|
(513,395
|
)
|
|
(147,553
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of year
|
|
|
785,651
|
|
|
980,150
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of nine months
|
|
$
|
272,256
|
|
$
|
832,597
|
|
See
notes to condensed consolidated financial statements.
Nucor
Corporation –
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. |
BASIS
OF INTERIM PRESENTATION: The information furnished in Item I reflects
all
adjustments which are, in the opinion of management, necessary to
a fair
statement of the results for the interim periods and are of a normal
and
recurring nature. The information furnished has not been audited;
however,
the December 31, 2006 condensed consolidated balance sheet data was
derived from audited financial statements but does not include all
disclosures required by accounting principles generally accepted
in the
United States of America. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and the notes thereto included in Nucor’s annual report for the fiscal
year ended December 31, 2006. Certain amounts for the prior year
have been
reclassified to conform to the 2007
presentation.
|
Effective
January 1, 2007, Nucor adopted the Financial Accounting Standards Board (“FASB”)
Staff Position AUG AIR-1, “Accounting for Planned Major Maintenance Activities.”
This position statement eliminates Nucor’s previous policy to accrue in advance
for planned major maintenance activities. In accordance with this position
statement, Nucor now uses the deferral method of accounting for planned
maintenance activities and has adjusted prior period financial statements to
retrospectively apply this position statement. The effects of this adjustment
on
our 2006 financial statements are as follows (in thousands, except per share
amounts):
|
|
Consolidated
Balance Sheet
|
|
|
|
As
of December 31, 2006
|
|
|
|
As
Previously
Reported
|
|
Adjustments
|
|
As
Adjusted
|
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
$
|
270,236
|
|
$
|
8,029
|
|
$
|
278,265
|
|
Accrued
expenses and other current liabilities
|
|
|
478,337
|
|
|
(28,111
|
)
|
|
450,226
|
|
Minority
interests
|
|
|
238,588
|
|
|
4,778
|
|
|
243,366
|
|
Retained
earnings
|
|
|
5,808,705
|
|
|
31,362
|
|
|
5,840,067
|
|
|
|
Consolidated Statements of Earnings
|
|
|
|
Nine
Months (39 Weeks)
Ended
September 30, 2006
|
|
Three
Months (13 Weeks)
Ended
September 30, 2006
|
|
|
|
As
Previously
Reported
|
|
Adjustments
|
|
As
Adjusted
|
|
As
Previously
Reported
|
|
Adjustments
|
|
As
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
$
|
8,631,598
|
|
$ |
(2,850
|
)
|
$
|
8,628,748
|
|
$
|
2,926,581
|
|
$ |
(5,799
|
)
|
$
|
2,920,782
|
|
Minority
interests
|
|
|
148,036
|
|
|
(468
|
)
|
|
147,568
|
|
|
59,104
|
|
|
(444
|
)
|
|
58,660
|
|
Earnings
before income taxes
|
|
|
2,078,533
|
|
|
3,318
|
|
|
2,081,851
|
|
|
795,517
|
|
|
6,243
|
|
|
801,760
|
|
Provision
for income taxes
|
|
|
729,011
|
|
|
1,162
|
|
|
730,173
|
|
|
277,939
|
|
|
2,185
|
|
|
280,124
|
|
Net
earnings
|
|
|
1,349,522
|
|
|
2,156
|
|
|
1,351,678
|
|
|
517,578
|
|
|
4,058
|
|
|
521,636
|
|
Net
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4.37
|
|
|
0.01
|
|
|
4.38
|
|
|
1.70
|
|
|
0.01
|
|
|
1.71
|
|
Diluted
|
|
|
4.33
|
|
|
0.01
|
|
|
4.34
|
|
|
1.68
|
|
|
0.01
|
|
|
1.70
|
|
The
effect of the adjustment on the consolidated statement of cash flows was not
significant.
Also
effective January 1, 2007, Nucor adopted FASB Interpretation No. 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109,” which clarifies the accounting of uncertainty in income taxes
recognized in financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes” (see Note 14). FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax
return.
Nucor
Corporation –
Notes to Condensed Consolidated Financial Statements
(Unaudited),
continued
2. |
ACQUISITIONS:
Since 2004, Nucor has owned a one-half interest in the rebar fabricator
Harris Steel Inc., the remaining one-half interest of which was owned
by
Harris Steel Group Inc. (“Harris Steel”). In
March 2007, a
wholly owned subsidiary of Nucor acquired all the issued and outstanding
shares of Harris Steel for a cash purchase price of Cdn$46.25 per
Harris
Steel share. The
purchase price includes approximately $1.06 billion paid in cash
and $68.4
million of short-term debt assumed related to the net assets acquired.
Nucor also consolidated an additional $18.2 million of short-term
debt
related to its previous 50% ownership in Harris Steel Inc. As a result
of
the acquisition, Nucor has consolidated Harris Steel Inc. which was
previously accounted for under the equity method. Harris Steel, which
now
operates as a subsidiary of Nucor, manufactures industrial products
principally in the U.S. and Canada. Harris Steel also participates
in
steel trading on a worldwide basis and distributes reinforcing steel
and
related products to U.S. customers.
|
We
have obtained preliminary independent appraisals for the purpose of allocating
the purchase price to the individual assets acquired and liabilities assumed.
These valuations are subject to adjustment as additional information is
obtained; however, these adjustments are not expected to be material. The
following table summarizes the estimated fair values of the assets acquired
and
liabilities assumed of Harris Steel as of the date of acquisition (in
thousands):
Current
assets
|
|
$
|
460,037
|
|
Property,
plant and equipment
|
|
|
122,187
|
|
Goodwill
|
|
|
478,337
|
|
Other
intangible assets
|
|
|
305,217
|
|
Other
assets
|
|
|
565
|
|
Total
assets acquired
|
|
|
1,366,343
|
|
|
|
|
|
|
Short-term
debt
|
|
|
(68,365
|
)
|
Other
current liabilities
|
|
|
(108,906
|
)
|
Deferred
credits and other liabilities
|
|
|
(126,098
|
)
|
Minority
interests
|
|
|
(3,522
|
)
|
Total
liabilities assumed
|
|
|
(306,891
|
)
|
|
|
|
|
|
Net
assets acquired
|
|
$
|
1,059,452
|
|
The
preliminary purchase price allocation to the identifiable intangible assets
is
as follows (in thousands, except years):
|
|
|
|
Weighted
Average
Life
|
|
Customer
relationships
|
|
$
|
271,462
|
|
|
22
years
|
|
Trade
names
|
|
|
33,755
|
|
|
20
years
|
|
|
|
$
|
305,217
|
|
|
22
years
|
|
The
majority of the goodwill has been preliminarily allocated to the steel products
segment (see Note 6).
