Third Quarter 2008
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 27, 2008
Commission file number 1-4119
NUCOR CORPORATION
(Exact name of registrant as specified in its charter)
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)
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of " large“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller reorting company"“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer xAccelerated filer o ¨Non-accelerated filer o ¨Smaller reporting company ¨
o
Form 10-Q
September 27, 2008
Page | |||||||||||||
INDEX | |||||||||||||
Part I | Financial Information | ||||||||||||
Item 1 | Financial Statements (unaudited) | ||||||||||||
3 | |||||||||||||
Condensed Consolidated Balance Sheets - | |||||||||||||
Condensed Consolidated Statements of Cash Flows - | |||||||||||||
6 | |||||||||||||
Item 2 | |||||||||||||
Item 3 | |||||||||||||
24 | |||||||||||||
Item 4 | Controls and Procedures | 25 | |||||||||||
Part II | Other Information | ||||||||||||
Item 1 | |||||||||||||
26 | |||||||||||||
Item 1A | Risk Factors | 26 | |||||||||||
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 26 | |||||||||||
Item | |||||||||||||
Exhibits | 27 | ||||||||||||
Signatures | 27 | ||||||||||||
(In thousands, except per share amounts)
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | ||||||||||||
Sept. 27, 2008 | Sept. 29, 2007 | Sept. 27, 2008 | Sept. 29, 2007 | ||||||||||
Net sales | $ | 7,447,520 | $ | 4,259,221 | $ | 19,512,388 | $ | 12,196,216 | |||||
Costs, expenses and other: | |||||||||||||
Cost of products sold | 5,990,407 | 3,449,260 | 15,941,654 | 9,844,763 | |||||||||
Marketing, administrative and other expenses | 215,755 | 145,470 | 605,641 | 430,605 | |||||||||
Interest expense (income), net | 23,030 | 3,576 | 68,109 | (607 | ) | ||||||||
Minority interests | 76,213 | 76,494 | 255,920 | 214,653 | |||||||||
6,305,405 | 3,674,800 | 16,871,324 | 10,489,414 | ||||||||||
Earnings before income taxes | 1,142,115 | 584,421 | 2,641,064 | 1,706,802 | |||||||||
Provision for income taxes | 407,525 | 203,199 | 915,966 | 599,701 | |||||||||
Net earnings | $ | 734,590 | $ | 381,222 | $ | 1,725,098 | $ | 1,107,101 | |||||
Net earnings per share: | |||||||||||||
Basic | $ | 2.32 | $ | 1.30 | $ | 5.73 | $ | 3.71 | |||||
Diluted | $ | 2.31 | $ | 1.29 | $ | 5.70 | $ | 3.68 | |||||
Average shares outstanding: | |||||||||||||
Basic | 316,713 | 293,096 | 301,156 | 298,468 | |||||||||
Diluted | 318,168 | 295,019 | 302,829 | 300,600 | |||||||||
Dividends declared per share | $ | 0.52 | $ | 0.61 | $ | 1.56 | $ | 1.83 |
Six Months (26 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||
June 28, 2008 | June 30, 2007 | June 28, 2008 | June 30, 2007 | ||||||||||
Net sales | $ | 12,064,868 | $ | 7,936,995 | $ | 7,090,599 | $ | 4,168,110 | |||||
Costs, expenses and other: | |||||||||||||
Cost of products sold | 9,951,247 | 6,395,503 | 5,879,655 | 3,403,905 | |||||||||
Marketing, administrative | |||||||||||||
and other expenses | 389,886 | 285,135 | 220,172 | 148,925 | |||||||||
Interest expense (income), net | 45,079 | (4,183 | ) | 26,734 | 4,979 | ||||||||
Minority interests | 179,707 | 138,159 | 87,936 | 77,587 | |||||||||
10,565,919 | 6,814,614 | 6,214,497 | 3,635,396 | ||||||||||
Earnings before income taxes | 1,498,949 | 1,122,381 | 876,102 | 532,714 | |||||||||
Provision for income taxes | 508,441 | 396,502 | 295,348 | 187,864 | |||||||||
Net earnings | $ | 990,508 | $ | 725,879 | $ | 580,754 | $ | 344,850 | |||||
Net earnings per share: | |||||||||||||
Basic | $ | 3.38 | $ | 2.41 | $ | 1.95 | $ | 1.14 | |||||
Diluted | $ | 3.36 | $ | 2.39 | $ | 1.94 | $ | 1.14 | |||||
Average shares outstanding: | |||||||||||||
Basic | 293,291 | 301,168 | 298,262 | 301,302 | |||||||||
Diluted | 295,075 | 303,406 | 299,842 | 303,330 | |||||||||
Dividends declared per share | $ | 1.04 | $ | 1.22 | $ | 0.52 | $ | 0.61 |
3
June 28, 2008 | Dec. 31, 2007 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 2,791,880 | $ | 1,393,943 | |||
Short-term investments | - | 182,450 | |||||
Accounts receivable, net | 2,611,590 | 1,611,844 | |||||
Inventories | 2,498,018 | 1,601,600 | |||||
Other current assets | 282,269 | 283,412 | |||||
Total current assets | 8,183,757 | 5,073,249 | |||||
Property, plant and equipment, net | 3,829,472 | 3,232,998 | |||||
Goodwill | 1,743,025 | 847,887 | |||||
Other intangible assets, net | 931,985 | 469,936 | |||||
Other assets | 304,217 | 202,052 | |||||
Total assets | $ | 14,992,456 | $ | 9,826,122 | |||
Liabilities and stockholders' equity | |||||||
Current liabilities: | |||||||
Short-term debt | $ | 1,439 | $ | 22,868 | |||
Long-term debt due within one year | 175,000 | - | |||||
Accounts payable | 1,826,777 | 691,668 | |||||
Federal income taxes payable | 45,019 | - | |||||
Salaries, wages and related accruals | 435,464 | 436,352 | |||||
Accrued expenses and other current liabilities | 485,011 | 431,148 | |||||
Total current liabilities | 2,968,710 | 1,582,036 | |||||
Long-term debt due after one year | 3,091,600 | 2,250,300 | |||||
Deferred credits and other liabilities | 702,757 | 593,423 | |||||
Minority interests | 315,368 | 287,446 | |||||
Stockholders' equity: | |||||||
Common stock | 149,566 | 149,302 | |||||
Additional paid-in capital | 1,606,541 | 256,406 | |||||
Retained earnings | 7,294,978 | 6,621,646 | |||||
Accumulated other comprehensive income, | |||||||
net of income taxes | 260,261 | 163,362 | |||||
9,311,346 | 7,190,716 | ||||||
Treasury stock | (1,397,325 | ) | (2,077,799 | ) | |||
Total stockholders' equity | 7,914,021 | 5,112,917 | |||||
Total liabilities and stockholders' equity | $ | 14,992,456 | $ | 9,826,122 |
Sept. 27, 2008 | Dec. 31, 2007 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,654,336 | $ | 1,393,943 | ||||
Short-term investments | 24,856 | 182,450 | ||||||
Accounts receivable, net | 2,553,128 | 1,611,844 | ||||||
Inventories | 3,145,706 | 1,601,600 | ||||||
Other current assets | 254,954 | 283,412 | ||||||
Total current assets | 7,632,980 | 5,073,249 | ||||||
Property, plant and equipment, net | 4,075,020 | 3,232,998 | ||||||
Goodwill | 1,787,998 | 847,887 | ||||||
Other intangible assets, net | 999,636 | 469,936 | ||||||
Other assets | 840,913 | 202,052 | ||||||
Total assets | $ | 15,336,547 | $ | 9,826,122 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Short-term debt | $ | 14,979 | $ | 22,868 | ||||
Long-term debt due within one year | 180,400 | — | ||||||
Accounts payable | 1,711,893 | 691,668 | ||||||
Federal income taxes payable | 83,837 | — | ||||||
Salaries, wages and related accruals | 617,837 | 436,352 | ||||||
Accrued expenses and other current liabilities | 513,028 | 431,148 | ||||||
Total current liabilities | 3,121,974 | 1,582,036 | ||||||
Long-term debt due after one year | 3,086,200 | 2,250,300 | ||||||
Deferred credits and other liabilities | 659,726 | 593,423 | ||||||
Minority interests | 292,174 | 287,446 | ||||||
Stockholders’ equity: | ||||||||
Common stock | 149,621 | 149,302 | ||||||
Additional paid-in capital | 1,619,245 | 256,406 | ||||||
Retained earnings | 7,865,365 | 6,621,646 | ||||||
Accumulated other comprehensive income, | 63,279 | 163,362 | ||||||
net of income taxes | 9,697,510 | 7,190,716 | ||||||
Treasury stock | (1,521,037 | ) | (2,077,799 | ) | ||||
Total stockholders’ equity | 8,176,473 | 5,112,917 | ||||||
Total liabilities and stockholders’ equity | $ | 15,336,547 | $ | 9,826,122 | ||||
See notes to condensed consolidated financial statements.