Nucor
Corporation – Notes to Condensed Consolidated Financial Statements
(Unaudited),
continued
The
results of Harris Steel have been included in the consolidated financial
statements from the date of acquisition. Unaudited pro forma operating results
for Nucor, assuming the acquisition of Harris Steel occurred at the beginning
of
each period are as follows (in thousands, except per share
data):
|
|
Nine
Months (39 Weeks) Ended
|
|
Three
Months (13 Weeks) Ended
|
|
|
|
September 29, 2007
|
|
September 30, 2006
|
|
September 29, 2007
|
|
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
12,372,841
|
|
$
|
12,143,084
|
|
$
|
4,259,221
|
|
$
|
4,248,248
|
|
Net
earnings
|
|
|
1,115,751
|
|
|
1,399,443
|
|
|
381,222
|
|
|
551,616
|
|
Net
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.74
|
|
$
|
4.54
|
|
$
|
1.30
|
|
$
|
1.81
|
|
Diluted
|
|
$
|
3.71
|
|
$
|
4.49
|
|
$
|
1.29
|
|
$
|
1.79
|
|
In
June 2007, Harris Steel Inc. purchased the stock of South Pacific Steel Corp.,
a
rebar fabricator and installer, for a cash purchase price of approximately
$24.9
million. In addition, in August 2007, Harris Steel acquired Consolidated Rebar,
Inc. for a cash purchase price of approximately $23.3 million. Consolidated
has
two rebar fabrication facilities in Arizona.
In
August 2007, Nucor purchased substantially all the assets of LMP Steel &
Wire Company (“LMP”) for a cash purchase price of approximately $27.2 million.
Located in Maryville, Missouri, LMP is a producer of cold finished bar.
Also
in August 2007, a wholly owned subsidiary of Nucor merged with Magnatrax
Corporation ("Magnatrax"), a leading provider of custom-engineered metal
building systems with seven fabricating plants located across the United States.
The cash purchase price of $275.2 million includes approximately $158.7 million
of goodwill that has been allocated to the steel products segment. The cash
purchase price also includes $116.2 million of identifiable intangibles,
primarily related to customer relationships which are being amortized over
21
years.
In
May 2006, Nucor’s wholly owned subsidiary, Nucor Steel Connecticut, Inc.,
purchased substantially all of the assets of Connecticut Steel Corporation
for a
cash purchase price of approximately $43.9 million. This facility produces
wire
rod, rebar, wire mesh and structural mesh.
3. |
SHORT-TERM
INVESTMENTS: As of December 31, 2006, short-term investments consisted
entirely of variable rate demand notes (“VRDN’s”), which are variable rate
bonds tied to short-term interest rates with maturities on the face
of the
securities in excess of 90 days. All VRDN’s were liquidated during the
third quarter of 2007. All of the VRDN’s in which Nucor invests are
secured by a direct-pay letter of credit issued by a high-credit
quality
financial institution. Nucor is able to receive the principal invested
and
interest accrued thereon no later than seven days after notifying
the
financial institution that Nucor has elected to tender the VRDN’s. Since
VRDN’s trade at par value, no realized or unrealized gains or losses were
incurred.
|
Nucor
Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited),
continued
4. |
INVENTORIES:
Inventories consist of approximately 43% raw materials and supplies
and
57% finished and semi-finished products at September 29, 2007 (48%
and 52%
respectively, at December 31, 2006). Nucor’s manufacturing process
consists of a continuous, vertically integrated process from which
products are sold to customers at various stages. Since most steel
products can be classified as either finished or semi-finished products,
these two categories of inventory are combined.
|
Inventories
valued using the last-in, first-out (LIFO) method of accounting represent
approximately 51% of total inventories as of September 29, 2007 (63% of total
inventories as of December 31, 2006). If the first-in, first-out (FIFO) method
of accounting had been used, inventories would have been $489.2
million higher
at September 29, 2007 ($387.2 million higher at December 31, 2006).
5. |
PROPERTY,
PLANT AND EQUIPMENT:
Property, plant and equipment is recorded net of accumulated depreciation
of $3.83 billion at September 29, 2007 ($3.54 billion at December
31,
2006).
|
6. |
GOODWILL
AND OTHER INTANGIBLE ASSETS: The change in the net carrying amount
of
goodwill for the nine months ended September 29, 2007 by segment
is as
follows (in thousands):
|
|
|
Steel
Mills
|
|
Steel Products
|
|
Total
|
|
Balance
at December 31, 2006
|
|
$
|
2,007
|
|
$
|
141,258
|
|
$
|
143,265
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
-
|
|
|
639,133
|
|
|
639,133
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
price adjustments
|
|
|
-
|
|
|
(15,740
|
)
|
|
(15,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
-
|
|
|
45,562
|
|
|
45,562
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 29, 2007
|
|
$
|
2,007
|
|
$
|
810,213
|
|
$
|
812,220
|
|
Goodwill
resulting from the acquisition of Harris Steel and Magnatrax accounts for almost
all of the increase in goodwill in the first nine months of 2007 and is
presented based upon Nucor’s preliminary purchase price allocation. The majority
of goodwill is not tax deductible.
Intangible
assets with estimated lives of five to 22 years are amortized on a straight-line
or accelerated basis and are comprised of the following (in
thousands):
|
|
September
29, 2007
|
|
December
31, 2006
|
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Customer
relationships
|
|
$
|
414,320
|
|
$
|
12,658
|
|
$
|
-
|
|
$
|
-
|
|
Trademarks
and trade names
|
|
|
52,686
|
|
|
1,051
|
|
|
|
|
|
|
|
Other
|
|
|
24,102
|
|
|
5,455
|
|
|
8,742
|
|
|
3,727
|
|
|
|
$
|
491,108
|
|
$
|
19,164
|
|
$
|
8,742
|
|
$
|
3,727
|
|
Intangible
asset amortization expense was $15.4 million and $1.0 million in the first
nine
months of 2007 and 2006, respectively, and was $8.3 million and $0.3 million
in
the third quarter of 2007 and 2006, respectively. Annual amortization expense
is
estimated to be $23.6 million in 2007; $40.8 million in 2008; $38.2 million
in
2009; $35.8 million in 2010; and $32.8 million in
2011.
Nucor
Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited),
continued
7. |
CURRENT
LIABILITIES: Drafts payable and book overdrafts, included in accounts
payable in the balance sheet, were $85.3 million at September 29,
2007
($74.7 million at December 31,
2006).
|
Dividends
payable, included in accrued expenses and other current liabilities in the
balance sheet, was $176.5 million at September 29, 2007 ($181.2 million at
December 31, 2006).
8. |
DEBT
AND OTHER FINANCING ARRANGEMENTS: In addition to Nucor’s $700 million
five-year unsecured revolving credit facility maturing in June 2010,
Harris Steel has credit facilities with a Canadian bank totaling
approximately $55.0 million. No borrowings were outstanding at September
29, 2007 under either facility.
|
In
addition, the business of Novosteel, of which Harris Steel owns 75%, is financed
by trade credit arrangements totaling approximately $197.5 million with a number
of Swiss-based banking institutions. These arrangements, principally letters
of
credit under trade finance facilities, are non-recourse to Nucor and its other
subsidiaries. As of September 29, 2007, there were outstanding borrowings of
$22.3 million and outstanding letters of credit of $15.2 million under the
Swiss
trade credit arrangements for commitments to purchase inventories, which had
not
yet been received.
9. |
STOCK-BASED
COMPENSATION: Stock
Options -
Nucor’s stock option plans provide that common stock options may be
granted to key employees, officers and non-employee directors with
exercise prices at 100% of the market price on the date of the grant.
Outstanding options are exercisable six months after the grant date
and
have a term of seven years. Nucor did not grant any options during
2006 or
during the nine months ended September 29, 2007 and does not expect
to
grant options to its employees, officers or non-employee directors
in
future periods. A summary of activity under Nucor’s stock option plans for
the nine months ended September 29, 2007 is as follows (in thousands,
except year and per share
amounts):
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaing
Contractual Life
|
|
Aggregate
Intrinsic
Value
|
|
Number
of shares under option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
2,461
|
|
$
|
20.21
|
|
|
|
|
|
|
|
Exercised
|
|
|
(547
|
)
|
|
19.28
|
|
|
|
|
$
|
24,556
|
|
Canceled
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Outstanding
at September 29, 2007
|
|
|
1,914
|
|
$
|
20.47
|
|
|
3.5 years
|
|
$
|
74,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at September 29, 2007
|
|
|
1,914
|
|
$
|
20.47
|
|
|
3.5 years
|
|
$
|
74,656
|
|
As
of March 1, 2006 all outstanding options were vested; therefore, no compensation
expense related to stock options was recorded in the first nine months of 2007
($2.5 million in the first nine months of 2006 and none in the third quarter
of
2006). The amount of cash received from the exercise of stock options totaled
$10.4 million and $0.5 million in the first nine months and third quarter of
2007, respectively.
Restricted
Stock Awards
- Nucor’s Senior Officers Annual Incentive Plan (the “AIP”) and Long-Term
Incentive Plan (the “LTIP”) authorize the award of shares of common stock to
officers subject to certain conditions and restrictions. The LTIP provides
for
the award of shares of restricted common stock at the end of each LTIP
performance measurement period at no cost to officers if certain financial
performance goals are met during the period. One-third of the LTIP restricted
stock award vests
upon each of the first three anniversaries of the award date or, if earlier,
upon the officer’s attainment of age fifty-five while employed by Nucor.
Although participants are entitled to cash dividends and may vote such awarded
shares, the sale or transfer of such shares is limited during the restricted
period.
Nucor
Corporation –
Notes to Condensed Consolidated Financial Statements (Unaudited),
continued
The
AIP provides for the payment of annual cash incentive awards. An AIP participant
may elect, however, to defer payment of up to one-half of an annual incentive
award. In such event, the deferred AIP award is converted into common stock
units and credited with a deferral incentive, in the form of additional common
stock units, equal to 25% of the number of common stock units attributable
to
the deferred AIP award. Common stock units attributable to deferred AIP awards
are fully vested. Common stock units credited as a deferral incentive vest
upon
the AIP participant’s attainment of age fifty-five while employed by Nucor.
Vested common stock units are paid to AIP participants in the form of shares
of
common stock following their termination of employment with
Nucor.
A
summary of Nucor’s restricted stock activity under the AIP and LTIP for the
first nine months of 2007 is as follows (shares in
thousands):
|
|
Shares
|
|
Weighted Average Price
|
|
Restricted
stock awards and units:
|
|
|
|
|
|
|
|
Unvested
at beginning of year
|
|
|
553
|
|
$
|
39.14
|
|
Granted
|
|
|
464
|
|
|
64.26
|
|
Vested
|
|
|
(488
|
)
|
|
49.24
|
|
Canceled
|
|
|
-
|
|
|
-
|
|
Unvested
at September 29, 2007
|
|
|
529
|
|
$
|
51.87
|
|
|
|
|
|
|
|
|
|
Shares
reserved for future grants
|
|
|
2,267
|
|
|
|
|
Compensation
expense for common stock and common stock units awarded under the AIP and LTIP
is recorded over the performance measurement and vesting periods based on the
anticipated number and market value of shares of common stock and common stock
units to be awarded. Compensation expense for anticipated awards based upon
Nucor’s financial performance, exclusive of amounts payable in cash, was $13.8
million and $16.0 million in the first nine months of 2007 and 2006,
respectively, and was $4.8 million and $4.2 million in the third quarter of
2007
and 2006, respectively. At September 29, 2007, unrecognized compensation expense
related to unvested restricted stock was $6.7 million, which is expected to
be
recognized over a weighted-average period of 1.8 years.
Restricted
Stock Units:
In June 2006, Nucor granted restricted stock units (“RSU’s”) to key employees,
officers and non-employee directors for the first time. The RSU’s typically vest
and are converted to common stock in three equal installments on each of the
first three anniversaries of the grant date. A portion of the RSU’s awarded to
senior officers vest upon the officer’s retirement. Retirement, for purposes of
vesting in these units only, means termination of employment with approval
of
the Compensation and Executive Development Committee after satisfying age and
years of service requirements. RSU’s granted to non-employee directors are fully
vested on the grant date and are payable to the non-employee director in the
form of common stock after the termination of the director’s service on the
board of directors.