4
(In thousands)
Six Months (26 Weeks) Ended | |||||||
June 28, 2008 | June 30, 2007 | ||||||
Operating activities: | |||||||
Net earnings | $ | 990,508 | $ | 725,879 | |||
Adjustments: | |||||||
Depreciation | 231,232 | 196,149 | |||||
Amortization | 32,066 | 7,064 | |||||
Stock-based compensation | 31,148 | 23,386 | |||||
Deferred income taxes | (66,881 | ) | (52,976 | ) | |||
Minority interests | 179,702 | 138,156 | |||||
Settlement of derivative hedges | 11,166 | (3,873 | ) | ||||
Changes in assets and liabilities (exclusive of acquisitions): | |||||||
Accounts receivable | (591,318 | ) | (196,132 | ) | |||
Inventories | (570,570 | ) | (144,500 | ) | |||
Accounts payable | 494,549 | 203,970 | |||||
Federal income taxes | 123,517 | 5,462 | |||||
Salaries, wages and related accurals | (14,505 | ) | (142,558 | ) | |||
Other | (22,375 | ) | (22,463 | ) | |||
Cash provided by operating activities | 828,239 | 737,564 | |||||
Investing activities: | |||||||
Capital expenditures | (501,669 | ) | (198,674 | ) | |||
Sale of interest in affiliates | - | 29,500 | |||||
Investment in affiliates | (27,903 | ) | (15,040 | ) | |||
Disposition of plant and equipment | 6,551 | 740 | |||||
Acquisitions (net of cash acquired) | (1,591,817 | ) | (1,083,616 | ) | |||
Purchases of investments | (209,605 | ) | (276,945 | ) | |||
Proceeds from the sale of investments | 392,055 | 1,336,713 | |||||
Proceeds from currency derivative contracts | 1,441,862 | 517,241 | |||||
Settlement of currency derivative contracts | (1,424,292 | ) | (511,394 | ) | |||
Cash used in investing activities | (1,914,818 | ) | (201,475 | ) | |||
Financing activities: | |||||||
Net change in short-term debt | (21,429 | ) | (64,231 | ) | |||
Proceeds from the issuance of long-term debt | 989,715 | - | |||||
Issuance of common stock | 1,994,565 | 9,895 | |||||
Bond issuance costs | (6,937 | ) | - | ||||
Excess tax benefits from stock-based compensation | 9,200 | 9,500 | |||||
Distributions to minority interests | (153,218 | ) | (149,857 | ) | |||
Cash dividends | (327,380 | ) | (365,836 | ) | |||
Acquisition of treasury stock | - | (136,755 | ) | ||||
Cash provided by (used in) financing activities | 2,484,516 | (697,284 | ) | ||||
Increase (decrease) in cash and cash equivalents | 1,397,937 | (161,195 | ) | ||||
Cash and cash equivalents - beginning of year | 1,393,943 | 785,651 | |||||
Cash and cash equivalents - end of six months | $ | 2,791,880 | $ | 624,456 |
Nine Months (39 Weeks) Ended | ||||||||
Sept. 27, 2008 | Sept. 29, 2007 | |||||||
Operating activities: | ||||||||
Net earnings | $ | 1,725,098 | $ | 1,107,101 | ||||
Adjustments: | ||||||||
Depreciation | 354,291 | 298,280 | ||||||
Amortization | 51,056 | 15,437 | ||||||
Stock-based compensation | 38,428 | 33,875 | ||||||
Deferred income taxes | (111,536 | ) | (91,191 | ) | ||||
Minority interests | 255,914 | 214,651 | ||||||
Settlement of derivative hedges | 19,837 | (13,207 | ) | |||||
Changes in assets and liabilities (exclusive of acquisitions): | ||||||||
Accounts receivable | (437,792 | ) | (239,401 | ) | ||||
Inventories | (1,083,823 | ) | (128,436 | ) | ||||
Accounts payable | 199,364 | 167,549 | ||||||
Federal income taxes | 163,514 | 71,598 | ||||||
Salaries, wages and related accruals | 165,016 | (54,430 | ) | |||||
Other | (17,117 | ) | 8,857 | |||||
Cash provided by operating activities | 1,322,250 | 1,390,683 | ||||||
Investing activities: | ||||||||
Capital expenditures | (806,152 | ) | (330,586 | ) | ||||
Sale of interest in affiliates | — | 29,500 | ||||||
Investment in affiliates | (704,945 | ) | (27,913 | ) | ||||
Disposition of plant and equipment | 8,676 | 804 | ||||||
Acquisitions (net of cash acquired) | (1,827,165 | ) | (1,410,677 | ) | ||||
Purchases of investments | (234,461 | ) | (276,945 | ) | ||||
Proceeds from the sale of investments | 392,055 | 1,687,578 | ||||||
Proceeds from currency derivative contracts | 1,441,863 | 517,241 | ||||||
Settlement of currency derivative contracts | (1,424,291 | ) | (511,394 | ) | ||||
Cash used in investing activities | (3,154,420 | ) | (322,392 | ) | ||||
Financing activities: | ||||||||
Net change in short-term debt | (143,480 | ) | (66,461 | ) | ||||
Proceeds from the issuance of long-term debt | 989,715 | — | ||||||
Bond issuance costs | (6,938 | ) | — | |||||
Issuance of common stock | 1,995,921 | 10,430 | ||||||
Excess tax benefits from stock-based compensation | 10,600 | 9,500 | ||||||
Distributions to minority interests | (252,569 | ) | (231,520 | ) | ||||
Cash dividends | (493,002 | ) | (549,606 | ) | ||||
Acquisition of treasury stock | (7,684 | ) | (754,029 | ) | ||||
Cash provided by (used in) financing activities | 2,092,563 | (1,581,686 | ) | |||||
Increase (decrease) in cash and cash equivalents | 260,393 | (513,395 | ) | |||||
Cash and cash equivalents - beginning of year | 1,393,943 | 785,651 | ||||||
Cash and cash equivalents - end of nine months | $ | 1,654,336 | $ | 272,256 | ||||
See notes to condensed consolidated financial statements.
5
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, 2007 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, 2007. |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:Inventories Valuation |
Accounting Pronouncements Recently Adopted - – Effective January 1, 2008, Nucor adopted FASBFinancial Accounting Standards Board (“FASB”) Statement No. 157, “Fair Value Measurements” (“SFAS 157”), as it applies to financial assets and liabilities, which defines fair value, establishes a framework for measuring fair value and expands disclosures. The adoption of SFAS 157 for financial assets and liabilities did not have a material impact on our consolidated financial statements. See Note 1112 for additional information regarding the adoption of this standard.
Recent Accounting Pronouncements - – In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”), and Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS 160 outlines the accounting and reporting for ownership interest in a subsidiary held by parties other than the parent. SFAS 141R and SFAS 160 are effective for Nucor in 2009. Management is currently evaluating the impact of these statements.
In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161)(“SFAS 161”), which is effective for Nucor in 2009. SFAS 161 amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” and requires enhanced disclosures about a company’s derivative and hedging activities. This standard is not expected to have a material impact on Nucor’s consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of both basic and diluted earnings per share. We will adopt the provisions of FSP EITF 03-6-1 on January 1, 2009. Management is currently evaluating the impact of this FSP.
6
3. | ACQUISITIONS: |
Since scrap is Nucor’s largest single cost, the acquisition of DJJ provides an ideal growth platform for Nucor to expand our direct ownership in the steel scrap supply chain and further our raw materials strategy. The acquisition of DJJ’s scrap processing assets provides a partial hedge to our steel mills against scrap market volatility.
Current assets | $ | 758,748 | ||
Property, plant and equipment | 288,440 | |||
Goodwill | 835,608 | |||
Other intangible assets | 449,167 | |||
Other assets | 6,211 | |||
Total assets acquired | 2,338,174 | |||
Current liabilities | (695,520 | ) | ||
Long-term debt | (16,300 | ) | ||
Deferred credits and other liabilities | (182,747 | ) | ||
Total liabilities assumed | (894,567 | ) | ||
Net assets acquired | $ | 1,443,607 | ||
The preliminary purchase price allocation to the identifiable intangible assets is as follows (in thousands, except years):
Weighted - Average Life | |||||||
Customer relationships | $ | 389,200 | 20 years | ||||
Trade names | 56,200 | 20 years | |||||
Other | 3,767 | 18 years | |||||
$ | 449,167 | 20 years |
Weighted - Average Life | |||||
Customer relationships | $ | 389,200 | 20 years | ||
Trade names | 56,200 | 20 years | |||
Other | 3,767 | 18 years | |||
$ | 449,167 | 20 years | |||
The majority of the goodwill has been preliminarily allocated to the raw materials segment (see(see Note 6).
The results of DJJ have been included in the consolidated financial statements from the date of acquisition. Unaudited pro forma operating results for Nucor, assuming the acquisition of DJJ occurred at the beginning of each period are as follows (in thousands, except per share data):
Six Months (26 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||
June 28, 2008 | June 30, 2007 | June 28, 2008 | June 30, 2007 | ||||||||||
Net sales | $ | 12,513,855 | $ | 8,974,870 | $ | 7,090,599 | $ | 4,685,239 | |||||
Net earnings | 1,002,269 | 751,939 | 580,754 | 356,389 | |||||||||
Net earnings per share: | |||||||||||||
Basic | $ | 3.42 | $ | 2.50 | $ | 1.95 | $ | 1.18 | |||||
Diluted | $ | 3.40 | $ | 2.48 | $ | 1.94 | $ | 1.17 |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||
September 27, 2008 | September 29, 2007 | September 27, 2008 | September 29, 2007 | |||||||||
Net sales | $ | 7,447,520 | $ | 4,766,520 | $ | 19,961,375 | $ | 13,741,390 | ||||
Net earnings | 734,590 | 386,760 | 1,736,859 | 1,138,699 | ||||||||
Net earnings per share: | ||||||||||||
Basic | $ | 2.32 | $ | 1.32 | $ | 5.77 | $ | 3.82 | ||||
Diluted | $ | 2.31 | $ | 1.31 | $ | 5.74 | $ | 3.79 |
7
At the beginning of the second quarter of 2008, Nucor acquired substantially all the assets of Metal Recycling Services Inc. (“MRS”) for approximately $57.0 million. Based in Monroe, North Carolina, MRS, which will becomeis now part of DJJ, operates a full-service processing facility and two feeder years.yards. In April 2008, DJJ acquired substantially all the assets of Galamba Metals Group, which will operatenow operates under the Advantage Metals Recycling, LLC (“AMR”) name, for approximately $112.6 million. AMR operates 16 full-service scrap processing facilities in Kansas, Missouri and Arkansas. The cash purchase price of these two acquisitions resulted in goodwill of approximately $54.8$30.1 million that has been allocated to the raw materials segment. The purchase price also includes approximately $48.5$73.2 million of identifiable intangibles, primarily customer relationships that are being amortized over 20 years.