Nucor
Corporation - Notes to Condensed Consolidated Financial Statements (Unaudited),
continued
RSU’s
granted to employees who are eligible for retirement on the date of grant or
will become retirement-eligible prior to the end of the vesting term are
expensed over the period through which the
employee will become retirement-eligible since the awards vest upon retirement
from the Company. Compensation expense for RSU’s granted to employees who are
not retirement-eligible is recognized on a straight-line basis over the vesting
period. Cash dividend equivalents are paid to participants each quarter.
Dividend equivalents paid on units expected to vest are recognized as a
reduction in retained earnings.
The
fair value of the RSU’s is determined based on the closing stock price of
Nucor’s common stock on the day before the grant. A summary of Nucor’s
restricted stock unit activity for the first nine
months of 2007 is as follows (shares in thousands):
|
|
Shares
|
|
Weighted Average Price
|
|
Restricted
stock awards and units:
|
|
|
|
|
|
|
|
Unvested
at beginning of year
|
|
|
597
|
|
$
|
52.64
|
|
Granted
|
|
|
637
|
|
|
67.54
|
|
Vested
|
|
|
(294
|
)
|
|
58.89
|
|
Canceled
|
|
|
(5
|
)
|
|
57.38
|
|
Unvested
at September 29, 2007
|
|
|
935
|
|
$
|
60.79
|
|
|
|
|
|
|
|
|
|
Shares
reserved for future grants
|
|
|
17,682
|
|
|
|
|
Compensation
expense for RSU’s was $20.1
million and $11.7 million in the first nine months of 2007 and 2006,
respectively, and was $5.7 million and $6.5 million in the third quarter of
2007
and 2006, respectively. As of September 29, 2007, there was $46.1 million of
total unrecognized compensation cost related to nonvested RSU’s, which is
expected to be recognized over a weighted-average period of 2.0 years.
10. DERIVATIVES:
Nucor utilizes forward foreign exchange contracts to hedge cash flows associated
with certain assets and liabilities, firm commitments and anticipated
transactions. These instruments are measured at their fair value with any
foreign exchange gain/loss recorded in the same line as the underlying
transactions (cost of products sold or marketing, administrative and other
expenses) if they do not meet hedge accounting criteria. Derivatives meeting
hedging requirements are also measured at fair value; however, any unrealized
gains or losses are recorded as accumulated other comprehensive income until
final settlement, at which time the gains/losses are recorded in the same line
as the underlying transactions.
In
January 2007, the Company entered into forward foreign currency contracts in
order to mitigate the risk of currency fluctuation on the fixed purchase price
for the acquisition of Harris Steel, which closed in March 2007. These contracts
had a notional value of Cdn$600 million and settled in March 2007 resulting
in a
recognized gain of $5.8 million included in marketing, administrative and other
expenses in the first quarter.
11. CONTINGENCIES:
Nucor is subject to environmental laws and regulations established by federal,
state and local authorities and makes provision for the estimated costs related
to compliance. Of the undiscounted total of $20.4 million of accrued
environmental costs at September 29, 2007 ($23.0 million at December 31, 2006),
$17.1 million was classified in accrued expenses and other current liabilities
($19.7 million at December 31, 2006) and $3.3 million was classified in deferred
credits and other liabilities ($3.3 million at December 31, 2006).
Nucor
Corporation – Notes to Condensed Consolidated Financial Statements
(Unaudited), continued
Other
contingent liabilities with respect to product warranties, legal proceedings
and
other matters arise in the normal course of business. In the opinion of
management, no such matters exist which would have a material effect on the
consolidated financial statements.
12.
EMPLOYEE BENEFIT PLAN: Nucor has a Profit Sharing and Retirement Savings Plan
for qualified employees. Nucor’s expense for these benefits was $175.9 million
and $213.0 million in the first nine months of 2007 and 2006, respectively,
and
was $58.9 million and $80.2 million in the third quarter of 2007 and 2006,
respectively.
13.
INTEREST (INCOME) EXPENSE: The components of net interest (income) expense
are
as follows (in thousands):
|
|
Nine Months (39 Weeks) Ended
|
|
Three Months (13 Weeks) Ended
|
|
|
|
Sept. 29, 2007
|
|
Sept. 30, 2006
|
|
Sept. 29, 2007
|
|
Sept. 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
(37,302
|
)
|
$
|
(55,849
|
)
|
$
|
(6,876
|
)
|
$
|
(20,599
|
)
|
Interest
expense
|
|
|
36,695
|
|
|
30,096
|
|
|
10,452
|
|
|
10,166
|
|
Interest
(income) expense, net
|
|
$
|
(607
|
)
|
$
|
(25,753
|
)
|
$
|
3,576
|
|
$
|
(10,433
|
)
|
14.
INCOME TAXES: Nucor adopted the provisions of FIN 48 on January 1, 2007. As
a
result of the implementation of FIN 48, Nucor recognized a $31.1 million
decrease to reserves for uncertain tax positions. At the adoption date, Nucor
had approximately $92.4 million of unrecognized tax benefits, of which $90.2
million would affect Nucor’s effective tax rate, if recognized. At September 29,
2007, Nucor had approximately $89.4 million of unrecognized tax benefits. It
is
expected that the amount of unrecognized tax benefits will change in the next
12
months. However, we do not expect the change to have a significant impact on
our
results of operations or financial position.
Nucor
recognizes interest and penalties accrued related to unrecognized tax benefits
as a component of income before taxes, which is consistent with the recognition
of these items in prior reporting periods. As of September 29, 2007, Nucor
had
approximately $33.3 million of accrued interest and penalties related to
uncertain tax positions.
The
Internal Revenue Service (“IRS”) is currently examining Nucor’s 2005 federal
income tax returns. Management believes that the Company has adequately provided
for any adjustments that may arise from this audit. Nucor has substantially
concluded U.S. federal income tax matters for years through 2004. The 2006
tax
year is open to examination by the IRS. The tax years 2003 through 2006 remain
open to examination by other major taxing jurisdictions to which Nucor is
subject.
15.
COMPREHENSIVE INCOME: Total comprehensive income is composed primarily of net
earnings, net unrealized gains and losses on cash flow hedges and foreign
currency translation adjustments. Total comprehensive income was $1.24 billion
and $1.31 billion in the first nine months of 2007 and 2006, respectively
($473.9 million and $503.5 million in the third quarter of 2007 and 2006,
respectively).
16.
|
SEGMENTS:
Nucor reports its results in the following segments: steel mills
and steel
products. The steel mills segment includes carbon and alloy steel
in
sheet, bars, structural and plate. The steel products segment includes
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,
and
wire and wire mesh. The segments are consistent with the way Nucor
manages
its business, which is primarily based upon the similarity of the
types of
products produced and sold by each
segment.
|
Nucor
Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited),
continued
Interest
expense, minority interests, other income, profit sharing expense and changes
in
the LIFO reserve and environmental accruals are shown under
Corporate/eliminations/other. Net sales to external customers of Novosteel
S.A.,
a steel trading business of which Nucor owns 75%, are also included in
Corporate/eliminations/other. Corporate assets primarily include cash and
cash-equivalents, short-term investments, deferred income tax assets and
investments in affiliates.
|
|
Nine Months (39 Weeks) Ended
|
|
Three Months (13 Weeks) Ended
|
|
|
|
Sept. 29, 2007
|
|
Sept. 30, 2006
As Adjusted
|
|
Sept. 29, 2007
|
|
Sept. 30, 2006
As Adjusted
|
|
Net
sales to external customers:
|
|
|
|
|
|
|
|
|
|
Steel
mills
|
|
$
|
9,953,526
|
|
$
|
10,006,937
|
|
$
|
3,344,116
|
|
$
|
3,469,443
|
|
Steel
products
|
|
|
2,086,286
|
|
|
1,275,743
|
|
|
853,495
|
|
|
461,790
|
|
Corporate/eliminations/other
|
|
|
156,404
|
|
|
-
|
|
|
61,610
|
|
|
-
|
|
|
|
$
|
12,196,216
|
|
$
|
11,282,680
|
|
$
|
4,259,221
|
|
$
|
3,931,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel
mills
|
|
$
|
922,343
|
|
$
|
781,303
|
|
$
|
346,577
|
|
$
|
272,833
|
|
Steel
products
|
|
|
251,336
|
|
|
16,358
|
|
|
97,380
|
|
|
5,664
|
|
Corporate/eliminations/other
|
|
|
(1,173,679
|
)
|
|
(797,661
|
)
|
|
(443,957
|
)
|
|
(278,497
|
)
|
|
|
$ |
- |
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel
mills
|
|
$
|
2,147,304
|
|
$
|
2,477,264
|
|
$
|
744,510
|
|
$
|
911,838
|
|
Steel
products
|
|
|
207,599
|
|
|
142,473
|
|
|
86,872
|
|
|
53,003
|
|
Corporate/eliminations/other
|
|
|
(648,101
|
)
|
|
(537,886
|
)
|
|
(246,961
|
)
|
|
(163,081
|
)
|
|
|
$
|
1,706,802
|
|
$
|
2,081,851
|
|
$
|
584,421
|
|
$
|
801,760
|
|
|
|
Sept. 29, 2007
|
|
Dec. 31, 2006
As Adjusted
|
|
Segment
assets:
|
|
|
|
|
|
Steel
mills
|
|
$
|
4,973,939
|
|
$
|
4,717,734
|
|
Steel
products
|
|
|
2,878,904
|
|
|
751,858
|
|
Corporate/eliminations/other
|
|
|
447,400
|
|
|
2,423,426
|
|
|
|
$
|
8,300,243
|
|
$
|
7,893,018
|
|
Geographic
information is as follows (in thousands):
|
|
Sept. 29, 2007
|
|
Dec. 31, 2006
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
United
States
|
|
$
|
2,753,158
|
|
$
|
2,624,231
|
|
Other
|
|
|
348,823
|
|
|
232,184
|
|
|
|
$
|
3,101,981
|
|
$
|
2,856,415
|
|
Nucor
Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited),
continued
17.
EARNINGS
PER SHARE: The computations of basic and diluted net earnings per share
are as
follows (in thousands, except per share
amounts):
|
|
Nine Months (39 Weeks) Ended
|
|
Three Months (13 Weeks) Ended
|
|
|
|
Sept. 29, 2007
|
|
Sept. 30, 2006
|
|
Sept. 29, 2007
|
|
Sept. 30, 2006
|
|
Basic
net earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
net earnings
|
|
$
|
1,107,101
|
|
$
|
1,351,678
|
|
$
|
381,222
|
|
$
|
521,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding
|
|
|
298,468
|
|
|
308,569
|
|
|
293,096
|
|
|
304,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per share
|
|
$
|
3.71
|
|
$
|
4.38
|
|
$
|
1.30
|
|
$
|
1.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings
|
|
$
|
1,107,101
|
|
$
|
1,351,678
|
|
$
|
381,222
|
|
$
|
521,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares outstanding
|
|
|
298,468
|
|
|
308,569
|
|
|
293,096
|
|
|
304,835
|
|
Dilutive
effect of stock options and other
|
|
|
2,132
|
|
|
2,851
|
|
|
1,923
|
|
|
2,718
|
|
|
|
|
300,600
|
|
|
311,420
|
|
|
295,019
|
|
|
307,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share
|
|
$
|
3.68
|
|
$
|
4.34
|
|
$
|
1.29
|
|
$
|
1.70
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Certain
statements made in this quarterly report are forward-looking statements that
involve risks and uncertainties. These forward-looking statements reflect the
Company’s best judgment based on current information, and although we base these
statements on circumstances that we believe to be reasonable when made, there
can be no assurance that future events will not affect the accuracy of such
forward-looking information. As such, the forward-looking statements are not
guarantees of future performance, and actual results may vary materially from
the results and expectations discussed in this report. Factors that might cause
the Company’s actual results to differ materially from those anticipated in
forward-looking statements include, but are not limited to: (1) the sensitivity
of the results of our operations to prevailing steel prices and the changes
in
the supply and cost of raw materials, including scrap steel; (2) availability
and cost of electricity and natural gas; (3) market demand for steel products;
(4) competitive pressure on sales and pricing, including pressure from imports
and substitute materials; (5) uncertainties surrounding the global economy,
including excess world capacity for steel production and fluctuations in
international conversion rates; (6) U.S. and foreign trade policy affecting
steel imports or exports; (7) significant changes in government regulations
affecting environmental compliance; (8) the cyclical nature of the steel
industry; (9) capital investments and their impact on our performance; and
(10)
our safety performance.
The
following discussion should be read in conjunction with the unaudited condensed
consolidated financial statements included elsewhere in this report, as well
as
the audited consolidated financial statements and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” contained in Nucor’s
Annual Report on Form 10-K for the year ended December 31,
2006.
Overview
Nucor
and affiliates are manufacturers of steel products, with operating facilities
primarily in the U.S. and Canada. Products
produced include: carbon and alloy steel - in bars, beams, sheet and plate;
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; and wire and wire mesh. Nucor
is the nation's largest recycler.