In August 2008, Nucor’s wholly owned subsidiary, Harris Steel, Inc., acquired all of the issued and outstanding common shares of Ambassador Steel Corporation (“Ambassador”) for a cash purchase price of approximately $185.1 million. At closing, Harris Steel also repaid Ambassador’s bank debt of approximately $135.6 million. Based in Auburn, Indiana, Ambassador is a fabricator and distributor of concrete reinforcing steel and related products. The purchase price includes approximately $69.5 million of goodwill that has been preliminarily allocated to the steel products segment and $59.8 million of identifiable intangibles, primarily customer relationships that are being amortized over 20 years.
The purchase price allocations related to these three acquisitions are subject to adjustments as additional information is obtained; however, these adjustments are not expected to be material.
In July 2008, Nucor acquired 50% of the stock of Duferdofin – Nucor S.r.l., for the purchase price of approximately $667.0 million. Duferdofin – Nucor operates a steel melt shop with a bloom/billet caster and two rolling mills in Italy. Nucor accounts for this investment using the equity method (see Note 7).
4. | INVENTORIES: Inventories consist of approximately |
If the first-in, first-out (FIFO) method of accounting had been used, inventories would have been $864.5 million$1.00 billion higher at June 28,September 27, 2008 ($581.5 million higher at December 31, 2007).
5. | PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation of |
8
6. | GOODWILL AND OTHER INTANGIBLE ASSETS: The change in the net carrying amount of goodwill for the |
Steel Mills | Steel Products | Raw Materials | All Other | Total | ||||||||||||
Balance at December 31, 2007 | $ | 2,007 | $ | 786,491 | $ | - | $ | 59,389 | $ | 847,887 | ||||||
Acquisitions | - | 8,383 | 890,442 | - | 898,825 | |||||||||||
Purchase price adjustments of previous acquisitions | - | 2,566 | - | - | 2,566 | |||||||||||
Translation | - | (6,253 | ) | - | - | (6,253 | ) | |||||||||
Balance at June 28, 2008 | $ | 2,007 | $ | 791,187 | $ | 890,442 | $ | 59,389 | $ | 1,743,025 |
Steel Mills | Steel Products | Raw Materials | All Other | Total | |||||||||||||
Balance at December 31, 2007 | $ | 2,007 | $ | 786,491 | $ | — | $ | 59,389 | $ | 847,887 | |||||||
Acquisitions | — | 80,380 | 870,012 | — | 950,392 | ||||||||||||
Purchase price adjustments of previous acquisitions | — | 7,262 | — | 269 | 7,531 | ||||||||||||
Translation | — | (17,812 | ) | — | — | (17,812 | ) | ||||||||||
Balance at September 27, 2008 | $ | 2,007 | $ | 856,321 | $ | 870,012 | $ | 59,658 | $ | 1,787,998 | |||||||
Goodwill resulting from the acquisition of DJJ accounts for almost all of the increase in goodwill in the first halfnine months of 2008 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):
June 28, 2008 | December 31, 2007 | ||||||||||||
Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | ||||||||||
Customer relationships | $ | 849,169 | $ | 47,775 | $ | 414,514 | $ | 20,042 | |||||
Trademarks and trade names | 115,125 | 4,202 | 59,431 | 1,746 | |||||||||
Other | 27,868 | 8,200 | 24,102 | 6,323 | |||||||||
$ | 992,162 | $ | 60,177 | $ | 498,047 | $ | 28,111 |
September 27, 2008 | December 31, 2007 | |||||||||||
Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | |||||||||
Customer relationships | $ | 928,229 | $ | 64,330 | $ | 414,514 | $ | 20,042 | ||||
Trademarks and trade names | 122,706 | 5,667 | 59,431 | 1,746 | ||||||||
Other | 27,868 | 9,170 | 24,102 | 6,323 | ||||||||
$ | 1,078,803 | $ | 79,167 | $ | 498,047 | $ | 28,111 | |||||
Intangible asset amortization expense was $32.1$19.0 million and $7.1$8.3 million in the first six monthsthird quarter of 2008 and 2007, respectively, and was $18.7$51.1 million and $5.1$15.4 million in the second quarterfirst nine months of 2008 and 2007, respectively. Annual amortization expense is estimated to be $68.8$71.0 million in 2008; $70.4$76.6 million in 2009; $66.0$72.2 million in 2010; $62.3$68.5 million in 2011; and $59.0$65.1 million in 2012.
7. | EQUITY INVESTMENTS: The carrying value of our equity investments in domestic and foreign companies was $772.6 million at September 27, 2008 ($146.0 million at December 31, 2007) and is recorded in other assets in the consolidated balance sheets. In July 2008, Nucor acquired a 50% economic and voting interest in Duferdofin-Nucor S.r.l., a steel manufacturer with three structural mills located in Italy. Nucor accounts for the investment in Duferdofin-Nucor (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the partners. Nucor’s investment in Duferdofin-Nucor at September 27, 2008 was $618.0 million, comprised primarily of our initial cash investment of $667.0 million less foreign currency translation. Nucor’s 50% share of the total net assets of Duferdofin-Nucor on a historical basis was $114.9 million, resulting in a basis difference of $503.1 million due to the step-up to fair value of certain assets and liabilities attributable to Duferdofin-Nucor as well as the identification of goodwill and definite-lived intangible assets. This basis difference, excluding the portion attributable to goodwill, is being amortized based on the remaining estimated useful lives of the various underlying net assets, as appropriate. The results of Duferdofin-Nucor and other equity investments are included in marketing, administrative and other expenses in the consolidated statements of earnings and are immaterial for all periods presented. |
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8. | CURRENT LIABILITIES: Book overdrafts, included in accounts payable in the consolidated balance |
DEBT AND OTHER FINANCING ARRANGEMENTS: In June 2008, Nucor issued $1.00 billion in debt in three tranches: $250 million 5% notes due 2013, $500 million 5.85% notes due 2018 and $250 million 6.4% notes due 2037. Net proceeds of the issuance were $982.8 million. Discount and issuance costs of $17.2 million have been capitalized related to this debt and are amortized over the respective lives of the notes. |
During the first six monthshalf of 2008, Nucor issued and repaid $800 million of commercial paper, which had maturities up to 90 days.
In June 2008, Nucor received increased commitments under its existing five-year unsecured revolving credit facility to provide for up to $1.3 billion in revolving loans. The multi-year revolving credit agreement matures in November 2012 and was amended in June to allow up to $200 million in additional commitments at Nucor’s election in accordance with the terms set forth in the credit agreement. No borrowings were outstanding under the credit facility as of June 28,September 27, 2008.
CAPITAL STOCK: In May 2008, Nucor completed a public offering of |
Nucor repurchased approximately 2.8 million shares during the third quarter and first nine months of 2008 at a cost of approximately $124.0 million, of which $116.3 million is included in accounts payable at quarter-end.
DERIVATIVES: Nucor uses derivative financial instruments from time-to-time primarily to partially manage its exposure to price risk related to natural gas purchases used in the production process as well as copper and aluminum purchased for resale to its customers. In addition, Nucor uses derivatives from time-to-time to partially manage its exposure to changes in interest rates on outstanding debt instruments and uses forward foreign exchange contracts to hedge cash flows associated with certain assets and liabilities, firm commitments and anticipated transactions. |
Nucor recognizes all derivative instruments in the condensed consolidated balance sheets at fair value. Any resulting changes in fair value would be recorded as adjustments to other comprehensive income (loss), net of tax, or recognized in net earnings, as appropriate.
In the first half of 2008, the Company entered into a series of forward foreign currency contracts in order to mitigate the risk of currency fluctuation on the anticipated joint venture with the Duferco Group. These contracts had a notional value of€423.5 million and matured in the second quarter of 2008 resulting in gains of $17.6 million. There were no outstanding forward foreign currency contracts at June 28,September 27, 2008.
Of the total $153.6($14.8) million fair value of commodity contracts at June 28,September 27, 2008, $82.3$5.6 million is recorded in other current assets, $75.2 million is recorded in other assets and $3.9$3.5 million is recorded in accrued expenses and other current liabilities and $16.9 million is recorded in deferred credits and other liabilities. Of the total $6.1 million fair value of commodity contracts at December 31, 2007, $10.5 million is included in other assets and $4.4 million is recorded in accrued expenses and other current liabilities.