In
March 2007, a wholly owned subsidiary of Nucor acquired all the issued and
outstanding shares of Harris Steel Group Inc. ("Harris Steel") for a cash
purchase price of approximately $1.06 billion and $68.4 million of assumed
short-term debt. Harris
Steel has several business units: Harris Rebar, which is involved in the
fabrication and placing of concrete reinforcing steel and the design and
installation of concrete post-tensioning systems; Laurel Steel, which is a
manufacturer and distributor of wire and wire products, welded wire mesh and
cold finished bar; and Fisher & Ludlow, which is a manufacturer and
distributor of heavy industrial steel grating, aluminum grating and expanded
metal. These operations serve customers throughout Canada and the United States.
Harris Steel also participates in steel trading on a worldwide basis through
Novosteel (owned 75% by Harris Steel), and distributes reinforcing steel and
related products to customers in the United States through Harris Supply
Solutions. Harris Steel employs approximately 3,000 people throughout its
organization. The results of Harris Steel are included in the Company’s results
of operations as of the date of acquisition.
During
the second and third quarters of 2007, Nucor acquired four downstream companies
for a combined cash purchase price of approximately $350.6 million: Magnatrax
Corporation, LMP Steel & Wire, South Pacific Steel Corp. and Consolidated
Rebar, Inc. These acquisitions enhance Nucor’s product diversification and are
part of the execution of Nucor’s strategy for profitable downstream
growth.
Operations
Net
sales for the first nine months of 2007 increased
8% to $12.20 billion, compared with $11.28 billion in last year’s first nine
months. Average sales price per ton increased 8% from $662 in the first
nine
months of 2006 to $716 in the first nine months of 2007, while total tons
shipped to outside customers remained flat compared to the first nine months
of
2006. Net sales for the third quarter of 2007 increased 8% to $4.26 billion,
compared with $3.93 billion in the third quarter of 2006. The increase was
due
to a 5% increase in average sales price per ton from $702 in the third quarter
of 2006 to $738 in the third quarter of 2007, accompanied by a 3% increase
in
total tons shipped to outside customers. Average sales price per ton decreased
1% from the second quarter of 2007 to the third quarter of 2007, while total
tons shipped to outside customers increased 3%.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
continued
Steel
production was 16,503,000 tons in the first nine months of 2007, compared with
17,318,000 tons produced in the first nine months of 2006, a decrease of 5%.
Total steel shipments decreased
4% to 16,663,000
tons in the first nine months of 2007, compared with 17,286,000
tons in last year’s first nine months. Steel sales to outside customers
decreased 5% to 15,157,000 tons in the first nine months of 2007, compared
with
15,936,000 tons in last year’s first nine months. In the steel products segment,
steel joist production during the first nine months was 409,000 tons, compared
with 433,000 tons in the first nine months of 2006, a decrease of 6%. Steel
deck
sales increased to 355,000 tons in the first nine months of 2007, compared
with
284,000 tons in last year's first nine months. Cold finished steel sales
increased 23% to 322,000 tons in the first nine months of 2007 compared with
261,000 tons in the first nine months of 2006. With the acquisition of Harris
Steel at the end of the first quarter, sales of fabricated concrete reinforcing
steel were 385,000 tons in the first nine months of 2007. The average estimated
utilization rates of all operating facilities in the steel mills and steel
products segments were approximately 87% and 78%, respectively, in the first
nine months of 2007, compared with 92% and 80%, respectively, in the first
nine
months of 2006.
The
major component of cost of products sold is raw material costs. The average
price of raw materials increased approximately 11% from the first nine months
of
2006 to the first nine months of 2007, and increased approximately 9% from
the
third quarter of 2006 to the third quarter of 2007.
In
the steel mills segment, the average prices of raw materials used increased
approximately 12% from the first nine months of 2006, and increased
approximately 10% from the third quarter of 2006. The average scrap and scrap
substitute cost per ton used in our steel mills segment was $275 in the first
nine months of 2007, an increase of 11% from $247 in the first nine months
of
2006, and was $277 in the third quarter of 2007, an increase of 8% from
$257 in
the third quarter of 2006. Nucor incurred a charge to value inventories using
the last-in, first-out (LIFO) method of accounting of $102.0 million in the
first nine months of 2007, compared with a charge of $45.0 million in the first
nine months of 2006. In the third quarter of 2007, the LIFO charge was $11.0
million, compared with a charge of $20.5 million in last year’s third quarter.
The LIFO charges (credits) for these interim periods are based on management’s
estimates of both inventory prices and quantities at year-end. These estimates
will likely differ from actual amounts, and such differences may be significant.
In
the steel products segment, the average price of raw materials used increased
approximately 6% from the first nine months of 2006 to the first nine months
of
2007, and increased approximately 8% from the third quarter of 2006 to the
third
quarter of 2007.
Total
energy costs increased approximately $1 per ton from the first nine months
of
2006 to the first nine months of 2007 and increased approximately $1 per ton
from the third quarter of 2006 to the third quarter of 2007.
Pre-operating
and start-up costs increased to $39.1 million in the first nine months of 2007,
compared with $30.0 million in the first nine months of 2006. Pre-operating
and
start-up costs of new facilities were $14.1 million in the third quarter of
2007, compared with $14.9 million in the third quarter of 2006. In 2007, these
costs primarily related to the HIsmelt project in Kwinana, Western Australia,
the start-up of the SBQ mill in Memphis, Tennessee, and the building systems
facility in Utah. In 2006, these costs primarily related to the HIsmelt project
and the refurbishment of our direct reduced iron facility in
Trinidad.
Gross
margins were approximately 19% for the first nine months and third quarter
of
2007, respectively, compared with approximately 24% and 26% for the first nine
months and the third quarter of 2006,
respectively. In addition to the factors discussed above, gross margins
decreased due to a change in product mix.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
continued
The
major components of marketing, administrative and other expenses are freight
and
profit sharing costs. Unit freight costs increased approximately 1% from the
first nine months of 2006 to the first nine months
of 2007 and approximately 4% from the third quarter of 2006 to the third quarter
of 2007, primarily due
to higher fuel costs. Profit sharing costs, which are based upon and generally
fluctuate with pre-tax earnings, decreased approximately 24% in the first nine
months of 2007 compared with the first nine months of 2006, and decreased
approximately 30% from the third quarter of 2006 to the third quarter of 2007.
Profit sharing costs also fluctuate based on Nucor’s achievement of certain
financial performance goals, including comparisons of Nucor’s financial
performance to peers in the steel industry and to other high performing
companies.
Net
interest income decreased from $25.8 million in the first nine months of 2006
to
$0.6 million in the first nine months of 2007. Average investments decreased
43%
primarily due to the cash payment of $1.4 billion for acquisitions and $754.0
million for repurchases of common stock. This decrease was partially offset
by
an increase in the average interest rate earned on investments. An increase
in
the average interest rate on debt and the addition of short-term debt assumed
with the acquisition of Harris Steel also contributed to the decrease in net
interest income.
In
the third quarter of 2007, Nucor had net interest expense of $3.6 million
compared with net interest income of $10.4 million in the third quarter of
the
prior year, primarily due to a 71% decrease in average
investments.
Minority
interests represent the income attributable to the minority owners of
Nucor-Yamato Steel Company (“NYS”) and Novosteel S.A., of which Nucor owns 51%
and 75%, respectively. Nucor obtained the investment in Novosteel in March
2007
with the acquisition of Harris Steel. Under the NYS limited partnership
agreement, the minimum amount of cash to be distributed each year to the
partners is the amount needed by each partner to pay applicable U.S. federal
and
state income taxes.
In
the first nine months of 2007 and 2006, the amount of cash distributed to
minority interest holders exceeded amounts allocated to minority interests
based
on mutual agreement of the general partners; however, the cumulative amount
of
cash distributed to partners was less than the cumulative net earnings of the
limited partnership.
Nucor
had an effective tax rate of 35.1% in the first nine months of 2007 and in
the
first nine months of 2006. Nucor had an effective tax rate of 34.8% in the
third
quarter of 2007, compared with 34.9% in the third quarter of 2006. The Internal
Revenue Service is currently examining Nucor’s 2005 federal income tax returns.
Management believes that the Company has adequately provided for any adjustments
that may arise from this audit.
Net
earnings and earnings per share in the first nine months of 2007 decreased
18%
and 15%, respectively, to $1.11 billion and $3.68 per diluted share, compared
with $1.35 billion and $4.34 per diluted share in the first nine months of
2006.
Net earnings and earnings per share in the third quarter of 2007 decreased
27%
and 24%, respectively, to $381.2 million and $1.29 per diluted share, compared
with $521.6 million and $1.70 per diluted share in the third quarter 2006.
The
effect of decreased earnings on earnings per share was partially offset by
the
repurchase of 22.0 million shares of Nucor’s common stock since the second
quarter of 2006.
Net
earnings as a percentage of net sales were 9% and 12%, respectively, in the
first nine months of 2007 and 2006, and were 9% and 13%, respectively, in the
third quarter of 2007 and 2006. Return on average stockholders’ equity was
approximately 30.5% and 40.3% in the first nine months of 2007 and 2006,
respectively.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
continued
We
expect continued strength in bar, beam, plate and many of our downstream
businesses. Market conditions for sheet are slowly improving with more balance
between customer inventories and
demand.
We are also finally seeing a significant drop in imports, which has helped
bring
these inventories back into balance. Fourth quarter shipments will be impacted
by the usual seasonal and
holiday
factors, including scheduled shut-downs at many of our facilities for regular
maintenance. The biggest risks to our outlook for the fourth quarter and 2008
remain any further weakening in the economy and any significant reversal of
the
recent decreases in import levels.
Liquidity
and capital resources
The
current ratio was 2.3 at the end of the first nine months of 2007 and 3.3 at
year-end 2006. The percentage of long-term debt to total capital was 15% at
the
end of the first nine months of 2007 and at year-end 2006.
Capital
expenditures, excluding acquisitions, increased approximately 38% in the first
nine months of 2007 compared with the first nine months of 2006. Capital
expenditures, excluding acquisitions, are projected to be approximately $600
million for all of 2007.
In
September 2007, Nucor’s board of directors declared a supplemental dividend of
$0.50 per share in addition to the $0.11 per share base dividend. The total
dividend of $0.61 per share is payable on November 9, 2007 to stockholders
of
record on September 28, 2007.
Nucor
repurchased approximately 14.1 million shares of its common stock at a cost
of
approximately $754.0 million during the first nine months of 2007, and
repurchased approximately 11.6 million shares at a cost of about $599.8 million
during the third quarter of 2007. Nucor repurchased approximately 10.1 million
shares at a cost of about $515.0 million during the first nine months of 2006,
and repurchased approximately 6.3 million shares at a cost of about $318.3
million during the third quarter of 2006. In September 2007, the board of
directors approved the repurchase of up to an additional 30 million shares
of
common stock, all of which remain available for repurchase.
In
the first quarter of 2007, Nucor sold its interest in Ferro Gusa Carajás S. A.
(“FGC”), a pig iron joint
venture
in northern Brazil, to its partner, Companhia Vale do Rio Doce (“CVRD”). Nucor
has entered into an off-take agreement with CVRD for the production of this
facility.
Nucor
funded the $1.06 billion cash portion of the purchase price of Harris Steel
paid
in March 2007 from its cash and cash equivalents and liquidation of short-term
investments. Nucor also paid for the acquisition of Magnatrax and other
companies during the year with existing funds. Funds provided from operations,
existing credit facilities and new borrowings are expected to be adequate to
meet future capital expenditure and working capital requirements for existing
operations for at least the next 24 months. Nucor believes it has the financial
ability to borrow significant additional funds to finance major acquisitions
and
still maintain its financial strength.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
In
the ordinary course of business, Nucor is exposed to a variety of market risks.
We continually monitor these risks and develop appropriate strategies to manage
them.
Interest
Rate Risk –
Nucor manages interest rate risk by using a combination of variable-rate and
fixed-rate debt. Nucor also makes use of interest rate swaps to manage net
exposure to interest rate changes. Management believes that Nucor’s exposure to
interest rate market risk has not significantly changed since December 31,
2006.
Commodity
Price Risk –
In the ordinary course of business, Nucor is exposed to market risk for price
fluctuations of raw materials and energy, principally scrap steel and natural
gas. We attempt to negotiate the best prices for our raw materials and energy
requirement and to obtain prices for our steel products that match market price
movements in response to supply and demand. Since the first quarter of 2004,
Nucor has used a raw material surcharge to pass through the increased cost
of
scrap steel and other raw materials. Our surcharge mechanism has worked
effectively to reduce the normal time lag in passing through higher raw material
costs so we can maintain our gross margins.