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FAIR VALUE MEASUREMENTS: Effective January 1, 2008, Nucor adopted SFAS 157 as described in Note 2. SFAS 157 is effective for Nucor in 2008 for financial assets and liabilities and effective for non-financial assets and liabilities in 2009. The implementation of SFAS 157 for financial assets and liabilities did not have a material impact on our consolidated financial statements. Management has not yet determined the impact from the adoption of SFAS 157 as it pertains to non-financial assets and liabilities. |
The following table summarizes information regarding Nucor’s financial assets and financial liabilities that are measured at fair value as of June 28,September 27, 2008 (in thousands):
Fair Value Measurements at Reporting Date Using | |||||||||||||
Quoted Prices | |||||||||||||
in Active | Significant | ||||||||||||
Carrying | Markets for | Other | Significant | ||||||||||
Amount in | Identical | Observable | Unobservable | ||||||||||
Consolidated | Assets | Inputs | Inputs | ||||||||||
Description | Balance Sheet | (Level 1) | (Level 2) | (Level 3) | |||||||||
Cash equivalents | $ | 1,688,772 | $ | 1,688,772 | $ | - | $ | - | |||||
Derivatives | 152,577 | - | 152,577 | - | |||||||||
$ | 1,841,349 | $ | 1,688,772 | $ | 152,577 | $ | - |
Description | Carrying Amount in Consolidated Balance Sheets | Fair Value Measurements at Reporting Date Using | ||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Cash equivalents | $ | 1,469,688 | $ | 1,469,688 | $ | — | $ | — | ||||||
Short-term investments | 24,856 | 24,856 | — | — | ||||||||||
Derivatives | (15,972 | ) | — | (15,972 | ) | — |
Nucor uses derivatives from time to time to mitigate the effect of natural gas cost fluctuations, foreign currency fluctuations, interest rate movements, and price fluctuations of aluminum and copper purchased for resale to its customers. Fair value measurements for Nucor’s cash equivalents and short-term investments are classified under Level 1 because such measurements are based on quoted market prices in active markets for identical assets. Fair value measurements for Nucor’s derivatives are classified under Level 2 because such measurements are based on published market prices for similar assets or are estimated based on observable inputs such as interest rates, yield curves, credit risks, spot and future commodity prices and spot and future exchange rates.
CONTINGENCIES: Nucor |
Although we believe the plaintiffs’ claims are without merit and will vigorously defend against them, we cannot at this time predict the outcome of this litigation or determine Nucor’s potential exposure.
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 $30.8 million of accrued environmental costs at September 27, 2008 ($19.9 million at December 31, 2007), $11.8 million was classified in accrued expenses and other current liabilities ($16.6 million at December 31, 2007) and $19.0 million was classified in deferred credits and other liabilities ($3.3 million at December 31, 2007).
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.
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STOCK-BASED COMPENSATION:Stock Options |
Weighted - | Weighted - | ||||||||||||
Average | Average | Aggregate | |||||||||||
Exercise | Remaining | Intrinsic | |||||||||||
Shares | Price | Contractual Life | Value | ||||||||||
Number of shares under option: | |||||||||||||
Outstanding at beginning of year | 1,852 | $ | 20.37 | ||||||||||
Exercised | (421 | ) | 20.51 | $ | 20,930 | ||||||||
Canceled | - | - | |||||||||||
Outstanding at June 28, 2008 | 1,431 | $ | 20.33 | 2.8 Years | $ | 78,027 | |||||||
Options exercisable at June 28, 2008 | 1,431 | $ | 20.33 | 2.8 Years | $ | 78,027 |
Shares | Weighted - Average Exercise Price | Weighted - Average Remaining Contractual Life | Aggregate Intrinsic Value | ||||||||
Number of shares under option: | |||||||||||
Outstanding at beginning of year | 1,852 | $ | 20.37 | ||||||||
Exercised | (539 | ) | 19.28 | $ | 25,177 | ||||||
Canceled | — | — | |||||||||
Outstanding at September 27, 2008 | 1,313 | $ | 20.82 | 2.7 Years | $ | 30,894 | |||||
Options exercisable at September 27, 2008 | 1,313 | $ | 20.82 | 2.7 Years | $ | 30,894 | |||||
As of March 1, 2006 all outstanding options were vested; therefore, no compensation expense related to stock options was recorded in the first sixnine months of 2008 or 2007. The amount of cash received from the exercise of stock options totaled $8.6$1.3 million and $2.5$9.9 million in the third quarter and first half and second quarternine months of 2008, 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.
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.
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A summary of Nucor’s restricted stock activity under the AIP and LTIP for the first sixnine months of 2008 is as follows (shares in thousands):
Grant Date | |||||||
Shares | Fair Value | ||||||
Restricted stock awards and units: | |||||||
Unvested at beginning of year | 479 | $ | 51.93 | ||||
Granted | 280 | 67.33 | |||||
Vested | (379 | ) | 53.85 | ||||
Canceled | - | - | |||||
Unvested at June 28, 2008 | 380 | $ | 61.37 | ||||
Shares reserved for future grants | 1,987 |
Shares | Grant Date Fair Value | |||||
Restricted stock awards and units: | ||||||
Unvested at beginning of year | 479 | $ | 51.93 | |||
Granted | 280 | 67.33 | ||||
Vested | (384 | ) | 53.76 | |||
Canceled | — | — | ||||
Unvested at September 27, 2008 | 375 | $ | 61.57 | |||
Shares reserved for future grants | 1,987 | |||||
Compensation (income) 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 $9.4($1.7) million and $9.0$4.8 million in the first halfthird quarter of 2008 and 2007, respectively, and was $5.1$7.7 million and $4.0$13.8 million in the second quarterfirst nine months of 2008 and 2007, respectively. At June 28,September 27, 2008, unrecognized compensation expense related to unvested restricted stock was $6.6$5.4 million, which is expected to be recognized over a weighted-average period of 1.81.6 years.
Restricted Stock Units: Nucor annually grants restricted stock units (“RSUs”) to key employees, officers and non-employee directors. The RSUs 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 RSUs 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. RSUs 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.
RSUs 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 RSUs 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
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The fair value of the RSUs 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 sixnine months of 2008 is as follows (shares in thousands):
Grant Date | |||||||
Shares | Fair Value | ||||||
Restricted stock awards and units: | |||||||
Unvested at beginning of year | 918 | $ | 60.82 | ||||
Granted | 679 | 74.80 | |||||
Vested | (439 | ) | 64.39 | ||||
Canceled | (3 | ) | 60.67 | ||||
Unvested at June 28, 2008 | 1,155 | $ | 67.68 | ||||
Shares reserved for future grants | 17,007 |
Shares | Grant Date Fair Value | |||||
Restricted stock awards and units: | ||||||
Unvested at beginning of year | 918 | $ | 60.82 | |||
Granted | 679 | 74.80 | ||||
Vested | (448 | ) | 64.43 | |||
Canceled | (7 | ) | 67.62 | |||
Unvested at September 27, 2008 | 1,142 | $ | 67.67 | |||
Shares reserved for future grants | 17,011 | |||||
Compensation expense for RSUs was $21.7$9.0 million and $14.4$5.7 million in the first halfthird quarter of 2008 and 2007, respectively, and was $16.4$30.7 million and $11.8$20.1 million in the second quarterfirst nine months of 2008 and 2007, respectively. As of June 28,September 27, 2008, there was $68.9$60.0 million of total unrecognized compensation cost related to nonvested RSUs, which is expected to be recognized over a weighted-average period of 2.11.7 years.
EMPLOYEE BENEFIT PLAN: Nucor has a Profit Sharing and Retirement Savings Plan for qualified employees. Nucor’s expense for these benefits was |
INTEREST EXPENSE (INCOME): The components of net interest expense (income) |
Six Months (26 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||
June 28, 2008 | June 30, 2007 | June 28, 2008 | June 30, 2007 | ||||||||||
Interest expense | $ | 64,072 | $ | 26,243 | $ | 34,288 | $ | 15,701 | |||||
Interest income | (18,993 | ) | (30,426 | ) | (7,554 | ) | (10,722 | ) | |||||
Interest expense (income), net | $ | 45,079 | $ | (4,183 | ) | $ | 26,734 | $ | 4,979 |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||||||
Sept. 27, 2008 | Sept. 29, 2007 | Sept. 27, 2008 | Sept. 29, 2007 | |||||||||||||
Interest expense | $ | 36,996 | $ | 10,452 | $ | 101,068 | $ | 36,695 | ||||||||
Interest income | (13,966 | ) | (6,876 | ) | (32,959 | ) | (37,302 | ) | ||||||||
Interest expense, net | $ | 23,030 | $ | 3,576 | $ | 68,109 | $ | (607 | ) | |||||||
INCOME TAXES: The Internal Revenue Service (“IRS”) is currently examining Nucor’s 2005 and 2006 federal income tax returns. Management believes that the Company has adequately provided for any adjustments that may arise from this audit. Nucor has |
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COMPREHENSIVE INCOME: The components of total comprehensive income are as follows (in thousands): |
Six Months (26 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||
June 28, 2008 | June 30, 2007 | June 28, 2008 | June 30, 2007 | ||||||||||
Net earnings | $ | 990,508 | $ | 725,879 | $ | 580,754 | $ | 344,850 | |||||
Net unrealized gain (loss) on hedging derivatives, net of income taxes | 102,796 | 5,216 | 67,040 | (6,700 | ) | ||||||||
Reclassification adjustment for (gain) loss on settlement of hedging derivatives included in net income, net of income taxes | (7,066 | ) | 2,484 | (7,249 | ) | 1,500 | |||||||
Foreign currency translation gain, net of income taxes | 1,170 | 31,502 | 13,975 | 29,016 | |||||||||
Other | - | 3,208 | - | - | |||||||||
Total comprehensive income | $ | 1,087,408 | $ | 768,289 | $ | 654,520 | $ | 368,666 |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||||||
Sept. 27, 2008 | Sept. 29, 2007 | Sept. 27, 2008 | Sept. 29, 2007 | |||||||||||||
Net earnings | $ | 734,590 | $ | 381,222 | $ | 1,725,098 | $ | 1,107,101 | ||||||||
Net unrealized loss on hedging derivatives, net of income taxes | (106,629 | ) | (9,623 | ) | (3,833 | ) | (4,407 | ) | ||||||||
Reclassification adjustment for (gain) loss on settlement of hedging derivatives included in net income, net of income taxes | (6,000 | ) | 6,123 | (13,066 | ) | 8,607 | ||||||||||
Foreign currency (loss) gain, net of income taxes | (84,354 | ) | 96,219 | (83,184 | ) | 127,721 | ||||||||||
Other | — | — | — | 3,208 | ||||||||||||
Total comprehensive income | $ | 537,607 | $ | 473,941 | $ | 1,625,015 | $ | 1,242,230 | ||||||||
SEGMENTS: Nucor reports its results in the following segments: steel mills, steel products and raw materials. The steel mills segment includes carbon and alloy steel in sheet, bars, structural and |
Interest expense, minority interests, other income, profit sharing expense and changes in the LIFO reserve and environmental accruals are shown under Corporate/eliminations. Corporate assets primarily include cash and cash equivalents, short-term investments, deferred income tax assets and investments in affiliates.
15
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||||||
Sept. 27, 2008 | Sept. 29, 2007 | Sept. 27, 2008 | Sept. 29, 2007 | |||||||||||||
Net sales to external customers: | ||||||||||||||||
Steel mills | $ | 5,192,082 | $ | 3,344,116 | $ | 13,844,672 | $ | 9,953,526 | ||||||||
Steel products | 1,238,642 | 853,495 | 3,243,420 | 2,086,286 | ||||||||||||
Raw materials | 897,539 | — | 2,059,797 | — | ||||||||||||
All other | 119,257 | 61,610 | 364,499 | 156,404 | ||||||||||||
$ | 7,447,520 | $ | 4,259,221 | $ | 19,512,388 | $ | 12,196,216 | |||||||||
Intercompany sales: | ||||||||||||||||
Steel mills | $ | 689,301 | $ | 346,577 | $ | 1,752,045 | $ | 922,343 | ||||||||
Steel products | 12,275 | 10,553 | 33,246 | 25,538 | ||||||||||||
Raw materials | 3,034,055 | 87,650 | 6,704,621 | 227,400 | ||||||||||||
All other | 2,267 | 6,795 | 4,458 | 18,131 | ||||||||||||
Corporate/eliminations | (3,737,898 | ) | (451,575 | ) | (8,494,370 | ) | (1,193,412 | ) | ||||||||
$ | — | $ | — | $ | — | $ | — | |||||||||
Earnings before income taxes: | ||||||||||||||||
Steel mills | $ | 1,223,035 | $ | 744,510 | $ | 3,062,901 | $ | 2,147,304 | ||||||||
Steel products | 100,034 | 83,340 | 250,483 | 204,088 | ||||||||||||
Raw materials | 135,505 | (3,189 | ) | 267,705 | (14,568 | ) | ||||||||||
All other | 9,052 | 1,501 | 29,268 | 3,605 | ||||||||||||
Corporate/eliminations | (325,511 | ) | (241,741 | ) | (969,293 | ) | (633,627 | ) | ||||||||
$ | 1,142,115 | $ | 584,421 | $ | 2,641,064 | $ | 1,706,802 | |||||||||
Sept. 27, 2008 | Dec. 31, 2007 | |||||
Segment assets: | ||||||
Steel mills | $ | 7,366,907 | $ | 5,134,277 | ||
Steel products | 3,748,408 | 2,938,964 | ||||
Raw materials | 2,934,802 | 465,105 | ||||
All other | 229,558 | 182,840 | ||||
Corporate/eliminations | 1,056,872 | 1,104,936 | ||||
$ | 15,336,547 | $ | 9,826,122 | |||
The company’s results by segment were as follows (in thousands):16
Six Months (26 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||
June 28, 2008 | June 30, 2007 | June 28, 2008 | June 30, 2007 | ||||||||||
Net sales to external customers: | |||||||||||||
Steel mills | $ | 8,652,590 | $ | 6,609,410 | $ | 4,893,137 | $ | 3,336,156 | |||||
Steel products | 2,004,778 | 1,232,791 | 1,119,271 | 748,759 | |||||||||
Raw materials | 1,162,258 | - | 927,029 | - | |||||||||
All other | 245,242 | 94,794 | 151,162 | 83,195 | |||||||||
$ | 12,064,868 | $ | 7,936,995 | $ | 7,090,599 | $ | 4,168,110 | ||||||
Intercompany sales: | |||||||||||||
Steel mills | 1,062,744 | $ | 575,766 | $ | 576,189 | $ | 320,614 | ||||||
Steel products | 20,971 | 14,985 | 12,673 | 8,783 | |||||||||
Raw materials | 3,670,566 | 139,750 | 3,002,239 | 76,943 | |||||||||
All other | 2,191 | 11,336 | 1,849 | 11,055 | |||||||||
Corporate/eliminations | (4,756,472 | ) | (741,837 | ) | (3,592,950 | ) | (417,395 | ) | |||||
$ | - | $ | - | $ | - | $ | - | ||||||
Earnings before income taxes: | |||||||||||||
Steel mills | $ | 1,839,866 | $ | 1,402,794 | $ | 1,040,582 | $ | 667,465 | |||||
Steel products | 150,449 | 120,748 | 100,263 | 71,223 | |||||||||
Raw materials | 132,200 | (11,379 | ) | 115,624 | (12,949 | ) | |||||||
All other | 20,216 | 2,104 | 17,448 | 1,923 | |||||||||
Corporate/eliminations | (643,782 | ) | (391,886 | ) | (397,815 | ) | (194,948 | ) | |||||
$ | 1,498,949 | $ | 1,122,381 | $ | 876,102 | $ | 532,714 |
June 28, 2008 | Dec. 31, 2007 | ||||||
Segment assets: | |||||||
Steel mills | $ | 6,264,380 | $ | 5,134,277 | |||
Steel products | 3,219,514 | 2,938,964 | |||||
Raw materials | 3,548,611 | 465,105 | |||||
All other | 187,547 | 182,840 | |||||
Corporate/eliminations | 1,772,404 | 1,104,936 | |||||
$ | 14,992,456 | $ | 9,826,122 |
EARNINGS PER SHARE: The computations of basic and diluted net earnings per share are as follows (in thousands, except per share amounts): |
Six Months (26 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||
June 28, 2008 | June 30, 2007 | June 28, 2008 | June 30, 2007 | ||||||||||
Basic net earnings per share: | |||||||||||||
Basic net earnings | $ | 990,508 | $ | 725,879 | $ | 580,754 | $ | 344,850 | |||||
Average shares outstanding | 293,291 | 301,168 | 298,262 | 301,302 | |||||||||
Basic net earnings per share | $ | 3.38 | $ | 2.41 | $ | 1.95 | $ | 1.14 | |||||
Diluted net earnings per share: | |||||||||||||
Diluted net earnings | $ | 990,508 | $ | 725,879 | $ | 580,754 | $ | 344,850 | |||||
Diluted average shares outstanding: | |||||||||||||
Basic shares outstanding | 293,291 | 301,168 | 298,262 | 301,302 | |||||||||
Dilutive effect of stock options | |||||||||||||
and other | 1,784 | 2,238 | 1,580 | 2,028 | |||||||||
295,075 | 303,406 | 299,842 | 303,330 | ||||||||||
Diluted net earnings per share | $ | 3.36 | $ | 2.39 | $ | 1.94 | $ | 1.14 |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||
Sept. 27, 2008 | Sept. 29, 2007 | Sept. 27, 2008 | Sept. 29, 2007 | |||||||||
Basic net earnings per share: | ||||||||||||
Basic net earnings | $ | 734,590 | $ | 381,222 | $ | 1,725,098 | $ | 1,107,101 | ||||
Average shares outstanding | 316,713 | 293,096 | 301,156 | 298,468 | ||||||||
Basic net earnings per share | $ | 2.32 | $ | 1.30 | $ | 5.73 | $ | 3.71 | ||||
Diluted net earnings per share: | ||||||||||||
Diluted net earnings | $ | 734,590 | $ | 381,222 | $ | 1,725,098 | $ | 1,107,101 | ||||
Diluted average shares outstanding: | ||||||||||||
Basic shares outstanding | 316,713 | 293,096 | 301,156 | 298,468 | ||||||||
Dilutive effect of stock options and other | 1,455 | 1,923 | 1,673 | 2,132 | ||||||||
318,168 | 295,019 | 302,829 | 300,600 | |||||||||
Diluted net earnings per share | $ | 2.31 | $ | 1.29 | $ | 5.70 | $ | 3.68 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2007.
17
Overview
Nucor and affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. The steel mills segment produces carbon and alloy steel in bars, beams, sheet and plate. The steel products segment produces 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 raw materials segment produces direct reduced iron used by the steel mills; brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap.Nucor is North America'sAmerica’s largest recycler.
In February 2008, Nucor completed its acquisition of the stock of SHV North America Corporation, which owns 100% of The David J. Joseph Company and related affiliates, for a purchase price of approximately $1.44 billion. DJJ now operates as a wholly owned subsidiary of Nucor Corporation and is headquartered in Cincinnati, Ohio.The principal activitiesof DJJ, which has been the broker of ferrous scrap to Nucor since 1969, include the operation of scrap recycling facilities (processing); brokerage services for scrap, ferro-alloys, pig iron and scrap substitutes; mill and industrial services; and rail and logistics services. DJJ has beenis included in Nucor’s raw materials segment.