Nucor
also uses derivative financial instruments to hedge a portion of our exposure
to
price risk related to natural gas purchases used in the production process
when
management believes it is prudent to do so. Gains and losses from the use of
these instruments are deferred in accumulated other comprehensive income (loss)
on the condensed consolidated balance sheets and recognized into cost of
products sold in the same period as the underlying physical transaction. At
September 29, 2007, accumulated other comprehensive income (loss) includes
$2.7
million in unrealized net-of-tax losses for the fair value of these derivative
instruments. A sensitivity analysis of changes in the price of hedged natural
gas purchases indicates that declines of 10% and 25% in natural gas prices
would
reduce the fair value of our natural gas hedge position by $33.0 million and
$82.5 million, respectively. Any resulting changes in fair value would be
recorded as adjustments to other comprehensive income (loss), net of tax.
Because these instruments are structured and used as hedges, these hypothetical
losses would be offset by the benefit of lower prices paid for the natural
gas
used in the normal production cycle.
Foreign
Currency Risk –
Prior to the acquisition of Harris Steel, Nucor was principally a domestic
manufacturer of steel and steel products with customers located primarily in
the
U.S. Nucor was exposed to currency fluctuations, however, due to its joint
ventures in Brazil and Australia and the direct reduced iron facility in
Trinidad. When the Company entered into the agreement to acquire Harris
Steel in January 2007, Nucor became exposed to Canadian currency fluctuations
and hedged a portion of the exposure associated with the closing of the
transaction in March 2007. Nucor has not hedged any other foreign currency
exposure. The Company continues to be exposed to foreign currency risk through
its operations in Canada.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures –
As of the end of the period covered by this report, the Company carried out
an
evaluation, under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures are effective. During the quarter ended
March
31, 2007, Nucor acquired Harris Steel. Nucor is in the process of incorporating
these operations as part of our internal controls. Nucor has extended its
Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the
applicable rules and regulations under such Act to include Harris Steel. Nucor
will report on its assessment of its combined operations within the time period
provided by the Act and the applicable SEC rules and regulations concerning
business combinations.
Changes
in Internal Control Over Financial Reporting –
There were no changes in our internal control over financial reporting during
the quarter ended September 29, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II. OTHER INFORMATION
Item
1A. Risk Factors
There
have been no material changes in Nucor’s risk factors from those included in
Nucor’s annual report on Form 10-K.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Our
share repurchase program activity for each of the three months and the quarter
ended September 29, 2007 was as follows (in thousands, except per share
amounts):
|
|
Total Number of
Shares Purchased
|
|
Average Price
Paid per Share
(1)
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (2)
|
|
Maximum
Number of
Shares
that May Yet Be
Purchased
Under the
Plans or
Programs
(2)
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2007 - July 28, 2007
|
|
|
1,498
|
|
$
|
61.22
|
|
|
1,498
|
|
|
10,120
|
|
July 29, 2007 - August 25, 2007
|
|
|
10,120
|
|
|
50.21
|
|
|
10,120
|
|
|
-
|
|
August 26, 2007 - September 29, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended September 29, 2007
|
|
|
11,618
|
|
$
|
51.63
|
|
|
11,618
|
|
|
30,000
|
|
|
(1)
|
Includes
commissions of $0.02 per
share.
|
|
(2)
|
On
September 5, 2000, the board of directors approved a stock repurchase
program under which the Company is authorized to repurchase up to
5.0
million shares of the Company’s common stock. On September 8, 2004, the
board of directors resolved that the number of shares of common stock
authorized for repurchase would increase 100% as a result of the
2-for-1
stock split on the record date of September 30, 2004. At that time,
the
number of remaining shares authorized for repurchase increased from
4.2
million shares to 8.5 million shares. On April 21, 2005, the Company
publicly announced the reactivation of this stock repurchase program.
On
December 6, 2005, the board of directors authorized the repurchase
of up
to an additional 10.0 million shares of the Company’s common stock once
the current repurchase authorization is completed. On May 11, 2006,
the
board of directors resolved that the number of shares of common stock
authorized for repurchase would increase 100% as a result of a 2-for-1
stock split on the record date of May 19, 2006. At that time, the
number
of remaining shares authorized for repurchase increased from 12.5
million
shares to 24.9 million shares. On September 6, 2007, the board of
directors approved the repurchase of up to an additional 30 million
shares
of common stock.
|
Item
6. Exhibits
Exhibit No.
|
|
Description
of Exhibit
|
|
|
|
10
|
|
Employment
Agreement of Ladd R. Hall (1)
|
|
|
|
10.1
|
|
Employment
Agreement of R. Joseph Stratman (1)
|
|
|
|
10.2
|
|
2005
Stock Option and Award Plan, Amendment No. 1
(1)
|
|
|
|
10.3
|
|
Senior
Officers Annual Incentive Plan, Amendment No. 1
(1)
|
|
|
|
10.4
|
|
Senior
Officers Long-Term Incentive Plan, Amendment No. 2
(1)
|
|
|
|
10.5
|
|
Severance
Plan for Senior Officers and General Managers
(1)
|
|
|
|
31
|
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a),
as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
31.1
|
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a),
as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32
|
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350,
as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.1
|
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350,
as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
(1)
Indicates a management contract or compensatory plan or
arrangement.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, Nucor Corporation
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
NUCOR
CORPORATION
|
|
|
By:
|
/s/
Terry S. Lisenby
|
|
Terry
S. Lisenby
|
|
Chief Financial Officer, Treasurer
|
|
and Executive Vice President
|
Dated: November
6, 2007
NUCOR
CORPORATION
List
of Exhibits to Form 10-Q – September 29, 2007
Exhibit
No.
|
|
Description
of Exhibit
|
|
|
|
10
|
|
Employment
Agreement of Ladd R. Hall (1)
|
|
|
|
10.1
|
|
Employment
Agreement of R. Joseph Stratman (1)
|
|
|
|
10.2
|
|
2005
Stock Option and Award Plan, Amendment No. 1
(1)
|
|
|
|
10.3
|
|
Senior
Officers Annual Incentive Plan, Amendment No. 1
(1)
|
|
|
|
10.4
|
|
Senior
Officers Long-Term Incentive Plan, Amendment No. 2
(1)
|
|
|
|
10.5
|
|
Severance
Plan for Senior Officers and General Managers
(1)
|
|
|
|
31
|
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a),
as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
31.1
|
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a),
as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32
|
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350,
as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.1
|
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350,
as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|