Since scrap is Nucor’s largest single cost, the acquisition of DJJ provides an ideal growth platform for Nucor to expand our direct ownership in the steel scrap supply chain and further our raw materials strategy. InAt the beginning of the second quarter of 2008, Nucor acquired substantially all the assets of Metal Recycling Services Inc. (“MRS”) for approximately $57.0 million. Based in Monroe, North Carolina, MRS, which is managed bynow part of DJJ, operates a full-service processing facility and two feeder yards. In April 2008, DJJ acquired substantially all the assets of Galamba Metals Group, which will operatenow operates under the Advantage Metals Recycling, LLC (“AMR”) name, for approximately $112.6 million. AMR operates 16 full-service scrap processing facilities in Kansas, Missouri and Arkansas. The acquisitionIn the third quarter of 2008, DJJ acquired substantially all the assets of the American Compressed Steel operations of Secondary Resources, Inc. American Compressed Steel has facilities in Kansas City, St. Joseph and Sedalia, Missouri, and processes nearly 180,000 tons annually. DJJ is now operating these scrap processing assets providefacilities under the AMR name.
Also in the third quarter of 2008, Nucor’s wholly owned subsidiary, Harris Steel, Inc., acquired all of the issued and outstanding common shares of Ambassador Steel Corporation (“Ambassador”) for a partial hedgecash purchase price of approximately $185.1 million. At closing, Harris Steel also repaid Ambassador’s bank debt of approximately $135.6 million. Based in Auburn, Indiana, Ambassador is a fabricator and distributor of concrete reinforcing steel and related products.
In July 2008, Nucor acquired 50% of the stock of Duferdofin-Nucor S.r.l. for approximately $667.0 million. Duferdofin-Nucor operates a steel melt shop with a bloom/billet caster and two rolling mills in Italy. Total production in 2007 was approximately one million tons. A new merchant bar mill, which is expected to our steel mills against scrap market volatility.produce approximately 450,000 tons, is under construction at the Giammoro plant and is expected to be fully operational in late 2008. Since Nucor accounts for this equity method investment on a one-month lag, only two months of Duferdofin-Nucor’s earnings have been included in Nucor’s results for the third quarter of 2008.
Steel production was 11,874,00017,384,000 tons in the first halfnine months of 2008, compared with 11,103,00016,503,000 tons produced in the first halfnine months of 2007, an increase of 7%5%. Total steel shipments increased 9%5% to 12,068,00017,506,000 tons in the first halfnine months of 2008, compared with 11,067,00016,663,000 tons in last year’s first half.nine months. Steel sales to outside customers increased 5%1% to 10,597,00015,285,000 tons in the first halfnine months of 2008, compared with 10,119,00015,157,000 tons in last year’s first half.nine months. In March 2007, Nucor acquired a large customer, Harris Steel Group Inc. (“Harris”), causing a shift from outside sales tons to inside sales tons. If Nucor continues to acquire downstream businesses, the percentage of our steel production sold to inside customers may continue to increase.
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In the steel products segment, steel joist production during the first half of 2008nine months was 272,000391,000 tons, compared with 265,000409,000 tons in the first halfnine months of 2007, an increasea decrease of 3%4%. Steel deck sales were 255,000increased to 388,000 tons in the first halfnine months of 2008, compared with 232,000355,000 tons in last year'syear’s first half,nine months, an increase of 10%9%. Cold finished steel sales increased 35%22% to 279,000394,000 tons in the first halfnine months of 2008 compared with 206,000322,000 tons in the first halfnine months of 2007. Sales of fabricated concrete reinforcing steel increased from 204,000 in the first half of 2007 to 411,000were 669,000 tons in the first halfnine months of 2008.2008, compared with 385,000 tons in the first nine months of 2007.
The average estimated utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 94%91%, 75% and 87%89%, respectively, in the first halfnine months of 2008, compared with 88%87%, 77%78% and 76%80%, respectively, in the first halfnine months of 2007.
Results of Operations
Net SalesNet sales to external customers by segment for the third quarter and the first sixnine months and second quarter of 2008 and 2007 were as follows:
Six Months (26 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||
June 28, 2008 | June 30, 2007 | % Change | June 28, 2008 | June 30, 2007 | % Change | ||||||||||||||
Steel mills | $ | 8,652,590 | $ | 6,609,410 | 31% | $ | 4,893,137 | $ | 3,336,156 | 47% | |||||||||
Steel products | 2,004,778 | 1,232,791 | 63% | 1,119,271 | 748,759 | 49% | |||||||||||||
Raw materials | 1,162,258 | - | - | 927,029 | - | - | |||||||||||||
All other | 245,242 | 94,794 | 159% | 151,162 | 83,195 | 82% | |||||||||||||
Net sales | $ | 12,064,868 | $ | 7,936,995 | 52% | $ | 7,090,599 | $ | 4,168,110 | 70% |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||||||||
September 27, 2008 | September 29, 2007 | % Change | September 27, 2008 | September 29, 2007 | % Change | |||||||||||||
Steel mills | $ | 5,192,082 | $ | 3,344,116 | 55 | % | $ | 13,844,672 | $ | 9,953,526 | 39 | % | ||||||
Steel products | 1,238,642 | 853,495 | 45 | % | 3,243,420 | 2,086,286 | 55 | % | ||||||||||
Raw materials | 897,539 | — | — | 2,059,797 | — | — | ||||||||||||
All other | 119,257 | 61,610 | 94 | % | 364,499 | 156,404 | 133 | % | ||||||||||
Net sales | $ | 7,447,520 | $ | 4,259,221 | 75 | % | $ | 19,512,388 | $ | 12,196,216 | 60 | % | ||||||
Net sales for the first halfthird quarter of 2008 increased 52%75% from the third quarter of 2007. Average sales price per ton increased 51% from $738 in the third quarter of 2007 to $1,111 in the third quarter of 2008, while total tons shipped to outside customers increased 16% over the same period last year’s first halfyear. Net sales increased 5% from the second quarter of this year due to a 21% increase in average sales price per ton over the second quarter of 2008, offset by a 13% decrease in total tons shipped to outside customers.
Net sales for the steel mills segment increased 55% over the third quarter of 2007 due to the $444 (67%) increase in the average sales price per ton, partially offset by a 7% decrease in steel sales to outside customers from $7045,038,000 tons in the third quarter of 2007 to 4,688,000 tons in the third quarter of 2008.
The 45% increase in the steel products segment’s sales for the third quarter was due to a 20% increase in shipments, primarily attributable to acquisitions, as well as a 22% increase in the average sales price per ton.
In the third quarter of 2008, approximately 78% of outside sales in the raw materials segment were from the brokerage operations of DJJ and approximately 21% of the outside sales were from the scrap processing facilities. Prior to the acquisition of DJJ, there were no outside sales of raw materials.
Net sales for the first nine months of 2008 increased 60% from last year’s first nine months due to a 30% increase in average sales price per ton from $716 in the nine months of 2007 to $934 in the first half of 2007 to $850 in the first halfnine months of 2008 and a 26%23% increase in total tons shipped to outside customers.
The 31%39% increase in sales for the first sixnine months of 2008 in the steel mills segment was primarily attributable to the $164$249 per ton (25%(38%) increase in average realized prices from the same period last year. In addition, steel sales to outside customers increased 5%1% from the first halfnine months of 2007 to the first halfnine months of 2008.
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The 63%55% increase in the steel products segment’s sales for the first halfnine months of the year resulted primarily from an increase of approximately 45%35% in shipments. The higher volume of shipments is mainly attributable to the acquisition of Harris in March 2007, and Magnatrax Corporation in August 2007.2007 and Ambassador in August 2008. Subsequent to its acquisition by Nucor, Harris has continued to grow its rebar fabrication business by acquiring other rebar fabrication companies, which also contributed to the rise in shipments. The increased sales for this segment were also due to a 13%16% increase in average sales price per ton.
In the raw materials segment, approximately 76%77% of outside sales in the first halfnine months of 2008 were from the brokerage operations of DJJ and approximately 22% of the outside sales were from the scrap processing facilities. Prior to the acquisition of DJJ, there were no outside sales of raw materials.
The “All other” category includes Novosteel S. A., a steel trading business of which Nucor, through Harris, owns 75%. The 159% increaseperiod over period increases in sales for the first six months of 2008 over 2007 isare due to Nucor owning the interest in Novosteel for six months inall of 2008 compared to approximately three months inversus only a portion of 2007 (since March 2007), combined with an increased sales price per ton.
Net sales for the second quarter of 2008 increased 70% from the second quarter of 2007. Average sales price per ton increased 24% from $742 in the second quarter of 2007 to $917 in the second quarter of 2008, while total tons shipped to outside customers increased 38% over the same period last year. Net sales increased 43% from the first quarter of this year due to a 19% increase in average sales price per ton over the first quarter of 2008 and a 20% increase in total tons shipped to outside customers.
In the steel mills segment, the average price of raw materials used increased approximately 88% from the third quarter of 2007 to the following factors:third quarter of 2008, primarily due to the increased cost of scrap. The average scrap and scrap substitute cost per ton used was $533 in the third quarter of 2008, an increase of 92% compared with $277 in the third quarter of 2007. Energy costs increased $7 per ton over the prior year period. In the steel products segment, the average price of raw materials used increased approximately 39% from the third quarter of 2007 to the third quarter of 2008.
Nucor incurred a LIFO charge of $140.0 million in the third quarter of 2008, compared with a charge of $11.0 million in last year’s third quarter. (LIFO charges for interim periods are based on management’s estimates of both inventory prices and quantities at year-end. The actual amounts will likely differ from these estimated amounts, and such differences may be significant.)
DJJ’s business of collecting and processing ferrous and non-ferrous materials for resale typically operates at lower margins than Nucor has historically experienced as a manufacturer of steel and steel products.
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Pre-operating and start-up costs of new facilities increased |
For the second quarterfirst nine months of 2008, Nucor recorded gross margins of $1.21$3.57 billion (17%(18%), compared to $764.2 million (18%$2.35 billion (19%) in the second quarterfirst nine months of 2007. The year-over-year dollar increase was the result of increased average sales price per ton for mostall products, the 10%23% increase in steeltotal shipments to outside customers and the significant acquisitions made by Nucor in the last 1821 months. The decrease in our gross margin percentage was due principally to the following factors:
The cost of raw materials, including scrap and energy, continued to escalate. In the steel mills segment, the average price of raw materials used increased approximately 58% from the first nine months of 2007 to the first nine months of 2008, primarily due to the increased cost of scrap, our main raw material. The average scrap and scrap substitute cost per ton used in the first nine months of 2008 was $439, an increase of 60% compared with $275 in the first nine months of 2007. Energy costs increased $5 per ton over the prior year period. In the steel products segment, the average price of raw materials used increased approximately 25% from the first nine months of 2007 to the first nine months of 2008.
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As a result of these increased raw material and energy costs, Nucor incurred a record LIFO charge of $423.0 million in the first nine months of 2008, compared with a charge of $102.0 million in the first nine months of 2007.
DJJ’s business of collecting and processing ferrous and non-ferrous materials for resale typically operates at lower margins than Nucor has historically experienced as a manufacturer of steel and steel products. Pre-operating and start-up costs of new facilities increased from $39.1 million in the first nine months of 2007 to $74.8 million in the first nine months of 2008.
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Marketing, Administrative and Other Expenses The major components of marketing, administrative and other expenses are freight and profit sharing costs. Unit freight costs increased 11%23% in the first halfthird quarter of 2008 over the first halfthird quarter of 2007, and increased 16%15% from the second quarterfirst nine months of 2007 to the second quarterfirst nine months of 2008.2008, primarily due to higher fuel costs. Profit sharing costs, which are based upon and generally fluctuate with pre-tax earnings, increased approximately 34% in the first half of 2008 over the first half of 2007, and increased approximately 62%more than doubled from the secondthird quarter of 2007 to the secondthird quarter of 2008, and increased approximately 60% from the first nine months of 2007 to the first nine months of 2008. 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 performinghigh-performing companies.
Interest Expense (Income)Net interest expense (income) for the third quarter and first sixnine months and second quarter of 2008 and 2007 was as follows:
Six Months (26 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||
June 28, 2008 | June 30, 2007 | June 28, 2008 | June 30, 2007 | ||||||||||
Interest expense | $ | 64,072 | $ | 26,243 | $ | 34,288 | $ | 15,701 | |||||
Interest income | (18,993 | ) | (30,426 | ) | (7,554 | ) | (10,722 | ) | |||||
Interest expense (income), net | $ | 45,079 | $ | (4,183 | ) | $ | 26,734 | $ | 4,979 |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||||||
Sept. 27, 2008 | Sept. 29, 2007 | Sept. 27, 2008 | Sept. 29, 2007 | |||||||||||||
Interest expense | $ | 36,996 | $ | 10,452 | $ | 101,068 | $ | 36,695 | ||||||||
Interest income | (13,966 | ) | (6,876 | ) | (32,959 | ) | (37,302 | ) | ||||||||
Interest expense, net | $ | 23,030 | $ | 3,576 | $ | 68,109 | $ | (607 | ) | |||||||
Gross21
In the third quarter of 2008, gross interest expense increased fromover the first half of 2007prior year primarily due to the first halftripling of 2008 due to an increase in average debt outstanding of approximately 175% accompanied bycombined with an increase in average interest rates from 4.7%4.6% to 5.0%5.4%. Nucor has issued $2.3 billion in notes since the beginning of the fourth quarter of 2007. During the first six months of 2008, Nucor issued and repaid $800 million of commercial paper. The interest rates on the $2.3 billion in notes are higher than the rates on the majority of Nucor’s pre-existing debt. Gross interest income decreased from the first half of 2007increased mainly due to the first halftripling of 2008 due to a 23% decrease inthe balance of average investments, combined withpartially offset by a decrease in the average interest rate earned on investments. Average investments decreased due to cash payments for acquisitions in 2007 and 2008 and repurchases of common stock during 2007. The decrease was partially offset near the end of the second quarter of 2008 by proceeds received from the issuance of stock and debt.
In the second quarter of 2008, grossGross interest expense increased overfrom the prior year primarilyfirst nine months of 2007 to the first nine months of 2008 due to the tripling ofan increase in average debt outstanding.outstanding of approximately 198% accompanied by an increase in average interest rates from 4.7% to 5.1%. During the first six months of 2008, Nucor issued and repaid $800 million of commercial paper. Gross interest income decreased mainlyfrom the first nine months of 2007 to the first nine months of 2008 due to a decrease in the average interest rate earned on investments.
Minority Interests Minority interests represent the income attributable to the minority partners of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company (“NYS”), Novosteel S.A., and Barker Steel Company, Inc., of which Nucor owns 51%, 75% and 90%, respectively. Minority interests in the third quarter of 2008 remained flat compared to the third quarter of 2007. The six-month and quarter increasesnine-month increase in minority interests werewas primarily attributable to the increased earnings of NYS in the first and second quarters of 2008, which arewere due to the strength of the structural steel market. Under the NYS 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.
Provision for Income Taxes Nucor had an effective tax rate of 33.9%35.7% in the first six monthsthird quarter of 2008 compared with 35.3%34.8% in the first six monthsthird quarter of 2007. The effective tax rate in the secondfirst nine months of 2008 was 34.7% compared with 35.1% in the first nine months of 2007. In the third quarter of 2008, was 33.7% compared with 35.3% in the second quartereffective tax rate trended upward to reflect an expected higher proportion of 2007. The rate decrease was primarily duedomestic to an increase inforeign pre-tax earnings for the rate benefit from foreign operations.year. The IRS is currently examining Nucor’s 2005 and 2006 federal income tax returns. Management believes that the company has adequately provided for any adjustments that may arise from this audit.
Net Earnings and Return on Equity Net earnings and earnings per share in the first halfthird quarter of 2008 increased 36%93% and 41%79%, respectively, to a record $990.5$734.6 million and $3.36$2.31 per diluted share, compared with $725.9$381.2 million and $2.39$1.29 per diluted share in the first halfthird quarter of 2007. Net earnings as a percentage of net sales were 8%10% and 9%, respectively, in the first halfthird quarters of 2008 and 2007.
Return on average stockholders’ equity was approximately 30.8% and 29.2% in the first half of 2008 and 2007, respectively.
Outlook The global economy continues to be negatively impacted by the unprecedented financial crisis. In the fourth quarter of 2008, and 2007.
Our margins have been much stronger since the severely depressed market conditions in 2002 and 2003 when most domestic and global steel companies reported operating losses and many filed for bankruptcy. We believe our variable cost structure allowed us to survive those severely depressed market conditions as declining scrap prices fell dramatically and our incentive pay system, which reduced our hourly and salary payroll costs, helpingcombined to help offset lower selling prices.prices for our products. We recognize thatexpect this same flexibility will work to our advantage during current market conditions.
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Although the outlook for the performance of both the economy and the steel industry during the fourth quarter is negative, we believe 2008 as a whole will be our fifth consecutive year of exceptionally strong profitability. If the unprecedented initiatives undertaken since the end of the third quarter by the United States and other governments to stabilize domestic and international financial markets are successful, businesses, including many of our customers, could see significantly improved access to credit and resulting improved business is cyclicalconditions beginning in nature and expect2009.
Longer term, we continue to see future changesbelieve in the balancestrength of supply and demand impact our margins and profitability. We also recognize that the global demandinfrastructure build and the associated bull market for steel has been growing at close to 6% annually since 2000 reflecting the building of infrastructure in Brazil, Russia, India, China, the Middle East, Eastern Europe, Africa and other parts of Asia. We believesteel. It is this global growth in steel consumption is likely to last for at least several years as more of the world population becomes industrialized.demand that will help drive Nucor’s future growth and profitability.
Liquidity and Capital Resourcescapital resources
The current ratio was 2.82.4 at the end of the first halfnine months of 2008 and 3.2 at year-end 2007. The percentage of long-term debt to total capital was 28% at the end of the first halfnine months of 2008 and 29% at year-end 2007. Accounts receivable and inventories increased 62% and 56%, respectively,58% since year-end due to the 61%69% increase in net sales over the fourth quarter of 2007. Inventories increased 96% since year-end due to acquisitions, increased scrap inventory tons and increased cost per ton.
Capital expenditures increased over 150% from $198.7 million the first half of 2007 to $501.7 millionapproximately 144% in the first halfnine months of 2008.2008 compared with the first nine months of 2007. Capital expenditures, excluding acquisitions, are projected to be over $800 millionapproximately $1.1 billion for all of 2008.
In June,September, Nucor’s board of directors declared the regular quarterly cash dividend on Nucor’s common stock of $0.32 per share and a supplemental cash dividend of $0.20 per share.share in addition to the $0.32 per share base dividend. The total dividend of $0.52 per share is payable on AugustNovember 11, 2008 to stockholders of record on JuneSeptember 30, 2008. The payment of a supplemental dividend in any future period will depend upon many factors, including Nucor’s earnings, cash flow and financial position.
Nucor repurchased approximately 2.8 million shares at a cost of about $124.0 million during the third quarter and first nine months of 2008, and repurchased approximately 11.6 million shares at a cost of about $599.8 million during the third quarter of 2007. Nucor repurchased approximately 14.1 million shares at a cost of about $754.0 million during the first nine months of 2007. Approximately 27.2 million shares remain authorized for repurchase under the Company’s stock repurchase program.
Existing cash and cash equivalents and short-term investments of approximately $1.44 billion funded the DJJ acquisition. In late May 2008, Nucor completed a public offering of 27,667,580 common shares at an offering price of $74.00 per share. In early June, Nucor issued $1.00 billion in debt with maturities from 2013 to 2037. We plan to useNucor used a portion of the approximately $2.97 billion net proceeds after expenses from the common stock offering and the issuance of notes to fund the acquisition of Ambassador and other companies as well as the investment in Duferdofin-Nucor. We plan to use the remainder of the net proceeds for general corporate purposes including acquisitions, capital expenditures, working capital requirements and repayment of debt.
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 ability to raise additional funds as needed to finance acquisitions and maintain reasonable financial strength.
In June 2008, Nucor received increased commitments under its existing five-year unsecured revolving credit facility to provide for up to $1.3 billion in revolving loans. The multi-year revolving credit agreement matures in November 2012 and was amended in June to allow up to $200 million in additional commitments at Nucor’s election in accordance with the terms set forth in the credit agreement. No borrowings were outstanding under the credit facility as of June 28,September 27, 2008. Based on the information currently available, we believe that the lenders continue to have the ability to meet their obligations under the credit facility.
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Nucor has recently announced several major projects. In July 2008, Nucor completedannounced its plans to install a plate heat treating facility at its plate mill in Hertford County, North Carolina. The heat treat line will have an estimated annual capacity of 120,000 tons and will have the acquisition of 50%ability to produce heat treated plate from 3/16” through 2” thick. Total cost of the stock of Duferdofin - Nucor S.r.l., for the purchase price of €423.5 million (approximately $658 million). The company will operate from its current headquarters in San Zeno, Italy. Duferdofin - Nucor S.r.l. operates a steel melting and bloom/billet caster in San Zeno as well as rolling mills in Pallanzeno and Giammoro. Total production in 2007 was approximately one million tons. A new merchant bar mill, which is expected to produce approximately 450,000 tons, is under construction at the Giammoro plant andproject is expected to be fully operationalapproximately $110 million.
Discussions between Sidenor S.A. and Nucor concerning the possible formation of a joint venture for the production and distribution of long steel products and plate in late 2008.the Balkans, Turkey, Cyprus and North Africa continue in a cooperative and friendly manner. However, the current turmoil in the world financial markets has delayed the completion of this effort. Both Sidenor and Nucor expect to conclude our discussions when the future outlook becomes clearer.
In May 2008, Nucor applied for a permit to build a $2 billion state-of-the-art iron-making facility in St. James Parish, Louisiana. Sites outside of the United States are still being considered, and the site selection and capital investment are subject to approval by Nucor’s board of directors. The facility is expected to produce 3,000,000 tons of pig iron, employing the latest technologies to reduce emissions. If the project is ultimately built in the U.S., it would be the first domestic greenfield pig iron facility built in more than 30 years.
In June 2008, Nucor announced that its wholly owned subsidiary, Harris Steel, Inc., signed a Purchase Agreement to acquire all of the issued and outstanding common shares of Ambassador Steel Corporation (“Ambassador”) for a cash purchase price of approximately $185 million. Based in Auburn, Indiana, Ambassador is a fabricator and distributor of concrete reinforcing steel and related products. The transaction is expected to close during the third quarter of 2008 after satisfactory resolution of certain closing conditions.
2013 and | ||||||||||||||||
Total | 2008 | 2009 - 2010 | 2011 - 2012 | thereafter | ||||||||||||
Long-term debt | $ | 1,000,000 | $ | - | $ | - | $ | - | $ | 1,000,000 | ||||||
Interest on long-term debt | 822,188 | 28,875 | 115,500 | 115,500 | 562,313 | |||||||||||
Total additional | ||||||||||||||||
contractual obligations | $ | 1,822,188 | $ | 28,875 | $ | 115,500 | $ | 115,500 | $ | 1,562,313 |
Total | 2008 | 2009 - 2010 | 2011 - 2012 | 2013 and thereafter | |||||||||||
Long-term debt | $ | 1,000,000 | $ | — | $ | — | $ | — | $ | 1,000,000 | |||||
Interest on long-term debt | 807,751 | 14,438 | 115,500 | 115,500 | 562,313 | ||||||||||
Total additional contractual obligations | $ | 1,807,751 | $ | 14,438 | $ | 115,500 | $ | 115,500 | $ | 1,562,313 | |||||
There were no other significant changes to our contractual commitments as presented in our 2007 Annual Report.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk- – Nucor manages interest rate risk by using a combination of variable-rate and fixed-rate debt. Nucor also makes use ofuses interest rate swaps to manage net exposure to interest rate changes. Management does not believebelieves that Nucor’s exposure to interest rate market risk has not significantly changed since December 31, 2007.
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, other ferrous and nonferrous metals, alloys and natural gas. We attempt to negotiate the best prices for our raw materials and energy requirements and to obtain prices for our steel products that match market price movements in response to supply and demand. Nucor has a raw material surcharge designed to pass through the historically high cost increases 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 that we can maintain our gross margins.
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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 and to hedge a portion of our aluminum and copper purchases and sales. Gains and losses from derivatives designated as hedges are deferred in accumulated other comprehensive income (loss) on the condensed consolidated balance sheets and recognized into earnings in the same period as the underlying physical transaction. At June 28,September 27, 2008, accumulated other comprehensive income (loss) includes $99.2$12.9 million in unrealized net-of-tax gainslosses for the fair value of these derivative instruments. Changes in the fair values of derivatives not designated as hedges are recognized in earnings each period. The following table presents the negative effect on pre-tax income of a hypothetical change in the fair value of derivative instruments outstanding at June 28,September 27, 2008, due to an assumed 10% and 25% change in the market price of each of the indicated commodities (in thousands):
Commodity Derivative | 10% Change | 25% Change | |||||
Natural gas | $ | 52,884 | $ | 132,211 | |||
Aluminum | 6,200 | 13,867 | |||||
Copper | 370 | 925 |
Commodity Derivative | 10% Change | 25% Change | ||||
Natural gas | $ | 46,552 | $ | 116,379 | ||
Aluminum | 3,657 | 9,142 | ||||
Copper | 15 | 38 |
Any resulting changes in fair value would be recorded as adjustments to other comprehensive income (loss), net of tax, or recognized in net earnings, as appropriate. These hypothetical losses would be partially offset by the benefit of lower prices paid or higher prices received for the physical commodities.
Foreign Currency Risk- – Nucor is exposed to foreign currency risk through its operations in Canada and Trinidad and its joint ventures in Australia and Italy. In the first half of 2008, the Company entered into forward foreign currency contracts in order to mitigate the risk of currency fluctuation on the anticipated joint venture with the Duferco Group of Lugano, Switzerland. These contracts had a notional value of €423.5€423.5 million and matured in the second quarter of 2008 resulting in gains of $17.6 million. These contracts all settled during the second quarter of 2008.
Changes in Internal Control Over Financial Reporting-– There were no changes in our internal control over financial reporting during the quarter ended June 28,September 27, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. | Legal Proceedings |
Item 1A. Risk FactorsNucor has been named, along with other major steel producers, as a co-defendant in several related antitrust class-action complaints filed by Standard Iron Works and other steel purchasers between September 12, 2008 and October 6, 2008, in the United States District Court for the Northern District of Illinois. The cases are filed as class actions. The plaintiffs allege that from January 2005 to the present, eight steel manufacturers, including Nucor, engaged in anticompetitive activities with respect to the production and sale of steel. The plaintiffs seek, on behalf of themselves and the purported class, unspecified treble damages, attorneys’ fees, pre- and post-judgment interest and injunctive relief. Although we believe the plaintiffs’ claims are without merit and will vigorously defend against them, we cannot at this time predict the outcome of this litigation or determine Nucor’s potential exposure.
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 |
Item 4. Submission of Matters to a Vote of Security Holders
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) | ||||||
June 29, 2008 - July 26, 2008 | — | — | — | — | |||||
July 27, 2008 - August 23, 2008 | — | — | — | — | |||||
August 24, 2008 - September 27, 2008 | 2,774 | $ | 44.68 | 2,774 | 27,226 | ||||
For the quarter ended September 27, 2008 | 2,774 | $ | 44.68 | 2,774 | 27,226 | ||||
(1) | Includes commissions of $0.02 per share. |
(2) | On September 6, 2007, the board of directors approved a stock repurchase program under which the Company is authorized to repurchase up to an additional 30 million shares of common stock. |
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Item 6. | Exhibits |
Exhibit No. | Description of Exhibit | |
10 | ||
12.1 | ||
Computation of Ratio of Earnings to Fixed Charges | ||
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 |
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: August 5,November 4, 2008
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List of Exhibits to Form 10-Q - June 28,– September 27, 2008
Exhibit No. | Description of Exhibit | |
10 | ||
12.1 | ||
Computation of Ratio of Earnings to Fixed Charges | ||
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 |
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